|
on Financial Markets |
| By: | Celso Brunetti; Matthew Carl; Jacob Gerszten; Chiara Scotti; Chaehee Shin |
| Abstract: | Does interconnectedness improve market quality? Yes.We develop an alternative network structure, the assets network: assets are connected if they are held by the same investors. We use several large datasets to build the assets network for the corporate bond market. Through careful identification strategies based on the COVID-19 shock and “fallen angels, ” we find that interconnectedness improves market quality especially during stress periods. Our findings contribute to the debate on the role of interconnectedness in financial markets and show that highly interconnected corporate bonds allow for risk sharing and require a lower compensation for risk. |
| Keywords: | Financial stability; Interconnectedness; Institutional investors; Big data |
| JEL: | C13 C55 C58 G10 |
| Date: | 2024–08–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-66 |
| By: | Ixandra Achitouv |
| Abstract: | Applying a network analysis to stock return correlations, we study the dynamical properties of the network and how they correlate with the market return, finding meaningful variables that partially capture the complex dynamical processes of stock interactions and the market structure. We then use the individual properties of stocks within the network along with the global ones, to find correlations with the future returns of individual S&P 500 stocks. Applying these properties as input variables for forecasting, we find a 50% improvement on the R2score in the prediction of stock returns on long time scales (per year), and 3% on short time scales (2 days), relative to baseline models without network variables. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.11759 |
| By: | Lorenzo Cominelli; Gianluca Rho; Caterina Giannetti; Federico Cozzi; Alberto Greco; Graziano A. Manduzio; Philipp Chapkovski; Michalis Drouvelis; Enzo Pasquale Scilingo |
| Abstract: | We investigate whether human traders experience milder emotions when participating in a financial market populated by artificial agents as opposed to a market comprising solely humans. In particular, by manipulating across conditions the number of artificial players, we assess how much emotions vary along with price dynamics (i.e. the occurrence of price bubbles). Notably, to ensure robustness, we evaluate emotions using three distinct methods: self-reporting, physiological responses, and facial expressions. Results show larger bubbles and milder emotional reactions in conditions with a higher count of artificial agents. Furthermore, negative emotions indirectly contribute to the mitigation of price bubbles. Ultimately, we observe a moderate degree of consistency across emotional measurements, with self-reported data being the least consistent among them. |
| Keywords: | Emotions, Financial Bubbles, Artificial Players |
| JEL: | G10 G41 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2024/311 |
| By: | Irem Erten (University of Warwick - Warwick Business School); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We study the impact of the environmental footprint and the biodiversity risk exposure of firms on their cost of bank credit. We document that at loan origination banks charge higher rates to firms with more environmental damage, especially when weakly capitalized and when the firms operate in "greener" states with low denial and during periods with more negative environmental news. Biodiversity risk is also priced, and more so when public interest intensifies. Following the Trump withdrawal from Paris, banks reduce environmental risk pricing in "browner" states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes. |
| Keywords: | Climate change, biodiversity risk, bank credit, personal beliefs |
| JEL: | G12 G18 G21 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2440 |
| By: | Beyer, Jürgen |
| Abstract: | Ten years after the collapse of investment bank Lehman Brothers and the onset of a global financial, economic, and debt crisis, this article reflects on the extent to which the economic crisis has brought about a turning point in societal terms. In light of the state of research on the relationship between financialization, democracy, and social conditions, it appears plausible that the processes of financialization, which contributed to the emergence of a crisis, were influenced by the financial crisis but not completely reversed. The changes in financial market regulation, which were implemented in response to the crisis, did not create pressure for a redesign of the financial system. Therefore, one cannot deduce a significant turning point in financial market regulation from the reform measures taken. However, there are clear indications that the financial crisis has had a lasting impact on the European integration process, trust in democracy, and the political culture. Accordingly, the financial crisis can be seen as a turning point in history, primarily due to its effects on social areas beyond the financial system. |
| Date: | 2024–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:jks8v |
| By: | Yu-Ann Wang (Taiwan Research Institute, Taiwan); Chia-Lin Chang (National Chung Hsing University, Taiwan) |
| Abstract: | This study explores risk transmission in financial markets, focusing on investor hedging decisions. It examines risk movement between renewable and fossil fuel energy assets in energy ETFs during the Global Financial Crisis (GFC) and the COVID-19 pandemic. A novel test evaluates how an energy asset's volatility impacts the overall portfolio risk, offering insights for managing financial risk. The analysis covers three major renewable energy ETFs (solar, wind, and hydro) and three fossil fuel ETFs (oil, coal, and natural gas). During the COVID-19 crisis, effective combinations such as (solar, coal) and (wind, coal) are recommended for minimizing losses. Although not ideal for hedging solar-related risks, (solar, oil) is advantageous for oil-related shocks. The study found that combining solar with oil and wind with oil was effective in mitigating losses during the GFC and before COVID-19. In non-pandemic periods, combinations like (solar, oil) or (solar, coal) are valuable for risk management. This research highlights the interconnectedness of energy assets and provides actionable insights for investors and policymakers. Future research could examine other events, like the Russia-Ukraine war, impacting global energy markets. |
| Keywords: | Renewable energy, Volatility spillover, Risk Transfer, GFC, COVID-19 |
| JEL: | C32 C58 G01 G11 G14 Q42 Q47 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1108 |