|
on Financial Markets |
|
Issue of 2017‒12‒18
six papers chosen by |
| By: | Hollstein, Fabian; Prokopczuk, Marcel; Wese Simen, Chardin |
| Abstract: | Researchers and practitioners face many choices when estimating an asset's sensitivities toward risk factors, i.e., betas. We study the effect of different data sampling frequencies, forecast adjustments, and model combinations for beta estimation. Using the entire U.S. stock universe and a sample period of more than 50 years, we find that a historical estimator based on daily return data with an exponential weighting scheme as well as a shrinkage toward the industry average yield the best predictions for future beta. Adjustments for asynchronous trading, macroeconomic conditions, or regression-based combinations, on the other hand, typically yield very high prediction errors. |
| Keywords: | beta estimation; forecast combinations; forecast adjustments |
| JEL: | G12 G11 G17 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-617&r=fmk |
| By: | Nguyen, Duc Binh Benno; Prokopczuk, Marcel; Sibbertsen, Philipp |
| Abstract: | This paper examines long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the U.S. and that the degree of memory can be related to firm characteristics such as market capitalization, book-to-market ratio, prior performance and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns. |
| Keywords: | Asset Pricing; Long Memory; Persistence; Volatility |
| JEL: | C22 G12 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-613&r=fmk |
| By: | Nguyen, Duc Binh Benno; Prokopczuk, Marcel; Wese Simen, Chardin |
| Abstract: | This paper examines the properties of the gold risk premium. We estimate a parsimonious model for the gold risk premium and uncover important time variations in the dynamics of the risk premium. We also estimate risk premia of the stock and bond markets, and investigate the role of gold as a hedge and safe haven asset from an ex-ante point of view. The results show that gold is not expected to serve as hedge and safe haven for the bond and stock markets, but it is so realized ex-post. Further, we find that gold is neither expected to be an inflation hedge nor is it realized. |
| Keywords: | Jump Risk; Tail Risk; Safe Haven; Hedge; Gold |
| JEL: | G01 G10 G11 Q02 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-616&r=fmk |
| By: | Ohls, Jana |
| Abstract: | In the context of the German regional government bond market, this paper studies the hypothesis that governments use moral suasion to persuade home government-owned banks to hold more home government debt. The empirical approach makes use of German banks' ownership structure, heterogeneity in the states' fiscal strength and detailed bank-level panel data on German banks' state bond portfolio on the security- and bank-level for the time period Q4:2005-Q2:2014. Results show that home state-owned banks hold a significantly higher amount of home state bonds than other home banks when fiscal fundamentals of the home state are weak. Banks located in other German states hold fewer state bonds in these situations. These findings are in line with moral suasion by state governments and are robust against controlling for observed and unobserved alternative incentives for banks' (home) state bond holdings such as risk-shifting by banks, lending opportunities or information asymmetries. |
| Keywords: | banks' sovereign bond portfolios,home bias,moral suasion,political economy of banking |
| JEL: | G11 G18 G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:332017&r=fmk |
| By: | Prokopczuk, Marcel; Tharann, Björn; Wese Simen, Chardin |
| Abstract: | We comprehensively analyze the predictive power of several option implied variables for monthly S & P 500 excess returns and realized variance. The correlation risk premium (CRP) emerges as a strong predictor of both excess returns and realized variance. This is true both in- and out-of-sample. A timing strategy based on the CRP leads to utility gains of more than 4.63% per annum. In contrast, the variance risk premium (VRP), which strongly predicts excess returns, does not lead to economic gains. |
| Keywords: | Equity Premium; Option Implied Information; Portfolio Choice; Predictability; Timing Strategies |
| JEL: | G10 G11 G17 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-619&r=fmk |
| By: | Jean-Sébastien Fontaine; James Pinnington; Adrian Walton |
| Abstract: | We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails. First, we find that fails are more likely following the release of surprise macroeconomic news. Second, settlement fails are more likely for bonds with greater trading activity in the borrowing market. These findings suggest that the recirculation of bonds through long settlement chains is important for understanding fails. Third, fails are more likely when interest rates are low and when the cost for borrowing a bond is high, which is likely because of frictions acting as constraints on the price to borrow a bond. Together, the evidence suggests that improvements to the price mechanism in the borrowing market could improve the recirculation of scarce bonds and may improve the functioning of the bond market. |
| Keywords: | Financial markets, Market structure and pricing, Payment clearing and settlement systems |
| JEL: | E4 G1 G2 G21 L1 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-54&r=fmk |