|
on Financial Markets |
|
Issue of 2012‒06‒25
seven papers chosen by |
| By: | Roberto Casarin (Department of Economics, University of Venice Cà Foscari); Flaminio Squazzoni (Department of Social Studies, University of Brescia) |
| Abstract: | This paper investigates the relationship between negative news in financial newspapers and stock markets in times of global crisis, such as the 2008/2009 period. We analysed one year of front page banner headlines of three financial newspapers, such as the Wall Street Journal, Financial Times, and Il Sole24ore and created an index of bad news at a daily base. We examined the influence of bad news both on market volatility and dynamic correlation of American, Britain and Italian stock markets to look at the impact of bad news on global investment strategies. Our results show that press and markets co-influenced each other in generating market volatility. The three newspapers showed significant differences in their stance on the crisis, with Financial Times more pessimistic. Our results also show that Wall Street Journal bad news had higher predictability value for the correlation between US and the foreign markets. This confirms the international influence of Wall Street Journal. |
| Keywords: | 2008/2009 financial crisis; financial press; bad news; market volatility; dynamic correlation; Wall Street Journal; pessimism. |
| JEL: | G14 G15 C58 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2012_04&r=fmk |
| By: | André de Souza; Anthony W. Lynch |
| Abstract: | We develop a new methodology that allows conditional performance to be a function of information available at the start of the performance period but does not make assumptions about the behavior of the conditional betas. We use econometric techniques developed by Lynch and Wachter (2011) that use all available factor return, instrument, and mutual fund data, and so allow us to produce more precise parameter estimates than those obtained from the usual GMM estimation. We use our SDF-based method to assess the conditional performance of fund styles in the CRSP mutual fund data set, and are careful to condition only on information available to investors, and to control for any cyclical performance by the underlying stocks held by the various fund styles. Moskowitz (2000) suggests that mutual funds may add value by performing well during economic downturns, but we find that not all funds styles produce counter-cyclical performance when using dividend yield or term spread as the instrument: instead, many fund styles exhibit pro-cyclical or non-cyclical performance, especially after controlling for any cyclicality in the performance of the underlying stocks. For many fund styles, conditional performance switches from counter-cyclical to pro- or non- cyclical depending on the instrument or pricing model used. Moreover, we find very little evidence of any business cycle variation in conditional performance for the 4 oldest fund styles (growth and income, growth, maximum capital gains and income) using dividend yield or term spread as the instrument, despite estimating the cyclicality parameter using the GMM method of Lynch and Wachter (2011) that produces more precise parameter estimates than the usual GMM estimation. Our results are important because they call into question the accepted wisdom and Moskowitz's conjecture that the typical mutual fund improves investor utility by producing counter-cyclical abnormal performance. |
| JEL: | G11 G23 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18137&r=fmk |
| By: | Janick Christian Mollet (ETH Zurich); Andreas Ziegler (University of Kassel) |
| Abstract: | This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It extends the existing literature by considering both the US and the entire European stock markets as well as by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 reveals the appeal of a recently constructed financial databank comprising the common market return, size, value, and momentum factors according to Carhart (1997). These risk factors from the four-factor model allow us to estimate more reliable risk-adjusted returns than in the restrictive one-factor model based on the Capital Asset Pricing Model. In both the US and European stock markets we find that SRI is associated with large-sized firms. However, this investment strategy generally leads to insignificant abnormal returns when all four risk factors are considered so that we find no evidence that SRI is either penalized or rewarded by the stock markets. |
| Keywords: | Socially responsible investing, Corporate sustainability performance, Stock performance, Portfolio analysis, Asset pricing models, Risk factors |
| JEL: | G11 G12 Q56 M14 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201228&r=fmk |
| By: | Golosnoy, Vasyl; Gribisch, Bastian; Liesenfeld, Roman |
