nep-fmk New Economics Papers
on Financial Markets
Issue of 2017‒06‒25
three papers chosen by

  1. The Relevance of Broker Networks for Information Diffusion in the Stock Market By Marco Di Maggio; Francesco Franzoni; Amir Kermani; Carlo Sommavilla
  2. Oil Speculation and Herding Behavior in Emerging Stock Markets By Esin Cakan; Rıza Demirer; Rangan Gupta; Hardik A. Marfatia
  3. Should the Malaysian Islamic stock market investors invest in regional and international equity market to gain portfolio diversification benefits ? By Umirah, Fatin; Masih, Mansur

  1. By: Marco Di Maggio; Francesco Franzoni; Amir Kermani; Carlo Sommavilla
    Abstract: This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just before the filing of the 13D. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.
    JEL: G12 G14 G24
    Date: 2017–06
  2. By: Esin Cakan (Department of Economics, University of New Haven, USA); Rıza Demirer (Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Hardik A. Marfatia (Department of Economics, Northeastern Illinois University, Chicago, USA)
    Abstract: This paper explores the relationship between stock and commodity markets from a novel perspective by examining the relationship between speculation in the oil market and investor herding in stock markets. Using firm level data from three energy importing and exporting nations, namely Russia, Brazil, and Turkey, we show that these markets often switch between herding and anti-herding states, while herding is more prevalent in the case of Russia. We also find that speculative activities in the global oil market significantly affect investors behavior in Russia and Brazil with greater oil speculation associated with herding in these markets. Our findings suggest that policy makers should watch measures of speculative activities in the commodity markets for possible signals in order to model and monitor investor behavior in their local markets.
    Keywords: Emerging markets, Herd behavior, Crude oil, Speculative ratio
    JEL: G14 G15
    Date: 2017–06
  3. By: Umirah, Fatin; Masih, Mansur
    Abstract: This paper is aimed at determining the dynamic links of conventional and Islamic, regional and international equity markets with Shariah compliant equity (FTSE Hijrah Shariah Index) investing in Malaysia using MGARCH-DCC and Wavelet Coherence, given different holding periods. The data for this study is taken for the year 2007-2017. Overall, the results show there is a dynamic link between six sample stocks and this indicates that the Malaysian Shariah Compliant investors can invest in international or regional markets with different investment horizons bearing important implications for portfolio diversification strategies. In particular, the results tend to show that the FTSE Bursa Malaysia Hijrah Shariah Index has the low correlation with global stock market indexes, regardless of conventional or Islamic. However, the correlation between Islamic stocks are quite high. These results have implications for the portfolio diversification by the Malaysian Shariah investors.
    Keywords: Stock market, Dynamic link, MGARCH, Wavelet Coherence, Malaysia, FTSE Hijrah Shariah Stock Index
    JEL: C58 E44 G11 G15
    Date: 2017–06–14

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