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on Financial Markets |
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Issue of 2016‒06‒18
nine papers chosen by |
| By: | Galimberti, Jaqueson; Suhadolnik, Nicolas; Da Silva, Sergio |
| Abstract: | One explanation for large stock market fluctuations is its tendency to herd behavior. We put forward an agent-based model where instabilities are the result of liquidity imbalances amplified by local interactions through imitation, and calibrate the model to match some key statistics of actual daily returns.We show that an “aggregate market-maker” type of liquidity injection is not successful in stabilizing prices due to the complex nature of the stock market. To offset liquidity shortages, we propose the use of locally triggered contrarian rules, and show that these mechanisms are effective in preventing extreme returns in our artificial stock market. |
| Keywords: | Herding, Robot trading, Financial regulation, Agent-based model |
| JEL: | C63 G02 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71758&r=fmk |
| By: | Karl Pinno (University of Calgary); Apostolos Serletis (University of Calgary) |
| Abstract: | This paper provides a study of the relationship between money growth variability, velocity, and the stock market, using recent advances in financial econometrics. We estimate a trivariate VARMA, GARCH-in-Mean, BEKK model to quantify the effects of financial market and money supply instability. We investigate the robustness of the results to different definitions of money using monthly Divisia indices for the United States from the Center for Financial Stability (CFS). Empirical evidence supports significance of financial market and money supply volatility, and we conclude that Friedman's money supply volatility hypothesis is alive and well. |
| Date: | 2016–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2016-33&r=fmk |
| By: | Thiago Christiano Silva; Sergio Rubens Stancato de Souza; Benjamin Miranda Tabak |
| Abstract: | In this paper, we study the evolution of the network topology for the global financial market. We evaluate the level of diversification and participation of developed and emerging economies in cross-border exposures and find that the gross exposure network is dense, the vulnerability matrix is sparse, and the network's fragility changes over time. Prior to the financial crisis in 2008, the network was relatively fragile, whereas it became more resilient afterwards, showing a reduction in financial institutions risk appetite. Our results suggest that financial regulators should track down the network evolution in their systemic risk assessment |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:439&r=fmk |
| By: | Yerkin Kitapbayev; Jerome Detemple |
| Abstract: | In this paper, we extend the 3/2-model for VIX studied by Goard and Mazur (2013) and introduce generalized 3/2 and 1/2 classes for volatility. Under these models, we study the pricing of European and American VIX options and, for the latter, we obtain an early exercise premium representation using a free-boundary approach and local time-space calculus. The optimal exercise boundary for the volatility is obtained as the unique solution to an integral equation of Volterra type. We also consider a model mixing these two classes and formulate the cor- responding optimal stopping problem in terms of the observed factor process. The price of an American VIX call is then represented by an early exercise premium formula. We show the existence of a pair of optimal exercise bound- aries for the factor process and characterize them as the unique solution to a system of integral equations. |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1606.00530&r=fmk |
| By: | Sophie Steins Bisschop; Martijn Boermans; Jon Frost |
| Abstract: | Do market illiquidity and concentrated holdings of bonds aggravate price volatility during periods of stress? We seek to answer this question with a new and unique ECB dataset and price information on European corporate, sovereign and bank bonds during the 2013 Taper Tantrum and 2015 Bund Tantrum. Results suggest that market illiquidity, as measured by bid-ask spreads and a new Bloomberg measure, is a strong and statistically significant driver of price volatility in European bonds during both periods. Concentration of holdings by one sector has a significant upward effect on volatility only during the recent Bund Tantrum. During both periods, we can show that households, money market funds and other financial intermediaries engaged in procyclical selling of bonds, while banks and pension funds have been contrarian investors. We sketch how liquidity shocks and concentration can impact financial stability in the euro area, through several amplification channels and the investment behavior of different sectors. The results have implications for systemic risk analysis and the design of macroprudential policy for the non-bank financial sector. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbocs:1401&r=fmk |
| By: | Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani |
| Abstract: | Kilian and Park (IER 50 (2009), 1267-1287) find shocks to oil supply are relatively unimportant to understanding changes in U.S. stock returns. We examine the impact of both U.S. and non-U.S. oil supply shocks on U.S. stock returns in light of the unprecedented expansion in U.S. oil production since 2009. Our results underscore the importance of the disaggregation of world oil supply and of the recent extraordinary surge in the U.S. oil production for analysing impact on U.S. stock prices. A positive U.S. oil supply shock has a positive impact on U.S. real stock returns. Oil demand and supply shocks are of comparable importance in explaining U.S. real stock returns when supply shocks from U.S. and non-U.S. oil production are identified. |
| Keywords: | Oil prices, Stock returns, U.S. oil production |
| JEL: | E44 G12 Q43 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-33&r=fmk |
| By: | Gizelis, Demetrios; Chowdhury, Shah |
| Abstract: | Abstract A plethora of academic research has been under way investigating the effect of individual investor sentiment on stock returns. It seems that the issue is not resolved yet because the empirical findings are not entirely conclusive. Most authors argue that there is a place for sentiment as a determining factor in the stock retu rn generating process while several others find that it is exactly the opposite. This paper aims at contributing to the existing debate by examining the relationship between investor sentiment and stock market returns of firms listed in the Athens Stock Exchange. We employ two investor sentiment prox ies, a direct and an indirect. As the direct me asurement of sentiment we use the historical investor sentiment indicators compiled by the European Commission, and for the indirect one we resort to the closed - end equity fund discount/premium. Using monthly data for the period January 199 5 to April 2014 the regression results indicate that investor sentiment weakly explains returns. B ecause this type of risk is not diversifiable, for practical purposes somehow it ought to be priced. Thus, it appears t hat behavio ral factors may be consider ed in empirical asset pricing models for the Greek market. |
| Keywords: | Keywords: Investor sentiment, Greek stock market, Return predictability |
| JEL: | G02 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71243&r=fmk |
| By: | K. Kanjamapornkul; Richard Pin\v{c}\'ak; Erik Barto\v{s} |
| Abstract: | The cohomology theory for financial market can allow us to deform Kolmogorov space of time series data over time period with the explicit definition of eight market states in grand unified theory. The anti-de Sitter space induced from a coupling behavior field among traders in case of a financial market crash acts like gravitational field in financial market spacetime. Under this hybrid mathematical superstructure, we redefine a behavior matrix by using Pauli matrix and modified Wilson loop for time series data. We use it to detect the 2008 financial market crash by using a degree of cohomology group of sphere over tensor field in correlation matrix over all possible dominated stocks underlying Thai SET50 Index Futures. The empirical analysis of financial tensor network was performed with the help of empirical mode decomposition and intrinsic time scale decomposition of correlation matrix and the calculation of closeness centrality of planar graph. |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1606.02871&r=fmk |
| By: | Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University) |
| Abstract: | This paper assesses the effect of political institutions on stock market performance in 14 African countries for which stock market data is available for the period 1990-2010. The estimation technique used is a Two-Stage-Least Squares Instrumental Variable methodology. Political regime channels of democracy, polity and autocracy are instrumented with legal-origins, religious-legacies, income-levels and press-freedom qualities to account for stock market performance dynamics of capitalization, value traded, turnover and number of listed companies. The findings show that countries with democratic regimes enjoy higher levels of financial market development compared to their counterparts with autocratic inclinations. As a policy implication, the role of sound political institutions has important effects on both the degree of competition for public office and the quality of public offices that favour stock market development on the African continent. |
| Keywords: | Financial Markets; Government Policy; Development |
| JEL: | G10 G18 G28 P16 P43 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:16/012&r=fmk |