nep-fmk New Economics Papers
on Financial Markets
Issue of 2022‒07‒11
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Misfortunes Never Come Alone: From the Financial Crisis to the COVID-19 Pandemic By Antonio Moreno; Steven Ongena; Alexia Ventula Veghazy; Alexander F. Wagner
  2. Fundamental Portfolio Outperforms the Market Portfolio By Hayden Brown
  3. Nonparametric Value-at-Risk via Sieve Estimation By Philipp Ratz
  4. The Empirical Performance of Financial Frictions since 2008 By Gregor Boehl; Felix Strobel
  5. Financial deepening and stock market development in Nigeria: evidence from recent data (1981-2019) By Tiamiyu, Kehinde A.

  1. By: Antonio Moreno (School of Economics and Business, University of Navarra); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Alexia Ventula Veghazy (European Central Bank (ECB)); Alexander F. Wagner (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)
    Abstract: Is there a connection between the 2007-2009 financial crisis and the COVID-19 pandemic? To answer this question, we examine the relation between both macroeconomic and financial losses derived from the financial crisis and the health outcomes associated with the first wave of the pandemic. At the European level, countries more affected by the financial crisis had more deaths relative to coronavirus cases. An analogous relation emerges across Spanish provinces and US states. Part of the transmission from finance to health outcomes appears to have occurred through cross-sectional differences in health facilities. Therefore, dampening financial-economic instability may yield long-term societal benefits.
    Keywords: Global Financial Crisis, COVID-19, local sovereign debt, death ratio, curative beds
    JEL: I10 G21 H1
    Date: 2022–05
    URL: http://d.repec.org/n?u=RePEc:chf:rpseri:rp2244&r=
  2. By: Hayden Brown
    Abstract: There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental prices with sufficient strength and symmetry, the fundamental portfolio outperforms the market portfolio in expectation. If reversion toward the fundamental price is not sufficiently strong, then the fundamental portfolio underperforms the market portfolio in expectation.
    Date: 2022–05
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2205.12242&r=
  3. By: Philipp Ratz
    Abstract: Artificial Neural Networks (ANN) have been employed for a range of modelling and prediction tasks using financial data. However, evidence on their predictive performance, especially for time-series data, has been mixed. Whereas some applications find that ANNs provide better forecasts than more traditional estimation techniques, others find that they barely outperform basic benchmarks. The present article aims to provide guidance as to when the use of ANNs might result in better results in a general setting. We propose a flexible nonparametric model and extend existing theoretical results for the rate of convergence to include the popular Rectified Linear Unit (ReLU) activation function and compare the rate to other nonparametric estimators. Finite sample properties are then studied with the help of Monte-Carlo simulations to provide further guidance. An application to estimate the Value-at-Risk of portfolios of varying sizes is also considered to show the practical implications.
    Date: 2022–05
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2205.07101&r=
  4. By: Gregor Boehl; Felix Strobel
    Abstract: We use nonlinear Bayesian methods to evaluate the performance of financial frictions `a la Bernanke et al. (1999) during and after the Global Financial Crisis. We find that, despite the attention received in the literature, including these frictions in the canonical medium-scale DSGE model does not improve the model’s ability to explain macroeconomic dynamics in the US during the Great Recession. The reason is that in the estimated model with financial frictions, the firms’ leverage declines in response to the post-2008 collapse of investment, which in turn implies a narrowing of the credit spread. Hence, the estimated model predicts financial decelerator effects. Associated financial shocks play only a minor role for macroeconomic dynamics. Our estimates account for the binding effective lower bound on nominal interest rates, and confirm our findings independently for US and euro area data.
    Keywords: Financial Frictions, Great Recession, Business Cycles, Effective Lower Bound, Nonlinear Bayesian Estimation
    JEL: C11 C63 E31 E32 E44
    Date: 2022–06
    URL: http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_353&r=
  5. By: Tiamiyu, Kehinde A.
    Abstract: Abstract: This study has so far investigated the link between financial deepening and the development of the stock market over the period of 1981 and 2019 using Bound test conintegration ARDL approach on the ground that Nigeria's financial sector is still shallow and lacks the necessary liquidity and capital to bring about the required development of stock markets in Nigeria. The Bounds cointegration test revealed that cointegration existed among the variables under investigation. As a result, both the short and long term models were empirically examined. In the long run, the significant drivers of stock market development in Nigeria are financial development, domestic saving as a ratio of GDP, broad money diversification and GDP as they are all significant determinants in term of signs, magnitude and size. This result parallels the findings of Okeya and Dare (2019). However, from 1981 to 2019, a considerable inverse relationship was seen between broad money diversification and stock market performance, contrary to projections. By implication, Nigerian financial sector lacks financial diversification in the long run. However, the finding supports the popular consensus that money is neutral in the long run as stock market mirrors economic condition of the country it represents. Nonetheless, the short run counterpart of the regression model showed that stock market development follows adaptive expectation in Nigeria as its previous values significantly determined the present values. However, unlike in the long run, financial development indicator exerts negative influence to stock market and but only becomes significant after some lags. This therefore reinforces the reality that private sectors lacks enough liquidity, limiting its beneficial contribution to the development of the stock market in the near term. This, by inference, confirms the shallowness of the Nigerian financial sector, as it lacks sufficient liquidity in the short run. Besides, regardless of model considered be it long run or short run, total domestic saving ratio of GDP has been a good candidate driving stock market development in Nigeria. Based on this conclusion, the Central Bank of Nigeria (CBN) is enjoined to liberate interest rate so as to allow for more robust operations of financial sectors in Nigeria.
    Keywords: Financial Deepening; Financial Sector; Stock Market Development; ARDL; Nigeria
    JEL: E42 E44 G1 G12 G21 G24
    Date: 2022–03–28
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:113224&r=

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