|
on Financial Markets |
|
Issue of 2015‒04‒25
eight papers chosen by |
| By: | Chandradew Sharma; Kinjal Banerjee |
| Abstract: | We study the various sectors of the Bombay Stock Exchange(BSE) for a period of 8 years from April 2006 - March 2014. Using the data of daily returns of a period of eight years we make a direct model free analysis of the pattern of the sectorial indices movement and the correlations among them. Our analysis shows significant auto correlation among the individual sectors and also strong cross-correlation among sectors. We also find that auto correlations in some of the sectors persist in time. This is a very significant result and has not been reported so far in Indian context These findings will be very useful in model building for prediction of price movement of equities, derivatives and portfolio management. We show that the Random Walk Hypothesis is not applicable in modeling the Indian market and Mean-Variance-Skewness-Kurtosis based portfolio optimization might be required. We also find that almost all sectors are highly correlated during large fluctuation periods and have only moderate correlation during normal periods. |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1504.05844&r=fmk |
| By: | Sungyong Park (Chung-Ang University, Seoul, Korea); Wendun Wang (Erasmus University Rotterdam, the Netherlands); Naijing Huang (Boston College, United States) |
| Abstract: | Regarding the asymmetric and leptokurtic behavior of financial data, we propose a new contagion test in the quantile regression framework that is robust to model misspecification. Unlike conventional correlation-based tests, the proposed quantile contagion test allows us to investigate the stock market contagion at various quantiles, not only at the mean. We show that the quantile contagion test can detect a contagion effect that is possibly ignored by correlation-based tests. A wide range of simulation studies show that the proposed test is superior to the correlation-based tests in terms of size and power. We compare our test with correlation-based tests using three real data sets: the 1994 Tequila crisis, the 1997 Asia crisis, and the 2001 Argentina crisis. Empirical results show substantial differences between two types of tests. |
| Keywords: | Financial contagion, Quantile regression, One-sided score test |
| JEL: | C21 C58 D53 |
| Date: | 2015–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150040&r=fmk |
| By: | Kristjan Liivamägi; Tarvo Vaarmets; Tõnn Talpsepp |
| Abstract: | We analyze how intellectual abilities and education affect investors’ risk-adjusted returns in the stock market. To investigate such effects, we use educational performance measured by standardized exams and the type and specialty of a university degree obtained. The data used covers one complete business cycle and includes detailed transactions and performance on the national stock exchange for all Estonian individual investors along with their past educational records from a national registry. Controlling for trading style, wealth, experience and variety of educational characteristics, we provide empirical evidence that investors with higher mathematical skills combined with overall high intellectual ability, have higher probability to outperform market. We also show that investors holding higher university degrees or specialize in certain fields achieve higher risk-adjusted return in the stock market. |
| Date: | 2014–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:ttu:tuteco:16&r=fmk |
| By: | Sait Ozturk (Econometric Institute, Erasmus University Rotterdam); Michel van der Wel (Econometric Institute, Erasmus University Rotterdam) |
| Abstract: | For many assets, trading is fragmented across multiple exchanges. Price discovery measures summarize the informativeness of trading on each venue for discovering the asset’s true underlying value. We explore intraday variation in price discovery using a structural model with time-varying parameters that can be estimated with state space techniques. An application to the Expedia stock demonstrates intraday variation, to the extent that the overall dominant trading venue (NASDAQ) does not lead the entire day. Spreads, the number of trades and volatility can explain almost half of the intraday variation in information shares. |
| Keywords: | High-frequency data, Market microstructure, Price Discovery, Kalman filter |
| JEL: | C32 G14 |
| Date: | 2014–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20140027&r=fmk |
| By: | Amelia Pais (Massey University, College of Business, School of Economics and Finance, Auckland, New Zealand); Philip A. Stork (VU University Amsterdam, and Duisenberg School of Finance) |
| Abstract: | During the Global Financial Crisis, regulators imposed short-selling bans to protect financial institutions. The rationale behind the bans was that “bear raids”, driven by short-sellers, would increase the individual and systemic risk of financial institutions, especially for institutions with high leverage. This study uses Extreme Value Theory to estimate the effect of short-selling on financial institutions’ individual and systemic risks in France, Italy and Spain; it also analyses the relationship between financial institutions’ leverage and short-selling. The results show that short-sellers appear to specifically target institutions with lower capital levels. Furthermore, institutions’ risk-levels and changes in short-selling positions tend to move in tandem. |
