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on Financial Markets |
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Issue of 2024‒05‒27
twelve papers chosen by |
| By: | Gong Cheng; Eric Jondeau; Benoit Mojon; Dimitri Vayanos |
| Abstract: | We study the impact of green investors on stock prices in a dynamic equilibrium model where investors are green, passive or active. Green investors track an index that progressively excludes the stocks of the brownest firms; passive investors hold a value-weighted index of all stocks; and active investors hold a mean-variance efficient portfolio of all stocks. Contrary to the literature, we find large drops in the stock prices of the brownest firms and moderate increases for greener firms. These effects occur primarily upon the announcement of the green index's formation and continue during the exclusion phase. The announcement effects imply a first-mover advantage to early adopters of decarbonisation strategies. |
| JEL: | G12 G23 Q54 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32317&r=fmk |
| By: | Abhishek Kumar; Sushanta Mallick |
| Abstract: | Given the rise in the government debt level in recent times, this paper aims to examine the effect of an increase in government size on risk premium and its transmission in the economy. We jointly identify the term spread shock (originating at the short end and the long end) and the government size shock, using max share identification. Term spread shock originating at the long end is driven by higher risk premium, unlike the shock originating at the short end, and increases inflation and reduces growth. |
| Keywords: | Debt, Fiscal policy, Monetary policy, Fiscal consolidation |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-24&r=fmk |
| By: | Foye, James |
| Abstract: | Although factor models provide the cornerstone of financial asset pricing, their application to emerging markets has been fragmented and frequently returns inconsistent results. This paper is the first to provide a thorough evaluation of these varied findings, thereby providing a framework to guide future researchers. This not only sheds new light on returns in emerging markets but also offers broader insights into the risk versus mispricing debate in all markets. |
| Date: | 2024–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:akf:cafewp:29&r=fmk |
| By: | Valentina Bruno; Michele H. Dathan; Yuriy Kitsul |
| Abstract: | We use a merged global data set of security-level corporate bond issuance and firm-level financial statement data to show that, in contrast to earlier periods of financial stress, during the COVID pandemic nonfinancial firms around the world were more likely to issue bonds, driven by a boom in local-currency-denominated issuance. We observe a distinct cross-regional difference in the characteristics of issuing firms, finding that in advanced economies issuance during COVID was driven by less risky firms, as predicted by existing theories; in emerging markets, only issuance of U.S. dollar denominated bonds came from larger or less risky firms. |
| Keywords: | Corporate bonds; Issuance; COVID; Crises |
| JEL: | F30 G15 G30 |
| Date: | 2024–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1390&r=fmk |
| By: | Buhui Qiu; Teng Wang |
| Abstract: | This paper examines corporate mergers and acquisitions (M&A) outcomes under lender scrutiny. Using the unique shocks of U.S. supervisory stress testing, we find that firms under increased lender scrutiny after their relationship banks fail stress tests engage in fewer but higher-quality M&A deals. Evidence from comprehensive supervisory data reveals improved credit quality for newly originated M&A-related loans under enhanced lender scrutiny. This improvement is further evident in positive stock return reactions to M&A deals financed by loans subject to enhanced lender scrutiny. As companies engage in fewer but higher-quality deals, they also experience higher returns on assets. Our findings highlight the importance of lender scrutiny in corporate M&A activities. |
| Keywords: | Mergers and acquisitions; Lender scrutiny; Stress tests |
| JEL: | G21 G34 |
| Date: | 2024–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-25&r=fmk |
| By: | Chufeng Li; Jianyong Chen |
| Abstract: | As a branch of time series forecasting, stock movement forecasting is one of the challenging problems for investors and researchers. Since Transformer was introduced to analyze financial data, many researchers have dedicated themselves to forecasting stock movement using Transformer or attention mechanisms. However, existing research mostly focuses on individual stock information but ignores stock market information and high noise in stock data. In this paper, we propose a novel method using the attention mechanism in which both stock market information and individual stock information are considered. Meanwhile, we propose a novel EMD-based algorithm for reducing short-term noise in stock data. Two randomly selected exchange-traded funds (ETFs) spanning over ten years from US stock markets are used to demonstrate the superior performance of the proposed attention-based method. The experimental analysis demonstrates that the proposed attention-based method significantly outperforms other state-of-the-art baselines. Code is available at https://github.com/DurandalLee/ACEFormer . |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.07969&r=fmk |
| By: | Rohan Kekre; Moritz Lenel; Federico Mainardi |
| Abstract: | We develop a segmented markets model which rationalizes the effects of monetary policy on the term structure of interest rates. When arbitrageurs’ portfolio features positive duration, an unexpected rise in the short rate lowers their wealth and raises term premia. A calibration to the U.S. economy accounts for the transmission of monetary shocks to long rates. We discuss the additional implications of our framework for state-dependence in policy transmission, the volatility and slope of the yield curve, and trends in term premia accompanying trends in the natural rate. |
