|
on Financial Markets |
|
Issue of 2020‒11‒02
six papers chosen by |
| By: | Jean-Sébastien Fontaine; Guillaume Ouellet Leblanc; Ryan Shotlander |
| Abstract: | Between February 19 and March 23, 2020, the Canadian stock market plunged due to the severe economic impact of COVID-19. By the end of the summer, the stock market had already recovered a significant portion of its losses, leaving many asking if investors see the economy through rose-coloured glasses. Despite these concerns, we find that current market valuations for companies on the Toronto Stock Exchange align well, on average, with the declines in earning forecasts observed since the start of the year. We also find these market valuations are consistent with the discount rate returning to its pre-pandemic level. |
| Keywords: | Asset pricing; Coronavirus disease (COVID-19); Financial markets |
| JEL: | G14 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-22&r=all |
| By: | Metod Jazbec; Barna P\'asztor; Felix Faltings; Nino Antulov-Fantulin; Petter N. Kolm |
| Abstract: | We quantify the propagation and absorption of large-scale publicly available news articles from the World Wide Web to financial markets. To extract publicly available information, we use the news archives from the Common Crawl, a nonprofit organization that crawls a large part of the web. We develop a processing pipeline to identify news articles associated with the constituent companies in the S\&P 500 index, an equity market index that measures the stock performance of U.S. companies. Using machine learning techniques, we extract sentiment scores from the Common Crawl News data and employ tools from information theory to quantify the information transfer from public news articles to the U.S. stock market. Furthermore, we analyze and quantify the economic significance of the news-based information with a simple sentiment-based portfolio trading strategy. Our findings provides support for that information in publicly available news on the World Wide Web has a statistically and economically significant impact on events in financial markets. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.12002&r=all |
| By: | G.M. Gallo; D. Lacava; E. Otranto |
| Abstract: | As a response to the Great Recession, many central banks resorted to unconventional monetary policies, in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy and Spain) within the Multiplicative Error Model framework. We propose a model which allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement the implementation effects. While we observe an increase in volatility on announcement days, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi–step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt–troubled countries. |
| Keywords: | Unconventional monetary policy;realized volatility;Multiplicative Error Model;Model Confidence Set;Financial market |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:202006&r=all |
| By: | Antonio Mele (University of Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)); Yoshiki Obayashi (Applied Academics LLC) |
| Abstract: | This paper contains details for implementing credit spread variance pricing methodologies based on credit default swap (CDS) options. A model independent formula for expected volatility is available, based on the prices of vanilla CDS options (VCOs). However, VCOs are currently not traded, and their prices must be inferred from those of actively traded CDS options with exotic payoffs (ECOs). Plugging ECO prices directly into the index formula is not theoretically justified, and the economic significance in the context of variance pricing of the difference in options contract specifications must be examined empirically. The paper develops methodology for converting observed ECO prices into hypothetical VCO prices for the purpose of index calculation, and assesses the economic impact of using ECOs and VCOs on index values under realistic market conditions. |
| Keywords: | Credit Default Swap Volatility; Credit Variance Swaps; Model-Free Pricing; Basis Point Variance; Fixed Income VIX. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2088&r=all |
| By: | Fabio Cereda; Fernando Chague, Rodrigo De Losso, Alan De Genaro, Bruno Giovannetti |
| Abstract: | We study the effects of a price transparency shock in the Brazilian OTC equity lending market. Previously, a publicly available stock-specific loan fee benchmark was the average fee of the past 15 trading days. On March 1, 2011, this interval was reduced to 3 days, significantly improving short-sellers' ability to predict current loan fees. We find that loan fees fell, lending volume increased, total lending revenue remained stable, high-cost lenders lost market share, and price efficiency increased after the benchmark change. Only a few countries benefit from loan fee benchmarks and our results may be relevant to regulators. |
| Keywords: | price transparency; OTC markets; benchmarks; equity lending; search |
| JEL: | G12 G14 G19 |
| Date: | 2020–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2020wpecon22&r=all |
| By: | Lim, Siok Jin |
| Abstract: | The goal of this study is to analyse the co-movements and the portfolio diversification between the Islamic index of U.S. and its top trading partners, namely Canada, China, Mexico, Japan and Germany, using Morgan Stanley Capital International (MSCI) daily returns data from January 2013 to August 2020. We employed three main techniques: multivariate-GARCH-DCC, CWT and MODWT to analyse whether these markets have any diversification opportunities. Our findings reveal that, first, we observed that the U.S. Islamic index and its trading partners showed increased integration after U.S. implemented its first China-specific tariffs in 2018 and were closely integrated during the Covid-19 pandemic in 2020. Second, CWT results show that investors would gain diversification benefits in China and Mexico under specific investment horizons. Third, the results of MODWT shows Japan Islamic index provide short term diversification opportunity and Mexico Islamic index for longer term investments. |
| Keywords: | Islamic stocks; trade war; Covid-19; portfolio diversification; MGARCH-DCC; Wavelets |
| JEL: | C58 E44 G15 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103295&r=all |