Stock market booms and real economic activity: Is this time different?

Since World War II, the United States has experienced two large booms on the stock market. During the first boom, which lasted from the late 1940s to the mid-1960s, stock returns were clearly leading real activity. Moreover, the evidence also suggests the existence of predictable return variations in the discount rate through time as a response to changing business conditions. Therefore, the first boom does not stand out as unusual because previous studies, such as Fama (1990) or Chen (1991), confirm these results for the whole period from the 1950s to the 1980s. But during the current boom, which started in the early 1980s, these results do not hold up any more. Stock returns do not seem to lead real activity and predictable return variations as a response to business conditions cannot be detected.     

Pitfalls in estimates of the relationship between stock returns and inflation

Empirical tests of the Fisher hypothesis give conflicting results, regardless of whether income growth is accommodated in the estimates. This paper shows theoretically and empirically that standard methods of testing the Fisher hypothesis give biased results and that the bias depends on the specification of the Fisher equation, the process governing inflation, measurement of inflation expectations, and the time aggregation of the data. Alternative tests show that share markets take several years to adjust to innovations in inflation and therefore that the Fisher hypothesis cannot be maintained. Helpful comments and suggestions from Hans Christian Kongsted, Darrel Turkington and seminar participants at the University of Western Australia, and University of Konstanz and, particularly, two referees, are gratefully acknowledged.     

Asymmetric inflation dynamics: Evidence from quantile regression analysis

This paper applies the regression quantile approach developed by Koenker and Xiao (2004) to investigate the dynamic behavior of inflation in 12 OECD countries. By analyzing the behavior in a wide range of quantiles, this method allows us to quantify the influence of various sizes of shocks that hit the inflation, and is able to capture possible asymmetric adjustment of the inflation towards to its long-run equilibrium. It therefore sheds new lights on the inflation dynamics compared with the conventional unit root methodologies. Our results suggest that generally, the inflation rates are not only mean-reverting but also exhibit asymmetries in their dynamic adjustments, in which large negative shocks tend to induce strong mean reversion, and on the contrary, large positive shocks do not. Policy implications related to the empirical findings are also provided.     

Natural gas prices and stock prices: Evidence from EU-15 countries

This study investigates the long-run relationship between natural gas prices and stock prices by using the Johansen and Juselius cointegration test and error–correction based Granger causality models for the EU-15 countries. We employ quarterly data covering the period from 1990:1 to 2008:1. Empirical findings suggest that there is a unique long-term equilibrium relationship between natural gas prices, industrial production and stock prices in Austria, Denmark, Finland, Germany and Luxembourg. However, no relationship is found between these variables in the other ten EU-15 countries. Although we detect a significant long-run relationship between stock prices and natural gas prices, Granger causality test results imply an indirect Granger causal relationship between these two variables. In addition, we investigate the Granger causal relationship between stock returns, industrial production growth and natural gas price increase for Austria, Denmark, Finland, Germany and Luxembourg. As a result, increase in natural gas prices seem to impact industrial production growth at the first place. In turn, industrial production growth appears to affect stock returns.     

Expected inflation, expected stock returns, and money illusion: What can we learn from survey expectations?

We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. Empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis – inflation as a proxy for aggregate risk aversion – is not supported by thedata.     

Stock return predictability: the role of inflation and threshold dynamics

This paper argues that the nature of stock return predictability varies with the level of inflation. We contend that the nature of relations between economic variables and returns differs according to the level of inflation, due to different economic risk implications. An increase in low level inflation may signal improving economic conditions and lower expected returns, while the opposite is true with an equal rise in high level inflation. Linear estimation provides contradictory coefficient values, which we argue arises from mixing coefficient values across regimes. We test for and estimate threshold models with inflation and the term structure as the threshold variable. These models reveal a change in either the sign or magnitude of the parameter values across the regimes such that the relation between stock returns and economic variables is not constant. Measures of in-sample fit and a forecast exercise support the threshold models. They produce a higher adjusted R², lower MAE and RMSE and higher trading related measures. These results help explain the lack of consistent empirical evidence in favour of stock return predictability and should be of interest to those engaged in stock market modelling as well as trading and portfolio management.     

