nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒07‒28
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Expectations of Returns and Expected Returns By Greenwood, Robin Marc; Shleifer, Andrei
  2. Predicting and Capitalizing on Stock Market Bears in the U.S. By Bertrand Candelon; Jameel Ahmed; Stefan Straetmans
  3. Credit Ratings and Cross-Border Bond Market Spillovers By Böninghausen, Benjamin; Zabel, Michael

  1. By: Greenwood, Robin Marc; Shleifer, Andrei
    Abstract: We analyze time series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The evidence is not consistent with rational expectations representative investor models of returns.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:hrv:faseco:11880390&r=fmk
  2. By: Bertrand Candelon; Jameel Ahmed; Stefan Straetmans
    Abstract: his paper attempts to predict the bear conditions on the US stock market. To this aim we elaborate simple predictive regressions, static and dynamic binary choice (BCM) as well as Markov-switching models. The in- and out-of-sample prediction ability is evaluated and we compare the forecasting performance of various specifications across as well as within models. It turns out that various dynamic extensions of static versions of probit and logit models reveal additional predictive information for both in- and out-of-sample fit. We also find that binary models outperform the Markov-switching model. With respect to the macro-financial variables, terms spreads, inflation and money supply turn out to be useful predictors. The results lead to useful implications for investors practicing active portfolio and risk management and for policy makers as tools to get early warning signals.
    Keywords: Bear stock market, S&P 500 Index, Macro-financial variables, Dynamic Binary Response models, Markov-switching model, Bry-Boschan algorithm, Active Trading Strategies.
    JEL: C22 C25 C53 G11 G17
    Date: 2014–07–15
    URL: http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-409&r=fmk
  3. By: Böninghausen, Benjamin; Zabel, Michael
    Abstract: This paper studies spillovers across sovereign debt markets in the wake of sovereign rating changes. We compile an extensive dataset covering all announcements by the three major agencies (Standard & Poor's, Moody's, Fitch) and daily sovereign bond market movements of up to 73 developed and emerging countries between 1994 and 2011. To cleanly identify the existence of spillover effects, we perform an explicit counterfactual analysis which pits bond market reactions to small revisions in ratings against reactions to all other, more major changes. We also control for the environment in which an announcement is made, such as the anticipation through watchlistings and the interaction of similar rating actions by different agencies. While there is strong evidence of negative spillover effects in response to downgrades, positive spillovers from upgrades are much more limited at best. Furthermore, negative spillover effects are more pronounced for countries within the same region. Strikingly, this cannot be explained by fundamental linkages and similarities between countries.
    Keywords: Sovereign debt market; credit rating agencies; cross-border spillover effects; international financial integration
    JEL: G15 F36
    Date: 2013–09–10
    URL: http://d.repec.org/n?u=RePEc:lmu:muenec:21075&r=fmk

This nep-fmk issue is ©2014 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.