Daily market news sentiment and stock prices

In recent years there has been a tremendous growth in readily available news related to traded assets in international financial markets. This financial news is now available through real-time online sources such as Internet news and social media sources. The increase in the availability of financial news and investor’s ease of access to it has a potentially significant impact on market stock price movement as these news items are swiftly transformed into investors sentiment which in turn drives prices. In this study, we use the Thomson Reuters News Analytics (TRNA) data set to construct a series of daily sentiment scores for Dow Jones Industrial Average (DJIA) stock index constituents. We use these daily DJIA market sentiment scores to study the influence of financial news sentiment scores on the stock returns of these constituents using a multi-factor model. We augment the Fama–French three-factor model with the day’s sentiment score along with lagged scores to evaluate the additional effects of financial news sentiment on stock prices in the context of this model using Ordinary Least Square (OLS) and Quantile Regression (QR) to analyse the effect around the tail of the return distribution. We also conduct the analysis using the seven-day simple moving average (SMA) of the scores to account for news released on non-trading days. Our results suggest that even when market factors are taken into account, sentiment scores have a significant effect on Dow Jones constituent returns and that lagged daily sentiment scores are often significant, suggesting that information compounded in these scores is not immediately reflected in security prices and related return series. The results also indicate that the SMA measure does not have a significant effect on the returns. The analysis using Quantile Regression provides evidence that the news has more impact on left tail compared to the right tail of the returns.     

Fiscal policy and stock market efficiency: An ARDL Bounds Testing approach

The aim of this paper is to investigate the semi-strong market efficiency hypothesis with respect to fiscal policy information, in the context of the Bucharest Stock Exchange. Taking into account that macroeconomic data series of emerging countries usually have a limited size and may be plagued by inconsistencies and structural breaks, this paper proposes an ARDL Bounds testing approach for studying the relationship between stock returns and lagged macroeconomic variables. Moreover, this approach allows us to examine both the long and short-term relationship between fiscal policy and stock returns. The results indicate that, in the long run, stock prices fully and efficiently reflect information on past fiscal policy. However, in the short run, the Romanian stock market reacts efficiently only to unexpected fiscal policy news, while anticipated fiscal policy information displays a significant lagged relationship with current stock returns. In addition, the results also showed that monetary policy information is not incorporated efficiently into stock prices, both in the short and the long run, and its impact on stock returns is larger than the one exerted by fiscal policy.     

How index investment impacts commodities: A story about the financialization of agricultural commodities

This paper focuses on the impact of financial investors on agricultural prices, a phenomenon known as the financialization. In this aim, we check whether financial mechanisms drive extreme values and the mean of agricultural returns in the same way. Relying on the Threshold AutoRegressive Quantile (TQAR) methodology, we find evidence of reinforcement linkages between equity and agricultural markets since 2004, corresponding to the rise in inflows of institutional investors in commodity markets. These results show that agents impact more deeply commodity markets when the commodity index value is high. In addition, in extreme quantiles (0.75 and 0.90) of agricultural returns, the relationship between agricultural and stock returns is always significant when the commodity index return is in the higher regime. This finding suggests that, stock markets had a greater impact on agricultural price dynamics during the extreme movements which occurred during the 2007–2008 financial crisis, highlighting a potential influence of financial markets on the financialization of commodities.     

Are Oil Price News Headlines Statistically and Economically Significant for Investors?

While much has been written about the effects of oil price on stock returns, surprisingly nothing is known about the effect of oil price news on stock returns. This article is a response to this research gap. For a large number of stocks on the New York Stock Exchange, the authors find that while oil price news does predict market returns it only predicts returns of some sectors and not all. They find that sorting stocks based on oil price news generates a significant return differential in the cross-section, which holds consistently across a range of models allowing for the well-known risk factors. Their findings suggest that information contained in oil price news affects stock returns.     

