The stock market effect of air pollution: evidence from China

In financial studies, environmental stimuli such as sunshine, temperature, and daylight are often used as proxies for people’s collective mood swings to test their effects on the stock market. China has experienced serious air pollution problems in recent years, and Chinese public awareness of air pollution has soared. In this paper, we use China as a natural experiment to investigate the effect on stock returns of depressed moods induced by air pollution. Daily air-pollution data from 2005 to 2014 are analysed and the results obtained from the empirical research show that a contemporaneous negative and a two-day lagged positive relationship exists between air pollution levels and stock returns over this time period. The relationship is mediated by the influence of air pollution on investment decisions. The results also indicate that the effect is weakened for companies that protect air quality, but no stronger effect is detected for polluting companies. The findings imply that air pollution is a behavioural factor with some connection to stock returns in China.     

Moments of cross-sectional stock market returns and the German business cycle

Based on monthly data covering the period from 1987 to 2021, we analyse whether cross-sectional moments of stock market returns may provide information about the future position of the German business cycle. We apply in-sample forecasting regressions with and without leading indicators as control variables, pseudo-out-of-sample exercises, autoregressive distributed lag models, and impulse-response functions estimated by local projections. We find in-sample predictive power of the first and third cross-section moments for the future growth of industrial production, even if one controls for well-established leading indicators for the German business cycle. Out-of-sample tests show that these variables reduce the relative mean squared error compared with benchmark models. We do not find a long-run relation between the moment series and industrial production. The dynamic response of industrial production to a shock on the cross-section moments is in line with the other results.     

股票市场发展与经济增长——从流动性的视角

基于前人的重要结论,从流动性的角度,将流动性分为成交量、换手率两个方面。通过向量自回归（VAR）建立模型进行进一步的研究,得出股票交易成交量与经济增长的长期均衡关系,并通过VECM模型与Granger因果关系检验对所建立的模型进行进一步验证。研究结果显示,股票市场的流动性与经济增长存在显著的关系。进一步研究换手率对股票流动性的影响可得出的结论是,股票市场的流动性与经济增长存在长期的均衡关系,并且流动性中,成交额与经济增长存在正向关系,而换手率与经济增长存在负向关系,两者都是通过影响股票市场的总市值来进一步影响经济增长的。     

Macroeconomic shocks and stock market returns: the case of Korea

This study examines the effects of macroeconomic shocks on key macro variables, including stock market returns in Korea, using the structural vector autoregression (SVAR) model. We suggest a three-variable SVAR model incorporating inflation, output growth and stock returns. We adopt a nonzero z-ratio restriction for the long-run identifying assumption to allow for economically meaningful relationships among variables. While our results support the negative (positive) relation of demand (supply) shocks to stock returns, we also find that demand shocks influence stock market variance more significantly than supply shocks do. The sub-period analysis finds that global market fluctuations during the global financial crisis have relatively little effect on Korean stock market performance. We also examine a generalized five-variable model that includes the foreign exchange rate and interest rate, confirming the results from the three-variable case.     

Improving market timing of time series momentum in the Chinese stock market

ABSTRACT

This paper is the first study to present firm-level evidence that the time-series momentum (TSMOM) strategies with look-back-period k of 10 to 200 days outperform the buy-and-hold strategy (BH) on individual stocks in the Chinese stock market. We document that the optimal k* generating the best performance is different across assets and varies over time. We hence propose a model to predict the asset-specific and time-dependent k*, and examine the performance of the TSMOM strategies with the predicted k*. Our analysis shows that using the time-varying predicted k* substantially improves the predictability of the TSMOM strategies. Our new model and findings shed the light on trading strategy for both academia and applied investment practitioners.     

