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on Financial Markets |
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Issue of 2018‒06‒18
four papers chosen by |
| By: | Jorda, Oscar (Federal Reserve Bank of San Francisco); Schularick, Moritz (University of Bonn); Taylor, Alan M. (University of California, Davis); Ward, Felix (University of Bonn) |
| Abstract: | This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes. |
| JEL: | E50 F33 F42 F44 G12 N10 N20 |
| Date: | 2018–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2018-05&r=fmk |
| By: | Jaccard, Ivan |
| Abstract: | This paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks. In a model that is capable of matching asset pricing moments, a short-lived shock that destroys a small fraction of the economy’s stock of pledgeable collateral generates a persistent recession, a stock market crash, and a flight-to-safety effect. This novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks. JEL Classification: E32, E44, G10 |
| Keywords: | equity premium, Great Recession, liquidity constraints |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182150&r=fmk |
| By: | Babus, Ana; Kondor, Peter |
| Abstract: | We propose a model of trade in over-the-counter (OTC) markets in which each dealer with private information can engage in bilateral transactions with other dealers, as determined by her links in a network. Each dealer's strategy is represented as a quantity-price schedule. We analyze the effect of trade decentralization and adverse selection on information diffusion, expected profits, trading costs and welfare. Information diffusion through prices is not affected by dealers' strategic trading motives, and there is an informational externality that constrains the informativeness of prices. Trade decentralization can both increase or decrease welfare. A dealer's trading cost is driven by both her own and her counterparties' centrality. Central dealers tend to learn more, trade more at lower costs and earn higher expected profit |
| Keywords: | information aggregation; bilateral trading; demand schedule equilibrium; trading networks. |
| JEL: | D82 D85 G14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:88050&r=fmk |
| By: | Kumari, Sujata |
| Abstract: | This paper empirically estimates the clustering volatility of the Indian stock market by considering twelve indicators of BSE SENSEX. The cluster volatility has been estimated through ARCH family models such as ARCH, GARCH, IGARCH, GARCH-M, EGARCH, TARCH, GJR TARCH, SAARCH, PARCH, NARCH, NARCHK, APARCH, and NPARCH. |
| Keywords: | Clustering Volatility, BSE SENSEX, ARCH Effects, asymmetric information |
| JEL: | G00 |
| Date: | 2018–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86673&r=fmk |