New Economics Papers
on Financial Markets
Issue of 2013‒11‒09
two papers chosen by

  1. "Evidence on the Efficient Market Hypothesis from 44 Global Financial Market Indexes" By Huijian Dong; Helen Bowers; William R. Latham
  2. Disentangling contagion among sovereign cds spreads during the european debt crisis By Carmen Broto; Gabriel Perez-Quiros

  1. By: Huijian Dong (Department of Economics, Pacific University); Helen Bowers (Department of Finance,University of Delaware); William R. Latham (Department of Economics,University of Delaware)
    Abstract: This paper employs Granger causality tests to identify the impacts of historical information from global financial markets on their current levels in 30-day windows. The dataset consists primarily of the daily index levels of the (1) open, (2) close, (3) intra-day high, (4) intra-day low, and (5) trading volume series for the world’s 37 most influential equity market indexes, two crude oil prices, a gold price, and four major money market prices in the United States are used as controls. Our results indicate a persistent impact of historical information from global markets on their current levels, and this impact duplicates itself in a cyclical pattern consistently over decades. Such persistence in the patterns causes some market indexes to be upgraded to global or regional market leaders. These findings can be interpreted as constituting violations of the weak-form efficient market hypothesis. The results also reveal recursive impacts of information in these markets and the existence of an information digestion effect.
    Keywords: financial market, efficient market hypothesis, contagion, interdependence, equity, bond
    JEL: J16 J30 J31 J70 J71
    Date: 2013
  2. By: Carmen Broto (Banco de España); Gabriel Perez-Quiros (Banco de España)
    Abstract: During the last crisis, developed economies’ sovereign Credit Default Swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components: a common factor, a second factor driven by European peripheral countries and an idiosyncratic component. We use this decomposition to propose a novel methodology based on the real-time estimates of the model to characterize contagion among the ten series. Our procedure allows the country that triggers contagion in each period, which can be any peripheral economy, to be disentangled. According to our findings, since the onset of the sovereign debt crisis, contagion has played a non-negligible role in the European peripheral countries, which confirms the existence of signifi cant financial linkages between these economies.
    Keywords: sovereign Credit Default Swaps, contagion, dynamic factor models, credit risk
    JEL: C32 G01 G15
    Date: 2013–10

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