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on Financial Markets |
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Issue of 2016‒12‒18
six papers chosen by |
| By: | Panagiotis Papaioannou; Thomas Dionysopoulos; Dietmar Janetzko; Constantinos Siettos |
| Abstract: | By monitoring the time evolution of the most liquid Futures contracts traded globally as acquired using the Bloomberg API from 03 January 2000 until 15 December 2014 we were able to forecast the S&P 500 index beating the Buy and Hold trading strategy. Our approach is based on convolution computations of 42 of the most liquid Futures contracts of four basic financial asset classes, namely, equities, bonds, commodities and foreign exchange. These key assets were selected on the basis of the global GDP ranking across countries worldwide according to the lists published by the International Monetary Fund (IMF, Report for Selected Country Groups and Subjects, 2015). The main hypothesis is that the shifts between the asset classes are smooth and are shaped by slow dynamics as trading decisions are shaped by several constraints associated with the portfolios allocation, as well as rules restrictions imposed by state financial authorities. This hypothesis is grounded on recent research based on the added value generated by diversification targets of market participants specialized on active asset management, who try to efficiently and smoothly navigate the market's volatility. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1612.04370&r=fmk |
| By: | Cespa, Giovanni; Colla, Paolo |
| Abstract: | We study insider trading disclosure in a dynamic model where a security is traded in two venues by an insider together with noise traders, and prices are set by competitive dealers in each location, under two alternative information regimes. We first posit that markets are informationally segmented, in that market makers are privy to the information gathered in their venue. In this case, fragmentation has no effect on the price discovery impact of insider trades' disclosure. We then allow market makers in a given venue to also observe the other venue's past period price as well as a noisy signal of that venue's order flow. In this case, we show that if markets are sufficiently pre-trade transparent, disclosure can impair price discovery. |
| Keywords: | Disclosure of Insider Trades; Dissimulation; fragmentation; Informational efficiency; Market transparency; Price comovement |
| JEL: | G10 G12 G14 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11690&r=fmk |
| By: | Rousse, O.; Sévi, B. |
| Abstract: | The weekly release of the U.S. inventory level by the DOE-EIA is known as the market mover in the U.S. oil futures market and to be a significant piece of information for all world oil markets in which the WTI is a price benchmark. We uncover suspicious trading patterns in the WTI futures markets in days when the inventory level is released that are higher than economists' forecasts: there are significantly more orders initiated by buyers in the two hours preceding the official release of the inventory level. We also show a clear drop in the average price of -0.25% ahead of the news release. This is consistent with informed trading. We also provide evidence of an asymmetric response of the oil price to the news, and highlight an over-reaction that is partly compensated in the hours following the announcement. |
| Keywords: | INSIDER TRADING;WTI CRUDE OIL FUTURES;INTRADAY DATA;INVENTORY RELEASE |
| JEL: | G13 G14 Q4 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gbl:wpaper:2016-07&r=fmk |
| By: | Stan Hurn (Queensland University of Technology - School of Economics and Finance); Peter C. B. Phillips (Cowles Foundation, Yale University); Shu-Ping Shi (Macquarie University) |
| Abstract: | Causal relationships in econometrics are typically based on the concept of predictability and are established in terms of tests for Granger causality. These causal relationships are susceptible to change, especially during times of financial turbulence, making the real-time detection of instability an important practical issue. This paper develops a test for detecting changes in causal relationships based on a recursive rolling window, which is analogous to the procedure used in recent work on financial bubble detection. The limiting distribution of the test takes a simple form under the null hypothesis and is easy to implement in conditions of homoskedasticity, conditional heteroskedasticity and unconditional heteroskedasticity. Simulation experiments compare the efficacy of the proposed test with two other commonly used tests, the forward recursive and the rolling window tests. The results indicate that both the rolling and the recursive rolling approaches offer good finite sample performance in situations where there are one or two changes in the causal relationship over the sample period, although the performance of the rolling window algorithm seems to be the best. The testing strategies are illustrated in an empirical application that explores the causal impact of the slope of the yield curve on real economic activity in the United States over the period 1985–2013. |
| Keywords: | Causality, Forward recursion, Hypothesis testing, Output, Recursive rolling test, Rolling window, Yield curve |
| JEL: | C12 C15 C32 G17 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2058&r=fmk |
| By: | Hong Li; Shamim Ahmed; Thanaset Chevapatrakul |
| Abstract: | The vote of the people of the United Kingdom to leave the European Union following the referendum on June 23, 2016, created tremendous uncertainty in the financial markets. This paper documents the stock market interdependence across four major European markets around this rare and unique event. We uncover the characteristics of the volatility spillover dynamics across France, Germany, Switzerland and the United Kingdom using intraday data at 15-minute intervals. Specifically, we quantify four types of volatility spillover measures: total (non-directional) spillovers, gross directional spillovers, net directional spillovers, and net pairwise spillovers. Our results point to considerable interdependence among the four stock markets. We find that France and Germany were in general the net volatility transmitters to others, while Switzerland and the United Kingdom the net receivers from others during January 4, 2016 to September 30, 2016. Around the day of the Brexit referendum, France and the United Kingdom appear to be net transmitters, while Germany and Switzerland net receivers. Our empirical analysis uncovers important information regarding stock market interdependence, which will be beneneficial to both policymakers and practitioners. |
| Keywords: | Market risk, Stock market, Spillover effect, Vector autoregression, and Variance decomposition. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:16/06&r=fmk |
| By: | Feng, Xunan (Southwestern University of Finance and Economics); Johansson, Anders C. (Stockholm China Economic Research Institute) |
| Abstract: | We hypothesize that investors in China’s market for initial public offerings (IPOs) are influenced by the level of attention given to upcoming offerings. Using a novel data set on analyst coverage, we find that investor attention as proxied by the number of analysts covering a firm drives IPO underpricing. We also show that analyst coverage is positively related with small trading activities during the first trading day. Our results suggest that analysts attract the attention of individual investors, who then drive IPO initial returns and cause related long-term price reversals in the post-IPO market. These findings contradict the argument that a primary role of analysts is to reduce information asymmetry and instead support the attention hypothesis. |
| Keywords: | Attention; Investor behavior; Behavioral biases; Analyst coverage; Initial public offerings; China |
| JEL: | G11 G14 G15 G24 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hascer:2016-039&r=fmk |