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on Financial Markets |
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Issue of 2017‒06‒18
four papers chosen by |
| By: | Belke, Ansgar; Dubova, Irina |
| Abstract: | The paper empirically estimates the financial transmission between bond and equity markets within and across the four largest global financial markets - the United States, the Euro area, Japan, and the United Kingdom. We argue that international bond and equity markets are highly connected both within and across asset classes in a globalized world, where the complex transmission process across various financial assets is not restricted to just the domestic market. This paper employs identification through generalized forecast error variance decompositions to estimate spillovers across four systemic markets in a Vector Autoregression (VAR) framework. We find that asset prices react strongest to international shocks within the same asset class, but that there are also substantial international spillovers across asset classes. Rolling estimations analysis provides evidence that global asset markets have become more integrated and the bilateral relationships change over time. Our results are robust to specifications which take into account the monetary policy stance and include foreign exchange markets. |
| Keywords: | asset markets,financial transmission,financial market integration,rolling estimations,spillovers,vector autoregression |
| JEL: | E52 E58 F42 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:696&r=fmk |
| By: | Manresa, Elena; Peñaranda, Francisco; Sentana, Enrique |
| Abstract: | Asset pricing models with potentially too many risk factors are increasingly common in empirical work. Unfortunately, they can yield misleading statistical inferences. Unlike other studies focusing on the properties of standard estimators and tests, we estimate the sets of SDFs and risk prices compatible with the asset pricing restrictions of a given model. We also propose tests to detect problematic situations with economically meaningless SDFs uncorrelated to the test assets. We confirm the empirical relevance of our proposed estimators and tests with Yogo's (2006) linearized version of the consumption CAPM, and provide Monte Carlo evidence on their reliability in finite samples. |
| Keywords: | Continuously Updated GMM; Factor pricing models; Set estimation; Stochastic discount factor; Underidentification tests. |
| JEL: | C52 G12 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12085&r=fmk |
| By: | Haizhen Wang; Ratthachat Chatpatanasiri; Pairote Sattayatham |
| Abstract: | On a daily investment decision in a security market, the price earnings (PE) ratio is one of the most widely applied methods being used as a firm valuation tool by investment experts. Unfortunately, recent academic developments in financial econometrics and machine learning rarely look at this tool. In practice, fundamental PE ratios are often estimated only by subjective expert opinions. The purpose of this research is to formalize a process of fundamental PE estimation by employing advanced dynamic Bayesian network (DBN) methodology. The estimated PE ratio from our model can be used either as a information support for an expert to make investment decisions, or as an automatic trading system illustrated in experiments. Forward-backward inference and EM parameter estimation algorithms are derived with respect to the proposed DBN structure. Unlike existing works in literatures, the economic interpretation of our DBN model is well-justified by behavioral finance evidences of volatility. A simple but practical trading strategy is invented based on the result of Bayesian inference. Extensive experiments show that our trading strategy equipped with the inferenced PE ratios consistently outperforms standard investment benchmarks. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1706.02985&r=fmk |
| By: | Tamon Asonuma; Dirk Niepelt; Romain Ranciere |
| Abstract: | Rejecting a common assumption in the sovereign debt literature, we document that creditor losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt are larger than those on debt of longer maturity. In a standard asset pricing model, we show that increasing short-run default risk in the run-up to a restructuring episode can explain the stylized fact. The data confirms the predicted relation between perceived default risk, bond prices, and haircuts by maturity. |
| Date: | 2017–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/119&r=fmk |