nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒12‒10
five papers chosen by

  1. Twitter versus Traditional News Media: Evidence for the Sovereign Bond Markets By Costas Milas; Theodore Panagiotidis; Theologos Dergiades
  2. Hedging Labor Income Risk over the Life-Cycle By Fabio C. Bagliano; Raffaele Corvino; Carolina Fugazza; Giovanna Nicodano
  3. News, Country Risk, and Sovereign Default By Dvorkin, Maximiliano; Sanchez, Juan M.; Sapriza, Horacio; Yurdagul, Emircan
  4. Equity Fund Performance and Sector Diversification By Mihovil An?elinovi?; Ana Pavkovi?; Livija Valenti?
  5. Coverage news and companies’ stock abnormal returns By Carlos Francisco Alves; Ana Luísa Nogueira Parada Ferreira e Silva

  1. By: Costas Milas (Management School, University of Liverpool, UK; Rimini Centre for Economic Analysis); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; Rimini Centre for Economic Analysis); Theologos Dergiades (Department of International and European Studies, University of Macedonia, Greece; School of Science and Technology, International Hellenic University, Greece)
    Abstract: This paper compares news in Twitter with traditional news outlets and then emphasizes their differential impact on Eurozone's sovereign bond market for a homogeneous news topic. We find a two-way information flow between Twitter's “Grexit” tweets and the respective mentions in traditional news outlets. The influence of Twitter on the traditional news is consistently more prolonged, especially in high-activity periods. We also assess the differential impact of the two news sources on sovereign spreads over and above the impact of economic/financial fundamentals, namely measures of default risk, liquidity risk and global financial risk. Our focus is on the borrowing costs of Eurozone's periphery; for comparison reasons, we also consider France as a core Eurozone country. The effect of Twitter on the Greek sovereign spread is positive and of higher magnitude than that of traditional news outlets. Weak contagion effects are recorded primarily for the case of Portugal and Ireland.
    Keywords: Grexit, Twitter, Traditional news outlets, Sovereign spreads
    JEL: C10 G01 G12
    Date: 2018–12
  2. By: Fabio C. Bagliano (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Raffaele Corvino (Faculty of Finance, Cass Business School, City, University of London, UK); Carolina Fugazza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Giovanna Nicodano (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: We show that the decision to participate in the stock market depends on the ability of equities to hedge the individual permanent earnings shocks, consistent with implications of life-cycle models. Those households who refrain from stock investing display positive correlation between their own permanent income innovations and market returns. These results owe to a two-step empirical strategy. First, a minimum distance estimation disentangles the aggregate from the idiosyncratic permanent of labor income risks. The second step reconstructs the individual life-cycle dynamics of persistent shocks through a Kalman filter applied to the estimated labor income process. We are thus able to obtain the full cross-sectional distribution of individual correlations between permanent shock and market returns.
    Keywords: Labor income-risk return correlation, Permanent income shocks, Kalman filter.
    JEL: G10 G11 D14
    Date: 2018–12
  3. By: Dvorkin, Maximiliano (Federal Reserve Bank of St. Louis); Sanchez, Juan M. (Federal Reserve Bank of St. Louis); Sapriza, Horacio (Federal Reserve Board); Yurdagul, Emircan (Universidad Carlos III)
    Abstract: We show evidence that news about future productivity play an important role in the dynamics of country risk leading to a sovereign debt crisis. We show that a news shock has a significantly larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity. We develop a quantitative model of news and sovereign debt default with endogenous maturity that can generate impulse responses very similar to the empirical estimates. The model also highlights that the effect of a news shock is stronger for an economy with shorter debt maturity. Finally, our analytic framework also suggests that as the precision of news increases, the economy may not increase its total indebtedness, but will be able to borrow at shorter maturities and pay lower spreads, especially during periods of high financial stress.
    Keywords: Crises; News; Default; Spreads; Maturity; Country Risk; Sovereign Debt
    JEL: F34 F41 G15
    Date: 2018–10–31
  4. By: Mihovil An?elinovi? (Faculty of Economics and Business, University of Zagreb); Ana Pavkovi? (Faculty of Economics and Business, University of Zagreb); Livija Valenti? (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper examines the performance of equity funds relative to the diversification of their portfolios. The main objective of the research is to determine how the allocation of investment in individual sectors affects the yield of equity funds in the Republic of Croatia. Six equity funds which were selected, invested more than 50% of their assets in sectors in the Republic of Croatia. An unbalanced dynamic panel model is estimated for the period from January 2012 to August 2017. Investing in tourism and industry has proved to be the most significant investment and it has a positive effect on the fund yields, whereas significant negative impact has been discovered in consumer goods, funds and conglomerates and the state sector. The macroeconomic environment was studied in order to put the conclusions of econometric analysis into the actual context. The conducted empirical analysis suggests that portfolio managers should pay more attention to macroeconomic conditions and trends in economic sectors if they want to achieve higher returns.
    Keywords: asset liability management, equity funds, sector diversification, panel data model, Croatia
    JEL: C33 G11 G23
    Date: 2018–10
  5. By: Carlos Francisco Alves (Faculdade de Economia da Universidade do Porto); Ana Luísa Nogueira Parada Ferreira e Silva (Faculdade de Economia da Universidade do Porto)
    Abstract: This article investigates the news coverage of the PSI20 index’s companies, when they registered extreme abnormal returns during a nine years’ period. It looks for evidence on whether listed companies manage information before or after the occurrence of extreme returns. We found divergences between the news coverage performed in situations of abnormal positive returns and in opposite situations, which seem to result from actions promoted by these companies deliberately. In particular, calls to the first page of the newspapers are more prevalent for positive events, which indicates that companies, in advance, promote information by communicating it to the media. In addition, before the event, companies are proportionally more cited as a source of the news for positive events. This indicates that companies seek to capitalize the positive impact of the favourable situation they subsequently disclose to the market. In the period after the occurrence of extreme abnormal returns, companies are more often a source of the news for negative events, seeking to mitigate the impact of the relevant fact. Concerning the provision of interviews and the publication of advertisements, there’s no evidence that the company’s behaviour is distinct depending on the sign of the verified abnormal return.
    Keywords: Extreme Abnormal Return; News Coverage; Information Management.
    JEL: G14
    Date: 2018–11

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