nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒11‒26
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A New Perspective on Valuating of Common Stocks By Ivo Speranda
  2. The Bias of Realized Volatility By Becker, Janis; Leschinski, Christian
  3. Predictability of stock returns and dividend growth using dividend yields: An international approach By Ana Sofia Monteiro; Hélder Sebastião; Nuno Silva
  4. Co-movement between stock markets and exchange rates in Central and Eastern Europe By Mihai Ni?oi; Cristian Valeriu Stanciu; Cristi Spulb?r

  1. By: Ivo Speranda (University of Dubrovnik - Department of Economics and Business Economics)
    Abstract: AbstractThe hypothesis of this paper states the value of a firm and value of a corresponding stock are tightly connected. So, the ?right?value of a company directly leads to the ?right? value of a related stock. The research topic is to find out i.e. to establish how and in what extent new appraisal approach Compounded Cash Flow method (CCF method) effects the value of a stock. The CCF method is theoretically well founded, applicable in practice and it serves for valuating any business. By this method the company's value can be estimated (valuated) at the certain part of time and compared to the current stock price on the stock market, and the additional advantage of this method is risk elimination of misevaluating for the certain extend incomes is not very high.The aim of this paper is to point out the importance of combining several appraisal methods in establishing the ?right? value of a stock i.e. establishing if a stock currently is over or under valuated on the market. It?s to be concluded that this paper approaches the stock evaluation as an ideal segment of a firm. The quality of firm?s business and its potentials are often strong indicators of the stock value in long term. Combined with the usual methods CCF method provides a more precise firm evaluation, i.e. more precise stock evaluation.
    Keywords: Keywords: stock value, firm value, Discounted Cash Flow, Compounded Cash Flow
    JEL: D04 G11 G12
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:sek:iefpro:6908849&r=fmk
  2. By: Becker, Janis; Leschinski, Christian
    Abstract: Realized volatility underestimates the variance of daily stock index returns by an average of 14 percent. This is documented for a wide range of international stock indices, using the fact that the average of realized volatility and that of squared returns should be the same over longer time horizons. It is shown that the magnitude of this bias cannot be explained by market microstructure noise. Instead, it can be attributed to correlation between the continuous components of intraday returns and correlation between jumps and previous/subsequent continuous price movements.
    Keywords: Return Volatility; Realized Volatility; Squared Returns
    JEL: G11 G12 G17
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:han:dpaper:dp-642&r=fmk
  3. By: Ana Sofia Monteiro (sofiamelomonteiro1@gmail.com); Hélder Sebastião (CeBER - Centre for Business and Economics Research); Nuno Silva (CeBER - Centre for Business and Economics Research)
    Abstract: This paper examines stock returns and dividend growth predictability using dividend yields in seven large developed markets: US, UK, Japan, France, Germany, Italy and Spain. Altogether, these countries account for around 85% of the MSCI World Index. We use annual data, and for the US, UK, Japan, and France the time series are long enough to conduct a separate analysis of the pre- and post-IIWW periods. We also study the relationship between the predictability in dividend growth and the degree of dividend smoothness. For the post-IIWW period, returns are predictable in the US and the UK but dividends are unpredictable, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. Generally, there is no clear connection between dividend smoothness and predictability.
    Keywords: Return; Dividend Yield, Dividend Growth, Dividend Smoothing, Predictability.
    JEL: G12 G17
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:gmf:papers:2018-10&r=fmk
  4. By: Mihai Ni?oi (Institute for World Economy, Romanian Academy); Cristian Valeriu Stanciu (Department of Finance, University of Craiova); Cristi Spulb?r (Department of Finance, University of Craiova)
    Abstract: Generally, the exchange rate and the stock market have been some of the most studied areas in finance. Furthermore, the nexus between the two assets has been reviewed in a significant number of studies, but with conflicting results. The flow oriented model posits a positive link between exchange rate and stock market (Dornbusch and Fischer, 1980), the portfolio based model assume a negative relationship between exchange rate and stock market, and the monetary model indicates a weaker or no link between the two assets (Branson and Henderson, 1985; Frankel, 1983).This article studies the nexus between exchange rates and stock markets in four countries in Central and Eastern Europe (Czech Republic, Hungary, Poland, and Romania) over the period from 1999 to 2016. In our opinion, our contribution to the literature is manifold. Firstly, even if the papers that analyse the correlation between exchange rates and stock markets are numerous (Lee et al., 2011; Lestano and Kuper, 2015; Caporale et al., 2014; Moore and Wang, 2014; Lin, 2012; Lee et al. 2014), surprisingly, to our knowledge, for Central and Eastern European countries there is a scarce literature in this area. Secondly, we document the time varying correlation in both normal period and crisis period, allowing us to investigate the differences. Thirdly, compared with other studies, we employ a DCC-MIDAS model that enables the extraction of short- and long-term correlation series. Generally, other DCC models estimate only a short-run component for the correlation. Therefore, solely by averaging the high-frequency component, we may obtain a low-frequency component. The DCC-MIDAS model obviates this disadvantage. Our findings are summarized as follows. Firstly, we find significant differences between the four countries. Secondly, we notice an increased variance in terms of time varying correlation between stock market and exchange rate. Therefore, we cannot identify a clear pattern for the correlation. Thirdly, during the most severe crisis episodes, we see an increased correlation, indicating some signs of contagion and lower portfolio diversification.
    Keywords: DCC-MIDAS, emerging stock markets, exchange rate, contagion, financial crisis
    JEL: F31 G01 G15
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:sek:iacpro:8110322&r=fmk

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