nep-fmk New Economics Papers
on Financial Markets
Issue of 2020‒10‒19
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Private Equity and COVID-19 By Paul A. Gompers; Steven N. Kaplan; Vladimir Mukharlyamov
  2. Asymmetric Volatility Effects in Risk Management: An Empirical Analysis using a Stock Index Futures By Benavides Guillermo
  3. Stock-bond Return Correlation, Bond Risk Premium Fundamental, and Fiscal-monetary Policy Regime By Erica X.N. Li; Tao Zha; Ji Zhang; Hao Zhou
  4. An AI approach to measuring financial risk By Lining Yu; Wolfgang Karl H\"ardle; Lukas Borke; Thijs Benschop
  5. Revising the Impact of Financial and Non-Financial Global Stock Market Volatility Shocks By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  6. On the Performance of Cryptocurrency Funds By Daniele Bianchi; Mykola Babiak
  7. Deep Learning for Digital Asset Limit Order Books By Rakshit Jha; Mattijs De Paepe; Samuel Holt; James West; Shaun Ng
  8. Long-run Returns to Impact Investing in Emerging Markets and Developing Economies By Shawn Cole; Martin Melecky; Florian Mölders; Tristan Reed

  1. By: Paul A. Gompers; Steven N. Kaplan; Vladimir Mukharlyamov
    Abstract: We survey more than 200 private equity (PE) managers from firms with $1.9 trillion of assets under management (AUM) about their portfolio performance, decisionmaking and activities during the Covid-19 pandemic. Given that PE managers have significant incentives to maximize value, their actions during the current pandemic should indicate what they perceive as being important for both the preservation and creation of value. PE managers believe that 40% of their portfolio companies are moderately negatively affected and 10% are very negatively affected by the pandemic. The private equity managers—both investment and operating partners— are actively engaged in the operations, governance, and financing in all of their current portfolio companies. These activities are more intensively pursued in those companies that have been more severely affected by the Covid-19 pandemic. As a result of the pandemic, they expect the performance of their existing funds to decline. They are more pessimistic about that decline than the VCs surveyed in Gompers et al. (2020b). Despite the pandemic, private equity managers are seeking new investments. Relative to the 2012 survey results reported in Gompers, Kaplan, and Mukharlyamov (2016): the PE investors place a greater weight on revenue growth for value creation; they give a larger equity stake to management teams; and, they also appear to target somewhat lower returns.
    JEL: G24 G31 G32
    Date: 2020–10
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:27889&r=all
  2. By: Benavides Guillermo
    Abstract: In this research paper ARCH-type models and option implied volatilities (IV) are applied in order to estimate the Value-at-Risk (VaR) of a stock index futures portfolio for several time horizons. The relevance of the asymmetries in the estimated volatility estimation is considered. The empirical analysis is performed on futures contracts of both the Standard and Poors 500 Index and the Mexican Stock Exchange. According to the results, the IV model is superior in terms of precision compared to the ARCH-type models. Under both methodologies there are relevant statistical gains when asymmetries are included. The referred gains range from 4 to around 150 basis points of minimum capital risk requirements. This research documents the importance of taking asymmetric effects (leverage effects) into account in volatility forecasts when it comes to risk management analysis.
    Keywords: Asymmetric volatility;Backtesting;GARCH;TARCH;Implied volatility;Stock index futures;Value at Risk;Mexico
    JEL: C15 C22 C53 E31 E37
    Date: 2020–09
    URL: http://d.repec.org/n?u=RePEc:bdm:wpaper:2020-10&r=all
  3. By: Erica X.N. Li; Tao Zha; Ji Zhang; Hao Zhou
    Abstract: We incorporate regime switching between monetary and fiscal policies in a general equilibrium model to explain three stylized facts: (1) the positive stock-bond return correlation from 1971 to 2000 and the negative one after 2000, (2) the negative correlation between consumption and inflation from 1971 to 2000 and the positive one after 2000, and (3) the coexistence of positive bond risk premiums and the negative stock-bond return correlation. We show that two distinctive shocks---the technology and investment shocks---drive positive and negative stock-bond return correlations under two policy regimes, but positive bond risk premiums are driven by the same technology shock.
    JEL: E52 E62 G12 G18
    Date: 2020–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:27861&r=all
  4. By: Lining Yu; Wolfgang Karl H\"ardle; Lukas Borke; Thijs Benschop
    Abstract: AI artificial intelligence brings about new quantitative techniques to assess the state of an economy. Here we describe a new measure for systemic risk: the Financial Risk Meter (FRM). This measure is based on the penalization parameter (lambda) of a linear quantile lasso regression. The FRM is calculated by taking the average of the penalization parameters over the 100 largest US publicly traded financial institutions. We demonstrate the suitability of this AI based risk measure by comparing the proposed FRM to other measures for systemic risk, such as VIX, SRISK and Google Trends. We find that mutual Granger causality exists between the FRM and these measures, which indicates the validity of the FRM as a systemic risk measure. The implementation of this project is carried out using parallel computing, the codes are published on www.quantlet.de with keyword FRM. The R package RiskAnalytics is another tool with the purpose of integrating and facilitating the research, calculation and analysis methods around the FRM project. The visualization and the up-to-date FRM can be found on hu.berlin/frm.
    Date: 2020–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2009.13222&r=all
  5. By: Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
    Abstract: We decompose global stock market volatility shocks into financial originated shocks and nonfinancial 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 on-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: E00 E02 E3 E40
    Date: 2020
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:103019&r=all
  6. By: Daniele Bianchi; Mykola Babiak
    Abstract: We investigate the performance of funds that specialise in cryptocurrency markets. In doing so, we contribute to a growing literature that aims to understand the role of digital assets as an investment. Methodologically, we implement a novel bootstrap approach that samples jointly the cross-sectional distribution of alphas and controls for the nonnormality of fund returns and their within-strategy correlations. Empirically, we find that a sizable minority of managers are able to cover their costs and generate large alphas. However, there is weak statistical evidence of managers’ skills once withinstrategy common variation in returns is taken into account.
    Keywords: cryptocurrency; investments; active management; alternative investments; boot-strap methods; bitcoin;
    JEL: G12 G17 E44 C58
    Date: 2020–09
    URL: http://d.repec.org/n?u=RePEc:cer:papers:wp672&r=all
  7. By: Rakshit Jha; Mattijs De Paepe; Samuel Holt; James West; Shaun Ng
    Abstract: This paper shows that temporal CNNs accurately predict bitcoin spot price movements from limit order book data. On a 2 second prediction time horizon we achieve 71\% walk-forward accuracy on the popular cryptocurrency exchange coinbase. Our model can be trained in less than a day on commodity GPUs which could be installed into colocation centers allowing for model sync with existing faster orderbook prediction models. We provide source code and data at https://github.com/Globe-Research/deep-o rderbook.
    Date: 2020–10
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2010.01241&r=all
  8. By: Shawn Cole; Martin Melecky; Florian Mölders; Tristan Reed
    Abstract: There is growing interest in impact investing, the idea of deploying capital to obtain both financial and social or environmental returns. Examination of every equity investment made by the International Finance Corporation, one of the largest and longest-operating impact investors, across 130 emerging market and developing economies shows that this portfolio has outperformed the S&P 500 by 15 percent. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. These results are consistent with imperfect integration of international capital markets, and a core thesis of impact investing that some eligible markets do not receive sufficient investment capital.
    JEL: G15 O1
    Date: 2020–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:27870&r=all

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