nep-fmk New Economics Papers
on Financial Markets
Issue of 2015‒02‒16
four papers chosen by

  1. Institutional herding in financial markets: New evidence through the lens of a simulated model By Boortz, Christopher; Jurkatis, Simon; Kremer, Stephanie; Nautz, Dieter
  2. Equity Premium Prediction: Are Economic and Technical Indicators Instable? By Fabian Baetje; Lukas Menkhoff
  3. Private Equity and the SEC after Dodd-Frank By Eileen Appelbaum
  4. Oil Volatility Risk and Expected Stock Returns By Peter Christoffersen; Xuhui (Nick) Pan

  1. By: Boortz, Christopher; Jurkatis, Simon; Kremer, Stephanie; Nautz, Dieter
    Abstract: Due to data limitations and the absence of testable, model-based predictions, theory and evidence on herd behavior are only loosely connected. This paper contributes towards closing this gap in the herding literature. We use numerical simulations of a herd model to derive new, theory-based predictions for aggregate herding intensity. Using high-frequency, investorspecific trading data we confirm the predicted impact of information risk on herding. In contrast, the increase in buy herding measured for the financial crisis period cannot be explained by the herd model.
    JEL: G11 G21 G01
    Date: 2014
  2. By: Fabian Baetje; Lukas Menkhoff
    Abstract: We show that technical indicators deliver economic value in predicting the U.S. equity premium. A crucial element of this value stems from the stability of return predictability over the full sample period from 1950 to 2013. Results tentatively improve over time and beat alternatives over sub-periods. By contrast, economic indicators work well only until the 1970s, thereafter they lose predictive power, even when the last crisis is considered. Translating the predictive power of technical indicators into a standard investment strategy delivers an average Sharpe Ratio of 0.6 p.a. for investors who had entered the market at any point in time
    Keywords: Equity premium predictability; economic indicators; technical indicators; break tests
    JEL: G17 G12
    Date: 2015–01
  3. By: Eileen Appelbaum
    Abstract: A new report by Senior Economist Eileen Appelbaum of the Center for Economic and Policy Research (CEPR) shows just how much the recnt SEC investigations of private equity funds has revealed and why it remains important to continue to regulate the industry. The report reviews the widespread practices in the industry that have unfairly enriched some private equity firms at the expense of pension funds and other investors in their funds.
    Keywords: private equity, dodd-frank
    JEL: G G2 G28 G3 G38
    Date: 2015–01
  4. By: Peter Christoffersen (University of Toronto, Rotman School of Management and CREATES); Xuhui (Nick) Pan (Tulane University, A.B. Freeman School of Business)
    Abstract: After the financialization of commodity futures markets in 2004-05 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks' exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average return between the quintile of stocks with low exposure and high exposure to oil volatility is significant at 0.66% per month, and oil volatility risk carries a significant risk premium of -0.60% per month. In the post-financialization period, oil volatility risk is strongly related with various measures of funding liquidity constraints suggesting an economic channel for the effect.
    Keywords: option-implied volatility, oil prices, volatility risk, cross-section, factor-mimicking portfolios, financial intermediaries
    JEL: G12 G13 E44 Q02
    Date: 2014–12–02

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