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on Financial Markets |
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Issue of 2013‒08‒05
six papers chosen by |
| By: | Jozef Barunik; Evzen Kocenda; Lukas Vacha |
| Abstract: | We analyze the dynamics of the prices of gold, oil, and stocks over 26 years (1987-2012) using both intra-day and daily data and employing a variety of methodologies including a novel time-frequency approach. We account for structural breaks and show radical change in correlations between assets after the 2007-2008 crisis in terms of time-frequency behavior. No strong evidence for a specific asset leading any other one emerges and the assets under research do not share the long-term equilibrium relationship. Strong implication is that after the structural change gold, oil, and stocks cannot be used together for risk diversification. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1308.0210&r=fmk |
| By: | Michael McAleer; Kim Radalj (University of Canterbury) |
| Abstract: | Economists and financial analysts have begun to recognise the importance of the actions of other agents in the decision-making process. Herding is the deliberate mimicking of the decisions of other agents. Examples of mimicry range from the choice of restaurant, fash-ion and financial market participants, to academic research. Herding may conjure negative images of irrational agents sheepishly following the actions of others, but such actions can be rational under asymmetric information and uncertainty. This paper uses futures position data in nine different markets of the Commodity Futures Trading Commission (CFTC) to provide a direct test of herding behaviour, namely the extent to which small traders mimic the posi-tions of large speculators. Evidence consistent with herding among small traders is found for the Canadian dollar, British pound, gold, S&P 500 and Nikkei 225 futures. Consistent with survey-based results on technical analysis, the positions are significantly correlated with both current and past market returns. Using various time-varying volatility models to accommodate conditional heteroskedasticity, the empirical results are found to be robust to alternative mod-els and methods of estimation. When a test of causality-in-variance is used to analyse if vola-tility among small traders spills over into spot markets, it is found that spillovers occur only with Nikkei 225 futures. The policy implications of the findings are also discussed. |
| Keywords: | Herding, speculation, hedging, noise traders, currency and commodity markets, futures and spot markets, time-varying volatility, causality-in-variance, spillovers |
| JEL: | D82 D84 G12 G14 |
| Date: | 2013–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:13/23&r=fmk |
| By: | Benjamin M. Tabak; Sergio R. S. Souza; Solange M. Guerra |
| Abstract: | In this paper, we propose a methodology to measure systemic risk that stems from financial institutions (FIs) interconnected in interbank markets. We show that this framework is useful to identify systemically important FIs. This methodology can be used to perform stress tests using additional information from FIs default probabilities and their correlation structure. We present how to implement this methodology and apply it to the Brazilian case. We also evaluate the effects of the recent global crisis on the interbank market. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:318&r=fmk |
| By: | Guray Kucukkocaoglu; Deren Unalmis; Ibrahim Unalmis |
| Abstract: | Using a methodology that is robust to endogeneity and omitted variables problems, it is found that the stock returns of all banks that are listed in Borsa Istanbul respond significantly to the monetary policy surprises on Monetary Policy Committee (MPC) meeting days prior to May 2010. It is shown that stock returns of banks for which interest payments constitute an important share in their balance sheets respond more aggressively to the changes in policy rates. In addition, foreign banks and participation banks give relatively less responses to monetary policy surprises. Estimation results differ between traditional and new monetary policy episodes. |
| Keywords: | Monetary Policy, Stock Market, Banking System, Emerging Markets, Identification through Heteroscedasticity |
| JEL: | E43 E44 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1330&r=fmk |
| By: | Nicola Gennaioli; Alberto Martin; Stefano Rossi |
| Abstract: | We use data from Bankscope to analyze the holdings of public bonds by over 18,000 banks located in 185 countries and the role of these bonds in 18 sovereign debt crises over the period 1998-2012. We find that: (i) banks hold a sizeable share of their assets in government bonds (about 9% on average), particularly in less financially developed countries; (ii) during sovereign crises, banks on average increase their bondholdings by 1% of their assets, but this increase is concentrated among larger and more profitable banks, and; (iii) the correlation between a bank's holdings of public bonds and its future loans is positive in normal times, but turns negative during defaults. A 10% increase in bank bond-holdings during default is associated with a 3.2% reduction in future loans, and bonds bought in normal times account for 75% of this effect. Our results are consistent with the view that there is a liquidity benefit for banks to hold public bonds in normal times, which is critical for understanding bank fragility during sovereign crises. |
| Keywords: | Sovereign Risk, Sovereign Default, Government Bonds |
| JEL: | F34 F36 G15 H63 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1378&r=fmk |
| By: | Satyajit Chatterjee; Burcu Eyigungor |
| Abstract: | An important ineffciency in sovereign debt markets is debt dilution, wherein sovereigns ignore the adverse impact of new debt on the value of existing debt and, consequently, borrow too much and default too frequently. A widely proposed remedy is the inclusion of seniority clause in sovereign debt contracts: Creditors who lent first have priority in any restructuring proceedings. We incorporate seniority in a quantitatively realistic model of sovereign debt and find that seniority is quite effective in mitigating the dilution problem. We also show theoretically that seniority cannot be fully effective unless the costs of debt restructuring are zero. |
| Keywords: | Debt |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-30&r=fmk |