nep-fmk New Economics Papers
on Financial Markets
Issue of 2015‒02‒11
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Origins of Stock Market Fluctuations By Greenwald, Daniel L.; Lettau, Martin; Ludvigson, Sydney
  2. How Does Stock Market Volatility React to Oil Shocks? By Andrea Bastianin; Matteo Manera
  3. Capital Share Risk and Shareholder Heterogeneity in U.S. Stock Pricing By Lettau, Martin; Ludvigson, Sydney; Ma, Sai
  4. Financial innovation and growth listings and IPOs from 1880 to World War II in the Athens Stock Exchange By Stavros Thomadakis; Dimitrios Gounopoulos; Christos Nounis; Michalis Riginos
  5. Land and stock bubbles, crashes and exit strategies in Japan circa 1990 and in 2013 By Albert N. Shiryaev; Mikhail N. Zhitlukhin; Bill Ziemba; William T. Ziemba
  6. Empirics of the Oslo Stock Exchange. Basic, descriptive, results 1980-2014 By Odegaard, Bernt Arne

  1. By: Greenwald, Daniel L.; Lettau, Martin; Ludvigson, Sydney
    Abstract: Three mutually uncorrelated economic disturbances that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the willingness to bear risk independently of macroeconomic fundamentals explain most of the variation in the market. In the long run, the market is profoundly affected by shocks that reallocate the rewards of a given level of production between workers and shareholders. Productivity shocks play a small role in historical stock market fluctuations at all horizons.
    Keywords: labor income; stock market wealth; stock prices
    JEL: G10 G12 G17
    Date: 2015–01
  2. By: Andrea Bastianin (University of Milan and FEEM); Matteo Manera (University of Milan-Bicocca and FEEM)
    Abstract: We study the impact of oil price shocks on U.S. stock market volatility. We derive three different structural oil shock variables (i.e. aggregate demand, oil-supply, and oil-demand shocks) and relate them to stock market volatility, using bivariate structural VAR models, one for each oil price shock. Identification is achieved by assuming that the price of crude oil reacts to stock market volatility only with delay. This implies that innovations to the price of crude oil are not strictly exogenous, but predetermined with respect to the stock market. We show that volatility responds significantly to oil price shocks caused by sudden changes in aggregate and oil-specific demand, while the impact of supply-side shocks is negligible.
    Keywords: Volatility, Oil Shocks, Oil Price, Stock Prices, Structural VAR
    JEL: C32 C58 E44 Q41 Q43
    Date: 2015–01
  3. By: Lettau, Martin; Ludvigson, Sydney; Ma, Sai
    Abstract: Value and momentum portfolios exhibit strong opposite signed exposure to an aggregate risk factor based on low frequency fluctuations in the capital share. This strong opposite signed exposure helps explain why both strategies earn high average returns yet are negatively correlated. But the finding is puzzling from the perspective of canonical asset pricing theories. We show that opposite signed exposure to capital share risk coincides with opposite signed exposure of value and momentum to the income shares of households in the top 10 versus bottom 90 percent of the stock wealth distribution. We use a model of shareholder heterogeneity to explain why the capital share is likely to be an important cross-sectional risk factor, and show how the result can be explained if investors located in different percentiles of the wealth distribution exhibit a central tendency to pursue different investment strategies. Models with capital share risk explain up to 85% of the variation in average returns on size-book/market portfolios and up to 95% of momentum returns and the pricing errors on both sets of portfolios are lower than those of the Fama-French three- and four-factor models, the intermediary SDF model of Adrian, Etula, and Muir (2014), and models based on low frequency exposure to aggregate consumption risk. In a horse race where long-horizon capital share betas are included alongside betas for these other factors, the capital share beta remains strongly significant while the others are driven out.
    Keywords: capital share; heterogeneous agents; inequality; labor share; momentum; value premium
    JEL: E25 G11 G12
    Date: 2015–01
  4. By: Stavros Thomadakis; Dimitrios Gounopoulos; Christos Nounis; Michalis Riginos
    Abstract: The study explores the growth of the Athens Stock Exchange through new listings and IPOs over the period 1880-1940. We examine institutional changes in exchange governance and listing requirements. On a theme that has not been addressed before, we find that simple listings were far more numerous than actual IPOs, while even during ‘hot’ listing periods IPO activity was relatively limited. IPOs in Greece remained unregulated throughout the period and there is only sparse evidence on the involvement of professional investment banking services. IPOs over-pricing in the early decades gives way to under-pricing in the 1920s. The growth of the Greek stock market was coincident with development episodes in the economy, as well as phases of protectionism. It has been driven by a demand for listings basically serving the liquidity needs of company owners. Finally, the study presents data on "quasi-IPOs" (i.e. capital increases shortly after listing)and shows that they offer a more accurate assessment of the demand for the financing of listing firms.
    Keywords: listings; initial public offerings; financial history; financial innovation
    JEL: G18 N23 N43
    Date: 2014–09
  5. By: Albert N. Shiryaev; Mikhail N. Zhitlukhin; Bill Ziemba; William T. Ziemba
    Abstract: We study the land and stock markets in Japan circa 1990 and in 2013. While the Nikkei stock average in the late 1980s and its -48% crash in 1990 is generally recognized as a financial market bubble, a bigger bubble and crash was in the land market. The crash in the Nikkei which started on the first trading day of 1990 was predictable in April 1989 using the bond-stock earnings yield model which signaled a crash but not when. We show that it was possible to use the change point detection model based solely on price movements for profitable exits of long positions both circa 1990 and in 2013.
    Keywords: bubble; change point detection; bond-stock model; Nikkei stock average; golf course membership index
    JEL: G10 G15
    Date: 2014–06–05
  6. By: Odegaard, Bernt Arne (UiS)
    Abstract: We give some basic empirical characteristics of the Oslo Stock Exchange in the period 1980-2014. We give statistics for number of firms, the occurences of IPO's, dividend payments, trading volume, and concentration. Returns for various market indices and portfolios are calculated and described. We also show the well known calendar anomalies, the link between number of stocks in a portfolio and its variance and industry characteristics of the OSE.
    Keywords: Oslo Stock Exchange; Descriptive
    JEL: G10
    Date: 2015–01–22

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