nep-ifn New Economics Papers
on International Finance
Issue of 2015‒07‒11
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. What Do Stock Markets Tell Us About Exchange Rates? By Cenedese, Gino; Payne, Richard; Sarno, Lucio; Valente, Giorgio
  2. The impact of international swap lines on stock returns of banks in emerging markets By Alin Marius Andries; Andreas M. Fischer; Pinar Yesin
  3. Is the Intrinsic Value of Macroeconomic News Announcements Related to their Asset Price Impact? By Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara

  1. By: Cenedese, Gino; Payne, Richard; Sarno, Lucio; Valente, Giorgio
    Abstract: The sign of the correlation between equity returns and exchange rate returns can be positive or negative in theory. Using data for a broad set of 42 countries, we find that exchange rate movements are in fact unrelated to differentials in country-level equity returns. Consequently, a trading strategy that invests in countries with the highest expected equity returns and shorts those with the lowest generates substantial returns and Sharpe ratios. These returns partially reflect compensation for global equity volatility risk, but significant excess returns remain after controlling for exposure to standard risk factors.
    Keywords: Empirical Asset Pricing; Exchange Rates; International Asset Allocation
    JEL: F31 G15
    Date: 2015–07
  2. By: Alin Marius Andries; Andreas M. Fischer; Pinar Yesin
    Abstract: This paper investigates the impact of international swap lines on stock returns using data from banks in emerging markets. The analysis shows that swap lines by the Swiss National Bank (SNB) had a positive impact on bank stocks in Central and Eastern Europe. It then highlights the importance of individual bank characteristics in identifying the impact of swap lines on bank stocks. Bank-level evidence suggests that stock prices of local and less-well capitalized banks responded strongly to SNB swap lines. This new evidence is consistent with the view that swap lines not only enhanced market liquidity but also reduced risks associated with micro-prudential issues.
    Keywords: Swap lines, foreign currency loans, bank stocks, emerging markets
    JEL: F15 F21 F32 F36 G15
    Date: 2015
  3. By: Gilbert, Thomas (Foster School of Business); Scotti, Chiara (Board of Governors of the Federal Reserve System (U.S.)); Strasser, Georg (Boston College); Vega, Clara (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same nowcasting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise. We find that in the 1998-2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise.
    Keywords: Macroeconomic announcements; central bank policy; coordination role of public information; learning; macroeconomic forecasting; price discovery
    JEL: E44 G14
    Date: 2015–04–23

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