nep-fmk New Economics Papers
on Financial Markets
Issue of 2016‒01‒29
four papers chosen by

  1. The Excess Returns of "Quality" Stocks: A Behavioral Anomaly By Jean-Philippe Bouchaud; Stefano Ciliberti; Augustin Landier; Guillaume Simon; David Thesmar
  2. A nonlinear impact: evidences of causal effects of social media on market prices By Th\'arsis T. P. Souza; Tomaso Aste
  3. Short selling constraints and stock returns volatility: empirical evidence from the German stock market By Martin T. Bohl; Gerrit Reher; Bernd Wilfling
  4. Geography and distance effect on financial dynamics in the Chinese stock market By Xing Li; Tian Qiu; Guang Chen; Li-Xin Zhong; Xiong-Fei Jiang

  1. By: Jean-Philippe Bouchaud; Stefano Ciliberti; Augustin Landier; Guillaume Simon; David Thesmar
    Abstract: This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is somehow riskier, so that the higher returns of a quality portfolio are a compensation for risk exposure. This view is consistent with the Efficient Market Hypothesis. The other view is the "behavioral view", which states that some investors persistently underestimate the true value of high quality firms. We find no evidence in favor of the "risk view": The returns from investing in quality firms are abnormally high on a risk-adjusted basis, and are not prone to crashes. We provide novel evidence in favor of the "behavioral view": In their forecasts of future prices, and while being overall overoptimistic, analysts systematically underestimate the future return of high quality firms, compared to low quality firms.
    Date: 2016–01
  2. By: Th\'arsis T. P. Souza; Tomaso Aste
    Abstract: We provide empirical evidence that suggests social media and stock markets have a nonlinear causal relationship. We take advantage of an extensive data set composed of social media messages related to DJIA index components. By using information-theoretic measures to cope for possible nonlinear causal coupling between social media and stock markets systems, we point out stunning differences in the results with respect to linear coupling. Two main conclusions are drawn: First, social media significant causality on stocks' returns are purely nonlinear in most cases; Second, social media dominates the directional coupling with stock market, an effect not observable within linear modeling. Results also serve as empirical guidance on model adequacy in the investigation of sociotechnical and financial systems.
    Date: 2016–01
  3. By: Martin T. Bohl; Gerrit Reher; Bernd Wilfling
    Abstract: In this paper we focus on the impact of short selling restrictions on stock returns volatility. To assess potential effects econometrically we apply two distinct versions of an asymmetric Markov-switching GARCH model to the recent short selling bans on stocks of financial enterprises in Germany. We find empirical evidence that the financial crisis is accompanied by an increase in volatility persistence and that this effect is particularly pronounced for those stocks that are subject to short selling constraints. We interpret this finding as evidence of a destabilizing impact of short selling constraints on stock returns volatility.
    Keywords: Financial market regulation; short selling constraints; stock returns volatility; Markov-switching GARCH models
    JEL: C5 G10 G18
    Date: 2016–01
  4. By: Xing Li; Tian Qiu; Guang Chen; Li-Xin Zhong; Xiong-Fei Jiang
    Abstract: Geography effect is investigated for the Chinese stock market, based on the daily data of individual stocks. Companies located around the stock markets are found to greatly contribute to the markets in the geographical sector. A geographical correlation is introduced to quantify the geography effect on the stock correlation, which is observed to approach steady as the company location moves to the northeast China. Stock distance effect is further studied, where companies are found to more likely set their headquarters close to each other. In the normal market environment, the stock correlation decays with the stock distance, but is independent of the stock distance in and after the financial crisis.
    Date: 2016–01

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