nep-fmk New Economics Papers
on Financial Markets
Issue of 2007‒12‒19
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Who Leads Financial Markets? By Weber, Enzo
  2. Testing Market Efficiency in a Fixed Odds Betting Market By Jakobsson, Robin; Karlsson, NiKlas
  3. How Sovereign is Sovereign Credit Risk? By Francis A. Longstaff; Jun Pan; Lasse H. Pedersen; Kenneth J. Singleton
  4. The Expectations Hypothesis of the Term Structure: Some Empirical Evidence for Portugal (revised version) By Silva Lopes, Artur C.; Monteiro, Olga Susana

  1. By: Weber, Enzo
    Abstract: The present paper embarks on an analysis of interactions between the US and Euroland in the capital, foreign exchange, money and stock markets from 1994 until 2006. Estimating multivariate EGARCH processes for the structural financial innovations determines causality-in-variance effects and provides a solution to the simultaneity problem of identifying the contemporaneous impacts between the daily variables. Structural mean equations can therefore give answers to the question of financial markets leadership: Generally speaking, the US effects on Europe still dominate, but the special econometric methodology is able to uncover otherwise neglected spillovers in the reverse direction.
    Keywords: Structural EGARCH; Financial Markets; United States; Euro Zone
    JEL: C32 G15
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:5099&r=fmk
  2. By: Jakobsson, Robin (Department of Business, Economics, Statistics and Informatics); Karlsson, NiKlas (Department of Business, Economics, Statistics and Informatics)
    Abstract: This paper tests the hypothesis of market efficiency for the fixed odds betting market of Swedish trotting head-to-head matches. The hypothesis is carried out by a Wald test within a logistic regression model. Data support rejection of semi-strong efficiency at the 5 percent level of significance, while the weak form efficiency cannot be rejected. Moreover, evaluation of the simple strategy to bet on those horses where, conditional on the estimated model, the expected profit is positive results in a profit of 7.8 percent per bet.
    Keywords: efficient market; betting; trotting; logit
    JEL: G14
    Date: 2007–12–13
    URL: http://d.repec.org/n?u=RePEc:hhs:oruesi:2007_012&r=fmk
  3. By: Francis A. Longstaff; Jun Pan; Lasse H. Pedersen; Kenneth J. Singleton
    Abstract: We study the nature of sovereign credit risk using an extensive sample of CDS spreads for 26 developed and emerging-market countries. Sovereign credit spreads are surprisingly highly correlated, with just three principal components accounting for more than 50 percent of their variation. Sovereign credit spreads are generally more related to the U.S. stock and high-yield bond markets, global risk premia, and capital flows than they are to their own local economic measures. We find that the excess returns from investing in sovereign credit are largely compensation for bearing global risk, and that there is little or no country-specific credit risk premium. A significant amount of the variation in sovereign credit returns can be forecast using U.S. equity, volatility, and bond market risk premia.
    JEL: G12 G15
    Date: 2007–11
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:13658&r=fmk
  4. By: Silva Lopes, Artur C.; Monteiro, Olga Susana
    Abstract: The purpose of this paper is to test the (rational) expectations hypothesis of the term structure of interest rates using Portuguese data for the interbank money market. The results obtained support only a very weak, long-run or "asymptotic" version of the hypothesis, and broadly agree with previous evidence for other countries. The empirical evidence supports the cointegration of Portuguese rates and the "puzzle" well known in the literature: although its forecasts of future short-term rates are in the correct direction, the spread between longer and shorter rates fails to forecast future longer rates. In the single equation framework, the implications of the hypothesis in terms of the predictive ability of the spread are also clearly rejected, even for the more stable period which emerged in the middle nineties.
    Keywords: term structure of interest rates; expectations hypothesis; hypothesis testing; cointegration; Portugal.
    JEL: C3 E4 C2
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:6310&r=fmk

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