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on Financial Markets |
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Issue of 2014‒11‒12
nine papers chosen by |
| By: | Suarez, Ronny |
| Abstract: | In this paper we estimated IBM beta from 2000 to 2013, then using differential equation mathematical formula we split up the annual beta’s change attributed to the volatility market effect, the stock volatility effect, the correlation effect and the jointly effect of these variables. |
| Keywords: | beta, CAPM, volatility |
| JEL: | C00 F00 |
| Date: | 2014–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58369&r=fmk |
| By: | Denitsa Stefanova; Arjen Siegmann (LSF) |
| Abstract: | Using an optimal changepoint approach, we find a structural change in the relation between hedge funds’ stock market exposure and aggregate stock market liquidity that takes place in the period 2000 to 2002. Before the structural break, market betas have no relation to liquidity and only a few style categories of hedge funds show increased market presence when liquidity is low. After the break, the relationship is inverted, pointing towards an increased liquidity timing ability of hedge funds, as users of liquidity. We relate our findings to best execution rules and decimalization in the US stock market that were introduced in that period and impacted aggregate liquidity conditions. Furthermore, the returns to a momentum strategy display a similar structural break and momentum-loading funds constitute a sizeable proportion of hedge funds that manifest a distinct beta-liquidity evolution with a structural break in that period. |
| Keywords: | market timing, hedge funds, market liquidity, hedge funds, momentum |
| JEL: | G12 G23 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:14-12&r=fmk |
| By: | Byström, Hans (Department of Economics, Lund University) |
| Abstract: | This study discusses how to compute and forecast long-term stock return volatilities, typically with a 5-year horizon or longer, using credit derivatives, and how such volatilities can be used in different areas ranging from the valuation of employee stock options and other long-term derivatives to the construction of market-based fear gauges in selected countries or market segments. In the empirical part of the paper I focus on the European financial sector and find the credit-implied volatilities and fear gauges to behave well. The forecasting accuracy of the credit-implied volatilities is found to be better than that of horizon-matched historical volatilities. |
| Keywords: | credit default swaps; implied volatility; CreditGrades; VIX; fear gauge; long-term forecast |
| JEL: | G10 |
| Date: | 2014–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2014_034&r=fmk |
| By: | Kalle Rinne; Matti Suominen (LSF) |
| Abstract: | We present evidence that some mutual funds systematically act as contrarian traders, and earn returns in the stock market by providing liquidity to investors that demand immediacy, while others systematically realize costs of immediacy. On average, the mutual funds’ costs of immediacy exceed their returns from providing liquidity. The funds with outflows, flows that correlate with industry flows, high market beta funds, and funds highly exposed to the momentum strategy suffer the most in costs of immediacy. The mutual funds’ average underperformance can be explained with their costs of immediacy. Finally, the funds’ historical costs of immediacy predict their alphas. |
| Keywords: | mutual funds, liquidity, immediacy, fund flow, investment strategy |
| JEL: | G23 G11 G12 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:14-01&r=fmk |
| By: | Masih, Mansur; Majid, Hamdan Abdul |
| Abstract: | This study accounts for the time-varying pattern of price shock transmission, exploring stock market co-movements using continuous wavelet coherency methodology to find the correlation analysis between stock market indices of Malaysia, Thailand (Asian), Greece (Europe) and United States, in the time-frequency domain of time-series data. We employ the Wavelet Coherence method with the consideration of the financial crisis episodes of 1997 Asian Financial Crisis, 1998 Russian Sovereign Debt Default, 9/11 Attack on World Trade Centre US, 2008 US Sub-Prime Mortgage Crisis and the recent 2010-2011 Greece Debt Crisis. Results tend to indicate that the relations among indices are strong but not homogeneous across time scales, that local phenomena are more evident than others in these markets and that there seems to be no quick transmission through markets around the world, but a significant time delay. The relations among these indices have changed and evolved through time, mostly due to the financial crises that occurred at different time periods. Results also favour the view that regionally and economically closer markets exhibit higher correlation and more short run co-movements among them. The high correlation between the two regional indices of Malaysia and Thailand, indicates that for the international investors, it is little gain to include both in their portfolio diversification. Strong co-movement is mostly confined to long-run fluctuations favouring contagion analysis. This indicates that shocks in the high frequency but low period are short term but shocks in the low frequency but high period are long term with the trend elements affecting the co-movements of the indices. The study of market correlations on the frequency-time scale domain using continuous wavelet coherency is appealing and can be an important tool in decision making for different types of investors. |
| Keywords: | stock market comovement; continuous wavelet transform; cross-wavelet; wavelet coherency; frequency-time scale domain |
| JEL: | C22 C58 E44 G15 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58313&r=fmk |
