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on Financial Markets |
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Issue of 2024‒02‒12
nine papers chosen by |
| By: | Yue Chen; Mohan Li |
| Abstract: | When analyzing the components influencing the stock prices, it is commonly believed that economic activities play an important role. More specifically, asset prices are more sensitive to the systematic economic news that impose a pervasive effect on the whole market. Moreover, the investors will not be rewarded for bearing idiosyncratic risks as such risks are diversifiable. In the paper Economic Forces and the Stock Market 1986, the authors introduced an attribution model to identify the specific systematic economic forces influencing the market. They first defined and examined five classic factors from previous research papers: Industrial Production, Unanticipated Inflation, Change in Expected Inflation, Risk Premia, and The Term Structure. By adding in new factors, the Market Indices, Consumptions and Oil Prices, one by one, they examined the significant contribution of each factor to the stock return. The paper concluded that the stock returns are exposed to the systematic economic news, and they are priced with respect to their risk exposure. Also, the significant factors can be identified by simply adopting their model. Driven by such motivation, we conduct an attribution analysis based on the general framework of their model to further prove the importance of the economic factors and identify the specific identity of significant factors. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.04132&r=fmk |
| By: | Huang, Alan Guoming; Wermers, Russ; Xue, Jinming |
| Abstract: | Using a comprehensive database of corporate news, we find that bond funds trade against the direction of news sentiment. The trading against news phenomenon is concentrated in funds selling on positive news and in the post-financial crisis period when dealer liquidity provision is constrained. Funds in so doing exhibit higher alphas, and a potential source of such alphas is bond price reversals post news events. Our findings highlight that bond mutual funds represent a significant liquidity provider in the corporate bond market and play a complementary role to dealers in corporate news events. |
| Keywords: | Fixed income mutual funds, Corporate bonds, Institutional trading, Public news, Textual analysis |
| JEL: | G12 G14 G23 G39 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:281205&r=fmk |
| By: | Yue Chen; Xingyi Andrew; Salintip Supasanya |
| Abstract: | Historically, the economic recession often came abruptly and disastrously. For instance, during the 2008 financial crisis, the SP 500 fell 46 percent from October 2007 to March 2009. If we could detect the signals of the crisis earlier, we could have taken preventive measures. Therefore, driven by such motivation, we use advanced machine learning techniques, including Random Forest and Extreme Gradient Boosting, to predict any potential market crashes mainly in the US market. Also, we would like to compare the performance of these methods and examine which model is better for forecasting US stock market crashes. We apply our models on the daily financial market data, which tend to be more responsive with higher reporting frequencies. We consider 75 explanatory variables, including general US stock market indexes, SP 500 sector indexes, as well as market indicators that can be used for the purpose of crisis prediction. Finally, we conclude, with selected classification metrics, that the Extreme Gradient Boosting method performs the best in predicting US stock market crisis events. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.06172&r=fmk |
| By: | Cristina Chinazzo; Vahidin Jeleskovic |
| Abstract: | This paper conducts an extensive analysis of Bitcoin return series, with a primary focus on three volatility metrics: historical volatility (calculated as the sample standard deviation), forecasted volatility (derived from GARCH-type models), and implied volatility (computed from the emerging Bitcoin options market). These measures of volatility serve as indicators of market expectations for conditional volatility and are compared to elucidate their differences and similarities. The central finding of this study underscores a notably high expected level of volatility, both on a daily and annual basis, across all the methodologies employed. However, it's crucial to emphasize the potential challenges stemming from suboptimal liquidity in the Bitcoin options market. These liquidity constraints may lead to discrepancies in the computed values of implied volatility, particularly in scenarios involving extreme moneyness or maturity. This analysis provides valuable insights into Bitcoin's volatility landscape, shedding light on the unique characteristics and dynamics of this cryptocurrency within the context of financial markets. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.02049&r=fmk |
| By: | Guiqiang Shi (NKU - Nankai University); Dehua Shen (NKU - Nankai University); Zhaobo Zhu (Audencia Business School) |