| Keywords: | bear raids, short-selling bans, financial institutions’ risk, systemic risk, leverage capital requirements, Extreme Value Theory |
| JEL: | C14 G01 G15 G21 |
| Date: | 2013–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20130186&r=fmk |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Crump, Richard K. (Federal Reserve Bank of New York); Vogt, Erik (Federal Reserve Bank of New York) |
| Abstract: | We document a highly significant, strongly nonlinear dependence of stock and bond returns on past equity-market volatility as measured by the VIX. We propose a new estimator for the shape of the nonlinear forecasting relationship that exploits additional variation in the cross section of returns. The nonlinearities are mirror images for stocks and bonds, revealing flight to safety: Expected returns increase for stocks when volatility increases from moderate to high levels, while they decline for Treasuries. We further demonstrate that these findings are evidence of dynamic asset pricing theories where the time variation of the price of risk is a function of the level of the VIX. |
| Keywords: | flight to safety; risk-return trade-off; dynamic asset pricing; volatility; nonlinear regressions; intermediary asset pricing; asset management |
| JEL: | G01 G12 G17 |
| Date: | 2015–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:723&r=fmk |
| By: | Demirguc-Kunt,Asli; Klapper,Leora; Singer,Dorothe; Van Oudheusden,Peter |
| Abstract: | The Global Financial Inclusion (Global Findex) database, launched by the World Bank in 2011, provides comparable indicators showing how people around the world save, borrow, make payments, and manage risk. The 2014 edition of the database reveals that 62 percent of adults worldwide have an account at a bank or another type of financial institution or with a mobile money provider. Between 2011 and 2014, 700 million adults became account holders while the number of those without an account?the unbanked?dropped by 20 percent to 2 billion. What drove this increase in account ownership? A growth in account penetration of 13 percentage points in developing economies and innovations in technology?particularly mobile money, which is helping to rapidly expand access to financial services in Sub-Saharan Africa. Along with these gains, the data also show that big opportunities remain to increase financial inclusion, especially among women and poor people. Governments and the private sector can play a pivotal role by shifting the payment of wages and government transfers from cash into accounts. There are also large opportunities to spur greater use of accounts, allowing those who already have one to benefit more fully from financial inclusion. In developing economies 1.3 billion adults with an account pay utility bills in cash, and more than half a billion pay school fees in cash. Digitizing payments like these would enable account holders to make the payments in a way that is easier, more affordable, and more secure. |
| Keywords: | Economic Theory&Research,E-Business,Access to Finance,Competitiveness and Competition Policy,Business in Development |
| Date: | 2015–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7255&r=fmk |
| By: | David E. Allen (University of Sydney, University of South Australia, Australia); Michael McAleer (National Tsing Hua University, Taiwan, Erasmus University Rotterdam, the Netherlands, Complutense University of Madrid, Spain); Shelton Peiris (University of Sydney, Australia); Abhay K. Singh (Edith Cowan University, Australia) |
| Abstract: | This paper features an analysis of the eectiveness of a range of portfolio diversication strategies as applied to a set of 17 years of monthly hedge fund index returns on a set of ten market indices representing 13 major hedge fund categories, as compiled by the EDHEC Risk Institute. The 17-year period runs from the beginning of 1997 to the end of August 2014. The sample period, which incorporates both the Global Financial Crisis (GFC) and subsequent European Debt Crisis (EDC), is a challenging one for the application of diversication and portfolio investment strategies. The analysis features an examination of the di- versication benets of hedge fund investments through successive crisis periods. The connectedness of the Hedge Fund Indices is explored via application of the Diebold and Yilmaz (2009, 2014) spillover index. We conduct a series of portfolio optimisation analyses: comparing Markowitz with naive diversication, and evaluate the relative eectiveness of Markowitz portfolio optimisation with various draw-down strategies, using a series of backtests. Our results suggest that Markowitz optimisation matches the characteristics of these hedge fund indices quite well. |
| Keywords: | Hedge Fund Diversication, Spillover Index, Markowitz Analaysis, |
| JEL: | G11 C61 |
| Date: | 2014–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20140151&r=fmk |