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on Financial Markets |
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Issue of 2019‒04‒01
eleven papers chosen by |
| By: | Ansari Saleh Ahmar |
| Abstract: | The purpose of this research is to apply technical analysis of Sutte Indicator in stock trading which will assist in the investment decision making process i.e. buying or selling shares. This research takes data of "A" on the Indonesia Stock Exchange(IDX or BEI) 29 November 2006 until 20 September 2016 period. To see the performance of Sutte Indicator, other technical analysis are used as a comparison, Simple Moving Average (SMA) and Moving Average Convergence/Divergence (MACD). To see a comparison of the level of reliability prediction, the stock data were compared using the mean absolute deviation (MAD), mean of square error (MSE), and mean absolute percentage error (MAPE). The result of this research is that Sutte Indicator can be used as a reference in predicting stock movements, and if it is compared to other indicator methods (SMA and MACD) via MAD, MSE, and MAPE, the Sutte Indicator has a better level of reliability. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.11642&r=all |
| By: | Notheisen, Benedikt; Marino, Vincenzo; Englert, Daniel; Weinhardt, Christof |
| Abstract: | The trust-free nature of blockchain-based systems challenges the role of traditional platform providers and enables the creation of new, intermediary-free markets. Despite the growing number of such markets, the impact of the blockchain's configuration on market outcomes remains unclear. In this study, we utilize order-level data from realworld financial markets to explore the impact of the blockchain parameters block size and block creation time on the quality of decentralized markets. More specifically, we find that increasing the blocks' capacity improves market activity, while higher block frequencies impose a trade-off between higher turnovers and lower trade sizes. In addition, we identify the block creation time and block size as core drivers of daily and intraday liquidity, respectively. In consequence, improving liquidity goes hand in hand with a higher activity. However, the reciprocal relationship between blockchain parameters and the increasing price impact of a block also indicate that faster and bigger blocks are no silver bullet to scale decentralized markets and may facilitate volatility. In total, we contribute an initial, technology-agnostic assessment of the quality of decentralized markets that aims to guide interdisciplinary researchers and innovative practitioners. |
| Keywords: | Decentralized markets,Blockchain,Market quality,Market design,Market engineering,FinTech |
| JEL: | G14 L86 N2 O16 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:129&r=all |
| By: | Kristoffer Glover; Hardy Hulley |
| Abstract: | Short sales are regarded as negative purchases in textbook asset pricing theory. In reality, however, the symmetry between purchases and short sales is broken by a variety of costs and risks peculiar to the latter. We formulate an optimal stopping model in which the decision to cover a short position is affected by two short sale-specific frictions---margin risk and recall risk. Margin risk refers to the fact that short sales are collateralised transactions, which means that short sellers may be forced to close out their positions involuntarily if they cannot fund margin calls. Recall risk refers to a peculiarity of the stock lending market, which permits lenders to recall borrowed stock at any time, once again triggering involuntary close-outs. We examine the effect of these frictions on the optimal close-out strategy and quantify the loss of value resulting from each. Our results show that realistic short selling constraints have a dramatic impact on the optimal behaviour of a short seller, and are responsible for a substantial loss of value relative to the first-best situation without them. This has implications for many familiar no-arbitrage identities, which are predicated on the assumption of unfettered short selling. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.11804&r=all |
