New Economics Papers
on Financial Markets
Issue of 2013‒12‒15
four papers chosen by

  1. Have Financial Markets Become More Informative? By Jennie Bai; Thomas Philippon; Alexi Savov
  2. Financing Investment: The Choice between Bonds and Bank Loans By Morellec , Erwan; Valta , Philip; Zhdanov , Alexei
  3. Market Perceptions of US and European Policy Actions Around the Subprime Crisis By Yoichi Otsubo; Theoharry Grammatikos; Thorsten Lehnert
  4. Price Discovery of Tokyo-New York Cross-listed Stocks By Yoichi Otsubo

  1. By: Jennie Bai; Thomas Philippon; Alexi Savov
    Abstract: The finance industry has grown, financial markets have become more liquid, and information technology allows arbitrageurs to trade faster than ever. But have market prices then become more informative? We use stock and bond prices to forecast earnings and find that the information content of market prices has not improved since 1960. We use a model with information acquisition and investment to link financial development, price informativeness, and allocational efficiency. As information costs fall, the predictable component of future earnings should rise and hence improve capital allocation and welfare. We find that this component has remained stable over the past 50 years. When we decompose price informativeness into real price efficiency and forecasting price efficiency, we find that both have remained stable.
    JEL: E2 G1 N2
    Date: 2013–12
  2. By: Morellec , Erwan; Valta , Philip; Zhdanov , Alexei
    Abstract: We build a dynamic model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence which supports our theory.
    Keywords: debt structure; capital structure; investment; credit supply; competition
    JEL: D83 G12 G32 G33
    Date: 2013–12–10
  3. By: Yoichi Otsubo; Theoharry Grammatikos; Thorsten Lehnert (LSF)
    Abstract: This paper explores the impacts of key policy actions by US and European authorities on stock returns of systemically important banks in Europe and US around the subprime crisis. We find that the US policy announcements had a stronger impact on the European and US banking industry than the European policy announcements. In particular, the announcements of monetary policies and financial sector policies by the US authorities were accompanied by higher abnormal returns compared to related announcements of European authorities while the announcements of the US liability guarantees had the most favorable impact on the banking stock returns during the crisis. The lead role of US policies compared to European policies was strengthened after the collapse of Lehman brothers. We also find that the policy announcements, regardless of which side of the Atlantic the news arrived from, has increased the return volatility during the crisis. Our results lend additional support to the literature documenting eventinduced volatility increases.
    Keywords: "Event study; Policy Announcement; Subprime crisis;"
    JEL: G01 G14 G18 G21 G28
    Date: 2012
  4. By: Yoichi Otsubo (LSF)
    Abstract: This study examines price discovery of Japanese companies Tokyo-New York cross-listed shares. Kalman ?filter is utilized to estimate partial price adjustment model. By employing Kalman filter, the present research can deal with problem researchers has to confront in order to analyze nonoverlapping markets such as Tokyo and New York with Hasbrouck s information share or Gonzalo-Granger portfolio weights. By modifying the partial price adjustment model to allow different variance on information shock for each market s opening hours, we find that the magnitude of the shocks are larger during Tokyo opening hours. Dynamic measure suggested by Yan and Zivot (2006) shows that NYSE is more efficient in price discovery.
    Keywords: " information shares; international cross-listing; market microstructure; price discovery;"
    JEL: G14 G15
    Date: 2012

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