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.     

The effects of cross‐border M&As on the acquirers’ domestic performance: firm‐level evidence

Abstract This paper provides empirical evidence on the effects of cross‐border mergers and acquisitions (M&As) on the acquiring firms’ domestic performance in the U.K. and France. We build a new firm‐level data set that combines a global M&A database with balance sheet data for the years 2000 to 2007. Combining matching techniques with a difference‐in‐differences estimator, we find that cross‐border M&As boost on average acquirers’ domestic sales and investment, and they are not accompanied by a downsizing of the domestic labour force in either country. Further, cross‐border M&As in knowledge‐intensive industries lead to improvements in domestic productivity. Our results display some heterogeneity across industries and types of acquisitions, suggesting a connection between the motives for international M&As and their resulting effects.     

股市暴涨暴跌的界定及比较——以中国、美国、英国、日本股市为例

本文运用经验分布函数对中、美、英、日四国股市的暴涨暴跌进行了界定,并对四国股市暴涨暴跌的表现进行了比较分析。相比其它三国,中国股市在过去15年间成长性最强,暴涨暴跌的幅度最大,表现出较强的"政策驱动型"特征。美、英、日股市的暴涨暴跌呈现出明显的"市场和事件驱动型"特征。英国和美国股市波动呈现出较强的同步性,但日本股市波动较为独特。政策建议上,各国应通力合作,以应对全球系统性风险对股市的影响;中国政府应加强股市的市场化建设,同时谨慎开放资本市场。     

Oil shocks,policy uncertainty and stock returns in China

This paper examines the interdependence of China's policy uncertainty, the global oil market and stock market returns in China. A structural VAR model is estimated that shows that a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market‐specific demand significantly raise China's economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index, the interdependence between these variables has been rising since 2003 as China's influence in the oil market has increased. An equivalent spillover index calculated for the US is smaller and has been largely flat over time.     

Can M&A activities act as a predictor of the performance of economic growth or stock prices?

One of the important issues with regard to the relationship between M&As (mergers and acquisitions) and economic growth or stock prices is whether such activities can act as a predictor of these two variables' performance, or whether these variables have resulted in significant impacts on M&A activities. The aim of this paper is to use the method proposed in Kónya (2006) to carry out a causality test among M&A activities, economic growth and stock prices, because the causal relationships that may be uncovered by this would be meaningful for both policymakers and stockholders. This paper uses quarterly data from six OECD countries for the period from April 1980 to March 2010. The bootstrap panel Granger causality test that this work applies also considers cross-sectional dependency and slope heterogeneity simultaneously. The findings of the paper are as follows. There is significant, one-way causality from stock prices to M&A activities, and thus changes in stock prices lead M&A activities. With real GDP as the control variable, for all the countries surveyed, except Australia, stock prices lead M&A activities. As for the impact that economic growth has on M&A activities, we conclude that, when using stock prices as the control variable, there is almost no lead-lag relationship between economic growth and M&A activities, except for in Japan.     

Integration Among Asia‐Pacific and International Stock Markets: Common Stochastic Trends and Regime Shifts

Are stock markets in the Asia‐Pacific region integrated with each other and with the US and Japan? The paper examines a number of common stochastic trends among stock prices in the US, Japan, Hong Kong, Korea, Singapore, Taiwan and Thailand. If integration exists it is a fairly recent phenomenon. Institutional and economic considerations suggest the same is true so that a single common stochastic trend among Asian and North American markets is a recent phenomenon. The reason is that the stock markets studied were only recently sufficiently liberalized to permit some form of integration to emerge. Also, not only was the 1987 stock market crash significant, but the 1991 Gulf War also signalled a turning point in the degree of stock market integration among the countries studied.     

Does the stock market affect investment by Chinese firms? Some new evidence

During the 1990s, the Chinese government increasingly relied on the stock market as the major tool for state‐owned enterprise (SOE) reform and for the allocation of investment resources. This paper investigates the impact of stock market development in China on firm‐level capital investment by using a panel data set constructed by the author of all Chinese listed firms for the period 1992 to 1999. The results show that stock market valuation, as measured by Tobin’s q, has a highly independent, significant and positive influence on listed firms’ investment decisions, particularly during the stock market boom from 1996 to 1999. Given the sizable real effects of the stock market, deviations of stock prices from fundamentals can have substantially negative consequences. As a result, this study suggests that sensible regulation of the Chinese stock market is needed in order to enhance the efficiency of stock prices and facilitate an effective channeling of investment funds.     

