|
on Financial Markets |
|
Issue of 2015‒03‒05
five papers chosen by |
| By: | Duarte, Fernando M. (Federal Reserve Bank of New York); Rosa, Carlo (Federal Reserve Bank of New York) |
| Abstract: | We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels—of around 12 percent—not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields. |
| Keywords: | equity premium; stock returns |
| JEL: | C58 G00 G12 G17 |
| Date: | 2015–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:714&r=fmk |
| By: | Beneish, M. D. (IN University); Lee, C. M. C. (Stanford University); Nichols, D. C. (Syracuse University) |
| Abstract: | We use detailed security lending data to examine the relation between short sale constraints and equity prices. Our results show that the supply of lendable shares is frequently binding, and the constraint is related to firms' accounting characteristics. Specifically, we find: (1) when the lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to "special" stocks, (3) controlling for expected borrowing costs, a stock's supply of lendable shares varies over time as a function of accounting variables associated with the pricing anomalies, so shares are least available when they are most attractive to short sellers. Overall, our results highlight the central role played by the supply of lendable shares in both equity price formation and returns prediction. |
| JEL: | G14 G17 M40 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3064&r=fmk |
| By: | Arif, Salman (IN University); Ben-Rephael, Azi (IN University); Lee, Charles M. C. (Stanford University) |
| Abstract: | Using high resolution data, we show that short-sellers (SSs) systematically profit from mutual fund (MF) flows. At the daily level, SSs trade strongly in the opposite direction to MFs. This negative relation is associated with the expected component of MF flows (based on prior days' trading), as well as the unexpected component (based on same-day flows). The ability of SS trades to predict stock returns is up to 3 times greater when MF flows are in the opposite direction. The resulting wealth transfer from MFs to SSs is most pronounced for high-MF-held, low-liquidity firms, and is much larger during periods of high retail sentiment. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3162&r=fmk |
| By: | Duffie, Darrell (Stanford University); Stein, Jeremy C. (Harvard University) |
| Abstract: | We outline key steps necessary to reform the London Interbank Offered Rate (LIBOR) so as to improve its robustness to manipulation. We first discuss the role of financial benchmarks such as LIBOR in promoting over-the-counter market efficiency by improving transparency. We then describe how to mitigate LIBOR manipulation incentives by: (i) widening the types of transactions used to fix LIBOR; and (ii) encouraging a transition of "rates trading" applications of LIBOR derivatives to alternative reference rates that are in principle more suitable for this purpose because they do not include the bank-credit-spread component inherent in LIBOR. The current exceptional depth and liquidity of LIBOR-based markets are self-fulfilling sources of dominance for LIBOR as the reference rate of choice among rates traders. This liquidity agglomeration around LIBOR is probably accidental and inefficient, and creates an incentive to manipulate LIBOR. A transition of rates trading to alternative reference rates, however, may be difficult to arrange without official-sector involvement. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3170&r=fmk |
| By: | Ya-Chun Gao; Yong Zeng; Shi-Min Cai |
| Abstract: | In a stock market, the price fluctuations are interactive, that is, one listed company can influence others. In this paper, we seek to study the influence relationships among listed companies by constructing a directed network on the basis of Chinese stock market. This influence network shows distinct topological properties, particularly, a few large companies that can lead the tendency of stock market are recognized. Furthermore, by analyzing the subnetworks of listed companies distributed in several significant economic sectors, it is found that the influence relationships are totally different from one economic sector to another, of which three types of connectivity as well as hub-like listed companies are identified. In addition, the rankings of listed companies obtained from the centrality metrics of influence network are compared with that according to the assets, which gives inspiration to uncover and understand the importance of listed companies in the stock market. These empirical results are meaningful in providing these topological properties of Chinese stock market and economic sectors as well as revealing the interactively influence relationships among listed companies. |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1503.00823&r=fmk |