Do Global Risk Perceptions Play a Role in Emerging Market Equity Return Volatilities?

This paper investigates whether global risk perceptions lead emerging market return volatilities. In so doing, we analyzed the period of interest in three parts to determine the effects of the changes in global risk perceptions on the volatility of emerging markets. We uncovered volatility spillover from risk perceptions to the MXEF returns before the crisis. Our results show that all the effects on emerging market volatilities are severed in 2008, during which MXEF follows a downward trend. However, we observe that volatility transmission emerges during the recovery period of MXEF again. Hence, risk perceptions should be considered while analyzing emerging markets.     

Will Order Imbalances Predict Stock Returns in Extreme Market Situations? Evidence from China

This article examines the relation between order imbalances and stock returns in China during the extreme market situations in 2007 and 2008. We find that order imbalances are positively and significantly related to contemporaneous stock returns but have limited predictability for subsequent returns in extreme market situations. Moreover, order imbalances significantly predict returns in normal market environment, especially for small stocks. This may be attributed to the investor structure in the Chinese market. A trading strategy utilizing the relation between order imbalances and stock returns generates positive returns. Overall, the information contents of order imbalances vary with the market environment.     

Banks’ Governance and Innovation: Evidence from the Listed Firms in China

ABSTRACT

The article investigates the relationship between banks, agency costs, and innovation ability of listed firms. The role of banks in affecting innovation is a very important topic especially in China where banks play more important roles than equity markets. We find that banks providing short-term funds to listed non-high-tech firms dampen their innovation ability significantly. However, the relationship between short-term loans and innovation ability in high-tech firms is insignificant. The effects of short-term loans on innovation ability are significantly different between high-tech and non-high-tech firms. Further examination shows that high-tech firms with more short-term bank loans have significantly less abnormal management expenses than non-high-tech firms in the next year. The reduced abnormal management expenses in the next year significantly enhance the innovation ability in the year after next.     

What Influences Stock Market Behavior in Russia and Other Emerging Countries?

We empirically test the dependence of the Russian stock market on the world stock market and world oil prices in the period 1997:10–2012:02. We also analyze countries that can be considered to be relatively similar to Russia, e.g., Poland, the Czech Republic, and South Africa. First, we apply a rolling regression to identify periods when oil prices or stock indices in the United States and Japan were important. Surprisingly, oil prices are not significant for the Russian stock market after 2006. Second, we employ a TGARCH-BEKK model to assess the degree of correlation between the markets in question, taking into account the global market stochastic trend. Correlation between markets increased between 2000 and 2012.     

Does the source of uncertainty matter? The impact of financial,newspaper and Twitter-based measures on U.S. banks

This study examines if the source of uncertainty (newspaper, Twitter, financial market) matters in its impact on bank stock returns in the United States. By applying discrete wavelet transformation, we model directional spillovers and Granger causality between uncertainty and bank returns for different time horizons. Our results demonstrate that this distinction between time horizons is crucial. Although newspaper and Twitter-based measures are correlated, they capture a different source of investor perception. Twitter-based uncertainty adversely affects bank stocks in the short run, while newspaper-based policy uncertainty is relevant in the medium run. Financial-based uncertainty, VIX, is the most important factor. Moreover, we find that the impact of uncertainty on bank returns is stronger during the COVID-19 pandemic and for banks with a high ratio of loans to total assets and large off-balance-sheet activities.     

Assessing Selectivity and Market Timing Performance of Mutual Funds for an Emerging Market: The Case of Turkey

This paper derives and analyzes the selectivity and market timing performance of the mutual funds for the Turkish economy for the financial crisis period by employing high-frequency data. The determinants of these derived abilities are investigated within a regression analysis. The results suggest weak evidence about selection ability and some evidence about superior market timing quality. They also indicate that management fees are negatively correlated with the ability measure, which is quite surprising. Experience emerges as an important factor, especially for market timing ability.     

The statistical evolution of prices on the Istanbul stock exchange

This study documents the statistical properties of the stock returns on the Istanbul Stock Exchange (ISE) for the January 1988 to December 1999 period and tries to assess the evolution of the underlying stochastic structure over this time period. It also investigates empirically the relative efficiency of the ISE to test whether the rapid development of this market over the last decade caused it to become a relatively more efficient market. This is accomplished through a number of parametric and non-parametric tests of the random walk hypothesis using daily, weekly and monthly observations of the value-weighted ISE-100 index series. The emphasis is more on the evolution of the price process than on static tests of a random walk model as such. The findings indicate that the price mechanism in the ISE has evolved into a more informationally efficient process in little more than a decade of existence.     

