|
on Financial Markets |
|
Issue of 2024‒07‒08
five papers chosen by |
| By: | Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper investigates the effects of global geopolitical risk on stock prices of 29 economies by using the local projections method for the monthly period between 1985M1-2023M9. The results show that a positive unit shock of global geopolitical risk (normalized to one standard deviation) reduces stock prices (normalized to one standard deviation) in a statistically significant way by 0.80 in Latvia, 0.71 in China, 0.62 in the Euro Area, 0.50 in Sweden, 0.42 in the United Kingdom, 0.39 in the United States, 0.38 in Switzerland, 0.34 in Israel, 0.28 in Canada, and 0.21 in Denmark in a year following the shock, whereas it increases those only in Iceland by 0.28 that can be used to hedge against any geopolitical risk. Subsample analyses further suggest that the negative effects of the same shock exist in several economies (including the United States, China and Euro Area) during the first half of the sample period that coincides with the geopolitical events that the United States is involved with, whereas they only exist in Russia, Poland, Euro Area and the United Kingdom for the second half of the sample period, suggesting that the Russo-Ukrainian War has mostly affected the stock prices in these nearby economies. It is implied that the geographical location of geopolitical events as well as the countries involved are important indicators to understand the effects of any global geopolitical risk on stock prices. |
| Keywords: | Geopolitical Risk, Stock Prices, Local Projections Method |
| JEL: | G15 G41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:fiu:wpaper:2407&r= |
| By: | Lawrence J. Jin; Cameron Peng |
| Abstract: | We build a model of the law of small numbers (LSN)—the incorrect belief that even small samples represent the properties of the underlying population—to study its implications for trading behavior and asset prices. In our model, a belief in the LSN induces investors to expect short-term price trends to revert and long-term price trends to persist. As a result, asset prices exhibit short-term momentum and long-term reversals. The model can reconcile the coexistence of the disposition effect and return extrapolation. In addition, it makes new predictions about investor behavior, including return patterns before purchases and sales, a weakened disposition effect for long-term holdings, doubling down in buying, a positive correlation between doubling down and the disposition effect, and heterogeneous selling propensities to past returns. By testing these predictions using account-level transaction data, we show that the LSN provides a parsimonious way of understanding a variety of puzzles about investor behavior. |
| JEL: | G0 G02 G11 G12 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32519&r= |
| By: | Adam Baybutt |
| Abstract: | We motivate the study of the crypto asset class with eleven empirical facts, and study the drivers of crypto asset returns through the lens of univariate factors. We argue crypto assets are a new, attractive, and independent asset class. In a novel and rigorously built panel of crypto assets, we examine pricing ability of sixty three asset characteristics to find rich signal content across the characteristics and at several future horizons. Only univariate financial factors (i.e., functions of previous returns) were associated with statistically significant long-short strategies, suggestive of speculatively driven returns as opposed to more fundamental pricing factors. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.15716&r= |
| By: | Joebges, Heike; Herr, Hansjörg; Kellermann, Christian |
| Abstract: | Crypto assets' partial money-like use promotes toxic developments in the financial system. Even though crypto assets might be regarded as close substitutes to traditional money, we show that they lack important functions of money. Traditional fiat money requires several interacting institutions to stabilize its value and regulate its use. In our analysis, we elaborate on the risks associated with the difficulty of setting up regulatory institutions in the crypto sphere and the likelihood of periods of high volatility as well as their repercussions on the traditional financial system due to reciprocal integration. The shift of banking functions into the unregulated area of decentralized finance triggers a new quality of instability in the global financial system with an increasing probability of effects on the real economy. Regulation of crypto assets remains an urgent issue. |
| Keywords: | crypto assets, Bitcoin, stablecoins, financial crisis |
| JEL: | E42 G01 G23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:296490&r= |
| By: | Debnath, Pabitra; Dinda, Soumyananda |
| Abstract: | This study investigates the risk-return spectrum of investment for going green and sustainability practice in India. This paper analyses three sustainability focused index from Indian equity market viz. S&P BSE GREENEX, S&P BSE CARBONEX and S&P BSE ESG 100. Statistical and financial rates, ratios and latest five-factor model of asset pricing are used for the said purpose. ESG 100 index turned out to be outperformer whereas the other two gave slightly less return than the market benchmark. Volatility is found to be similar to that of the market for all the indexes. Significant increment of wealth of green investors during and after the COVID-19 pandemic period is another notable finding of the study. Results of this paper indicate that investors are getting more return compared to market if they invest in stocks that perform well in sustainability criterion. |
| Keywords: | Beta, CAGR, Carbon neutrality, Five-factor model, Jensen’s Alpha, Sustainability, Sharpe Ratio, Treynor Ratio, S&P BSE GREENEX, S&P BSE CARBONEX, S&P BSE ESG 100 |
| JEL: | C20 G20 M14 M21 Q42 |
| Date: | 2022–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121116&r= |