股票市场系统动力学分析：以上海股票市场为例

本文突破了传统经济理论研究的线性框架,视股票为一非线性系统,运用分形、混沌等复杂性理论对上海股票市场的系统动力学特征进行实证研究,得出了上海股票市场系统的分形特征、复杂性程度、系统演化类型及稳定性,最后,探讨了这些结论对股票市场的理论与实践意义。     

Environmental disclosure and stock market liquidity: evidence from Arab MENA emerging markets

The objective of this study is to examine the impact of environmental disclosure levels on the stock market liquidity of Arab Middle Eastern and North African (MENA) companies. For that, a self-constructed disclosure index was applied to the annual reports for the years 2010, 2011 and 2012 and the bid-ask spread was used as a proxy for stock market liquidity. Results indicate that levels of environmental disclosure in MENA companies are quite low. In addition, using a sample of 276 firm-year observations, multivariate analysis shows that the higher the level of environmental disclosure provided in the annual reports, the lower the spread between the market bid and ask prices, thereby indicating an increase in stock market liquidity.     

The effect of financial liberalization on banking sector stability

Several studies indicate that financial liberalization increases likelihood of a financial crisis without distinguishing between a normal period, unstable period preceding the onset of banking panics and crisis/post period. We explain in this paper the relationship between financial liberalization and banking sector vulnerability. Then, we argue that banking sector turmoil is most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms, we find an inverted U-shaped relationship between liberalization and the likelihood of banking crisis for a sample of 49 countries between 1980 and 2010. We used a multinomial logit model in order to take into account what is called the ‘post crisis bias’. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking sector stability depends strongly on the strength of capital regulation and supervision. With very weak regulation and supervision, the probability of banking crises is increasing with liberalization but this relationship is reversed as regulation and supervision become significant. The most important type of liberalization in relation to banking crises seems to be operational. A policy implication is that positive growth effects of liberalization can be achieved without increasing the risk of a banking fragility if appropriate institutions are developed.     

A lottery-preference-based explanation of realized kurtosis puzzle in Chinese stock market

High kurtosis corresponds to fat tails on both sides and under risk-aversion assumption investors’ dislike of left-tail loss outweighs their preference for right-tail gain. Therefore, high kurtosis characteristic of stock should predict high expected returns. However, the high-frequency-data-based empirical results on Chinese stock market are just the opposite, which we refer to as the ‘realized kurtosis puzzle’. Using the double sorts and firm-level cross-sectional regression methods, we further demonstrate investors’ preference for lottery-like stocks or lottery preference is key to solve the puzzle. Our further empirical research verifies stocks with higher retail investors’ shareholding proportion and unavailable for short show stronger ‘realized kurtosis puzzle’. In addition, the puzzle is particularly significant in high lottery preference periods while less apparent in low lottery preference times.     

The importance of fear: investor sentiment and stock market returns

The presence of investor sentiment pushes asset prices away from the equilibrium level justified by underlying fundamentals. While sentiment is not directly observable, identifying appropriate proxies and, quantifying the impact of sentiment on asset prices is an important topic. Asset prices that do not appropriately reflect fundamental values may result in inefficient allocation of capital – impacting portfolio allocation decisions and the cost of capital. Utilizing a number of sentiment proxies, over the period 1990–2015, we demonstrate a strong relationship between investor sentiment and stock returns that is consistent with theoretical explanations of sentiment. We determine that implied volatility index (VIX) is the preferred measure of sentiment in terms of improving model fit and adding explanatory power. Causality tests suggest that investor fear (VIX) drives returns across firm-size and value, and also across industry. We also illustrate that firms that are more subjective to value, or face limits to arbitrage, such as small-cap stocks, or those in the business equipment (technology) or telecoms industry, are most responsive to changes investor sentiment. Finally, we demonstrate that sentiment has a greater influence on market returns during recession, when sentiment is at its lowest ebb, and this is particularly true for those stocks most susceptible to speculative demand.     

