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on Financial Markets |
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Issue of 2015‒03‒22
four papers chosen by |
| By: | Black, Sandra E. (University of Texas at Austin); Devereux, Paul J. (University College Dublin); Lundborg, Petter (Lund University); Majlesi, Kaveh (Lund University) |
| Abstract: | We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of education increases stock market participation by about 2% for men but there is no evidence of any positive effect for women. More education also leads men to hold a greater proportion of their financial assets in stocks and other risky financial assets. We find no evidence of spillover effects from male schooling to the financial decisions of spouses or children. |
| Keywords: | education, financial market, risk-taking |
| JEL: | G11 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8905&r=fmk |
| By: | Daniel Snethlage (The Treasury) |
| Abstract: | This paper develops a new approach for conceptualizing and measuring the risk associated with bank failure. The price of this risk in risk-adjusted present-value terms is estimated at $170-340 million per annum (0.07-0.15% of GDP), representing the price of the financial risk that exists ex-ante (ie, before a bank fails). This can be interpreted as the cost that is either passed onto the banks via higher funding costs, or borne as an implicit risk on the government’s balance sheet. Alternatively, one could think of this as a one-off cost, in the event that all major banks failed in a single crisis. If that were to happen, and if net losses were to be 5-10 per cent of bank liabilities the total cost could be $16-31 billion (7-13% of GDP). This can be interpreted as either the net cost of a government bail-out, or the total value of haircuts on wholesale and retail creditors that would be applied under an Open Bank Resolution (OBR) or a liquidation. Bank bail-outs are not necessarily required or recommended in New Zealand given the existence of OBR. However, the major banks currently receive a one-notch uplift in their credit ratings specifically because of the expectation of government support. These ratings' uplifts are used to estimate the market-implied likelihood that the banks would be bailed out in the event of their failure, and therefore the size of the implicit guarantee banks that are seen to receive. This perceived implicit guarantee is estimated to be worth around $80-$230million per annum (0.04%-0.11% of GDP), equivalent to a 3-8 basis points subsidy on banks' total borrowing costs. This estimate is low by international standards, consistent with the current soundness of the major domestic banks and the relatively low perceived likelihood of government support. |
| Keywords: | Bank failure; contingent liabilities; implicit guarantee; financial crises; bail-out; bail-in; bank resolution |
| JEL: | G21 G38 H89 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:15/03&r=fmk |
| By: | Tsangyao Chang (Department of Finance, Feng Chia University); Xiao-lin Li (Department of Finance, Wuhan University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | This study applies wavelet analysis to examine the relationship between the U.S. real estate and stock markets over the period 1890-2012. Wavelet analysis allows the simultaneous examination of co-movement and causality between the two markets in both the time and frequency domains. Our findings provide robust evidence that co-movement and causality vary across frequencies and evolve with time. Examining market co-movement in the time domain, the two markets exhibit positive co-movement over recent past decades, exception for 1998-2002 when a high negative co-movement emerged. In the frequency domain, the two markets correlate with each other mainly at low frequencies (longer term), except in the second half of the 1900s as well as in 1998-2002, when the two markets correlate at high frequencies (shorter term). In addition, we find that the causal effects between the markets in the frequency domain occur generally at low frequencies (longer term). In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two markets. These findings provide a more complete picture of the relationship between the U.S. real estate and stock markets over time and frequency, offering important implications for policymakers and practitioners. |
| Keywords: | stock market; real estate market; wavelet analysis; frequency domain; time domain |
| JEL: | C49 E44 G11 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:nlv:wpaper:1402&r=fmk |
| By: | Declerck, Francis |
| Abstract: | The researh aims at explaining stock performance of processing companies in function of commodity performance on commodity markets. The results show that stock prices of food companies do not significantly depend on agricultural market prices. So, risks of agricultural market price volatility cannot be hedged using food firm stocks, whose markets are more liquid. Objective The objective is to explain stock performance of processing companies in function of commodity performance on commodity markets. If results are robust, onet could be able to hedge commodity price fluctuations in using stocks whose markets are a lot more liquid. The paper is organized as flows. First, it roots the the research in theoretical foundations. Second, the methodology is presented. Third, results are shown and analyzed. Fourth, conclusion is drawn. |
| Keywords: | Agribusiness, Agricultural Finance, |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iefi14:199388&r=fmk |