| Abstract: | Using a novel three-phase model based upon a conditional autoregressive Wishart (CAW) framework for the realized (co)variances of the US Dow Jones and the German stock index DAX, we analyze intra-daily volatility spillovers between the US and German stock markets. The proposed model explicitly accounts for three distinct intraday periods resulting from the non-synchronous and partially overlapping opening hours of the two markets. We find evidence of significant short-term volatility spillovers from one intraday period to the next within both markets ('heat-wave effects') as well as across the two markets ('meteor-shower effects'). Furthermore, we find that during the subprime crisis the general persistence of short-term volatility shocks is considerably higher and the spillovers effects between the US and the German stock markets are significantly larger than before the crisis, indicating substantial volatility contagion effects. -- |
| Keywords: | Conditional autoregressive Wishart model,Impulse response analysis,Observationdriven models,Realized covariance matrix,Subprime crisis |
| JEL: | C32 C58 G17 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201206&r=fmk |
| By: | Roman Horvath; Dragan Petrovski |
| Abstract: | We examine the international stock market comovements betweenWestern Europe vis-à-vis Central (the Czech Republic, Hungary and Poland) and South Eastern Europe (Croatia, Macedonia and Serbia) using multivariate GARCH models in 2006-2011. Comparing these two groups, we find that the degree of comovements is much higher for Central Europe. The correlation of South Eastern European stock markets with developed markets is essentially zero. The exemption to this regularity is Croatia with its stock market displaying a greater degree of integration towards Western Europe recently, but still below the levels typical for Central Europe. All stock markets fall strongly at the beginning of the global fi- nancial crisis and we do not find that the crisis altered the degree of stock market integration between this group of countries. |
| Keywords: | stock market comovements, Central and South Eastern Europe, GARCH |
| JEL: | C22 C32 G15 |
| Date: | 2012–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2012-1028&r=fmk |
| By: | Michel Fliess (LIX - Laboratoire d'informatique de l'école polytechnique - CNRS : UMR7161 - Polytechnique - X); Cédric Join (INRIA Saclay - Ile de France - ALIEN - INRIA - Polytechnique - X - Ecole Centrale de Lille - CNRS : UMR8146, CRAN - Centre de Recherche en Automatique de Nancy - CNRS : UMR7039 - Université de Lorraine) |
| Abstract: | An elementary arbitrage principle and the existence of trends in financial time series, which is based on a theorem published in 1995 by P. Cartier and Y. Perrin, lead to a new understanding of option pricing and dynamic hedging. Intricate problems related to violent behaviors of the underlying, like the existence of jumps, become then quite straightforward by incorporating them into the trends. Several convincing computer experiments are reported. |
| Keywords: | Quantitative finance; option pricing; European option; dynamic hedging; replication; arbitrage, time series; trends; volatility; abrupt changes; model-free control; nonstandard analysis. |
| Date: | 2012–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00705373&r=fmk |
| By: | Elena Andreou; Eric Ghysels; Constantinos Kourouyiannis |
| Abstract: | Financial time series often undergo periods of structural change that yield biased estimates or forecasts of volatility and thereby risk management measures. We show that in the context of GARCH diussion models ignoring structural breaks in the leverage coecient and the constant can lead to biased and inecient AR-RV and GARCH-type volatility estimates. Similarly, we nd that volatility forecasts based on AR-RV and GARCH-type models that take into account structural breaks by estimating the parameters only in the post-break period, signicantly outperform those that ignore them. Hence, we propose a Flexible Forecast Combination method that takes into account not only information from dierent volatility models, but from different subsamples as well. This methods consists of two main steps: First, it splits the estimation period in subsamples based on estimated structural breaks detected by a change-pointtest. Second, it forecasts volatility weighting information from all subsamples by minimizing particular loss function, such as the Square Error and QLIKE. An empirical application using the S&P 500 Index shows that our approach performs better, especially in periods of high volatility, compared to a large set of individual volatility models and simple averaging methods as well as Forecast Combinations under Regime Switching. |
| Keywords: | forecast, combinations, volatility, structural breaks |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:08-2012&r=fmk |