nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒12‒03
six papers chosen by

  1. Notes on the Yield Curve By Martin, Ian; Ross, Stephen
  2. Financial and non-financial global stock market volatility shocks By Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
  3. Forecasting Stock Market (Realized) Volatility in the United Kingdom: Is There a Role for Economic Inequality? By Hossein Hassani; Mohammad Reza Yeganegi; Rangan Gupta; Riza Demirer
  4. Learning Chinese? The changing investment behavior of foreign institutions in the Chinese stock market By Korkeamäki, Timo; Virk, Nader; Wang, Haizhi; Wang, Peng
  5. Impact of Capital Structure on Enterprise?s Profitability: Evidence from Warsaw Stock Exchange By Jacek Jaworski; Leszek Czerwonka
  6. The application of Value at Risk and Expected Shortfall as Controlling Mechanism of Systematic Risk of Pakistani Stock Market By Abdul Haque; Adeel Nasir

  1. By: Martin, Ian; Ross, Stephen
    Abstract: We study the properties of the yield curve under the assumptions that (i) the fixed-income market is complete and (ii) the state vector that drives interest rates follows a finite discrete-time Markov chain. We focus in particular on the relationship between the behavior of the long end of the yield curve and the recovered time discount factor and marginal utilities of a pseudo-representative agent; and on the relationship between the "trappedness" of an economy and the convergence of yields at the long end.
    Keywords: Cheeger inequality; eigenvalue gap; recovery theorem; term structure; traps; yield curve
    JEL: G12
    Date: 2018–09
  2. By: Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
    Abstract: We decompose global stock market volatility shocks into financial originated shocks and non-financial originated shocks. Global stock market volatility shocks arising from financial sources reduce substantially more global outputs and inflation than non-financial sources shocks. Financial stock market volatility shocks forecasts 16.85% and 16.88% of the variation in global growth and inflation, respectively. In contrast, the non-financial stock market volatility shocks forecasts only 8.0% and 2.19% of the variation in global growth and inflation. Beside this markable difference global interest/policy rate responds similarly to both shocks.
    Keywords: Global, Stock market volatility Shocks, Monetary Policy, FAVAR
    JEL: D80 E44 E66 G10
    Date: 2018–11
  3. By: Hossein Hassani (The Statistical Research Centre, Bournemouth University, Bournemouth, UK); Mohammad Reza Yeganegi (Department of Accounting, Islamic Azad University Central Tehran Branch, Iran); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, USA.)
    Abstract: This paper explores the potential role of economic inequality for forecasting the stock market volatility of the United Kingdom (UK). Utilizing linear and nonlinear models as well as measures of consumption and income inequalities over the period of 1975 to 2016, we find that linear models incorporating the information of growth in inequality indeed produce lower forecast errors. These models, however, do not necessarily outperform the univariate linear and nonlinear models based on formal statistical forecast comparison tests, especially in short- to medium-runs. On the other hand, at a one-year-ahead horizon, absolute measure of consumption inequality results in significant statistical gains for stock market volatility predictions. We argue that the long-run predictive power of consumption inequality is driven by its informational content over both political and social uncertainty in the long-run.
    Keywords: Income and Consumption Inequalities, Stock Markets, Realized Volatility, Forecasting, Linear and Nonlinear Models, United Kingdom
    JEL: C22 G1
    Date: 2018–11
  4. By: Korkeamäki, Timo; Virk, Nader; Wang, Haizhi; Wang, Peng
    Abstract: We analyze preferences of foreign institutional investors in the Chinese stock market in a sample that covers 2003 to 2014. We find foreign investors changed their investment behavior during the sample period from generic patterns found in much of the world to China-specific patterns. The results suggest that foreign institutions learned to adjust their investment behavior to account for unique features of the Chinese market.
    JEL: G11 G15
    Date: 2018–11–19
  5. By: Jacek Jaworski (WSB University in Gda?sk); Leszek Czerwonka (University of Gda?sk, Faculty of Economics)
    Abstract: The aim of the paper is to diagnose the impact of the capital structure of companies listed on the Warsaw Stock Exchange on their profitability. The ratios used in the profitability measurement are Return on Sales (ROS), Return on Assets (ROA) and Return on Equity (ROE). The capital structure is characterised by the total debt ratio (DR) and long-term debt ratio (LDR). The method of the empirical study is panel analysis of data from financial statements of 372 companies listed in Warsaw in the years 1998 - 2016. As control variables, the size of the company and the rate of its growth were assumed.The results of the study indicate that the impact of the total debt share in the capital structure on profitability is negative. On the other hand, the dependence between profitability and long-term debt is positive. In addition, it has been found out that a greater size of a company results in higher profitability. A similar relationship is observed for the company growth rate.The limitations of the research are: a time-limited and number-limited research sample and lack of consideration in the study of external conditions (e.g. the general economic situation, the industry, internationalisation etc.).
    Keywords: profitability, return on sales, return on assets, return on equity, leverage, sources of finance, capital structure
    JEL: G32 C23
    Date: 2018–06
  6. By: Abdul Haque (COMSAT Institute of Information Technology, Lahore); Adeel Nasir (University of the Punjab, Jhelum Campus)
    Abstract: Fama and French (1992) three factor and Fama and French (2014) five-factor Model estimated relevant idiosyncratic factors and CAPM beta as the systematic risk factor for stock returns? variations. Application of Value at Risk (VaR) and Expected Shortfall (ES) modified the risk management criteria. This study applies traditional one factor, three factor and five factor model on Pakistan?s manufacturing companies. Compares and modifies the stated models while using VaR and ES as systematic risk factor and check the robustness of the significant extent of worst expected loss provided by VaR and ES by measuring 95% and 99% confidence levels and their impact on the stock returns. In comparison with traditional market risk factor, our findings are in favor of VaR and ES factor as it significantly affects the cross-sectional of excess stock returns and fulfills the criteria of risk aversion.
    Keywords: Value at Risk, Expected Shortfall, Fama and French Three Factor Model, Five Factor Model, Systematic Risk, Idiosyncratic Risk
    JEL: G10 G11 G14
    Date: 2018–06

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