The impact of Chinese monetary policy on co-movements between money and capital markets

From 2010 to 2017, with interest rate liberalization and capital market development in China, the impact of monetary policies on China’s financial markets underwent continuous evolution. Using the DCC-GARCH model, this study investigates the transmission process of monetary policies from the money market to capital markets (stock and bond markets). The results show that in the early stage the instability of the money and stock markets and the downturn in the bond market are primarily caused by the block of monetary policy transmission and the paucity of fund sources in the capital markets. Subsequently, the outbreak of the 2013 money shortage and the 2015 stock market crash are also closely related to monetary policies. In the later periods, the money and stock markets maintain a low degree of correlation for a long time, reducing the impact of destabilizing factors on the stock market. By contrast, with the advancement of interest rate reform and the optimization of bond market structure, the bond market is highly relevant to the money market. The central bank regulates the bond market more effectively using both traditional and innovative monetary policy tools.     

Exploring the interaction between stock price index and exchange rates: an asymmetric threshold approach

This article examines the impact of stock market news on the foreign exchange markets of USA, Canada and UK, employing an innovative extension of the asymmetric threshold model of Apergis and Miller (2006). Under this framework we can disentangle the reaction of foreign exchange market to bad or good news and small or large news of stock returns. Our comprehensive daily data-set spans the period from January 1990 to June 2014. Using a cointegration and error correction model, we document the existence of a causal relationship between stock market and foreign exchange markets. Most interestingly, our results derived from the asymmetric threshold model confirm that the relationship between stock and foreign exchange markets is sensitive to short-term good or bad news and short-term small or large news. Our findings entail significant implications for policymakers, governments, risk managers and international investors.     

The linkages,persistence, asymmetry in the volatility,the price discovery and efficiency,and the effect of the US subprime mortgage financial crisis on the spot and the futures market’s returns: the case of India

This article examines the effects of persistence, asymmetry and the US subprime mortgage crisis on the volatility of the returns and also the price discovery, efficiency and the linkages and causality between the spot and futures volatility by using various classes of the ARCH and GARCH models, and through the Granger’s causality. We have used two indices: one for spot and the other for futures, for the daily data from 12 June 2000 to 30 September 2013 from Nifty stock indices. We have then tested for ARCH effects, and subsequently employed various models of the ARCH and GARCH conditional volatility. The GARCH(1,1) model is found to be significant, and it implies that the returns are not autocorrelated and have ‘short memory’. It supports the hypothesis of the efficiency of the markets. The negative ‘news’ has more significant effect on volatility, corroborating the ‘leverage impact’ in finance on market volatility. We have also tested the volatility spillover effects. The two methods we employed support the spillover effects and the causality is bidirectional. We also have used the dummy variable for the US subprime mortgage financial crisis and found that they are statistically significant. Indian stock market is thus integrated to the world stock markets.     

Bond rating changes and stock returns: evidence from the Spanish stock market

This study analyzes the effect of corporate bond rating changes by international agencies on stock prices. This topic has not yet been analyzed for the Spanish stock market, despite the growing importance of ratings in Spanish financial markets. On an efficient market, rating changes will only have an effect if they contain some new information. The results from an event study indicate that rating actions cause significant negative abnormal returns in issuing firms around the date of the announcement. This evidence indicates an informational effect related to downgrades, which supports the hypothesis that credit rating agencies provide information that may reduce the asymmetric information problem between firms and investors. In the case of upgrades, our results are compatible with a redistribution of wealth between bondholders and owners or with the reputation hypothesis.      

The effect of oil prices on stock prices: fresh evidence from asymmetric causality tests

This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test developed by Hatemi-J is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the U.S. and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, the U.S. and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.     

Macroeconomic News and Stock Returns in the United States and Germany

Abstract. Using daily data for the January 1997 to June 2002 period, we analyze similarities and differences in the impact of macroeconomic news on stock returns in the United States and Germany. We consider 27 different types of news for the United States and 12 different types of news for Germany. For the United States, we present evidence for asymmetric reactions of stock prices to news. In a boom (recession) period, bad (good) news on GDP growth and unemployment or lower (higher) than expected interest rates may be good news for stock prices. In the period under consideration there is little evidence for asymmetric effects in Germany. However, in the case of Germany, international news appears at least as important as domestic news. There is no evidence that US stock prices are influenced by German news. The analysis of bi-hourly data for Germany confirms these results.     

