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on Financial Markets |
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Issue of 2013‒04‒06
four papers chosen by |
| By: | Michael T. Kiley |
| Abstract: | Monetary policy actions since 2008 have influenced long-term interest rates through forward guidance and quantitative easing. We propose a strategy to identify the comovement between interest rate and equity price movements induced by monetary policy when an observable representing policy changes, such as changes in the interbank rate, is not available. A decline in long-term interest rates induced by monetary policy statements prior to 2009 is accompanied by a 6- to 9-percent increase in equity prices. This association is substantially attenuated in the period since the zero-lower bound has been binding - with a policy-induced 100 basis-point decline in 10-year Treasury yields associated with a 1½- to 3-percent increase in equity prices. Empirical analysis suggests this attenuation does not represent a change in responses to monetary-policy induced movements in interest rates, but reflects the importance of both short- and long-term interest rates. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-15&r=fmk |
| By: | Ali Kabiri |
| Abstract: | The NYSE boom of the 1920s ended with the infamous crash of October 1929 and subsequent collapse in common stock prices from 1929-1932. Most approaches have suggested an overvaluation of 100%, usually dating from mid-1927 to September 1929.Excessive speculation based on high real earnings growth rates from 1921-8, amid a euphoric “new age” for the US economy, has been given as the cause. However, the 1920s witnessed the emergence of new ideas emanating from new research on the long-term returns to common stocks (Smith, 1924). The research identified a large premium on common stocks held over the long term compared to corporate bonds. This, in turn led to the formation of new investment vehicles that aimed to hold diversified stock portfolios over the long run in order to earn the large equity risk premium. Whilst such an approach was capable of earning substantial excess returns over bonds, new ideas derived from the research led to a change in stock valuations. The paper reconstructs fundamental values of NYSE stocks from long run dividend growth and stock volatility data, and demonstrates why such a change in theoretical values was unjustified. Investors switched to valuing stocks according to a new theory, which ignored the compensation for stock return volatility, which made up the Equity Risk Premium (ERP), on the assumption that “retained earnings” were the source of the observed ERP. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp218&r=fmk |
| By: | Stéphane Guibaud; Yves Nosbusch; Dimitri Vayanos |
| Abstract: | We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds—effects that we also confirm empirically in a panel of OECD countries. Moreover, under the optimal maturity structure, catering to clienteles is limited and long-term bonds earn negative expected excess returns. |
| JEL: | E43 G11 G12 H21 H63 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18922&r=fmk |
| By: | Ntim, Collins G |
| Abstract: | Despite experiencing rapid growth in their number and size, existing evidence suggests that African stock markets remain highly fragmented, small, illiquid and technologically weak, severely affecting their informational efficiency. Therefore, this study attempts to empirically ascertain whether African stock markets can improve their informational efficiency by formally harmonising and integrating their operations. Employing parametric and non-parametric variance-ratios tests on 8 African continent-wide and 8 individual national daily share price indices from 1995 to 2011, we find that irrespective of the test employed, the returns of all the 8 African continent-wide indices investigated appear to have better normal distribution properties compared with the 8 individual national share price indices examined. We also report evidence of statistically significant weak form informational efficiency of the African continent-wide share price indices over the individual national share price indices irrespective of the test statistic used. Our results imply that formal harmonisation and integration of African stock markets may improve their informational efficiency. |
| Keywords: | Harmonisation and integration, Efficiency, Share price indices, Stock markets, Africa |
| JEL: | G12 G13 G14 |
| Date: | 2012–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45806&r=fmk |