nep-fmk New Economics Papers
on Financial Markets
Issue of 2021‒02‒15
six papers chosen by

  1. A Statistical Measure of Global Equity Market Risk By Daniel Felix Ahelegbey;
  2. Competition for Attention in the ETF Space By Itzhak Ben-David; Francesco Franzoni; Byungwook Kim; Rabih Moussawi
  3. FinTech in the Financial Market By Maxime Delabarre
  4. The Microeconomics of Cryptocurrencies By Hanna Halaburda; Guillaume Haeringer; Joshua Gans; Neil Gandal
  5. Uncertainty Network Risk and Currency Returns By Mykola Babiak; Jozef Barunik
  6. Analysis of stock index with a generalized BN-S model: an approach based on machine learning and fuzzy parameters By Xianfei Hui; Baiqing Sun; Hui Jiang; Indranil SenGupta

  1. By: Daniel Felix Ahelegbey (University of Pavia);
    Abstract: We construct a new index of global equity market risk (EMR) using market interconnectedness and volatilities. We study the relationship between our EMR and the VIX over the last two decades. The EMR is shown to be a novel approach to measuring global market risk, and an alternative to the VIX. Using data of 20 major stock markets, including G10 economies, we find spikes in our EMR index during the dotcom bubble, the global financial crisis, the European sovereign debt crisis, and the novel coronavirus pandemic. The result shows that the global financial crisis and the Covid-19 induced crisis record the historic highest spikes in financial market risk, suggesting stronger evidence of contagion in both periods.
    Keywords: COVID-19, Financial Crises, Financial Markets, Market Risk, Mahalanobis Distance, Volatility Index.
    JEL: C11 C15 C51 C52 C55 C58 G01 G12
    Date: 2020–11
  2. By: Itzhak Ben-David; Francesco Franzoni; Byungwook Kim; Rabih Moussawi
    Abstract: Exchange-traded funds (ETFs) are the most prominent financial innovation of the last three decades. Early ETFs offered broad-based portfolios at low cost. As competition became more intense, issuers started offering specialized ETFs that track niche portfolios and charge high fees. Specialized ETFs hold stocks with salient characteristics--high past performance, media exposure, and sentiment--that are appealing to retail and sentiment-driven investors. After their launch, these products perform poorly as the hype around them vanishes, delivering negative risk-adjusted returns. Overall, financial innovation in the ETF space follows two paths: broad-based products that cater to cost-conscious investors and expensive specialized ETFs that compete for the attention of unsophisticated investors.
    JEL: G12 G14 G15
    Date: 2021–01
  3. By: Maxime Delabarre (Sciences Po - Sciences Po)
    Abstract: This essay argues that the common competition framework is not to be applied to the financial sector. If traditionally competition brings efficiency and diversity in a market, financial regulators must also ensure the stability of the financial market. Henceforth, some limits and entry barriers have to exist. This is particularly true for FinTech companies. If the potential of those new actors is not to be contested, the risk they can bring is also quite obvious. If regulators want the market to be disrupted and to see consumers benefiting from the power of innovation of technology-based companies, they need to adapt their regulatory framework. Only under this condition will the benefits outweigh the potential risks.
    Keywords: Financial regulations,financial stability,competition,financial market,innovation
    Date: 2021–01–12
  4. By: Hanna Halaburda; Guillaume Haeringer; Joshua Gans; Neil Gandal
    Abstract: Since its launch in 2009 much has been written about Bitcoin, cryptocurrencies and blockchains. While the discussions initially took place mostly on blogs and other popular media, we now are witnessing the emergence of a growing body of rigorous academic research on these topics. By the nature of the phenomenon analyzed, this research spans many academic disciplines including macroeconomics, law and economics and computer science. This survey focuses on the microeconomics of cryptocurrencies themselves. What drives their supply, demand, trading price and competition amongst them. This literature has been emerging over the past decade and the purpose of this paper is to summarize its main findings so as to establish a base upon which future research can be conducted.
    Keywords: Bitcoin, blockchain, cryptocurrencies
    JEL: A10 D40 L00 O30 Y20
    Date: 2021
  5. By: Mykola Babiak; Jozef Barunik
    Abstract: We examine the pricing of a horizon specific uncertainty network risk, extracted from option implied variances on exchange rates, in the cross-section of currency returns. Buying currencies that are receivers and selling currencies that are transmitters of short-term shocks exhibits a high Sharpe ratio and yields a significant alpha when controlling for standard dollar, carry trade, volatility, variance risk premium and momentum strategies. This profitability stems primarily from the causal nature of shock propagation and not from contemporaneous dynamics. Shock propagation at longer horizons is priced less, indicating a downward-sloping term structure of uncertainty network risk in currency markets.
    Date: 2021–01
  6. By: Xianfei Hui; Baiqing Sun; Hui Jiang; Indranil SenGupta
    Abstract: We use the superposition of the Levy processes to optimize the classic BN-S model. Considering the frequent fluctuations of price parameters difficult to accurately estimate in the model, we preprocess the price data based on fuzzy theory. The price of S&P500 stock index options in the past ten years are analyzed, and the deterministic fluctuations are captured by machine learning methods. The results show that the new model in a fuzzy environment solves the long-term dependence problem of the classic model with fewer parameter changes, and effectively analyzes the random dynamic characteristics of stock index option price time series.
    Date: 2021–01

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