Inflation literacy and inflation expectations: Evidence from Austrian household survey data

Inflation expectations are known to be quite heterogeneous across agents. We investigate whether this heterogeneity is primarily due to differences in people’s understanding of the inflation process and of the goals and intentions of the central bank. Using micro data from a survey conducted among 2000 Austrian households, we construct an indicator of “inflation literacy” from several questions on people’s knowledge about different aspects of inflation. We find that this indicator helps explain both the level and the uncertainty of inflation expectations: Households with relatively higher levels of inflation literacy tend to have lower and more accurate short-term and long-term inflation expectations. Interestingly, however, they are less certain about their inflation expectations than people with lower levels of inflation literacy. We also find that people’s trust in the central bank and in its ability to maintain price stability significantly dampens their inflation expectations.     

Stock market response to environmental policies: Evidence from heavily polluting firms in China

Pollution problems have recently become prominent in China, which has not only amplified public concerns on environmental protection but has also pushed the Chinese government to enforce more stringent environmental regulation. In this paper, we investigate the stock market response to the release of new environmental policies in China from the perspective of investor attention. By using the event study methodology, we assess the impact of 10 environmental policies issued by the central government over the period of 2014–2017. We find consistent evidence that the announcement of new environmental policies hurts the stock returns of heavily polluting firms in the short term. Meanwhile, compared to environmental regulations, environmental laws result in more adverse market reactions due to stricter policy enforcement. More importantly, investor attention to the environment issues, as measured by the Baidu Index, plays an essential role in predicting the stock market response, as we find a higher Baidu Index leads to lower stock returns for heavily polluting firms. Heterogeneity analyses further reveal the negative impact of environmental policies on market value is contingent on firm characteristics such as size, ownership structure, profitability and industry.     

Analysis of sectoral credit default cycle dependency with wavelet networks: Evidence from Turkey

In this paper, we investigate the relationship between industrial production and sectoral credit defaults (non-performing loans ratio) cycle by wavelet network analysis in Turkey over the period January 2001–November 2007. We use feedforward neural network based wavelet decomposition to analyze the contemporaneous connection between industrial production cycles and sectoral credit default cycles at different time scales between 2 and 64 months. The main findings for Turkey indicates that industrial production cycles effect the sectoral credit default cycles at different time scales and thus indicate that the creditors should consider the multiscale sectoral cycles in order to minimize credit default rates.     

Dividend-Driven Trading Strategies: Evidence from the Warsaw Stock Exchange

This study presents an analysis of dividend-driven trading strategies based on dividend yield growth effects in the Polish stock market in the years 1994–2004. Results indicate that the dividend yield growth portfolios were capable of beating the market in the entire sample period. Their performance, however, was not consistent over time and the highest returns were obtained during final years. Empirical findings based on the analysis of different types of portfolios demonstrate the importance of dividends as a source of significant fundamental information items from stock market companies. At the same time, they show that a dividend investment strategy for the Polish stock market is most successful when the selection of stocks for the dividend yield growth portfolios is subject to further restrictions, most notably concerning company size.

Asymmetric behavior of inflation differentials in the euro area: Evidence from a threshold unit root test

This paper tests the existence of persistent inflation rate differentials in the euro area by employing linear as well nonlinear unit root tests. Besides linear unit root tests, a two-regime threshold unit root test examines the conjecture that inflation rate differentials follow a nonlinear two-regime process towards a threshold, switching from the persistent regime to the transitory one and vice versa. The results imply that threshold nonlinearity is confirmed in 10 out of the 16 cases. However, we have found unit root regime-switching behavior only in six out of the 16 cases under investigation. This finding implies that these inflation rate differentials were persistent when they were low (regime 1), but transitory when they were high (regime 2). This asymmetric behavior can possibly be explained by the different degree of pressure exercised on governments, which is accompanied with different inflation rate differentials. On the contrary, despite the evidence of nonlinearity, the majority of the inflation rate differentials are found to be monotonically persistent. Our results have strong implications for policy makers. In particular, the documented persistency in the inflation rate differentials might have long-run costs in terms of price and macroeconomic stability.     

