nep-fmk New Economics Papers
on Financial Markets
Issue of 2013‒07‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. From the Bank Panic of 1907 to the Great Depression of 1929 and the Savings and Loan Crisis of the 1980s: Lessons for the future By Trompatzi, Georgia; Metaxas, Theodore
  2. Making Stock Markets Work to Support Economic Growth: Implications for Governments, Regulators, Stock Exchanges, Corporate Issuers and their Investors By David Weild; Edward Kim; Lisa Newport
  3. In search of concepts: The effects of speculative demand on returns and volume By ap Gwilym, Owain; Wang, Qingwei; Hasan, Iftekhar; Xie, Ru
  4. Predicting financial markets with Google Trends and not so random keywords By Challet Damien; Bel Hadj Ayed Ahmed
  5. Slow Moving Debt Crises By Guido Lorenzoni; Ivan Werning

  1. By: Trompatzi, Georgia; Metaxas, Theodore
    Abstract: This paper goes over three big crises with a global resonance which took place in the American economy during the 20th century. Namely, the Bank Panic of 1907, the Great Depression of 1929 and the Savings and Loan Crisis of the 1980s are examined. The paper lists the major events during the crises in question and probes the causes, consequences and ways through which each crisis was attempted to be encountered. Through this examination, useful lessons to be learned and fatal mistakes to be avoided arise.
    Keywords: Bank Panic, Global Economic Crisis, Great Depression, Savings and Loan Debacle
    JEL: G01
    Date: 2013
  2. By: David Weild; Edward Kim; Lisa Newport
    Abstract: This study provides critical observations on the state of key global equity markets as recent developments have put into question their efficiency and effectiveness in facilitating capital formation. It covers the top 26 initial public offering (IPO) producing nations, with a particular focus on stock markets in the United States.
    Keywords: corporate governance, initial public offerings, allocation of capital, equity market structure, stock exchange, tick size
    JEL: G30 G32 G34 G38
    Date: 2013–07–11
  3. By: ap Gwilym, Owain (Bangor Business School); Wang, Qingwei (Bangor Business School); Hasan, Iftekhar (Fordham University and Bank of Finland); Xie, Ru (Bangor Business School)
    Abstract: Using a novel proxy of investors’ speculative demand constructed from online search interest in “concept stocks”, we examine how speculative demand affects the returns and trading volume of Chinese stock indices. We find that returns and trading volume increase with the contemporaneous speculative demand. In addition, the high speculative demand causes lower near future returns, while recent high past returns cause the high speculative demand. Moreover, the speculative demand explains more variation in returns and trading volume of A shares (more populated by retail investors) than B shares (less populated by retail investors). Our findings support the attention theory of Barber and Odean (2008).
    Keywords: investor attention; speculative demand; concept stock; market returns; trading volume
    JEL: G12 G14
    Date: 2013–05–28
  4. By: Challet Damien; Bel Hadj Ayed Ahmed
    Abstract: We check the claims that data from Google Trends contain enough data to predict future financial index returns. We first discuss the many subtle (and less subtle) biases that may affect the backtest of a trading strategy, particularly when based on such data. Expectedly, the choice of keywords is crucial: by using an industry-grade backtesting system, we verify that random finance-related keywords do not to contain more exploitable predictive information than random keywords related to illnesses, classic cars and arcade games. We however show that other keywords applied on suitable assets yield robustly profitable strategies, thereby confirming the intuition of Preis et al. (2013)
    Date: 2013–07
  5. By: Guido Lorenzoni; Ivan Werning
    Abstract: What circumstances or policies leave sovereign borrowers at the mercy of self-fulfilling increases in interest rates? To answer this question, we study the dynamics of debt and interest rates in a model where default is driven by insolvency. Fiscal deficits and surpluses are subject to shocks but influenced by a fiscal policy rule. Whenever possible the government issues debt to meet its current obligations and defaults otherwise. We show that low and high interest rate equilibria may coexist. Higher interest rates, prompted by fears of default, lead to faster debt accumulation, validating default fears. We call such an equilibrium a slow moving crisis, in contrast to rollover crises where investor runs precipitate immediate default. We investigate how the existence of multiple equilibria is affected by the fiscal policy rule, the maturity of debt, and the level of debt.
    JEL: E6 F3 F34
    Date: 2013–07

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