A股市场上的“中石油魔咒”现象及其解释

文章针对A股市场上流传甚广的"中石油魔咒"现象,首次从基本面角度进行了解释,认为造成这一现象的根本原因是国际原油价格对我国股票市场存在显著的负向溢出效应,即当国际原油价格上涨时,对中石油个股产生利好,但对整体宏观经济却构成利空,因而中石油股票价格上涨,整个股票市场却会下跌。进一步研究还发现,这种负向溢出效应具有非线性特征,表现为国际原油价格上涨对股票市场的打压力度要大于其下跌对股票市场的提升力度。这提醒A股投资者相对于国际原油价格下跌,要更加关注国际原油价格上涨带来的投资风险。     

Profiteering from the Dot‐Com Bubble,Subprime Crisis and Asian Financial Crisis

The paper explores the characteristics associated with the formation of bubbles that occurred in the Hong Kong stock market in 1997 and 2007, as well as the 2000 dot‐com bubble of Nasdaq. It examines the profitability of technical analysis (TA) strategies generating buy and sell signals, with and without our proposed trading rules. The empirical results show that, by applying long and short strategies during the bubble formation and a short strategy after the bubble burst, it not only produces returns that are significantly greater than buy‐and‐hold strategies, but also produces greater wealth compared with TA strategies without trading rules. We conclude that these bubble detection signals help investors generate greater wealth from applying appropriate long and short moving average (MA) strategies.     

STOCK‐BOND CO‐MOVEMENTS AND FLIGHT‐TO‐QUALITY IN G7 COUNTRIES: A TIME‐FREQUENCY ANALYSIS

This paper examines co‐movement between stock returns and changes in 10‐year government bond yields as well as flight‐to‐quality behaviour in G7 countries. We conduct the wavelet squared coherence analysis to explore the dynamics in both time and frequency domain. Our results provide evidence of positive co‐movements, which vary over time and across investment horizon. The higher co‐movement is found to be more concentrated in the lower frequency bands. We further analyse the dynamic nature of the scale‐dependent wavelet correlations and find that the correlations are highly volatile and significantly increase across different time scales during the episodes of equity market turbulence. The increase in correlations reflects flights from stocks to safer bond investments as a result of dramatic changes in investor sentiment and risk aversion at times of market stress.     

BAYESIAN ANALYSIS OF GENERALIZED AUTOREGRESSIVE CONDITIONAL HETEROSKEDASTICITY AND STOCHASTIC VOLATILITY: MODELING LEVERAGE,JUMPS AND HEAVY‐TAILS FOR FINANCIAL TIME SERIES*

This paper develops a Bayesian model comparison of two broad major classes of varying volatility model, the generalized autoregressive conditional heteroskedasticity and stochastic volatility models, on financial time series. The leverage effect, jumps and heavy‐tailed errors are incorporated into the two models. For estimation, the efficient Markov chain Monte Carlo methods are developed and the model comparisons are examined based on the marginal likelihood. The empirical analyses are illustrated using the daily return data of US stock indices, individual securities and exchange rates of UK sterling and Japanese yen against the US dollar. The estimation results indicate that the stochastic volatility model with leverage and Student‐t errors yield the best performance among the competing models.     

THE DISTRIBUTION OF INCOME AND WEALTH IN JAPAN

This paper reviews research on the distribution of income and wealth in Japan, identifies sources of data on income and wealth, and describes limitations of these data. Evidence that Japan's poorest income groups are relatively well-off is convincing, but there is less evidence that the overall distribution of income in Japan is more equal than in other OECD countries. Agricultural policy, social welfare policy, the tax system, trends in earnings differentials, and the role of the Japanese family are among the many factors that have shaped Japan's income distribution. The rapid appreciation of the stock market and land prices during the late 1980s led to greater inequality in the distribution of wealth. Rapid population aging is expected to lead to an increase in total national wealth relative to national income which may have an adverse impact on the distribution of income.     

Financial Integration and Market Efficiency: Some International Evidence from Cointegration Tests

This study investigates whether the globalization of financial markets enhances the efficiency of national stock markets. To this end, we have developed a dynamic representation of cointegration which is consistent with hypothesis that stock prices reflect the efficient discounting of new information on market fundamentals and testes for market efficiency in five industrialized markets (the United States, Canada, Japan, the United Kingdom, and Germany) over the last two decades. Our empirical analysis indicates that the U.S. and Canadian stock markets obey the long-run equilibrium path implied by our dynamic cointegration model, but the Japanese, British, and German markets do not exhibit such characteristics. Thus, it can be claimed that the stock markets of the United States and Canada are informationally efficient, whereas those of Japan, the United Kingdom, and Germany are not. [G15, G14]     

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country's stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modelled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, the UK and Japanese stock markets.     

