New Economics Papers
on Financial Markets
Issue of 2011‒08‒09
five papers chosen by

  1. The January and turn-of-the-month effect on firm returns and return volatility By Susan Sunila Sharma; Paresh Kumar Narayan
  2. Detection of Crashes and Rebounds in Major Equity Markets By Wanfeng Yan; Reda Rebib; Ryan Woodard; Didier Sornette
  3. Firm specific and macro herding by professional and amateur investors and their effects on market volatility By Itzhak Venezia; Amrut Nashikkar; Zur Shapira
  4. Enter the Dragon: Interactions between Chinese, US and Asia-Pacific Equity Markets, 1995-2010 By Richard C. K. Burdekin; Pierre L. Siklos
  5. The Italian private equity funds: an analysis of the portfolio companies’ economic and financial conditions By Granturco Mariagrazia; Maria Grazia Miele

  1. By: Susan Sunila Sharma; Paresh Kumar Narayan
    Abstract: In this paper, we test whether January and turn-of-the-month (TOM) affect firm returns and firm return volatility differently depending on their sector and size. We use time series data for 560 firms listed on the NYSE and find evidence of both January and TOM affecting returns and return volatility of firms. The effects are, however, different for different firms and are dependent on the sectoral location of firms and on firm sizes. These findings imply that January and TOM have an heterogeneous effect on firm returns and firm return volatility.
    Keywords: Firm Returns; Volatility; Sector; Heterogeneous; January; Turn-of-the-month
    JEL: G15
    Date: 2011–08–01
  2. By: Wanfeng Yan; Reda Rebib; Ryan Woodard; Didier Sornette
    Abstract: Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial markets. The Johansen-Ledoit-Sornette (JLS) model provides an operational framework to understand and diagnose financial bubbles from rational expectations and was recently extended to negative bubbles and rebounds. Using the JLS model, we develop an alarm index based on an advanced pattern recognition method with the aim of detecting bubbles and performing forecasts of market crashes and rebounds. Testing our methodology on 10 major global equity markets, we show quantitatively that our developed alarm performs much better than chance in forecasting market crashes and rebounds. We use the derived signal to develop elementary trading strategies that produce statistically better performances than a simple buy and hold strategy.
    Date: 2011–07
  3. By: Itzhak Venezia; Amrut Nashikkar; Zur Shapira
    Abstract: We find a herding tendency among both amateur and professional investors and conclude that the propensity to herd is lower in the professionals. These results are obtained both when we consider herding into individual stocks and herding into stocks in general. Herding depends on the firm’s systematic risk and size, and the professionals are less sensitive to these variables. The differences between the amateurs and the professionals may be attributable to the latter’s superior financial training. Most of the results are consistent with the theory that herding is information-based. We also find that the herding behavior of the two groups is a persistent phenomenon, and that it is positively and significantly correlated with stock market returns’ volatility. Finally, herding, mainly by amateurs, causes market volatility in the Granger causality sense.
    Date: 2011–08
  4. By: Richard C. K. Burdekin (Claremont McKenna College); Pierre L. Siklos (Wilfrid Laurier University and Hong Kong Institute for Monetary Research)
    Abstract: This paper applies a variety of short-run and long-run time series techniques to data on a broad group of Asia-Pacific stock markets and the United States extending to 2010. Our empirical work confirms the importance of crises in affecting the persistence of equity returns in the Asia-Pacific region and offers some support for contagion effects. Post-Asian financial crisis quantile regressions yield substantial evidence of long-run linkages between the Shanghai market, the US market and many regional exchanges. Cointegration is particularly prevalent at the higher end of the distribution. Our results suggest that the enormous growth of the Shanghai market in the new millennium has been accompanied a meaningful level of integration with other regional and world markets in spite of ongoing capital controls.
    Keywords: Stock Returns, Convergence, Crises, Asia-Pacific, China
    JEL: G15
    Date: 2011–07
  5. By: Granturco Mariagrazia (Banca d'Italia); Maria Grazia Miele (Banca d'Italia)
    Abstract: This paper analyses the financial and economic conditions of the companies in the portfolios of Italian private equity funds. Information from an ad hoc survey of Italian asset management companies, combined with accounting data for 2008 drawn from the Central Credit Register, is used to develop a number of indices for 341 Italian investee companies. A multivariate statistical analysis on accounting and credit quality data (from the Central Credit Register) finds 41 companies with high credit risk and low profitability; taking additional financial indices and ratios into account, the number of “critical” companies rises to 137 (40 percent of the total). Most of these investments in critical companies by the private equity funds are quite recent; the returns appear to be affected adversely by the economic situation.
    Keywords: private equity, società target, bilancio, rating, leva
    JEL: C13 G24 G32
    Date: 2011–07

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