Does increased hedging lead to decreased price efficiency? The case of VIX ETPs and VIX futures

We examine the impact of the introduction of VIX exchange‐traded products (ETPs) on the information content and pricing efficiency of VIX futures. We document that trades in VIX futures have become less informative and that pricing errors exhibit more persistence after the introduction of VIX ETPs. In addition, we observe that the price process of the VIX futures has become noisier over time. These findings suggest that the introduction of the VIX ETPs had a prominent effect on the properties and dynamics of the VIX futures.     

VIX期权定价与校正

VIX期权作为波动率衍生品能为金融机构提供有效的市场风险对冲工具。文献中对VIX期权定价的实证分析误差都很大,原因在于模型的选取误差以及校正方法和样本选取不妥。通过在VIX模型中加入均值回复因素和跳因素,可以使VIX过程更加合理,也可以使VIX期权定价精度更高。通过对VIX期权市场中间报价进行校正,得到了4个文献模型的参数估计,并比较4个模型的定价精度和正向隐含波动率偏斜拟合效果。     

Predictability of stock markets with disequilibrium trading. A commentary paper

The paper focuses on the problem of predictability of stock market returns with disequilibrium trading. It is shown that the predictability of returns may be the consequence of quantity constraints appearing in the markets due to the imposition of administrative restrictions on trade. A relevant test of predictability for the Warsaw Stock Exchange (WSE) based on information referring to disequilibrium states occurrence is proposed. The empirical results of its application to the WSE on a sample containing session-to-session observations from the period January 1995 to December 1999 strongly support the hypothesis of predictability.     

Liquidity and Return Relationships in an Emerging Market

In this paper, we investigate the relationship between liquidity and stock returns in the Vietnam stock market during the global financial crisis. Vietnam is one of a new group of frontier emerging markets referred to as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). We use a rich and detailed data set of firm characteristics to identify a positive relationship between liquidity and stock returns. This contradicts the negative correlation typically found in stock returns in developed markets. Our results support the proposition that when a market is not fully integrated with the global economy, a lack of liquidity will be a less important risk factor. Our findings contribute to those studies that highlight the diversification benefits from including frontier markets, which have a lower degree of integration with the global economy, in international portfolios.     

Asymmetric Price and Volatility Adjustments in Emerging Asian Stock Markets

This paper tests the hypothesis that stock returns in emerging stock markets adjust asymmetrically to past information. The evidence suggests that both the conditional mean and the conditional variance respond asymmetrically to past information. In agreement with studies dealing with developed stock markets, the conditional variance is an asymmetrical function of past innovations, rising proportionately more during market declines. More importantly, the conditional mean is also an asymmetrical function of past returns. Specifically, positive past returns are more persistent than negative past returns of an equal magnitude. This behaviour is consistent with an asymmetric partial adjustment price model where news suggesting overpricing (negative returns) are incorporated faster into current prices than news suggesting underpricing (positive returns). Furthermore, the asymmetric adjustment of prices to past information could be partially responsible for the asymmetries in the conditional variance if the degree of adjustment and the level of volatility are positively related.     

Empirical Analysis of Business Cycle Synchronization and Shock Similarity Between Romania and the Eurozone

This study investigates benefits from a trading strategy based on the spillovers from international stock markets to the Polish emerging stock market. The analysis is conducted within the framework of factor and predictive generalized autoregressive conditional heteroskedasticity (GARCH) models of the Warsaw Stock Exchange main index, WIG. We apply an approach in which the mean equation of the GARCH model includes a deterministic part incorporating cross-markets linkages. Both in-sample and out-of-sample forecasts from the estimated models are calculated. The trading strategy is based on signals from the out-of-sample predictions. The models' performance and benefits from adopting such a strategy are evaluated using direction quality measures. Our results suggest that predictive models using cross-market linkages can produce superior out-of-sample forecasts compared to benchmarks.     

The Cross‐Section of Expected Stock Returns: What Have We Learnt from the Past Twenty‐Five Years of Research?

I review the recent literature on cross-sectional predictors of stock returns. Predictive variables used emanate from informal arguments, alternative tests of risk-return models, behavioural biases, and frictions. More than fifty variables have been used to predict returns. The overall picture, however, remains murky, because more needs to be done to consider the correlational structure amongst the variables, use a comprehensive set of controls, and discern whether the results survive simple variations in methodology .     

Improving the predictability of real economic activity and asset returns with forward variances inferred from option portfolios

This paper presents an option positioning that allows us to infer forward variances from option portfolios. The forward variances we construct from equity index options help to predict (i) growth in measures of real economic activity, (ii) Treasury bill returns, (iii) stock market returns, and (iv) changes in variance swap rates. Our yardstick for measuring predictive ability is both individual and joint parameter statistical significance within a market, as well as across a set of markets.     

News sentiment and the investor fear gauge

This note examines the relationship between aggregate news sentiment and changes in the implied volatility index (VIX). A significant negative contemporaneous relationship between changes in VIX and news sentiment is discovered. The relationship is asymmetric whereby changes in VIX are larger following the release of negative news items.