US–Japan Trade Frictions: The Past,the Present,and Implications for the US–China Trade War

The United States and Japan have been involved in trade frictions over a number of products including textiles, steel, automobiles, semi‐conductors, and agricultural products over the last 50 years. US–Japan trade frictions have taken basically two forms: (i) the United States attempting to restrict Japan's exports to the United States; and (ii) the United States attempting to increase its exports to Japan by “opening” the Japanese market. By putting pressure on Japan to adopt necessary measures, the United States sought to achieve two main objectives: (i) to reduce its trade deficit vis‐à‐vis Japan; and (ii) to protect and/or promote US industries. The United States failed to achieve the first objective, while some success was achieved for the second objective. The United States triggered a trade war against China with the objectives of: (i) reducing the bilateral trade deficit; and (ii) stopping unfair trade practices by Chinese firms such as violations of intellectual property rights and forced technology transfer. Based on the experiences from the US–Japan trade frictions, the United States may achieve some success for the second objective, but not for the first. The chances of achieving the second objective would increase if the United States cooperates with countries such as Japan and the European Union, which are faced with similar problems.     

THE IMPACT OF NEW ACCOUNTING STANDARDS ON JAPANESE COMPANIES

Abstract. As a result of a series of reforms initiated in the latter half of 1990s, accounting standards in Japan have become virtually equivalent to international accounting standards. The impact of the accounting reform on Japanese firms has been significant. This paper reviews the so‐called ‘Accounting Big Bang’ and assesses its impact on Japanese firms. It concludes that Japanese firms are now required to place greater emphasis than previously on an improvement in the return on their assets and on an enhancement in the values of their stock market shares.     

House Prices and Stock Prices: Different Roles in the US Monetary Transmission Mechanism*

We analyze the role of house prices and stock prices in the monetary‐policy transmission mechanism in the US, using a structural vector autoregressive model. If we allow the interest rate and asset prices to react simultaneously to news, we find different roles for house prices and stock prices in the monetary transmission mechanism. Following a contractionary monetary‐policy shock, stock prices fall immediately, while the response in house prices is more gradual. Regarding the systematic response in monetary policy, stock prices play a more important role than house prices. As a consequence, house prices contribute more than stock prices to fluctuations in gross domestic product and inflation.     

BANK COMPETITION AND FINANCIAL STABILITY: LIQUIDITY RISK PERSPECTIVE

We study whether competition affects banks' liquidity risk‐taking, which was at the heart of the 2008 financial crisis. We find that banks with greater market power take more liquidity risk, implying that decreased competition leads to financial fragility. During a financial crisis, however, the effect of market power on liquidity risk varies across bank size. Small banks with greater market power reduce liquidity risk while large banks with greater market power do not change their liquidity risk‐taking behavior. This suggests that enhanced charter values due to reduced competition lowers small banks' risk‐shifting incentives when their default risk significantly increases during a crisis. (JEL G21, G28)     

Technology-acquiring cross-border M&As by emerging market firms: role of bilateral trade openness

This paper investigates the role of bilateral trade openness in technology-acquiring cross-border mergers and acquisitions (M&As) by emerging market firms (EMFs). The cross-border M&A, patents, and financial data from January 2000 to December 2013 have been utilised for empirical analyses. By analysing cumulative abnormal returns of the acquirer EMFs from Brazil, Russia, China, India, and Mexico, the value-creating nature of technology-acquiring cross-border M&As has been confirmed. In addition, the number of the patents owned by the target firms showed a positive and significant effect on the stock performance of cross-border acquirers. Finally, the bilateral trade openness significantly and positively moderated the relation between the innovation capability of the target firms and EMFs’ stock performance.     

The cross-section and time-series effects of individual stock sentiment on stock prices

In this article, we construct an individual stock sentiment index by using the principal component analysis method. We empirically study the cross-section and time-series effects of investor sentiment on the stock prices based on the panel data model with dummy variable. The results indicate that individual stock sentiment has greater impact on small-firm stock prices than big-firm stock prices, which presents obvious cross-section effect. Moreover, individual stock sentiment leads to much sharper ?uctuations of stock prices in the stock market downturn than in the stock market expansion, which shows obvious time-series effect. Specifically, the individual stock sentiment has the greatest impact on small-firm stock prices under the stock market downturn, exerting significant dual asymmetric effect. Our results are helpful to understanding the micro-mechanism of sentiment effect.