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on Financial Markets |
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Issue of 2017‒06‒11
five papers chosen by |
| By: | Amalia Morales-Zumaquero (Department of Economic Theory and History, Universidad de Málaga. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Simón Sosvilla-Rivero (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.) |
| Abstract: | This paper empirically analyses the evidence of intra-spillovers and inter-spillovers between foreign exchange and stock markets in the seven economies which concentrate the majority of foreign exchange transactions (i.e. United Kingdom, Euro area, Australia, Swiss, Canada, United Kingdom and Japan), using daily data, during the period 1990 to 2015 and during the pre-global and post-global financial crisis periods. To that end, we employ two econometric methodologies: the C-GARCH methodology by Engle and Lee (1999) and the SVAR framework (Sohel Azad et al., 2015). Results suggest that: (i) permanent and transitory components of the conditional variance exhibit several well-known peaks in volatilities; (ii) the long-run volatility relationships are stronger than the short-run linkages volatility with a reinforcement during the post-global financial crisis period; (iii) the presence of intra-spillovers and inter-spillovers increases substantially during the post-global financial crisis period and (iv) in all samples, the stock markets play a dominant role in the transmission of long-run and short-run volatility, except for in the period after the Global Financial Crisis, where the foreign-exchange markets are the main long-run volatility triggers. |
| Keywords: | Stock markets; Exchange rates; Market spillovers; Component-GARCH model; Longterm volatility; Short-term volatility |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:wpaper:1702&r=fmk |
| By: | Jean-Pierre Fouque; Yuri F. Saporito |
| Abstract: | A parsimonious generalization of the Heston model is proposed where the volatility-of-volatility is assumed to be stochastic. We follow the perturbation technique of Fouque et al (2011, CUP) to derive a first order approximation of the price of options on a stock and its volatility index. This approximation is given by Heston's quasi-closed formula and some of its Greeks. It can be very efficiently calculated since it requires to compute only Fourier integrals and the solution of simple ODE systems. We exemplify the calibration of the model with S&P 500 and VIX data. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1706.00873&r=fmk |
| By: | Shin-ichi Fukuda (Faculty of Economics, The University of Tokyo); Mariko Tanaka (Faculty of Economics, Musashino University) |
| Abstract: | The purpose of this paper is to explore to what extent spillovers from Asian financial market shocks have risen during the past two decades. In the first part, we examine spillover effects in stock markets. Estimating the GVAR (Global Vector Autoregressive) model, we find that spillover effects from emerging Asia became large in the post GFC (Global Financial Crisis) period. However, we also find that most of the spillover effects were from shocks in manufacturing sector rather than from those in financial sector. This implies that the spillover effects increased in the post GFC period because of increased manufacturing sector's shocks in emerging Asia. In the second part, we examine spillover effects across different foreign exchange rates. As in the stock markets, spillover effects from emerging Asia became large in the foreign exchange markets in the post GFC period. In particular, our high frequency data analysis suggests that an exchange rate policy change by the PBC (the People's Bank of China) had positive spillover effects on the most of the advanced currencies in the post GFC period. The empirical results imply that the impact of Chinese shocks has been rising in the global financial markets. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2016cf1050&r=fmk |
| By: | Paola Cerchiello (Department of Economics and Management, University of Pavia); Giancarlo Nicola (Department of Economics and Management, University of Pavia); Samuel Rönnqvist (Turku Centre for Computer Science - TUCS, Åbo Akademi University); Peter Sarlin (Hanken School of Economics, RiskLab Finland) |
| Abstract: | In this paper we focus our attention on the exploitation of the information contained in financial news to enhance the performance of a classifier of bank distress. Such information should be analyzed and inserted into the predictive model in the most efficient way and this task deals with all the issues related to text analysis and specifically analysis of news media. Among the different models proposed for such purpose, we investigate one of the possible deep learning approaches, based on a doc2vec representation of the textual data, a kind of neural network able to map the sequential and symbolic text input onto a reduced latent semantic space. Afterwards, a second supervised neural network is trained combining news data with standard financial figures to classify banks whether in distressed or tranquil states, based on a small set of known distress events. Then the final aim is not only the improvement of the predictive performance of the classifier but also to assess the importance of news data in the classification process. Does news data really bring more useful information not contained in standard financial variables? Our results seem to confirm such hypothesis. |
| Keywords: | behavioural finance, financial news, deep learning, bank distress, Word2vec. |
| JEL: | C83 C12 E58 E61 G02 G14 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0140&r=fmk |
| By: | Daniel Garrett; Andrey Ordin; James W. Roberts; Juan Carlos Suárez Serrato |
| Abstract: | We show that the effect of tax advantages of municipal bonds on the market microstructure of municipal bond auctions is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp. lowers mean borrowing costs by 9-10%, consistent with a greater than-unity passthrough elasticity. Non-parametric evidence shows that strategic participation and bidding in imperfectly-competitive auctions generates this greater-than-unity passthrough. Using a structural auction model to evaluate the efficiency of Obama and Trump administration proposals, we find that the reduction in municipal borrowing costs is 2.8-times the revenue cost of the tax advantage. |
| JEL: | D44 H71 L13 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23473&r=fmk |