Commodity-driven integration of stock markets in Africa

This article examines stock market integration for commodity-dependent African countries. The analysis is carried out in two phases – first we adjust the respective national equity returns for changes in commodity prices and examine integration in the context of commodity-adjusted stock returns, and second we focus on integration associated with changes in commodity prices in a novel modelling framework. The results for this unexamined area of research are interesting: (a) African stock markets are not driven by more than one common component and (b) commodity-adjusted integration is significantly lower than nonadjusted integration. We discuss the implications of the results for index construction, modelling and diversification in the conclusions.     

Conditional heteroscedasticity with leverage effect in stock returns: Evidence from the Chinese stock market

In recent years the Chinese stock market has experienced an astonishing growth and unprecedented development, but is also viewed as one of the most volatile markets, which has been called by many observers a “casino”. This study intends to examine the presence of heteroskedasticity and the leverage effect in the Chinese stock markets, and to capture the dynamics of conditional correlation between returns of China's stock markets and those of the U.S. in a bivariate VC-MGARCH framework. The results show that the leverage effect is significant in these markets during the sample period in 2000–2013, and the conditional correlation between mainland China's and the U.S. stock markets is quite low and highly volatile. The Chinese stock markets are found to be highly regimes persistent. These findings have important implication for investors seeking opportunity of portfolio diversification.     

The effect of mode 4 liberalization on illegal immigration

This paper aims to assess the impacts of the temporary movement of workers on the illegal immigration. It uses a discrete time, forward-looking model with heterogeneous agents, in order to describe the decision made by illegal migrants from developing countries. Illegal migrants are supposed to accede only to the informal sector and are price takers, as they have no negotiating power. Taking into account these specifications, the theoretical model is solved analytically and illustrated numerically. It demonstrates that under some conditions, the liberalization of temporary movement of workers could lead to a decrease of illegal migration.     

Production response to price risk and market liberalization of Nigerian major agricultural crops

This study models supply response for major agricultural crops in Nigeria which include the standard arguments and price risk. The data comes from Central Bank of Nigeria annual reports and statement of account, National Bureau of Statistics＇ abstract of statistics and annual Agricultural survey manual. The data are analyzed using autoregressive distributed lag and cointegration and error correction models. The results indicate that producers are responsive not only to price but also to price risk and exchange rate.     

Relationships between oil price shocks and stock market: an empirical analysis from Greater China

Although a lot of empirical research has studied the relationship between changes in oil price and economic activity, it is surprising that little research has been conducted on the relationship between oil price shocks and the Greater China region (China, Hong Kong and Taiwan). Therefore, the main goal of this article is to apply detailed monthly data from 1997/7 to 2008/9 to fill this gap. Compared to the effect of US stock market returns described by Kilian (2009 Kilian, L. 2009. Not All oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99: 1053–69. [Crossref], [Web of Science ®] , [Google Scholar]) and Kilian and Park (2009 Kilian, L. and Park, C. 2009. The impact of oil price shocks on the US stock market. International Economic Review, 50: 1267–87. [Crossref], [Web of Science ®] , [Google Scholar]), we found that the impact of oil price shocks on stock prices in Greater China has been mixed. First, the impact of oil price shocks on Taiwan's stock market is very similar to that on the US stock market. Additionally, all three shocks have had significantly positive impacts on Hong Kong's stocks, partially in contrast to the effects on the US stock market. However, in contrast to the effect in the US stock market, we found that only global oil supply shock has a significantly positive impact on China's stock returns, but global oil demand shock and the oil specific demand shock have no significant impacts. The reason for the lack of significant impacts is that the positive expectation effect of China's fast economic growth may be just offset by the negative effect of a precautionary demand-driven effect. This result is also consistent with the previous empirical findings that the segmented and integrated China stock market is mixed, and it implies that the China stock market is ‘partially integrated’ with the other stock markets and oil price shocks.     

