nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒11‒17
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Hedge Fund Innovation By Denitsa Stefanova; Arjen Siegmann; Marcin Zamojski
  2. The empirical analysis of dynamic relationship between financial intermediary connections and market return volatility By Karkowska, Renata
  3. Behavior of Financial Markets Efficiency During the Financial Market Crisis: 2007-2009 By Mynhardt, H. R.; Plastun, Alex; Makarenko, Inna
  4. Extreme Returns in the European Financial Crisis By Chouliaras, Andreas; Grammatikos, Theoharry
  5. Long memory in the ukrainian stock market and financial crises By Maria Caporale, Guglielmo; Gil-Alana, Luis; Plastun, Alex; Makarenko, Inna
  6. Stock returns predictability and the adaptive market hypothesis in emerging markets: evidence from India By Hiremath, Gourishankar S; Kumari, Jyoti

  1. By: Denitsa Stefanova; Arjen Siegmann; Marcin Zamojski (LSF)
    Abstract: We study first-mover advantages in the hedge fund industry by clustering hedge funds based on the type of assets and instruments they trade in, sector and investment focus, and fund details. We find that early entry in a cluster is associated with higher excess returns, longer survival, higher incentive fees and lower management fees compared to funds that arrive later. Moreover, the latest entrants have a high loading on the returns of the innovators, but with lower incentive fees, and higher management fees. Cross-sectional regressions show that the outperformance of innovating funds are declining with age. The results are robust to different parameters of clustering and backfill-bias, and are not driven by the possible existence of flagship and follow-on funds. Our results show that the reported characteristics of hedge funds can be used to infer strategy-related information and suggest that specific first-mover advantages exist in the hedge fund industry.
    Keywords: hedge funds, first-mover advantage, innovation, clustering
    JEL: G15 G23
    Date: 2014
  2. By: Karkowska, Renata
    Abstract: Article aims to demonstrate the significant impact of dynamics of the relationship between financial intermediaries on the level of market volatility. Particularly important are the growing share of the links between hedge funds and other financial institutions. In order to demonstrate the dynamic test was presented Granger causality, which allows the statistical analysis of cause and effect relationships in the risk spread in the financial system. Using multiple regression analysis study was calculated the impact of the hedge fund market development measured in assets, leverage, the price volatility in various financial markets). Due to data availability study has been limited to 10-year period of analysis (2001-2011). The results show a significant correlation between the volatility in the stock market, bonds and CDS, and the activities of hedge funds on financial markets.
    Keywords: financial market, hedge fund, market instability, volatility
    JEL: A10 C58 G12 G15 G23 G24
    Date: 2013–10
  3. By: Mynhardt, H. R.; Plastun, Alex; Makarenko, Inna
    Abstract: This paper examines the behavior of financial markets efficiency during the recent financial market crisis. Using the Hurst exponent as a criterion of market efficiency we show that level of market efficiency is different for pre-crisis and crisis periods. We also classify financial markets of different countries by the level of their efficiency and reaffirm that financial markets of developed countries are more efficient than the developing ones. Based on Ukrainian financial market analysis we show the reasons of inefficiency of financial markets and provide some recommendations on their solution and thus improving the efficiency.
    Keywords: Persistence, R/S Analysis, Hurst exponent, Fractal market Hypothesis, efficiency of financial market.
    JEL: G14 G17
    Date: 2014
  4. By: Chouliaras, Andreas; Grammatikos, Theoharry
    Abstract: We examine the transmission of extreme stock market returns among three groups of countries: the Euro-periphery countries (Portugal, Ireland, Italy, Greece, Spain), the Euro-core countries (Germany, France, the Netherlands, Finland, Belgium), and the major European Union -but not euro- countries (Sweden, UK, Poland, Czech Republic, Denmark). Using extreme returns on daily stock market data from January 2004 till March 2013, we find that transmission effects are present for the tails of the returns distributions for the Pre-crisis, the US-crisis and the Euro-crisis periods from the Euro-periphery group to the Non-Euro and the Euro-core groups. Within group effects are stronger in the crisis periods. We find that the transmission channel does not seem to have intensified during the crisis periods, but it transmitted larger shocks (in some cases, extreme bottom returns doubled during the crisis periods). Thus, as extreme returns have become much more "extreme" during the financial crisis periods, the expected losses on extreme return days have increased significantly. Given the fact that stock market capitalisations in these country groups are trillions of Euros, a 1% or 2% increase in extreme bottom returns (in crisis periods) can lead to aggregate losses of tens of billions Euros in one single trading day.
    Keywords: Financial Crisis, Financial Contagion, Spillover, Euro-crisis, Stock Markets.
    JEL: G00 G01 G15
    Date: 2014–09–29
  5. By: Maria Caporale, Guglielmo; Gil-Alana, Luis; Plastun, Alex; Makarenko, Inna
    Abstract: This paper examines persistence in the Ukrainian stock market during the recent financial crisis. Using two different long memory approaches (R/S analysis and fractional integration) we show that this market is inefficient and the degree of persistence is not the same in different stages of the financial crisis. Therefore trading strategies might have to be modified. We also show that data smoothing is not advisable in the context of R/S analysis.
    Keywords: persistence, long memory, R/S analysis, fractional integration
    JEL: C22 G12
    Date: 2013–10
  6. By: Hiremath, Gourishankar S; Kumari, Jyoti
    Abstract: This study addresses the question of whether the adaptive market hypothesis provides a better description of the behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian stock market switched between periods of efficiency and inefficiency. In contrast, the results from nonlinear tests reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards efficiency. The results provide additional insights on association between financial crises, foreign portfolio investments and inefficiency.
    Keywords: Adaptive market hypothesis, Market efficiency, Random walk, Autocorrelation, Nonlinearity, Predictability, Financial crisis, Evolving efficiency, Emerging markets
    JEL: C58 G01 G02 G12 G14
    Date: 2014

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