| By: | Chong-Meng (Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Malaysia Author-2-Name: Chee Author-2-Workplace-Name: School of Social Science, Heriot-Watt University, 62200 Putrajaya, Malaysia Author-3-Name: Nazrul Hisyam Bin Ab Razak Author-3-Workplace-Name: Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Malaysia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective – This study investigates whether private information newly incorporated into stock price enhances performance in timing share repurchases. Methodology/Technique – Cost saving gained in share repurchases is used a proxy for performance of market-timing in share repurchases and firm-specific stock return variation is used to gauge stock price informativeness. A sample of 334 U.S. repurchasing firms are tested using panel data regression. Findings – The paper concludes that managers possess better market timing skill by obtaining more cost saving from their share repurchases when private information is reflected in stock price. Stock price informativeness may be the tool for managers to improve their market timing skill to take advantage of the stock market. Furthermore, firms with smaller size and a higher market-to-book ratios, and firms with higher cash-to-assets ratios are found to achieve more cost saving in buying back their shares indicating that these firms are able to time the market in share repurchasing. Novelty – Despite numerous previous studies focusing solely on using share repurchases announcement for computing cumulative abnormal returns in testing managerial market timing, this study contributes to the literature in several ways: (i) providing evidence relating stock price informativeness and performance of market-timing in share repurchases; (ii) developing a better timing measure constructed using actual repurchasing data; (iii) adopting a cost saving measure as the timing measure instead of cumulative abnormal return. Type of Paper: Empirical. |
| Keywords: | Managerial Learning Hypothesis; Market Timing; Stock Repurchase; Stock Price Informativeness; Firmspecific Stock Return Variation. |
| JEL: | G12 G13 G14 |
| Date: | 2019–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr155&r=all |
| By: | Richard T. Baillie (Michigan State University, USA, King’s College London & Rimini Center for Economic Analysis, Italy); Fabio Calonaci (Queen Mary University of London); George Kapetanios (King’s College London) |
| Abstract: | This paper presents a new hierarchical methodology for estimating multi factor dynamic asset pricing models. The approach is loosely based on the sequential approach of Fama and MacBeth (1973). However, the hierarchical method uses very flexible bandwidth selection methods in kernel weighted regressions which can emphasize local, or recent data and information to derive the most appropriate estimates of risk premia and factor loadings at each point of time. The choice of bandwidths and weighting schemes, are achieved by cross validation. This leads to consistent estimators of the risk premia and factor loadings. Also, out of sample forecasting for stocks and two large portfolios indicates that the hierarchical method leads to statistically significant improvement in forecast RMSE. |
| Keywords: | Asset pricing model, FamaMacBeth model, estimation of beta, kernel weighted regressions, cross validation, time-varying parameter regressions |
| JEL: | C22 F31 G01 G15 |
| Date: | 2019–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:879&r=all |
| By: | Boris Hofmann; Ilhyock Shim; Hyun Song Shin |
| Abstract: | In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is the bilateral US dollar exchange rate, not the trade-weighted exchange rate. Our findings highlight endogenous co-movement of bond risk premia and exchange rates through the portfolio choice of global investors who evaluate returns in dollar terms. |
| Keywords: | bond spread, capital flow, credit risk, emerging market, exchange rate |
| JEL: | G12 G15 G23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:775&r=all |
| By: | Tahsin Deniz Akt\"urk; \c{C}a\u{g}{\i}n Ararat |
| Abstract: | We provide a closed-form analytical solution to a static portfolio optimization problem with two coherent risk measures. The use of two risk measures is motivated by joint decision-making for portfolio selection where the risk perception of the portfolio manager is of primary concern, hence, it appears in the objective function, and the risk perception of an external authority needs to be taken into account as well, which appears in the form of a risk constraint. The problem covers the risk minimization problem with an expected return constraint and the expected return maximization problem with a risk constraint, as special cases. We also consider a variant of the problem with size and magnitude constraints which we formulate using binary variables. In this case, only numerical solutions are possible. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.10454&r=all |
| By: | Ceccarelli, Marco; Ramelli, Stefano; Wagner, Alexander F |