| Abstract: | This paper explores the herding towards carbon neutrality in the Chinese stock market. We find that herding towards carbon neutrality does dynamically exist in the Chinese stock market. Specifically, herding is pronounced during the bear markets and market stress periods such as the post-COVID-19 period. There is a size effect for the herding behavior. Investor attention could significantly decrease the magnitude of herding. Our results hold in various robustness tests. This paper provides some important implications on the style investing, fads, and carbon neutrality. |
| Keywords: | Herding, Carbon neutrality, Investor attention, Cross-sectional volatility |
| Date: | 2024–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04348526&r=fmk |
| By: | M N, Nikhil; S Shenoy, Sandeep; Chakraborty, Suman; B M, Lithin |
| Abstract: | The nature of the relationship between leverage and firm performance has been a subject of investigation in extant literature. We re-examine the nature of the association by using a sample of 78 non-financial firms listed in the Nifty 100 index during the 2013-2023 period by applying the quantile regression technique and comparing the result with the linear regression approach (system GMM technique). Our empirical analysis demonstrates that leverage negatively impacts the performance of firms. Further, results show that the association is non-homogeneous among firms of different quantiles: leverage withers the performance of highly profitable firms (upper quantile) than low profitable firms (lower quantile). The identified concave relationship highlights the prominence of optimal capital structure and the role of finance managers in designing a sound financial policy that matches firm characteristics and borrowing requirements. The findings of our study draw insightful implications for managers and policymakers while contributing to the ongoing leverage and firm performance debate reported in previous studies. |
| Keywords: | leverage, profitability, non-homogeneous, nonlinear relation, quantile regression, GMM, India |
| JEL: | C23 C26 C33 G30 G32 |
| Date: | 2023–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119669&r=fmk |
| By: | Chang, Zheng; Ng, Alex Wei Fung; Peng, Siying; Shi, Dandi |
| Abstract: | As global economies strive for post-COVID recovery, stock market reactions to reopening announcements have become crucial indicators. Though previous research has extensively focused on COVID’s detrimental impact on stock markets, the effects of reopening remain underexplored. This study provides the first causal analysis of the effect of easing restrictions on Chinese firms’ stock prices following the end of China’s three-year Zero-COVID policy. Utilizing regression-discontinuity design, we find that most relaxed measures had minimal or negative impact. However, stock prices jumped 1.4% immediately after the full reopening announcement on December 26, 2022. Using a difference-in-differences approach, we also note a 1.6% increase in the stock prices of Mainland China firms relative to firms in other districts on the Hong Kong stock market two months post-reopening. Our findings offer key insights for policymakers and contribute significantly to academic discourse on the causal relationship between reopening policies and stock market performance. |
| JEL: | M40 J1 |
| Date: | 2024–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121414&r=fmk |
| By: | Zhang Chern Lee; Wei Yun Tan; Hoong Khen Koo; Wilson Pang |
| Abstract: | Our article is focused on the application of Markowitz Portfolio Theory and the Single Index Model on 10-year historical monthly return data for 10 stocks included in FTSE Bursa Malaysia KLCI, which is also our market index, as well as a risk-free asset which is the monthly fixed deposit rate. We will calculate the minimum variance portfolio and maximum Sharpe portfolio for both the Markowitz model and Single Index model subject to five different constraints, with the results presented in the form of tables and graphs such that comparisons between the different models and constraints can be made. We hope this article will help provide useful information for future investors who are interested in the Malaysian stock market and would like to construct an efficient investment portfolio. Keywords: Markowitz Portfolio Theory, Single Index Model, FTSE Bursa Malaysia KLCI, Efficient Portfolio |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.05264&r=fmk |
| By: | Xolani Sibande; Alistair Milne |
| Abstract: | This study investigates the impact of the Basel III capital requirement on the supply of bank credit in South Africa. The literature offers greatly varying estimates of the impact of bank capital requirements on loan supply. Using a specification closely modelled on a related study of Peru by Fang et al. (2020), we report panel regressions using monthly balance sheet data for the four biggest banks in South Africa. We distinguish between three different categories of bank lending for household and corporate borrowers and report complementary local projection estimates to capture dynamic impacts. We find little evidence that the introduction of higher capital requirements under Basel III has reduced the supply of bank credit in South Africa. We surmise that this is mainly due to the large banks being well capitalised and operating with capital buffers that are larger than regulatory minimum requirements. |
| Date: | 2024–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:11055&r=fmk |