我国证券市场流动性溢出效应的实证研究

2008年金融危机中的一个重要金融现象是流动性溢出效应.本文以我国沪深两市交易的国债和股票为样本,利用VAR技术分析了股票市场与债券市场之间的流动性溢出效应问题.由于我国股票市场的规模远大于交易所交易债券,我们发现存在显著的股市流向债市的流动性溢出效应,而债市流向股市的流动性溢出效应统计上却不显著.同时我们发现各个市场自身的收益率和波动率对其流动性也有着显著的影响.最后我们还发现两市自身的流动性存在着很强的自相关性.证据表明当我国资本市场出现流动性不足时,尤其要加强对股票市场流动性风险的防范和监管.同时也反映出我国要大力发展债券市场的必要,使股市和债市的流动性相互影响相得益彰.     

Do oil producing countries offer international diversification benefits? Evidence from GCC countries

This paper provides evidence of the existence of diversification benefits in international stock markets when oil producing countries are included in a global portfolio. Moreover, it examines whether recent oil shocks and financial events have significant impact on the conditional correlations and diversification benefits. Using stock returns from developed, emerging, GCC countries and a global portfolio, the empirical findings show that while developed and emerging stock markets have experienced increased correlations over relatively long periods of time, the correlation in GCC stock markets remained low and constant offering high diversification benefits. Interestingly, the paper also finds that, during 2012–2014, the rising conditional correlation levels have reversed trends in developed and emerging markets alike offering more potential for international diversification. Our results are robust to model selection, data frequency, and innovations distribution.     

News and correlations of CEEC-3 financial markets

We employ DCC-MGARCH models to investigate conditional correlations between six CEEC-3 financial markets. In general, the highest correlations exist between Hungary and Poland in foreign exchange and stock markets. Short-term money markets are somewhat isolated from each other. We find that the associations of CEEC-3 exchange rates versus euro are weaker than those versus the US dollar. The persistence of the effect of shocks on the time-varying correlations is strongest for foreign exchange and stock markets, indicating a tendency toward contagion. In searching for the origins of financial market volatility in the CEEC-3, we uncover some evidence of Granger-causality on the foreign exchange markets. Finally, using a pool model, we investigate the impact of euro area, US, and CEEC-3 news on the correlations. Apart from ECB monetary policy news, we observe no broad effects of international news on correlations; instead, local news exerts an influence, which suggests a dominance of country- or market-specific circumstances.     

Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries

While the relationship between oil prices and stock markets is of great interest to economists, previous studies do not differentiate oil-exporting countries from oil-importing countries when they investigate the effects of oil price shocks on stock market returns. In this paper, we address this limitation using a structural VAR analysis. Our main findings can be summarized as follows: First, the magnitude, duration, and even direction of response by stock market in a country to oil price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand. Second, the relative contribution of each type of oil price shocks depends on the level of importance of oil to national economy, as well as the net position in oil market and the driving forces of oil price changes. Third, the effects of aggregate demand uncertainty on stock markets in oil-exporting countries are much stronger and more persistent than in oil-importing countries. Finally, positive aggregate and precautionary demand shocks are shown to result in a higher degree of co-movement among the stock markets in oil-exporting countries, but not among those in oil-importing countries.     

The impact of foreign macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland

In this paper, we investigate the effects of euro area and US macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland (CEEC-3) from 1999 to 2006. Using a GARCH model, we examine the impact of news on daily returns of 3-month interest rates, stock market indices, exchange rates versus the euro, and the US dollar. First, both US and European macroeconomic news has a significant impact on CEEC-3 financial markets. Second, the process of European integration is accompanied by an increasing importance of euro area news relative to US news. Third, there are country-specific differences: for example, the Czech stock market is relatively more affected by foreign news since the Copenhagen Summit in December 2002. In general, our results support the hypothesis of a deepening euro area influence on the CEEC-3 over time and a corresponding reduction in the relative importance of US shocks.     