沪深港股市动态联动性研究——基于三元VAR-GJR-GARCH-DCC的新证据

随着经济全球化的迅速发展,国际资本市场呈现出一体化趋势,各地证券价格的联动性也日趋显著。本文梳理已有理论文献,并总结经验成果的不足,在此基础上,构建三元VAR-GJR-GARCH-DCC整合分析框架,对沪深港股市联动效应进行了严谨而全面的实证检验。研究结果表明:沪深港三个市场具有联动效应,直接或间接引导对方;沪深股市对港市的新息冲击做出类似的反应,并且它们与港市的动态关联性具有趋同性,该结论为沪深两市合并提供了新证据;三个市场的相关性具有时变的动态特征,"中国因素"与"世界因素"的相关性正趋于增强。上述实证结论对投资者重新认识市场运行机制,合理制定投资策略以及监管当局有效防范国内外股市风险,推进股市整合均具有重要的启示意义。     

On the determinants of long-run inflation uncertainty: Evidence from a panel of 17 developed economies

Based on a cross section of 17 advanced economies and data for the period 1975 to 2015, we examine how the interaction between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. We construct a proxy for the unobservable inflation uncertainty based on the slowly evolving long-term variance component of inflation from a Spline-GARCH model (Engle and Rangel, 2008). We show that long-run inflation uncertainty is high if an inflation-tolerant central bank governor is in power during a period of high inflation, if the policy rate is below the one that is prescribed by the Taylor rule and during times of heightened stock and exchange rate volatility.     

股权激励与财务重述——基于中国A股市场上市公司的经验证据

本文以2005—2007年中国A股市场实施股权激励的上市公司及其配对样本为研究对象,采用Logistic回归法,考察了股权激励与财务重述的相关关系。研究发现,实施股权激励的公司发生财务重述的可能性要显著高于未实施股权激励的公司;相比基于业绩的股权激励模式,实施基于股价的股权激励模式的公司发生财务重述的可能性更高。研究结论支持了有股权激励尤其有基于股价的股权激励模式的上市公司经营者可能有短期盈余操纵行为的观点。     

Stock prices,inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes

We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the period 2002M7–2015M10. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and we assess the inflation uncertainty based on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. In addition we show that for several sector stock indexes the negative effect of inflation and its uncertainty vanishes after the crisis outburst. However, in the short run the results provide evidence in favour of a negative impact of uncertainty, while the inflation has no significant influence on stock prices, except for the consumption indexes. The consideration of business cycle effects confirms our findings, which proves that the results are robust, both for long- and short-run relationships.     

The dynamic causality between commodity prices,inflation and output in China: a bootstrap rolling window approach

In this article, we empirically study the time-varying bilateral causality between commodity prices, inflation and output in China. We first perform a series of parameter stability tests and find strong evidence of instability in the parameters estimated for Granger causality tests. We then use the bootstrap rolling window approach to test the causality and find that the causality from commodity prices to both inflation and output is time-varying in the entire sample period and asymmetric in different phases of the business cycle. We also find evidence of the causality from both inflation and output to commodity prices in certain sub-periods. Further discussion on the cost-price mechanism through which the economy fluctuates cyclically suggests that the dynamic causality between commodity prices and inflation contributes to understanding the nature of economic fluctuations and to forecasting economic crises. Overall, our results provide a new perspective to disentangle economic fluctuations.