New Economics Papers
on Financial Markets
Issue of 2013‒10‒05
five papers chosen by

  1. Agent-Based Stock Market Model with Endogenous Agents' Impact By Jan A. Lipski; Ryszard Kutner
  2. Can overpricing of technology stocks be good for welfare? Positive spillovers vs. equity market losses By Tinn, K; Vourvachaki, E
  3. The Euro Interbank Repo Market By Mancini, Loreano; Ranaldo, Angelo; Wrampelmeyer, Jan
  4. A Monthly Stock Exchange Index for Ireland, 1864‐1930 By Richard S.Grossman; Ronan C. Lyons; Kevin Hjortshøj O’Rourke; Madalina A. Ursu
  5. Regional integration of stock markets in Southeast Europe By Khaled Guesmi; Duc Khuong Nguyen

  1. By: Jan A. Lipski; Ryszard Kutner
    Abstract: The three-state agent-based 2D model of financial markets as proposed by Giulia Iori has been extended by introducing increasing trust in the correctly predicting agents, a more realistic consultation procedure as well as a formal validation mechanism. This paper shows that such a model correctly reproduces the three fundamental stylised facts: fat-tail log returns, power-law volatility autocorrelation decay in time and volatility clustering.
    Date: 2013–10
  2. By: Tinn, K; Vourvachaki, E
    Date: 2013–09–18
  3. By: Mancini, Loreano; Ranaldo, Angelo; Wrampelmeyer, Jan
    Abstract: The market for repurchase agreements (repos) is an important part of the shadow banking system. Using a novel and comprehensive dataset, we provide the first systematic study of the euro interbank repo market. We document the evolution of repo market activity and identify risk and central bank liquidity provisions as the main state variables. In contrast to repo markets in the United States, we find that the bilateral central counterparty-based segment was resilient during 2006{13, which includes severe crisis periods. An increase in risk significantly increases repo trading volume, but has virtually no effect on repo rates, average maturity, and haircuts. Moreover, volume in the unsecured market is negatively related to repo volume. This suggests that, under certain conditions, banks use the repo market as a means of liquidity hoarding. We identify the distinguishing characteristics that render the euro interbank repo market resilient during the crisis, namely its infrastructure, including anonymous trading via a central counterparty, the exclusive reliance on safe collateral, and the reusability of collateral.
    Keywords: Repo market, secured funding, liquidity hoarding, shadow banking system, financial crisis, unconventional monetary policy
    JEL: G01 G21 G28
    Date: 2013–09
  4. By: Richard S.Grossman (Department of Economics, Wesleyan University); Ronan C. Lyons (Trinity College, Dublin & Balliol College, Oxford); Kevin Hjortshøj O’Rourke (All Souls College, Oxford & CEPR & NBER & IIIS, Trinity College Dublin); Madalina A. Ursu (London School of Economics)
    Abstract: Information on the performance of equities during the latter part of the globalized long nineteenth century is scarce, particularly for smaller European economies such as Ireland. Using a dataset of over 35,000 price‐year observations from the Investor’s Monthly Manual, this paper constructs new monthly Irish stock market price indices for the period 1864-1930, encompassing periods of significant economic and political turmoil in Irish history. In addition to a total market index covering all 118 equity securities issued by 94 companies, sector-specific indices are presented for railways, financial services companies, and miscellaneous industrial and retail companies. Weighted by market capitalization, nominal equity prices were largely static in the 1860s, before increasing by almost 60% in nominal terms between 1870 and 1878. Between 1878 and 1879, equity prices fell by one sixth in the space of a year, after which there was a secular rise in equity prices for two decades, with equity prices in 1899 twice what they had been in 1864. Between the turn of the century and the outbreak of the Great War, though, prices fell by 25%, a pattern that stands in stark contrast to returns on the London exchange, which were greater during 1894-1913 than during the preceding two decades. The period from 1914 until 1929 saw a number of boom-bust cycles, concurrent with war and other political events affecting Ireland, including its independence movement. Railway equities, which had trebled between the mid-1860s and the turn of the century, fell sharply during the 1910s and 1920s. In contrast, financial equity prices – which were just 20% higher in 1920 than in 1864 – rose strongly during the 1920s. Overall, the average annual gain in equity prices over the period was just 0.9%, well below levels associated with an equity premium puzzle.
    Keywords: Irish stock exchange, Investor’s Monthly Manual, long-run stock returns, 19th Century, 20th Century, Ireland
    JEL: E3 G12 N23 N24
    Date: 2013–10
  5. By: Khaled Guesmi; Duc Khuong Nguyen
    Abstract: This article investigates the dynamics of regional financial integration and its determinants in an international setting. We test a conditional version of the international capital asset pricing model (ICAPM) accounting for the deviations from purchasing power parity (PPP) as well as temporal variations in both regional and local sources of risk. Using data from four major countries of the Southeast Europe (Czech Republic, Greece, Poland, and Romania), our results support the validity of ICAPM and indicate that the risk is internationally priced. Further- more, we show that changes in the degree of regional stock market integration are explained principally by trade openness and the level of stock market development whatever the measure of currency risk. Finally, as expected, the degree of stock market integration varies considerably over time and from one market to another. As intense market integration induces both benefits and risks, our findings should have significant implications for eco- nomic policies and market regulations in emerging, frontier-emerging and transition countries, particularly for countries from the same region.
    Keywords: ICAPM, market integration, exchange rate risk
    JEL: G12 F31 C32
    Date: 2013–09–25

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