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on Financial Markets |
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Issue of 2018‒09‒10
four papers chosen by |
| By: | Kenechukwu E. Anadu; Mathias S. Kruttli; Patrick E. McCabe; Emilio Osambela; Chae Hee Shin |
| Abstract: | The past couple of decades have seen a significant shift in assets from active to passive investment strategies. We examine the potential effects of this shift for financial stability through four different channels: (1) effects on investment funds’ liquidity transformation and redemption risks; (2) passive strategies that amplify market volatility; (3) increases in asset-management industry concentration; and (4) the effects on valuations, volatility, and comovement of assets that are included in indexes. Overall, the shift from active to passive investment strategies appears to be increasing some types of risk while diminishing others: The shift has probably reduced liquidity transformation risks, although some passive strategies amplify market volatility, and passive-fund growth is increasing asset-management industry concentration. We find mixed evidence that passive investing is contributing to the comovement of assets. Finally, we use our framework to assess how financial stability risks are likely to evolve if the shift to passive investing continues, noting that some of the repercussions of passive investing ultimately may slow its growth. |
| Keywords: | Asset management ; Passive investing ; Index investing ; Indexing ; Mutual fund ; Exchange-traded fund ; Leveraged and inverse exchange-traded products ; Financial stability ; Systemic risk ; Market volatility ; Inclusion effects ; Daily rebalancing |
| JEL: | G10 G11 G20 G23 G32 L1 |
| Date: | 2018–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-60&r=fmk |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa) |
| Abstract: | This paper hypothesizes that corporate managers’ sentiment can predict aggregate stock market volatility. Using a k-th order nonparametric causality-in-quantiles test, we show that manager sentiment is a stronger predictor for volatility than stock return, especially when one accommodates for misspecification in the linear predictive model via a nonparametric data-driven approach. But, predictability is completely absent at extreme ends of the conditional distribution of return, and at the upper end of the same for volatility. |
| Keywords: | Manager Sentiment, Asset Pricing, Return and Volatility Predictability |
| JEL: | C22 C53 G11 G12 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201853&r=fmk |
| By: | Laure-Anne Parpaleix (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Kevin Levillain (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Blanche Segrestin (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The ability to adapt to fast-paced business change has become critical to firms' competitiveness. Thus, it requires firms to continuously innovate. Extensive research efforts have been conducted to understand the drivers behind a firm's capacity to constantly innovate. If significant advance has been made in the fields of innovation management and design theory, there is still a need for research in finance to integrate these developments. Especially in clarifying the relationship between private equity investment and corporate innovation. Thus, this paper specifically aims at exploring new investment models in private equity to support the development of firm's sustained innovation capabilities. Based on a literature review exploring the existing private equity investment practices and their potential links with innovation, we highlight the main model used by private equity. We show that this model cannot account for the two design regimes (extracted from design theories) required to support innovation capabilities. Therefore, we build a second hypothetical model that could complement the first one to do so. We then conduct an empirical study to assess whether actual private equity funds' practices reflect the use of this second hypothetical model, and if so to refine it. From a managerial point of view, this research contributes to shape new valuation approaches and post-investment strategies that better foster invested firm's innovation capabilities, among which R&D activities. |
| Date: | 2018–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01768986&r=fmk |
| By: | Colliard, Jean-Edouard; Foucault, Thierry; Hoffmann, Peter |
| Abstract: | We propose a new model of interdealer trading. Dealers trade together to reduce their inventory holding costs. Core dealers share these costs efficiently and provide liquidity to peripheral dealers, who have heterogeneous access to core dealers. We derive predictions about the effects of peripheral dealers' connectedness to core dealers and the allocation of aggregate inventories between core and peripheral dealers on the distribution of interdealer prices, the efficiency of interdealer trades, and trading costs for the dealers' clients. For instance, the dispersion of interdealer prices is higher when fewer peripheral dealers are connected to core dealers or when their aggregate inventory is higher. |
| Keywords: | interdealer trading; Inventory management; OTC markets |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13093&r=fmk |