| JEL: | E44 E63 G12 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32324&r=fmk |
| By: | Francesca Carapella; Jin-Wook Chang; Sebastian Infante; Melissa Leistra; Arazi Lubis; Alexandros Vardoulakis |
| Abstract: | A Central Bank Digital Currency (CBDC) is a form of digital money that is denominated in the national unit of account, constitutes a direct liability of the central bank, and can be distinguished from other central bank liabilities. We examine the positive and negative implications for financial stability of a CBDC under different design options. We base our analysis on the lessons derived from historical case studies as well as on analytical frameworks useful to characterize the mechanisms through which a CBDC can affect financial stability. We further discuss various policy tools that can be employed to mitigate financial stability risks. |
| Keywords: | CBDC; Financial stability; Runs; Stablecoins; Central bank liabilities; Regulation |
| JEL: | E40 E50 G01 G21 G23 G28 |
| Date: | 2024–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-21&r=fmk |
| By: | Jacob P. Gramlich; Serafin J. Grundl |
| Abstract: | The U.S. banking industry is well suited to assess the common ownership hypothesis (COH), because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that (i) private banks do offer substantially more attractive deposit rates than public banks, but (ii) the deposit rates of public banks are similar in markets without CO where a single public bank competes only with private rivals, and in markets with CO where multiple public banks compete with each other. Panel regressions of deposit rates on the profit weights implied by the COH are generally consistent with the COH if only quarter FEs (without other controls) are included but not if bank-quarter FEs are included. Estimates with bank-quarter FEs are “precise zeros†with 95% CIs suggesting that the threefold rise in CO among public banks between 2005 and 2022 moved their deposit rates by less than a quarter of a basis point in either direction. To assess the COH along non-price dimensions we also estimate the effect of CO on deposit quantities, and find that the estimates are also not consistent with the COH. |
| Keywords: | Bank competition; Common ownership |
| JEL: | L40 L10 G34 G21 L20 |
| Date: | 2024–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-22&r=fmk |
| By: | Hibiki Ichiue (Faculty of Economics, Keio University) |
| Abstract: | The Bank of Japan (BoJ) purchased equity index exchange-traded funds (ETFs), including Nikkei 225 ETFs, for over a decade and has not sold any ETFs it purchased. On March 31, 2021, the BoJ’s ETF holdings were more than 10% of the free float of the First Section of the Tokyo Stock Exchange. Primarily because the Nikkei index is price-weighted, the BoJ’s indirect holdings as a percentage of the market capitalization vary widely among individual stocks. To identify the effects of the uneven demand shocks, this paper runs instrumental-variable cross-sectional regressions of cumulative returns between September 30, 2010, a few days before the first announcement of ETF purchases, and March 31, 2021, when the BoJ terminated Nikkei 225 ETF purchases. The results suggest that the price multiplier is around 6 to 9; a 1 percentage point higher BoJ share in a stock’s market capitalization is associated with a roughly 6 to 9 percentage point higher return. The estimated multiplier is much higher than a typical estimate of 1 based on U.S. data. There is no evidence of a return reversal in the 9 months after Nikkei 225 ETF purchases ended. Various analyses, including monthly return regressions, support the analysis of cumulative returns and provide additional insights. |
| Keywords: | Asset pricing; Unconventional monetary policy; Exchange-traded funds |
| JEL: | E52 E58 G12 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:049&r=fmk |
| By: | Lu, Chengyue; Paczos, Wojtek (Cardiff Business School) |
| Abstract: | Using London Stock Exchange data (Jan 10, 2021, to Feb 24, 2022) and fixed-effects regression methods, this study assesses COVID-19 vaccine effects on UK stock returns. Initial protocol doses have a strong positive impact on returns, while boosters have a modest positive impact. A logarithmic unit increase in daily vaccine doses links to a 0.085p.p. stock return increase. Stringent closure policies weaken the positive vaccine influence on returns. Sector-wise, healthcare responds most positively, while basic resources and food/beverage industries show a positive but muted effect. This study sheds light on the contribution of Covid-19 vaccinations on economic recovery in the UK. |
| Keywords: | stock returns, Covid-19, vaccinations |
| JEL: | E65 G12 I18 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2024/10&r=fmk |
| By: | Singh, Sachin; Singh, Bhanu Pratap |
| Abstract: | The present study investigates the impact of environmental, social, and governance (ESG) on firms' profitability in the Indian setting on a sample of 23 firms from 2015 to 2020. The bootstrap corrected fixed effects estimation and inference in the dynamic panel method is employed to investigate the relationship. The dynamic panel results show that the relationship between ESG score and firms' profitability is inconclusive in the short run. However, governance conditions affect firms' investment decisions and the nexus between ESG and firm financial performance in the long run. Therefore, institutional reforms are warranted to stabilize property rights and check parent-client politics for the long-run effects of sustainable environmental governance on firms' profitability. |
| Keywords: | ESG scores, Indian firms, firms' profitability, dynamic panel |
| JEL: | O10 O30 O33 O38 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120704&r=fmk |