| Abstract: | In April 2018, the investment platform and financial advisor Morningstar introduced a new eco-label for mutual funds, the Low Carbon Designation (LCD). The unexpected release of this label induced responses by (1) investors and (2) mutual funds. First, investors flocked to funds labeled as Low Carbon. Through the end of 2018, such funds enjoyed a 3.1% increase in assets compared to otherwise similar funds. This effect was distinct from that of more generic sustainability ratings ("Globes"), and it reversed for funds that lost the label in August or November 2018. Second, managers of just-missing funds adjusted their holdings towards lower carbon risk and lower fossil fuel involvement, the two criteria used to assign the LCD. Both the rewards-for-LCD and the moving-towards-LCD effects are stronger for European funds, retail funds, funds with weak financial performance, and low-sustainability funds. Overall, the findings suggest that as investors become more sensitive to the topic of climate change, financial intermediaries also use existing investment vehicles to respond to the increasing demand for climate-conscious investment products. |
| Keywords: | behavioral finance; climate change; eco-labels; investor preferences; Mutual funds; Sustainable Finance |
| JEL: | D03 G02 G12 G23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13599&r=all |
| By: | Gaëtan Le Quang |
| Abstract: | We develop a theoretical model to assess the merits of principal-write down contingent convertible (CoCo) bonds. The conversion risk is the key feature of CoCo bonds. Because of this conversion risk, CoCo bonds are hard to price and an equilibrium price does not necessarily exist. In our model, for such a price to exist, the bank needs to hold a minimum amount of equity and/or the expected return associated with its asset portfolio needs to be large enough. When an equilibrium price exists, it is a decreasing function in the amount of equity held by the bank. Well-capitalized banks can thus issue CoCo bonds at a lower price than least-capitalized banks. This is the reason why CoCo bonds are to be thought of more as a complement to equity than as a substitute. In addition, because of the conversion risk, self-fulfilling panics may occur in the CoCo bonds' market. We indeed define a game between CoCo bonds' holders and the Central Bank that allows us to exhibit situations where a panic occurs in the CoCo bonds' market. Using the global game technique, we show that the probability of crisis can be expressed as a function of the return associated with the asset portfolio of the bank. The probability of crisis is shown to be sensitive to the precision of the information available to CoCo bonds' holders. Taken together, our results call for cautiousness when assessing the relevance of regulatory requirements in CoCo bonds, especially concerning their systemic impact. |
| Keywords: | convertible contingent bonds; conversion risk; equity; banks; systemic risk |
| JEL: | G13 G21 G28 G32 G33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2019-5&r=all |
| By: | Guglielmo Maria Caporale; Woo-Young Kang |
| Abstract: | This paper estimates the preference scores of CoCo bond buyers and sellers by running logistic regressions taking into account both bond and issuing bank’s characteristics, and also considers the role of country−specific CoCo bond market competitiveness. Buyers are found to be characterised by stronger preference responses to CoCo bond coupons and credit ratings, while sellers are more sensitive to CoCo bond issue size and financial characteristics including return on common equity, price−to−book ratio and total regulatory capital to risk−weighted asset ratio. Further, sizeable responses to CoCo bond and issuing bank’s characteristics are found in most European countries, Brazil, Mexico and China, the strongest responses being estimated in the case of the UK and China. |
| Keywords: | CoCo bonds, buyers and sellers, preference scores, logistic regressions |
| JEL: | C25 C39 F39 G11 G21 G24 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7551&r=all |
| By: | HARADA Kimie; OKIMOTO Tatsuyoshi |
| Abstract: | This paper examines the impacts of the Bank of Japan's (BOJ) exchange-traded funds (ETFs) purchasing program that has been conducted since December 2010. The program is a part of the BOJ's unconventional monetary policy and has accelerated since the introduction of the Quantitative and Qualitative Easing in April 2013. In this study, the influence of underlying stocks is assessed by comparing the performance of the stocks (those included in the Nikkei 225 and others) using a difference-in-difference analysis. We also separate morning and afternoon returns to control for the fact that the BOJ tends to purchase ETFs when performance of the stock market is weak, in the morning session. We find that the Nikkei 225 component stocks' afternoon returns are significantly higher than those of non-Nikkei 225 stocks when the BOJ purchases ETFs. However, the subsample analysis demonstrates that the impact on Nikkei 225 stock returns becomes smaller over time despite the growing purchase amounts. Overall, our results indicate that the cumulative treatment effects on the Nikkei 225 are around 20% as of October 2017. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19014&r=all |