Excess co-movement of agricultural futures prices: Perspective from contagious investor sentiment

This study investigates the excess co-movement of agricultural futures prices from a new perspective of contagious investor sentiment. This study shows that contagious investor sentiment is a key determinant of excess co-movement of agricultural futures prices, by using contagious investor sentiment among different agricultural futures. Further, this study decomposes contagious investor sentiment into expected and unexpected contagious investor sentiment. Results show that both of them can positively affect excess co-movement of agricultural futures prices. More interestingly, expected contagious investor sentiment outperforms unexpected contagious investor sentiment in soybean 1 future, soymeal future, and strong wheat future. In general, the results of this study can provide strong support for the significant roles of contagious investor sentiment in asset pricing applications.     

Co-movement in the price of risk of aggregate equity markets

This paper examines the issue of co-movement in G7 equity markets. Earlier research in this area has focussed on the first or the second moment of the return process from different markets. The approach in this paper takes the analysis to a finer level to examine the co-movement between these markets. The price of risk from the equity market is inferred in an unobserved component modelling framework to study the co-movement using a non-parametric measure of association, concordance. The findings of this paper also indicate that the price of risk is more important than volatility in explaining movements in excess return.     

Investor co-attention and stock return co-movement: Evidence from China’s A-share stock market

This study attempts to link investor co-attention to stock return co-movement in China's A-share stock market. On the one hand, stock price will co-move for stocks within the same industry and within the same market, which is labelled “return co-movement”. On the other hand, investor attention will also co-move as investors systematically search for relevant information for stocks of similar characteristics or as the stocks experience common information shocks, which is termed “investor co-attention”. The empirical evidence suggests that stock return co-movement can be explained by investor co-attention to a great extent, even after controlling for stock fundamentals and firm characteristics, and this effect is more salient for stocks with lower institutional ownership. Moreover, we employ large national lottery jackpots as exogenous shocks to investor attention. The empirical findings show that the co-movement of both investor attention and stock return increase on large lottery jackpot days, while investor co-attention contributes less to return co-movement on large lottery jackpot days. In summary, we offer an alternative explanation for return co-movement by observing the causal relationship between investor co-attention and stock return co-movement.     

Following the leaders? A study of co-movement and volatility spillover in BRICS currencies

The paper investigates return co-movement and volatility spillover among the currencies of Brazil, Russia, India, China, and South Africa (the BRICS member countries) and four major developed countries from April 2006 to October 2019. Using Bloomberg daily data on exchange rates, the study employs a flexible multivariate generalized autoregressive conditional heteroskedasticity (MGARCH)–dynamic conditional correlation (DCC) model and a vector autoregressive (VAR)–based spillover index, as the empirical strategy. Along with evidence of exchange rate volatility in BRICS currencies, among which the Russian ruble and the Chinese yuan are explosive, the econometric estimation results show the presence of significant return co-movement and volatility spillover among the foreign exchange markets across different countries. The currency markets in developed countries, as leaders, are found to transmit volatility mostly to BRICS currency markets, which are net receivers. The degree of spillover, however, varies across countries, with Brazil and Russia passing on volatility to the developed countries whereas India, China, and South Africa receive volatility from their developed counterparts.     

The intermediating role of the Chinese renminbi in Asian currency markets: Evidence from partial wavelet coherence

This study presents an innovative perspective on the dynamic interdependence of Asian currency markets, focusing particularly on the intermediating role of the Chinese renminbi (CNY) in introducing the co-movement between non-major Asian currencies. In this regard, the multivariate factor stochastic volatility (SV) model is estimated and continuous wavelet analysis is applied. The novelty of this study is that it employs wavelet coherence analysis to identify the localized time-varying co-movement of Asian currencies and their lead–lag relations specific to a particular scale and thus investment horizon. