New Economics Papers
on Financial Markets
Issue of 2014‒03‒08
four papers chosen by

  1. Theories of financial crises: An overview By Detzer, Daniel; Herr, Hansjörg
  2. Stock Market Reactions to Sovereign Credit Rating Changes: Evidence from Four European Countries By Ibrahim Fatnassi; Zied Ftiti; Habib Hasnaoui
  3. Are hedge funds uncorrelated with financial markets? An empirical assessment By Khaled Guesmi; Saoussen Jebri; Abdelkarim Jabri; Frédéric Teulon
  4. Performance Persistence of Islamic Equity Mutual Funds By Abdelbari El Khamlichi; Kamel Laaradh; Mohamed Arouri; Frédéric Teulon

  1. By: Detzer, Daniel; Herr, Hansjörg
    Abstract: This paper analyses financial crises from a theoretical point of view. For this it reviews what different schools of economic thought have to say about financial crises. It examines first the approaches that regard financial crises as a disturbing factor of a generally stable real economy (Wicksell, Hayek, Schumpeter, Fisher, and the early Keynes). Thereafter, approaches, where the dichotomy between the monetary and the real sphere is lifted, are reviewed. Here in particular the later works of Keynes and the contributions of Minsky are of importance. Lastly, it is looked at the behavioural finance approaches. After having reviewed the different approaches, it is examined where those approaches have similarities and where they can be combined fruitfully. Based on this, we develop an own theoretical framework methodologically based on a Wicksellian cumulative process, however, overcoming the neoclassical dichotomy. The paper ends with some policy recommendations based on the developed theoretical framework. --
    Keywords: financial crisis,crisis theory,behavioral finance,Hayek,Keynes,Minsky,Schumpeter,Wicksell
    JEL: E12 E13 G01
    Date: 2014
  2. By: Ibrahim Fatnassi; Zied Ftiti; Habib Hasnaoui
    Abstract: We analyze the reactions of the returns of four European stock markets to sovereign credit rating changes by Fitch, Moody’s, and Standard and Poor’s (S&P) during the period from June 2008 to June 2012 using panel regression equations. We find that (i) upgrades and downgrades affect both own country returns and other countries’ returns, (ii) market reactions to foreign downgrades are stronger during the sovereign debt crisis period, and (iii) negative news from rating agencies are more informative than positive news.
    Keywords: Sovereign credit rating, Stock Markets, reaction, upgrades, downgrades
    JEL: F3 G14 G15
    Date: 2014–02–25
  3. By: Khaled Guesmi; Saoussen Jebri; Abdelkarim Jabri; Frédéric Teulon
    Abstract: In this paper, we examine the correlations between hedge fund strategy indices and asset classes. Based on the Dynamic Conditional Correlation (DCC) GARCH Model, we estimate the correlations between hedge fund, stock, and bond indices during bull and bear markets. The results reveal that there are significant correlations between hedge funds and the stock market, especially during the recent financial crisis that took place from 2007 to 2009.
    Keywords: Hedge funds, Stock market.
    Date: 2014–02–25
  4. By: Abdelbari El Khamlichi; Kamel Laaradh; Mohamed Arouri; Frédéric Teulon
    Abstract: The debate over the under-performance or the over-performance of Islamic funds is not over yet. Hence, our literature review exhibits that all the previous works studied the Islamic equity funds without exploring the persistence of their performance, even if this issue is very important to address several questions in financial management. Our article contributes to the current literature by addressing this shortage; we proceed further with the aim of finding any consistency in funds’ performance. Using a sample of 111 Islamic equity funds over the period 2005 to 2011, the study is carried out through applying different performance measures and non-parametric tests of performance persistence over three equal sub-periods. Our measures of performance show that Islamic funds do not constitute a homogenous group, but over the whole period, Malaysian and Saudi Arabian funds perform better. We find evidence that supports non-persistence in performance or rather the persistence of non-performance of Islamic mutual funds during and after the last financial crisis. This raises the question of the management strategies implemented by the banks managing Islamic funds.
    Date: 2014–02–25

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