nep-fmk New Economics Papers
on Financial Markets
Issue of 2021‒09‒20
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Examining the Dynamic Asset Market Linkages under the COVID-19 Global Pandemic By Akihiko Noda
  2. Sectorial holdings and stock prices: the household-bank nexus By Matías Lamas; David Martínez-Miera
  3. Asset encumbrance and bank risk: theory and first evidence from public disclosures in Europe By Albert Banal-Estañol; Enrique Benito; Dmitry Khametshin; Jianxing Wei

  1. By: Akihiko Noda
    Abstract: This study examines the dynamic asset market linkages under the COVID-19 global pandemic based on market efficiency, in the sense of Fama (1970). Particularly, we estimate the joint degree of market efficiency by applying Ito et al.'s (2014; 2017) Generalized Least Squares-based time-varying vector autoregression model. The empirical results show that (1) the joint degree of market efficiency changes widely over time, as shown in Lo's (2004) adaptive market hypothesis, (2) the COVID-19 pandemic may eliminate arbitrage and improve market efficiency through enhanced linkages between the asset markets; and (3) the market efficiency has continued to decline due to the Bitcoin bubble that emerged at the end of 2020.
    Date: 2021–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2109.02933&r=
  2. By: Matías Lamas (Banco de España); David Martínez-Miera (UC3M and CEPR)
    Abstract: We analyze the evolution and price implications of aggregate sectorial holdings of stocks, using detailed information on the universe of publicly traded stocks in the euro area. We document that: i) households’ (HH) direct holdings represent a higher fraction of total ownership in domestic bank stocks than in non-financial corporation (NFC) stocks; ii) HH holdings of stocks increase (decrease) following a decline (increase) in the stock price, especially for domestic bank stocks; and iii) an increase in domestic HH holdings is followed by future (persistent) increases in the price of NFC stocks, but not for bank stocks. Moreover, during equity issuances, an increase in the share of domestic HH holdings is followed by a future (persistent) decrease in the stock price of bank stocks, but not for NFC stocks. Our results are consistent with HH being liquidity providers in the stock market, and at the same time subject to negative information asymmetries. We argue that this latter effect is more prevalent in domestic bank stocks than in NFC given the close relationships between HH and banks.
    Keywords: household ownership, stock prices, equity issuance, banks, non-financial corporations, liquidity provision, informational asymmetries
    JEL: G11 G14 G21 G50
    Date: 2021–08
    URL: http://d.repec.org/n?u=RePEc:bde:wpaper:2130&r=
  3. By: Albert Banal-Estañol (Universitat Pompeu Fabra and Barcelona GSE); Enrique Benito (City, University of London); Dmitry Khametshin (Banco de España); Jianxing Wei (University of International Business and Economics)
    Abstract: We document that overcollateralisation of banks’ secured liabilities is positively associated with the risk premium on their unsecured funding. We rationalize this finding in a theoretical model in which costs of asset encumbrance increase collateral haircuts and the endogenous risk of a liquidity-driven bank run. We then test the model’s predictions using a novel dataset on asset encumbrance of the European banks. Our empirical analysis demonstrates that banks with more costly asset encumbrance have higher rates of overcollateralisation and rely less on secured debt. Consistent with theory, the effects are stronger for banks that are likely to face higher fire-sales discounts. This evidence acts in favour of the hypothesis that asset encumbrance increases bank risk, although this relationship is rather heterogeneous.
    Keywords: asset encumbrance, collateral, bank risk, credit default swaps
    JEL: G01 G21 G28
    Date: 2021–08
    URL: http://d.repec.org/n?u=RePEc:bde:wpaper:2131&r=

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