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on Financial Markets |
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Issue of 2024‒07‒29
seven papers chosen by |
| By: | Marcin Kacperczyk (Imperial College London Business School); Lin Peng (Zicklin School of Business, Baruch College, City University of New York); Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau) |
| Abstract: | ESG has become a crucial consideration for asset managers in recent years. Consistent with the style investing model of Barberis and Shleifer (2003), we find that the stock returns of firms with improved ESG scores (Improvers) tend to comove significantly more with the returns of other high-ESG stocks and less with those of low-ESG stocks. The new phenomenon only emerged recently, is stronger for Improvers with more salient score changes, and cannot be explained by shared risk factors or similarities in firm fundamentals. Furthermore, flow-induced net purchases by high-ESG mutual funds increase the returns of high-ESG stocks, which reverses in the following month. The evidence suggests that investors’ increased focus on ESG has generated a new style factor that causes excess comovement of within-style asset returns. |
| Keywords: | ESG investing; clientele effect; return comovement; style investing; demand system asset pricing |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202403 |
| By: | Guillaume Roussellet |
| Abstract: | Since the late 1990s, the U.S. Treasury has issued debt in two main forms: nominal bonds, which provide fixed-cash scheduled payments, and Treasury Inflation Protected Securities—or TIPS—which provide the holder with inflation-protected payments that rise with U.S. inflation. At the heart of their relative valuation lie market participants’ expectations of future inflation, an object of interest for academics, policymakers, and investors alike. After briefly reviewing the theoretical and empirical links between TIPS and Treasury yields, this post, based on a recent research paper, explores whether market perceptions of U.S. sovereign credit risk can help explain the relative valuation of these financial instruments. |
| Keywords: | Treasury; Treasury Inflation-Protected Securities (TIPS); breakeven inflation; default risk; loss given default; loss-given default (LGD) |
| JEL: | E4 E6 G12 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98470 |
| By: | Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau) |
| Abstract: | I uncover that equity mutual funds with significant investments in publicly traded family firms (pro-FF funds) exhibit superior performance compared to other funds. This effect is more pronounced when family firms are harder to value or less liquid. Pro-FF funds yield higher returns on family firm investments than other funds do on similar holdings. The net purchasing activities made by pro-FF funds have predictive power for future stock returns and earnings announcement surprises of family firms. One plausible explanation for this informational advantage lies in pro-FF funds focusing on family firms in closer geographical proximity. The positive impact of FF investment on fund performance holds for all three subsets of family firms that are managed by founders, descendants, or professional CEOs. |
| Keywords: | Mutual funds; Informed trading; Family firms; Ownership Structure; Insiders |
| JEL: | G11 G23 G32 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202411 |
| By: | Allaudeen Hameed (NUS Business School, National University of Singapore); Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau); Yuxiang Zhong (School of Management, Huazhong University of Science and Technology) |
| Abstract: | We find strong international evidence favoring dividend payouts as a salient stock characteristic affecting future stock returns. We find that dividend-paying stocks outperform non-dividendpaying stocks globally by 0.58% per month, adjusting for exposure to global and regional risk factors. The degree of dividend payers’ outperformance relative to non-dividend payers is unrelated to tax rates on dividends. We show that the dividend premium comes from the payers’ superior performance during ex-dividend months and the inflated ex-dividend month return partially reverses in the following month. The dividend premium co-moves across countries, especially between countries where ex-dividend dates are clustered in the same calendar month, and it is higher following market downturns. Collectively, our evidence points to dividend premium reflecting investor demand for dividends, particularly during dividend payment months. |
| Keywords: | Dividend premium; Return comovement; International studies; Asset pricing |
| JEL: | G12 G35 N20 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202405 |
| By: | Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau) |
| Abstract: | Using hand-collected data on mutual funds’ securities lending activities, I find that funds that have benefited from securities lending are less likely to participate in proxy voting of their portfolio firms in the future. The negative effect of security lending on fund voting participation almost disappears during the 2008 short sale ban period when the lending business is forbidden by regulation. The negative effect is weaker if other funds in the same fund family are active voters, or if a fund holds a larger stake in the stock, especially poorly performing stocks. Overall, mutual funds view security lending income as an opportunistic cost of monitoring and become less willing to monitor a firm as the cost increases. |
| Keywords: | Securities lending; proxy voting; corporate governance; mutual funds; short selling |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202410 |
| By: | Sarra Ben Yahia (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Jose Angel Garcia Sanchez (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Rania Hentati Kaffel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This study provides sentiment analysis model to enhance market return forecasts by considering investor sentiment from social media platforms like Twitter (X). We leverage advanced NLP techniques and large language models to analyze sentiment from financial tweets. We use a large web-scrapped data of selected energy stock daily returns spanning from 2018 to 2023. Sentiment scores derived from FinBERT are integrated into a novel predictive model (SIMDM) to evaluate autocorrelation structures within both the sentiment scores and stock returns data. Our findings reveal i) significant correlations between sentiment scores and stock prices. ii) Results are highly sensitive to data quality. iii) Our study reinforces the concept of market efficiency and offers empirical evidence regarding the delayed influence of emotional states on stock returns. |
| Keywords: | financial NLP finBERT information extraction webscraping sentiment analysis, financial NLP, finBERT, information extraction, webscraping, sentiment analysis, LLM, Deep learing |
| Date: | 2024–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-04629569 |
| By: | Matthew DeHaven; Hannah Firestone; Chris Webster |
| Abstract: | We find striking correlations between the presidential election outcome probability and major financial indicators, including USD currency pairs, bond prices, stock index futures, and a market volatility measure. The correlations are consistent with 'risk-on' behavior in markets, a term which describes investors moving toward riskier asset classes, as the election results became clearer. Further, we decompose the market reaction into a 'reduction in uncertainty' component and a 'probability of a Democratic party presidency' component. This decomposition reveals how markets reacted to the increasing certainty of the outcome as election results came in. Finally, we analyze the differing market reactions to the presidential election and the Senate election, including data from the unique Georgia runoffs, and demonstrate that bond prices were particularly sensitive to the probability of a combined Democratic Senate and Presidency. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.03527 |