| By: | Masih, Mansur; Majid, Hamdan Abdul |
| Abstract: | This paper investigates the volatility and correlations of stock returns of some crisis-hit countries such as, US, Greece, Thailand and Malaysia during the major global financial crises since 1992. The paper makes an attempt to address the following two issues: Firstly, to measure the extent of volatility of the stock indices under study and also the correlation of the Malaysian index with the other country indices. Secondly, given the correlations, how best can a normal investor harness them to ensure maximum return in the short and the long run with a particular reference to the correlation between the Malaysian index and other country indices. The MGARCH-DCC approach is employed for the analysis. The findings tend to indicate that the investors’ behaviour converges and correlations are significantly higher across the two Asian countries in the sample. The level of volatilities of the indices’ return of all the four markets has increased significantly for the period under study. The level and magnitude of volatilities and correlations is consistently high between Malaysia and Thailand market (lowest of 0.02 in 1993 to highest of 0.65 in 1998) followed by US and Greece markets. Greece seems to be the most volatile market followed by Malaysia, US and Thailand (except for the period between 1993 and 1998). One possible explanation is that the contagion effect takes place early in the crisis and that herding behaviour dominates the latter stages of the crisis. For our second question, the apparent high correlation coefficients during crisis periods imply that the gain from international diversification by holding a portfolio consisting of diverse stocks from these contagion countries declines, since these stock markets are commonly exposed to systematic risk(beta). An increasing integration and stronger co-movement among stock markets will result in decreasing opportunity to gain from portfolio diversification. |
| Keywords: | Volatility, Correlations, portfolio diversification, MGARCH-DCC |
| JEL: | C22 C58 G11 G15 |
| Date: | 2013–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58946&r=fmk |
| By: | Cornette, Marcia Millon; Mehran, Hamid (Federal Reserve Bank of New York); Pan, Kevin; Phan, Minh; Wei, Chenyang |
| Abstract: | We study market reactions to seasoned equity issuances that were announced by financial companies between 2002 and 2013. To assess the risk and valuation implications of these seasoned equity issuances, we conduct an event analysis using daily credit default swap (CDS) and stock market pricing data. The major findings of the paper are that CDS prices respond quickly to new, default-relevant information. Over the full sample period, cumulative abnormal CDS spreads drop in response to equity issuance announcements. The reactions are significantly stronger during the financial crisis. At that time, the federal government injected equity into financial institutions to ensure their viability. The market reacted to the equity issue announcements by assessing significantly lower costs for default protection via credit default swaps. The evidence indicates that single-name CDS based on financial firms’ default probabilities are potentially useful for private investors and regulators. |
| Keywords: | financial institutions; stock issuance; credit default swaps; financial crisis |
| JEL: | G01 G21 G32 |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:697&r=fmk |
| By: | Johansson, Anders C. (Stockholm China Economic Research Institute); Feng, Xunan (Southwestern University of Finance and Economics) |
| Abstract: | This study examines the stock-picking ability of mutual funds in China using evidence from the IPO market. We hypothesize that the decision to invest in the IPO market contains positive information about a fund’s underlying expectation of newly listed firms’ future prospects. Using residuals from a model on the determinants of mutual funds purchases in the IPO market as proxy for consensus expectations, we find that IPO firms with high residual funds have significantly better stock returns and operating performance than those with low residual funds. In other words, residual funds can predict IPO future performance. This result is also robust to different specifications and alternative explanations such as mutual fund preferences or monitoring effects. |
| Keywords: | Mutual funds; Stock picking ability; IPO; China |
| JEL: | G15 G23 G30 L25 |
| Date: | 2014–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hascer:2014-032&r=fmk |
| By: | Jackowicz, Krzszof; Kowalewski, Oskar; KozÅ‚owski, Åukasz; Roszkowska, Paulina |
| Abstract: | The Warsaw Stock Exchange is one of Europe’s largest exchanges by the number of IPOs, although it retains features of a market in post-transition countries, including a relatively small size, shallowness and a weak institutional framework. In this study, we use a large dataset to explore firms’ decisions to issue equity on the main or alternative market and debt on the bond market. We observe that in general, larger, more profitable firms are more likely to go public, although in contrast to developed economies, these firms tend to be younger. Moreover, we find that current market valuation positively affects the decision to go public on the main market, and we establish that highly leveraged companies are more likely to issue either shares on the alternative market or bonds. At the same time, however, we observe that firms issuing shares on the alternative market are most likely to manipulate their profitability prior to going public. |
| Keywords: | going public, capital markets, equity, corporate bonds, emerging markets |
| JEL: | G10 G15 G32 |
| Date: | 2014–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58212&r=fmk |