|
on Financial Markets |
|
Issue of 2016‒03‒17
seven papers chosen by |
| By: | Aaron Z. Pitluck (Illinois State University; University of Chicago) |
| Abstract: | Purpose Although markets are intensely social, stock markets are peculiar in that they are normatively anonymous spaces. Anonymity is a difficult-to-achieve social accomplishment in which material identity information is successfully stripped from participants. The academic literature is conflicted regarding the degree to which equity markets are anonymous and how this influences traders’ behavior. Methodology Based on focused, tape-recorded ethnographic interviews, the article investigates the work practices of professional investors and brokers to describe the conditions under which brokers veil or reveal investors’ identities to their competitors, and thereby shed light on how anonymity is socially produced (or eroded) in global stock markets. Findings The social structure of brokered financial markets places brokers in the awkward situation of sitting in an information-poor structural location for so-called “fundamental information†while being paid to share information with professional investors who sit in an information-rich structural location. A resolution to this material and social dilemma is that brokers can erode the market’s anonymity by gifting identity information (“order flow†) —the previous, prospective, or pending trades of their clients’ competitors—thereby providing traders a competitive advantage. They share identity information in three types of performances: transparent relationships, masked relationships, and the transformation of illicit material identity information into licit and shareable “fundamental†information. Each performance partly erodes transaction-level and market-level anonymity while simultaneously partially supporting anonymity. Originality/Value Even well-regulated markets are semi-anonymous spaces due to the systematic exposure of investors’ identities to competitors by their shared brokers on a daily basis. This finding provides an additional explanation for how professional investors can imitate one another (“herd†) as well as why subpopulations of investors often trade so similarly to one another. Practical implications Laws and regulations requiring brokers’ confidentiality of their clients’ trades are easily and systematically eluded. Policy makers and regulators may opt to respond by increasing surveillance and mechanization of brokers’ work so as to promote a normatively anonymous market. Alternatively, they may opt to question the value of promoting and policing anonymity in financial markets by revising insider trading regulations. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:1&r=fmk |
| By: | Alessio Emanuele Biondo; Alessandro Pluchino; Andrea Rapisarda |
| Abstract: | We present a simple order book mechanism that regulates an artificial financial market with self-organized criticality dynamics and fat tails of returns distribution. The model shows the role played by individual imitation in determining trading decisions, while fruitfully replicates typical aggregate market behavior as the "self-fulfilling prophecy". We also address the role of random traders as a possible decentralized solution to dampen market fluctuations. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1602.08270&r=fmk |
| By: | Santiago Gamba Santamaría; Oscar Fernando Jaulín Méndez; Luis Fernando Melo Velandia; Carlos Andrés Quicazán Moreno |
| Abstract: | Value at Risk (VaR) is a market risk measure widely used by risk managers and market regulatory authorities. There is a variety of methodologies proposed in the literature for the estimation of VaR. However, few of them get to say something about its distribution or its confidence intervals. This paper compares different methodologies for computing such intervals. Several methods, based on asymptotic normality, extreme value theory and subsample bootstrap, are used. Using Monte Carlo simulations, it is found that these approaches are only valid for high quantiles. In particular, there is a good performance for VaR (99%), in terms of coverage rates, and bad performance for VaR (95%) and VaR (90%). The results are confirmed by an empirical application for the stock market index returns of G7 countries. |
| Keywords: | Value at Risk, confidence intervals, data tilting, subsample bootstrap. |
| JEL: | C51 C52 C53 G32 |
| Date: | 2016–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:014263&r=fmk |
| By: | Dieter Schumacher |
| Abstract: | The increasing integration of international financial markets means that credit defaults in one country have to be covered by creditors in other countries. If the principle of creditor liability were applied systematically, the financial losses incurred by the financial institution that provided the credit and is thus directly affected by the default would be “passed on” through its domestic and foreign shareholders and debt holders, as well as their creditors, to the original savers. In this paper, this contagion effect will be estimated by taking international capital linkages into account. Analogously to an input-output analysis of interindustry linkages, savings used for investments in one country are traced back to the countries from which the funds originated. This also reveals the important role of international financial centers, which essentially serve as distributors of investment risks, while the financial losses are ultimately borne by larger countries with higher levels of savings. |
| Keywords: | financial crises, international capital linkages, input-output analysis |
| JEL: | G01 G15 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1554&r=fmk |
| By: | Zaghini, Andrea |
| Abstract: | We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2,400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium. |
| Keywords: | corporate bond market,Sovereign debt crisis,financial fragmentation |
| JEL: | G32 G38 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:530&r=fmk |
| By: | G. Horny; M. Manganelli; B. Mojon |
| Abstract: | This paper analyses the determinants of euro area non-financial corporate bonds over the last decade. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008-2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011-2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area. |
| Keywords: | financial integration, credit risk, country premia, fragmentation index. |
| JEL: | E43 G12 G24 C23 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:582&r=fmk |
| By: | Tariq Aziz (Department of Business Administration, Aligarh Muslim University); Valeed Ahmad Ansari (Department of Business Administration, Aligarh Muslim University) |
| Abstract: | The relation between idiosyncratic risk and stock returns is currently a topic of debate in the academic literature. So far the evidence regarding the relation is mixed. This study aims to investigate the cross-sectional relation between idiosyncratic risk and stock returns in the Indian stock market employing quantile regressions. Using quantile regressions, this study demonstrates that idiosyncratic volatility and stock returns relation is quantile dependent. The relation between idiosyncratic volatility and stock returns is parabolic. The high idiosyncratic risk is associated with high (low) excess returns at the upper (lower) quantile of the conditional distribution. This partially explains the inconclusive evidence on the idiosyncratic volatility and the stock returns relation in the literature. |
| Keywords: | idiosyncratic volatility; quantile regression; asset pricing; emerging markets; India, |
| JEL: | G12 C14 C21 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:3205769&r=fmk |