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on Financial Markets |
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Issue of 2015‒02‒28
six papers chosen by |
| By: | Libin Yang ; William Rea (University of Canterbury ); Alethea Rea |
| Abstract: | We propose a stock selection method that is based on a variable selection method used with principal component analysis. We applied our method to stocks in the ASX200 and show that a portfolio of as little as 15 stocks can closely replicate the behaviour of the index. We show that the number of stocks required to form a diversified portfolio is not constant across time but varies with market conditions. |
| Keywords: | Principal component analysis, stock selection, diversification, stock portfolios |
| JEL: | G11 |
| Date: | 2015–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:15/03&r=fmk |
| By: | Hasan, Iftekhar (Fordham University and Bank of Finland ); Massoud , Nadia (Melbourne Business School, University of Melbourne ); Saunders, Anthony (Stern School of Business, New York University ); Song, Keke (Rowe School of Business, Dalhousie University ) |
| Abstract: | Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposures in the subprime crisis. The evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms. When the short ban was in effect, the market quality of financial stocks without subprime asset exposure had deteriorated to a larger degree than that of financial companies with subprime asset exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also serve as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban. |
| Keywords: | short selling; subprime assets; financial crisis; short-sale ban; CDS spread |
| JEL: | G01 G14 G18 G28 G33 |
| Date: | 2015–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2015_003&r=fmk |
| By: | Paulo Ferreira ; Andreia Dion\'isio ; S. M. S. Movahed |
| Abstract: | This paper examines the stock market comovements using basically three different approaches. Firstly, we used the most common linear analysis, based on cointegration and Granger causality tests; secondly we applied a nonlinear approach, using mutual information to analyze nonlinear dependence. Since underlying data sets are affected by non-stationarities, we also applied MF-DFA and MF-DXA in order to examine the multifractality nature of data and to analyze the relationship and mutual interaction between pairs of series, respectively. The overall results are quite interesting, since we found only 170 pair of stock markets cointegrated, and according to the Granger causality and mutual information we realized that the strongest relations lies between emerging markets, and between emerging and frontier markets. According to scaling exponent given by MF-DFA, $h(q=2)>1$, we found that all underlying data belong to non-stationary process. There is no cross-over in the fluctuation functions determined by MF-DFA method confirmed that mentioned approach could remove trends embedded in the data sets. The nature of cross-correlation exponent based on Mf-DXA is almost multifractal for all stock market pairs. The empirical relation, $h_{xy}(q)=[h_{xx}(q)+h_{yy}(q)]/2$ was confirmed just for $q>0$, while for $q<0$ there was a deviation from this relation. Width of singularity spectrum is in the range $\Delta \alpha_{xx}\in [0.304,0.905]$ which is another confirmation about multifractality nature of underlying data sets. The singularity spectrum for cross-correlation is in the range $\Delta \alpha_{xy}\in [0.246,1.178]$ confirming more complex relation between stock markets. The value of $\sigma_{DCCA}$ which is a measure for quantifying degree of cross-correlation indicates that all stock market pairs in the underlying time interval belong to cross-correlated series. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1502.05603&r=fmk |
| By: | Aslanidis, Nektarios ; Christiansen, Charlotte ; Savva, Christos S. |
| Abstract: | This paper adopts dynamic factor models with macro-finance predictors to test the intertemporal risk-return relation for 13 European stock markets. We identify country specific, euro area, and global macro-finance factors to determine the conditional risk and return. Empirically, the risk- return trade-off is generally negative. However, a Markov switching model documents that there is time-variation in this trade-off that is linked to the state of the economy. Keywords: Risk-return trade-off; Dynamic factor model; Macro-finance predictors; European stock markets; Markov switching model JEL Classifications: C22; G11; G12; G17 |
| Keywords: | Mercats financers -- Europa, Finances -- Models economètrics, Gestió de cartera, 336 - Finances. Banca. Moneda. Borsa, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/246967&r=fmk |
| By: | Pierdzioch, Christian ; Reitz, Stefan ; Ruelke, Jan-Christoph |
| Abstract: | We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectationformation process in the US 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: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:29&r=fmk |
| By: | Gonzalo Camba-Méndez ; Konrad Kostrzewa ; Anna Mospan ; Dobromił Serwa |
| Abstract: | We analyze the market assessment of sovereign credit risk in an emerging market using a reduced-form model to price the credit default swap (CDS) spreads thus enabling us to derive values for the probability of default (PD) and loss given default (LGD) from the quotes of sovereign CDS contracts. We compare different specifications of the models allowing for both fixed and time varying LGD, and we use these values to analyze the sovereign credit risk of Polish debt throughout the period of a global financial crisis. Our results suggest the presence of a low LGD and a relatively high PD for Poland during a recent financial crisis. The highest PD is in the months following collapse of Lehman Brothers. The derived measures of sovereign risk are strongly linked with the level of public debt and with another measure of PD from a structural model. Correlations between our PD values and the CDS spreads heavily depend on the maturity of the sovereign CDS. |
| Keywords: | sovereign credit risk, CDS spreads, probability of default, loss given default, Poland |
| JEL: | C11 C32 G01 G12 G15 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:189&r=fmk |