nep-fmk New Economics Papers
on Financial Markets
Issue of 2016‒10‒30
five papers chosen by

  1. The Effect of Air Pollution on Investor Behavior: Evidence from the S&P 500 By Anthony Heyes; Matthew Neidell; Soodeh Saberian
  2. On the Stock Markets’ Reactions to Taxation and Public Expenditure By Pasquale Foresti; Oreste Napolitano
  3. Measuring Systemic Risk Contribution of International Mutual Funds By Aizenman, Joshua; Jinjarak, Yothin; Zheng, Huanhuan
  4. Developing Local Currency Bond Markets in Asia By Park, Cyn-Young
  5. Are Do long-term bonds hedge equity risk? Evidence from Spain By Thomas Flavin; Dolores Lagoa-Varela

  1. By: Anthony Heyes; Matthew Neidell; Soodeh Saberian
    Abstract: We provide detailed empirical evidence of a direct effect of air pollution on the efficient operation of the New York Stock Exchange, linking short-term variations in fine particulate matter (PM2.5) in Manhattan to movements in the S&P 500. The effects are substantial – a one standard deviation increases in ambient PM2.5 reduces same-day returns by 11.9% in our preferred specification – and remarkably robust to a variety of specifications and a battery of robustness and falsification checks. Furthermore, the intra-day effects that we observe are difficult to reconcile with competing hypotheses. Despite investors being dispersed geographically we find strong evidence that the effect is strictly local in nature, consistent with the high concentration of market influencers in New York. While we are agnostic as to the underlying mechanism, we provide evidence suggestive of the role of decreased risk tolerance operating through pollution-induced changes in mood or cognitive function.
    JEL: G02 J24 Q53
    Date: 2016–10
  2. By: Pasquale Foresti; Oreste Napolitano
    Abstract: In this paper a panel analysis is employed to investigate the effects of governments’ expenditure and taxation on stock market indexes in 11 members of the Eurozone. A significant number of studies have focused on the effects of monetary policy on the Eurozone stock markets, while only a limited number of papers have investigated the effects of fiscal policy on the stock markets. Therefore, we know little, if anything, on the sign and the stability of the stock markets’ reaction to taxation and public expenditure. Our results show that fiscal maneuvers influence stock markets and that, following an increase (decrease) in public deficit, stock markets indexes go down (up). Nevertheless, further analysis shows that the signs of the estimated stock markets’ reactions are not constant over time and that they can change according to the surrounding macroeconomic scenario.
    Keywords: Stock Market, Fiscal Policy, Eurozone
    Date: 2016–09
  3. By: Aizenman, Joshua (Asian Development Bank Institute); Jinjarak, Yothin (Asian Development Bank Institute); Zheng, Huanhuan (Asian Development Bank Institute)
    Abstract: This study provides new evidence of systemic risk contribution in the international mutual fund sector from 2000–2011. The empirical analysis tracks the systemic risk of 10,570 mutual funds investing internationally. The main findings suggest that the systemic risk contributions of international mutual funds are more than proportional given the fund’s size. Policy implications are discussed in terms of practicality of regulation, macroprudential approach, and risk-taking behavior of fund managers.
    Keywords: systemic risk contribution; systemic risk; mutual funds; international mutual funds; global financial system
    JEL: E44 F30 G15
    Date: 2016–10–20
  4. By: Park, Cyn-Young (Asian Development Bank)
    Abstract: Local currency bond markets in emerging Asian economies have expanded dramatically since governments took steps to end the currency and maturity mismatches that savaged borrowers in the region’s financial crisis nearly 20 years ago. Encouraged in part by regional cooperation programs such as the Asian Bond Markets Initiative, the value of local currency government and corporate bond sales has grown fourfold in the past decade, helping to fund much-needed infrastructure development and protect businesses from global financial shocks. However, much more needs to be done to strengthen market infrastructure and institutions, address inconsistent policies and regulations, and enhance corporate governance. This paper presents evidence that better macroeconomic performance and stronger institutions help develop larger local currency bond markets and also create conditions for the growth in local currency sales of corporate debt and bonds with longer maturities. Regional integration can be stepped up to support the key determinants for developing efficient local currency bond markets in emerging Asia.
    Keywords: bond market; financial integration; local currency bonds
    JEL: G10 G11 G18
    Date: 2016–08–24
  5. By: Thomas Flavin (Department of Economics, Finance and Accounting, Maynooth University.); Dolores Lagoa-Varela (Universidad La Coruña, Spain.)
    Abstract: We analyze the relationship between returns on equity and long-term government bonds in the Spanish economy. In particular, we are interested in the stability of the relationship across differing market conditions and if long-term bonds deliver diversification benefits during periods of equity market turbulence. Employing a Markov-switching vector autoregression model with three regimes, we find that the Spanish stock-bond relationship varies across market conditions and is positively correlated during ‘Bear’ markets. A sectoral analysis reveals that two sectors – Financials and Oil & Gas – are responsible for this positive comovement with the former being relatively more important. Classification- G01
    Keywords: Stock-bond relationship; diversification; Spanish financial markets.
    Date: 2016

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