New Economics Papers
on Financial Markets
Issue of 2014‒08‒16
eight papers chosen by

  1. On the Dynamics of Industrial Stock Market Excess Returns By Michael Donadelli
  2. Detecting Performance Persistence of Hedge Funds : A Runs-Based Analysis By Rania Hentati Kaffel; Philippe De Peretti
  3. Direct purchases of U.S. Treasury securities by Federal Reserve banks By Garbade, Kenneth D.
  4. Heterogeneous Forecasters and Nonlinear Expectation Formation in the U.S. Stock Market By Christian Pierdzioch; Stefan Reitz; Jan-Christoph Ruelke
  5. Dynamics in two networks based on stocks of the US stock market By Leonidas Sandoval Junior
  6. Regional Stock Market Integration in Singapore: A Multivariate Analysis By Frédéric TEULON; Khaled GUESMI; Selim MANKAI
  7. Russia’s Financial Markets and Financial Institutions in 2013 By Alexander Abramov
  8. Stock Market Integration and Risk Premium: Empirical Evidence for Emerging Economies of South Asia By Khaled GUESMI; Ilyes ABID; Olfa KAABIA

  1. By: Michael Donadelli (LUISS Guido Carli)
    Abstract: I study predictability and financial integration for the excess returns on ten emerging and U.S. industrial stock markets. Firstly, I examine one-factor and multi-factor linear models in a static context. I focus on the explanatory power of some common, macro, and artificial global risk factors. Estimation results suggest that emerging and U.S. industry excess returns are affected by the same global risk factors. I show that multi-factor models do a better job in explaining emerging and U.S. industry excess returns. Differently from U.S. estimates, I find that the ``emerging industry intercepts'' are positive and significantly different from zero. The result holds over four different linear factor models. My findings suggest that local risk factors may still play a key role. Secondly, I study the dynamics of the financial integration process across emerging and U.S. industrial stock markets. Examining the dynamics of the explanatory power of a multi-(artificial) factor model, where the first ten principal components extracted from a large set of variables are loaded as predictors, I show that emerging industrial stock markets are increasingly integrated. I also observe that the integration process across emerging industries has been affected by the ``emerging country shocks'' of the late Õ90s. The result is confirmed by the dynamics of the correlation coefficients between emerging and U.S. industrial stock markets. My findings suggest also that cross-industry diversification benefits are negligible.
    Keywords: Industrial Stock Market Indexes, Global Risk Sources, Financial Openness.
    Date: 2013
  2. By: Rania Hentati Kaffel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Philippe De Peretti (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: In this paper, we use nonparametric runs-based tests to analyze the randomness of returns and the persistence of relative returns of hedge funds. Runs tests are implemented on a universe of hedge extracted from HFR database over the period spanning January 2000 to December 2012. Our findings suggest that i) For about 80% of the funds, we fail to reject the null of randomness of returns, ii) A similar ...gure is found out when focusing on relative returns, iii) Hedge funds that do present clustering in their relative returns are mainly found within Event Driven and Relative Value strategies, iv) For relative returns, results vary with the benchmark nature (hedge or traditional). The paper also emphasizes that runs tests may be a useful tool for investors in their fund' s selection process.
    Keywords: Hedge Funds; Randomness;Runs Tests; Persistence; clustering
    Date: 2014–02–01
  3. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?
    Keywords: Treasury debt issuance; Federal Reserve; direct purchases
    JEL: E58 H62 H63
    Date: 2014–08–01
  4. By: Christian Pierdzioch; Stefan Reitz; Jan-Christoph Ruelke
    Abstract: We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectation-formation process in the U.S. stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices
    Keywords: non-linear expectation formation, survey data, stock market, heterogeneous agents
    JEL: G17 E47 C53
    Date: 2014–07
  5. By: Leonidas Sandoval Junior
    Abstract: We follow the main stocks belonging to the New York Stock Exchange and to Nasdaq from 2003 to 2012, through years of normality and of crisis, and study the dynamics of networks built on two measures expressing relations between those stocks: correlation, which is symmetric and measures how similar two stocks behave, and Transfer Entropy, which is non-symmetric and measures the influence of the time series of one stock onto another in terms of the information that the time series of one stock transmits to the time series of another stock. The two measures are used in the creation of two networks that evolve in time, revealing how the relations between stocks and industrial sectors changed in times of crisis. The two networks are also used in conjunction with a dynamic model of the spreading of volatility in order to detect which are the stocks that are most likely to spread crises, according to the model. This information may be used in the building of policies aiming to reduce the effect of financial crises.
    Date: 2014–08
  6. By: Frédéric TEULON; Khaled GUESMI; Selim MANKAI
    Abstract: This paper evaluates the time-varying integration of the Singapore stock market in the ASEAN-5 region based on
    Keywords: time-varying integration, emerging markets, ICAPM, risk premium, c-DCC-FIAPARCH.
    JEL: C32 F36 G11
    Date: 2014–07–24
  7. By: Alexander Abramov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with a wide scope of issues, starting with the post-crisis recovery of Russia's financial market. The author analyzes the market for shares issued by Russian companies, investigates dependence on the global conjuncture of prices and inflow and outflow of foreign portfolio investment. He also studies currency exchange rate, looks at the competition on the domestic share market, and analyzes preliminary results of the merger of the RTS and MICEX. The article deals with the market for ruble-denominated bonds. The author provides analysis of financial market risks and looks at the development of Russia's domestic savings system
    Keywords: Russia's financial market; portfolio investment; exchange rate; share market; financial institutions; bond market;
    JEL: J14 G15 G32 E44
    Date: 2014
  8. By: Khaled GUESMI; Ilyes ABID; Olfa KAABIA
    Abstract: This paper tests the time-varying degree of South Asian market integration using a conditional version of the International Capital Asset Pricing Model ICAPM, and applying a GDC-GARCH. The use of the GDC-GARCH technique allows us to, first, describe the timevarying stochastic conditional covariance matrix, and second, take into account the dynamic changes in the degree of market integration and risk premium. Our empirical results show general evidence of market integration varying degree, explained by the U.S term premium, and the level of market openness. Except the Sri Lankan and Indonesian markets, Stock markets levels of integration exhibit an upward trend towards the end of the estimation period; the considered emerging markets still remain substantially segmented from the Asian market. These results thus suggest that diversification into Asian market assets continues to produce substantial profit and that the asset pricing rules should reflect a state of partial integration. Our investigation addresses the evolution and formation of total risk premiums, and confirms this empirically. In fact, the total risk premium decomposition shows that the variance risk related to the local market index, the local risk factor, explains, on average, more than 70% of the total risk premium.
    Keywords: Time-varying integration, Asian markets, risk premium, ICAPM, GDC-GARCH.
    JEL: C32 F36 G11
    Date: 2014–07–24

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