nep-fmk New Economics Papers
on Financial Markets
Issue of 2016‒07‒16
three papers chosen by

  1. Stock Market Market Crash of 2008: an empirical study of the deviation of share prices from company fundamentals By Taisei Kaizoji; Michiko Miyano
  2. How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? By Balasubramanyan, Lakshmi; Berger, Allen N.; Koepke, Matthew; Bouwman, Christa H. S.
  3. Stock market and economic growth in Eastern Europe By Prats Albentosa, María Asuncíon; Sandoval, Beatriz

  1. By: Taisei Kaizoji; Michiko Miyano
    Abstract: The aim of this study is to investigate quantitatively whether share prices deviated from company fundamentals in the stock market crash of 2008. For this purpose, we use a large database containing the balance sheets and share prices of 7,796 worldwide companies for the period 2004 through 2013. We develop a panel regression model using three financial indicators--dividends per share, cash flow per share, and book value per share--as explanatory variables for share price. We then estimate individual company fundamentals for each year by removing the time fixed effects from the two-way fixed effects model, which we identified as the best of the panel regression models. One merit of our model is that we are able to extract unobservable factors of company fundamentals by using the individual fixed effects. Based on these results, we analyze the market anomaly quantitatively using the divergence rate--the rate of the deviation of share price from a company's fundamentals. We find that share prices on average were overvalued in the period from 2005 to 2007, and were undervalued significantly in 2008, when the global financial crisis occurred. Share prices were equivalent to the fundamentals on average in the subsequent period. Our empirical results clearly demonstrate that the worldwide stock market fluctuated excessively in the time period before and just after the global financial crisis of 2008.
    Date: 2016–07
  2. By: Balasubramanyan, Lakshmi (Federal Reserve Bank of Cleveland); Berger, Allen N.; Koepke, Matthew (Federal Reserve Bank of Cleveland); Bouwman, Christa H. S.
    Abstract: Little is known about how lead banks in the syndicated loan market use their private information about loan quality. We formulate and test two hypotheses, the Signaling Hypothesis and Sophisticated Syndicate Hypothesis. To measure private information, we use Shared National Credit (SNC) internal loan ratings, which we make comparable across banks using concordance tables. We find that favorable private information is associated with higher loan retention by lead banks for term loans, consistent with empirical domination of the Signaling Hypothesis, while neither hypothesis dominates for revolvers. Differences in syndicate structure at least partially explain this disparity.
    Keywords: lead bank; private information; loan sales; syndication;
    JEL: G21 G28
    Date: 2016–06–30
  3. By: Prats Albentosa, María Asuncíon; Sandoval, Beatriz
    Abstract: A developed financial system is essential in a market economy. This paper studies the importance of the development of financial markets in general, and the stock market in particular, from the review of existing literature in the area of the relationship between financial development and economic growth, and especially, the link between the stock market and economic growth. Through an empirical analysis for six countries in Eastern Europe (Bulgaria, Slovakia, Hungary, Poland, Czech Republic and Romania) it is tried to show the link between the stock market development and economic growth in these countries from 1995 to 2012 in order to explain the transition processes, from communist to market economies, which began with the fall of the Berlin Wall in 1989. The results show evidence of Granger causality between economic growth variables and financial market variables.
    Keywords: economic growth,stock market,financial markets,financial development
    JEL: F43 O16 G2
    Date: 2016

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