EMU-related news and financial markets in the Czech Republic,Hungary and Poland

We analyse the impact of news on five financial markets in the Czech Republic, Hungary and Poland using a newly constructed data set in a Generalized Autoregressive Conditional Heteroscedastic (GARCH) framework. Macroeconomic shocks (on Gross Domestic Product (GDP), inflation rate, current account and trade balance) are constructed as deviations from expected values. Economic and Monetary Union (EMU)-related political and fiscal news is captured as news dummies. Macroeconomic shocks significantly affect short-term interest rates and, to a lesser extent, other financial variables. Political and fiscal news has an impact on long-term bond yields and exchange rates. News displayed prominently in our media sources has a greater impact on financial markets than other news and, in addition, the sources of news themselves matter. We also discover asymmetric effects of news within markets. Finally, using a pooled GARCH model we find that macroeconomic shocks have the strongest impact on financial markets in Hungary, while political news has the largest influence in both Hungary and Poland.     

The effect of the liberalization of the Chinese stock market on returns

We examine the short-term effects of the liberalization of the Chinese stock market on returns. We find a positive and significant abnormal return associated with the announcement of the liberalization of the Shanghai Stock Exchange. Exploiting features of the reform, we are able to compare stocks directly and indirectly affected by the liberalization. We find that all stock prices reflect this announcement premium equally, suggesting that the premium does not reflect an increase in expected liquidity. We further find that observed liquidity, as measured by volume and price impact, did not increase following the liberalization. We conclude that the observed premium reflects a diversification benefit for Chinese investors.     

Should emerging market investors buy commodities?

One reason that investors hold commodities is to receive diversification benefits. However, while an extensive set of existing studies demonstrate diversification benefits when investors hold international stocks or bonds, they are generally silent on the implications of holding commodities. Using an asset pricing framework, we investigate the benefits to investors from holding commodities, both individually and in portfolios. Generally, commodity and stock markets are integrated, although there are time-varying benefits to investors that are subject to sample period selection and investment horizon. We show that Asian investors receive positive risk adjusted returns in gold and rice markets but not in any of the other commodity markets investigated. The risk adjusted returns are time-varying: during the Asian financial crisis risk adjusted returns were negative – a penalty for investing in commodities – whereas during the global financial crisis the reverse was true and investors earned positive excess returns. The time-varying nature of the benefits that arise from diversification in commodities and their breakdown during periods of crisis, highlight the problems that investors may face when using commodities for long-term investment in addition to traditional holdings of stocks and bonds.     

Predicting long-run risk factors of stock returns: Evidence from Australia

This study utilises the stock market data provided by the Australian Equity Database to analyse the long-run relationship between Australian stock returns and key macroeconomic variables over the period 1926–2017. To measure the diverse risk factors in the stock market, we examine the possible determinants in four main categories: real, financial, domestic and international. Our results reveal that historical stock returns are strongly connected to financial and international factors as compared to real and domestic factors. Both the 1973–1974 OPEC Oil Price Crisis and 2007–2008 Global Financial Crisis had dampening effects on stock returns. There is a positive association between the US and Australian stock markets in the long-run. These findings on stock market dynamics and their linkages with domestic and international macroeconomic policy changes in the long-run have important implications for traders and practitioners.     

Exploring the nexus between financial openness and informational efficiency – does the quality of institution matter?

This article examines the empirical link between financial openness and informational efficiency of stock markets in 27 emerging markets. Improving on earlier papers, this study has used World Bank’s Worldwide Governance Indicators (WGI) as the proxy of institutional development in dynamic panel data models estimated by generalized method of moments (GMM). Our results show, first, financial liberalization by itself has no impact on enhancing efficiency of stock market. Second, for countries with high level of institutional development, the interaction of trade openness and financial openness become significant. Third, for the same group of countries, interaction effect of financial liberalization and institutional development leads to more efficiency in stock market. Hence, our finding demonstrates the utmost importance of institutional development and its role on liberalization. Our results conclude that institutional development and trade openness are pre-requisites for a country to benefit from financial openness. Our study further provides empirical evidence to theoretical model proposed by Basu and Morey (2005) that governance is the missing link between stock market efficiency and financial liberalization. Our findings suggest that policy makers in developing economies should enhance the quality of their institution in order to optimize the benefits of financial liberalization.