nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒05‒07
four papers chosen by

  1. CAPM-Based Company (Mis)valuations By Olivier, Jacques; Dessaint, Olivier; Otto, Clemens A.; Thesmar, David
  2. The Impact of the Exchange Rate Volatilities on Stock Market Returns Dynamic By Nesrine Mechri; Ben Hamad; Christian Peretti; Sahar Charfi
  3. Relationship between tick size reduction and price information of open limit order book By Kenji Hatakenaka
  4. Stock Market Response to Public Investment under the Zero Lower Bound: Cross-industry Evidence from Japan By Tomomi Miyazaki; Kazuki Hiraga; Masafumi Kozuka

  1. By: Olivier, Jacques; Dessaint, Olivier; Otto, Clemens A.; Thesmar, David
    Abstract: There is a discrepancy between CAPM-implied and realized returns. As a result, using the CAPM in capital budgeting decisions -- as is recommended in finance textbooks -- should have valuation effects. For instance, low beta projects are expected to be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions. We show that takeovers of lower beta targets are accompanied by lower CARs for the bidder. Consistent with our hypothesis, the effect is more pronounced for larger acquisitions, higher growth targets, and private targets. Furthermore, low beta bidders are more likely to use their own stock to finance the deal. More generally, low beta firms are less likely to issue equity, and more likely to repurchase shares. These effects are not reversed in the long-run, suggesting that CAPM-using managers may be irrational, though this last test lacks power.
    Keywords: Capital Budgeting; Valuation; Mergers and Acquisitions; Capital Asset Pricing Model
    JEL: G31 G34
    Date: 2017–10–01
  2. By: Nesrine Mechri (UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, FSEG Sfax - Faculté des Sciences Economiques et de Gestion de Sfax - Faculté des Sciences Economiques et de Gestion de Sfax); Ben Hamad (IHEC de Sfax); Christian Peretti (University of Orleans - LEO); Sahar Charfi (FSEG Sfax - Faculté des Sciences Economiques et de Gestion de Sfax - Faculté des Sciences Economiques et de Gestion de Sfax)
    Abstract: The present research provides an overview of the interactions and links between exchange rate volatility and the dynamics of stock market returns in order to clarify the relationship between this variables for managers and investors who will be able to control better the portfolio risk level. This research aims to identify the impact of both exchange rate and relative prices uncertainty on the fluctuations of stock markets prices, considering two countries that belong to MENA zone. The GARCH model is applied to measure the volatility of our variables and implemented a multiple regression model to determine the impact of exchange rate and relative prices fluctuations as well as their volatilities on stock market volatility using Monthly data. In this work, several determinants of stock market indices are integrated in our empirical examination that have not been used simultaneously before, hence, the results show that in the case of Tunisia, exchange rate volatility have a significant effect on stock market fluctuations, as well as the volatility of the Gold and the oil prices, which are significant. Alternatively, in Turkey both the volatilities of the exchange rate and gold prices have an influence on the dynamics of the stock market returns and the fluctuation of the interest rate as well, while other prices are statistically non-significant. J.E.L. classification: F31, F62, F65, G15
    Keywords: Nominal exchange rate,MENA,Volatility,GARCH 2,Stock market return
    Date: 2018–04–14
  3. By: Kenji Hatakenaka (Graduate School of Economics, Osaka University)
    Abstract: In this study, I examine the effects from tick size reduction in 2014 at Tokyo Stock Ex- change to price discovery of the limit order book by using tick-by-tick data from TOPIX100 stocks. Typically, both spreads and depths decline after tick size reduction. This fact has been confirmed in this study too. I examine the effects of changes in trader fs behavior which is caused by changes in the shape of limit order book. The results suggest that the information of an efficient price became more likely to be reflected by market orders than limit orders after tick size reduction.
    Keywords: equity market; price discovery; market microstructure; high frequency trading.
    JEL: G14
    Date: 2018–05
  4. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University); Kazuki Hiraga (School of Political Science and Economics, Tokai University); Masafumi Kozuka (University of Marketing and Distribution Sciences (Japan))
    Abstract: This research examines the effects of public investment on stock returns using Japanese cross-industry data. We calculate impulse response functions using the local projection method. The empirical results show that public investment shocks have strong and stimulating effects on stock returns when the nominal interest rate is at the zero lower bound (ZLB) while negative responses dominate outside of the ZLB period. Furthermore, the estimated impulse responses for the non-manufacturing industry group are larger than those of the manufacturing industry group. Our results imply that the government should increase public investment when nominal interest rates are near zero to prop up the stock market and cut back once the economy is no longer in a liquidity trap.
    Keywords: Public investment; stock returns; local projection method; zero lower bound
    JEL: E44 G12 H54
    Date: 2018–04

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