Co-movement of the Chinese and U.S. aggregate stock returns

This article studies the co-movement of the levels, as well as of the volatilities, of the Chinese and U.S. aggregate stock returns in 1995–2014, focusing on the impact of the liberalization of Chinese stock market from 2005. The volatilities of the two returns appear to have started to co-move in 2006. To understand the co-movement, we use the GARCH BEKK method. The result suggests that before 2006, the evolution of the U.S. returns had a tendency to affect the Chinese returns in level and volatility. However, after 2006, the two returns affected each other in a more complex way.     

The impact of regulatory change on EU energy utility returns: the three liberalization packages

The European Union’s (EU) energy sector is changing due to major policy reforms. In this article, we examine the impact of major legislative changes which were designed to induce competition in the energy sector: the three liberalization packages. Competition was expected to benefit the industry by phasing out inefficient firms. EU citizens were also expected to benefit as competition was likely to promote a more efficient energy sector and more consumer choice of energy products and services. However, this legislative change occurred during a period of extreme market turmoil. We examine the impact of all these changes on the risk profile of the sector. Our results show that the liberalization legislation significantly increased systematic risk exposure of the sector, reducing its role as a defensive investment asset. We also show that commodities had relatively little impact on sector returns, but this was expected as utilities can offset commodity risk in hedging markets. We compare our results to those obtained in neighbouring EU sectors and find the impacts are isolated to the energy sector. This article makes a major contribution to energy policy by empirically showing the change in risk as a result of sector liberalization.     

The effect of debt capacity on the long-term stock returns of debt-free firms

This article examines the long-term stock market performance of debt-free firms with high and low levels of debt capacity to see whether they are different. We use Fama and French’s (1993) three-factor and Carhart’s (1997) four-factor models to examine the subsequent 1, 2, 3, 4 and 5-year stock returns of firms that stayed debt free for 3- and 5-year periods. We measure debt capacity as the expected asset liquidation value of a firm, which is proxied by the firm-level tangibility measure defined by Berger, Ofek, and Swary (1996). We find that regardless of the level of debt capacity, zero-debt firms generate positive abnormal returns in the long run after controlling for key risk factors. We also find support for the notion that preserving debt capacity in the form of higher tangibility reinforces the positive abnormal returns over and above the effect of a zero-leverage policy.     

Threshold effect in the relationship between investor sentiment and stock market returns: a PSTR specification

This article verifies whether the hypothesis of heterogeneous agent modelling and the behavioural heterogeneity framework can reproduce recent stylized facts regarding stock markets (e.g. the 1987 crash, internet bubble, and subprime crisis). To this end, we investigate the relationship between investor sentiment and stock market returns for the G7 countries from June 1987 to February 2014. We propose an empirical non-linear panel data specification based on the panel switching transition model to capture the investor sentiment-stock return relationship, while enabling investor sentiment to act asymmetrically, non-linearly, and time varyingly according to the market state and investor attitude towards risk. Our findings are twofold. First, we show that the hypotheses of efficiency, rationality, and representative agent do not hold in reproducing stock market dynamics. Second, investor sentiment affects stock returns significantly and non-linearly, but its effects vary with the market conditions. Indeed, the market appears predominated by fundamental investors in the first regime. In the second regime, investor sentiment effect is positively activated, increasing stock returns; however, when their overconfidence sentiment exceeds some threshold, this effect becomes inverse in the third regime for a high threshold level of market confidence and investor over-optimism.     

Economic liberalization and wage inequality in the presence of labour market imperfection

This paper is purported to analyze the consequences of liberalized economic policies on the skilled–unskilled wage inequality in the developing countries using a three sector general equilibrium model reasonable for at least a few developing economies. The analysis of the paper has found that the wage inequality rises unambiguously due to a reduction of import tariff from the low-skill manufacturing sector. However, an inflow of foreign capital produces a favourable effect on the wage inequality under a reasonable factor intensity condition. Interestingly, contrary to the common wisdom, a policy of labour market reform may raise the competitive unskilled wage and improve wage inequality under reasonable condition.