nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒12‒24
seven papers chosen by

  1. Convenient liquidity measure for Financial markets By Oleh Danyliv; Bruce Bland; Daniel Nicholass
  2. The impact of Basel III on financial (in)stability: An agent-based credit network approach By Krug, Sebastian; Lengnick, Matthias; Wohltmann, Hans-Werner
  3. Hometown Investment Trust Funds: An Analysis of Credit Risk By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad
  4. Collateralisation bubbles when investors disagree about risk By Broer, Tobias; Kero, Afroditi
  5. An empirical examination of stock market integration in EMU By Matei, Florin
  6. Financial Time Series: Stylized Facts for the Mexican Stock Exchange Index Compared to Developed Markets By Omar Rojas; Carlos Trejo-Pech
  7. Size and value premiums in the Indian stock market By Aziz, Tariq; Ansari, Valeed Ahmad

  1. By: Oleh Danyliv; Bruce Bland; Daniel Nicholass
    Abstract: A liquidity measure based on consideration and price range is proposed. Initially defined for daily data, Liquidity Index (LIX) can also be estimated via intraday data by using a time scaling mechanism. The link between LIX and the liquidity measure based on weighted average bid-ask spread is established. Using this liquidity measure, an elementary liquidity algebra is possible: from the estimation of the execution cost, the liquidity of a basket of instruments is obtained. A formula for the liquidity of an ETF, from the liquidity of its constituencies and the liquidity of ETF shares, is derived.
    Date: 2014–12
  2. By: Krug, Sebastian; Lengnick, Matthias; Wohltmann, Hans-Werner
    Abstract: The Basel III accord reacts to the events of the recent financial crisis with a combination of revised micro- and new macroprudential regulatory instruments to address various dimensions of systemic risk. This approach of cumulating requirements bears the risk of individual measures negating or even conflicting with each other which might lessen their desired effects on financial stability. We provide an analysis of the impact of Basel III's main components on financial stability in a stock-flow consistent (SFC) agent-based computational economic (ACE) model. We find that the positive joint impact of the microprudential instruments is considerably larger than the sum of the individual contributions to stability, i.e. the standalone impacts are non-additive. However, except for the buffers, the macroprudential overlay's impact is either marginal or even destabilizing. Despite its simplicity, the leverage ratio performs poorly especially when associated drawbacks are explicitly taken into account. Surcharges on SIBs seem to rather contribute to financial regulations complexity than to the resilience of the system.
    Keywords: Banking Supervision,Basel III,Liquidity Coverage Ratio,Macroprudential Regulation,Financial Instability,Agent-based Computational Economics
    JEL: G01 G28 E40 C63
    Date: 2014
  3. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: In Asia, small and medium-sized enterprises (SMEs) account for a major share of employment and dominate the economy. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular venture capital markets. Hence, looking for new methods of financing for SMEs is crucial. Hometown investment trust funds (HIT) are a new form of financial intermediation that has now been adopted as a national strategy in Japan. In this paper, we explain the importance of SMEs in Asia and describe about HITs. We then provide a scheme for the credit rating of SMEs by employing two statistical analysis techniques, principal components analysis and cluster analysis, and applying various financial variables to 1,363 SMEs in Asia. Adoption of this comprehensive and efficient method would enable banks to group SME customers based on financial health, adjust interest rates on loans, and set lending ceilings for each group. Moreover, this method is applicable to HITs around the world.
    Keywords: smes; credit risk; hometown investment trust funds; venture capital markets; asian capital markets
    JEL: G21 G24 G28
    Date: 2014–12–03
  4. By: Broer, Tobias; Kero, Afroditi
    Abstract: Survey respondents strongly disagree about return risks and, increasingly, macroeconomic uncertainty. This may have contributed to higher asset prices through increased use of collateralisation, which allows risk-neutral investors to realise perceived gains from trade. Investors with lower risk perceptions buy collateralised loans, whose downside-risk they perceive as small. Investors with higher risk perceptions buy upside-risk through asset purchase and collateralised loan issuance, raising prices. More complex collateralised contracts, like CDOs, can increase prices further. In contrast, with disagreement about mean payoffs, price bubbles arise without collateralisation, which may discipline prices as pessimists demand higher returns on risky loans.
    Keywords: asset prices; bubbles; disagreement; heterogeneous beliefs; volatility
    JEL: D82 D83 E32 E44 G12 G14
    Date: 2014–09
  5. By: Matei, Florin
    Abstract: This thesis provides clear empirical evidence that the establishment of the EMU has influenced the stock market integration process within the Euro-area. This is mostly evident across the large four EMU-stock markets: France, Germany, Italy and Netherlands, which appear to be near to perfect integrated after 2001. A considerable influence, but at a lower extent is also found for medium sized markets of Belgium, Finland, Portugal and Spain. Smaller markets such as Greece and Ireland appear to be modestly influenced by the establishment of the EMU, while Austria is the least integrated market within the single currency area. These findings indicate that the stock market integration process remains relatively incomplete for the medium-sized and smaller markets. Thus, the EMU-area cannot yet be considered as a single financial block implying that potential benefits of international portfolio diversification still exist across the EMU countries.
    Keywords: EMU, stock markets, cointegration, DCC
    JEL: C50 F15 G15 O52
    Date: 2014–12
  6. By: Omar Rojas; Carlos Trejo-Pech
    Abstract: We present some stylized facts exhibited by the time series of returns of the Mexican Stock Exchange Index (IPC) and compare them to a sample of both developed (USA, UK and Japan) and emerging markets (Brazil and India). The period of study is 1997-2011. The stylized facts are related mostly to the probability distribution func- tion and the autocorrelation function (e.g. fat tails, non-normality, volatility cluster- ing, among others). We find that positive skewness for returns in Mexico and Brazil, but not in the rest, suggest investment opportunities. Evidence of nonlinearity is also documented.
    Date: 2014–12
  7. By: Aziz, Tariq; Ansari, Valeed Ahmad
    Abstract: The poor empirical record of the CAPM paved the way towards the development of multi-factor asset pricing models. The three-factor model of Fama and French (1993) is regarded as a ground-breaking multi-factor asset pricing model. This paper examines the performance of the three-factor model of Fama and French (1993) in the Indian stock market for the period 2000-2012 using BSE-500 stocks as sample. The results suggest the presence of significant size and value premiums in the Indian stock market during the sample period. The three-factor model performs better than the CAPM, as the GRS test is unable to reject it.
    Keywords: asset pricing, Fama-French three factor model, Indian stock market
    JEL: G12
    Date: 2014–10

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