nep-fmk New Economics Papers
on Financial Markets
Issue of 2015‒07‒25
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. What moves international stock and bond markets? By Cenedese, Gino; Mallucci, Enrico
  2. Can a Financial Transaction Tax Prevent Stock Price Booms? By Adam, Klaus; Marcet, Albert; Merkel, Sebastian; Beutel, Johannes
  3. Multivariate Shortfall Risk Allocation By Yannick Armenti; Stephane Crepey; Samuel Drapeau; Antonis Papapantoleon

  1. By: Cenedese, Gino (Bank of England); Mallucci, Enrico (London School of Economics)
    Abstract: We study the relation between international mutual fund flows and the different return components of aggregate equity and bond markets. First, we decompose international equity and bond market returns into changes in expectations of future real cash payments, interest rates, exchange rates, and discount rates. News about future cash flows, rather than discount rates, is the main driver of international stock returns. This evidence is in contrast with the typical results reported only for the United States. Inflation news instead is the main driver of international bond returns. Next, we turn to the interaction between these return components and international portfolio flows. We find evidence consistent with price pressure, short-term trend chasing, and short-run overreaction in the equity market. We also find that international bond flows to emerging markets are more sensitive to interest rate shocks than equity flows.
    Keywords: International capital flows; return decomposition; international equity markets; international bond markets; mutual funds.
    JEL: F31 G15
    Date: 2015–07–17
  2. By: Adam, Klaus; Marcet, Albert; Merkel, Sebastian; Beutel, Johannes
    Abstract: We present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief di¤erences, introducing financial transactions taxes (FTTs)remains undesirable. While FTTs reduce the size and length of boom-bust cycles, they increase the likelihood of such cycles, therby overall return volatility and wealth redistribution. Contingent FTTs, which are levied only above a certain price threshold, give rise to problems of equilibrium multiplicity and non-existence.
    Keywords: financial transactions tax , Tobin tax , asset price booms
    JEL: G12 D84
    Date: 2015
  3. By: Yannick Armenti; Stephane Crepey; Samuel Drapeau; Antonis Papapantoleon
    Abstract: The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of clearinghouses. The two main issues in systemic risk are the computation of an overall reserve level and its allocation to the different components of the system according to their importance. We develop here a pragmatic approach to systemic risk measurement and allocation based on multivariate shortfall risk measures, where acceptable allocations are first computed and then aggregated so as to minimize costs. We emphasize the analysis of the risk allocation and of its sensitivity as an indicator of the systemic risk. Moreover, we provide efficient numerical schemes to assess the risk allocation in high dimensions.
    Date: 2015–07

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