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on Financial Markets |
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Issue of 2023‒12‒18
eight papers chosen by |
| By: | Johannes Ruf |
| Abstract: | In July 2023, Nasdaq announced a `Special Rebalance' of the Nasdaq-100 index to reduce the index weights of its large constituents. A rebalance as suggested currently by Nasdaq index methodology may have several undesirable effects. These effects can be avoided by a different, but simple rebalancing strategy. Such rebalancing is easily computable and guarantees (a) that the maximum overall index weight does not increase through the rebalancing and (b) that the order of index weights is preserved. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.10713&r=fmk |
| By: | Fix, Blair |
| Abstract: | Think of this question as a sword — a sharp piece of steel that cuts through bullshit. In this post, we’ll use it to slice through business-press bullshit about the stock market. You know the stuff — the ubiquitous puff pieces that gush about rising stock prices, as though they benefit everyone. When we ask cui bono, we carve through this BS. We discover that for most people, rising stocks are a tool not for gain, but for administering pain. Looking at the United States, I find that when stocks go up, the vast majority of people see their share of income (and wealth) decline. So here’s the truth about the stock market: it’s a socially sanctioned way to take from the poor and give to the rich. |
| Keywords: | billionaires, corporation, distribution, ownership, United States |
| JEL: | P P1 D3 G3 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:279884&r=fmk |
| By: | Ethan Ratliff-Crain; Colin M. Van Oort; James Bagrow; Matthew T. K. Koehler; Brian F. Tivnan |
| Abstract: | In 2001, Rama Cont introduced a now-widely used set of 'stylized facts' to synthesize empirical studies of financial time series, resulting in 11 qualitative properties presumed to be universal to all financial markets. Here, we replicate Cont's analyses for a convenience sample of stocks drawn from the U.S. stock market following a fundamental shift in market regulation. Our study relies on the same authoritative data as that used by the U.S. regulator. We find conclusive evidence in the modern market for eight of Cont's original facts, while we find weak support for one additional fact and no support for the remaining two. Our study represents the first test of the original set of 11 stylized facts against the same stocks, therefore providing insight into how Cont's stylized facts should be viewed in the context of modern stock markets. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.07738&r=fmk |
| By: | Guerrero-Escobar Santiago; Hernández-del-Valle Gerardo; Hernández Vega Marco; De-la-Mora Paula |
| Abstract: | Many companies are setting ambitious targets to reduce their greenhouse gas emissions (GHG) per the Paris Agreement. However, there is limited evidence on the market effects of setting those targets. Using a GARCH model with a trend developed by the authors and a panel fixed effects model, this paper analyzes the short-run effects of committing and setting GHG targets on public companies' stock price returns and volatility. We find no evidence that committing or setting a target yields higher returns but contributes to a reduction in price volatility, albeit the impact is short-lived. In view of these results, we conclude that there are no visible stock market gains in the short term for companies that commit and set GHG targets and that other factors may explain their motivations to engage in GHG mitigation actions. |
| Keywords: | Stock returns;Volatility;GHG emissions;ESG;GARCH |
| JEL: | C1 E1 I0 O4 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-15&r=fmk |
| By: | Gasparini, Matteo |
| Abstract: | Previous research has highlighted a positive correlation between realised returns and carbon emissions. This paper shows that this carbon premium might be partially due to mispricing produced by climate policy uncertainty. For this reason, realised returns may not be representative of expected returns. To show this, I develop an asset pricing model with uncertain expectations about the future cash flows of fossil-fuel firms; the price-dividend ratio increases with uncertainty about a climate policy regime shift. I confirm this proposition empirically using data on analysts' forecasts; I find that analysts' forecast disagreement, as a proxy for climate policy uncertainty, may explain part of the valuations of a large sample of fossil-fuel stocks. Using my model, I show with forward-looking scenarios that cash flow expectations implied in the valuations of fossil-fuel firms may be inconsistent with a net zero carbon transition. |
| Keywords: | Asset Pricing, Uncertainty, Climate Finance, Climate Change |
| JEL: | G11 G18 Q51 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:amz:wpaper:2023-23&r=fmk |
| By: | Viral V. Acharya; Toomas Laarits |
| Abstract: | We document that the convenience yield of U.S. Treasuries exhibits properties that are consistent with a hedging perspective of safe assets. The convenience yield tends to be low when the covariance of Treasury returns with the aggregate stock market returns is high. A decomposition of the aggregate stock-bond covariance into terms corresponding to the convenience yield, the frictionless risk-free rate, and default risk reveals that the covariance between stock returns and the convenience yield itself drives the effect in a substantive capacity. We show the convenience yield is reduced with heightened inflation expectations that erode the hedging properties of U.S. Treasuries and other fixed-income money-like assets, inducing a switch to alternatives such as gold; it is also reduced immediately prior to debt-ceiling standoffs and with increases in Treasury supply. |
| JEL: | E4 E5 F3 G11 G12 G15 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31863&r=fmk |
| By: | Wentao Zhang; Yilei Zhao; Shuo Sun; Jie Ying; Yonggang Xie; Zitao Song; Xinrun Wang; Bo An |
| Abstract: | Portfolio management (PM) is a fundamental financial trading task, which explores the optimal periodical reallocation of capitals into different stocks to pursue long-term profits. Reinforcement learning (RL) has recently shown its potential to train profitable agents for PM through interacting with financial markets. However, existing work mostly focuses on fixed stock pools, which is inconsistent with investors' practical demand. Specifically, the target stock pool of different investors varies dramatically due to their discrepancy on market states and individual investors may temporally adjust stocks they desire to trade (e.g., adding one popular stocks), which lead to customizable stock pools (CSPs). Existing RL methods require to retrain RL agents even with a tiny change of the stock pool, which leads to high computational cost and unstable performance. To tackle this challenge, we propose EarnMore, a rEinforcement leARNing framework with Maskable stOck REpresentation to handle PM with CSPs through one-shot training in a global stock pool (GSP). Specifically, we first introduce a mechanism to mask out the representation of the stocks outside the target pool. Second, we learn meaningful stock representations through a self-supervised masking and reconstruction process. Third, a re-weighting mechanism is designed to make the portfolio concentrate on favorable stocks and neglect the stocks outside the target pool. Through extensive experiments on 8 subset stock pools of the US stock market, we demonstrate that EarnMore significantly outperforms 14 state-of-the-art baselines in terms of 6 popular financial metrics with over 40% improvement on profit. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.10801&r=fmk |
| By: | Qin Wang; Guangsheng Yu; Shiping Chen |
| Abstract: | In this paper, we explore the aftermath of the Silicon Valley Bank (SVB) collapse, with a particular focus on its impact on crypto markets. We conduct a multi-dimensional investigation, which includes a factual summary, analysis of user sentiment, and examination of market performance. Based on such efforts, we uncover a somewhat counterintuitive finding: the SVB collapse did not lead to the destruction of cryptocurrencies; instead, they displayed resilience. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.10720&r=fmk |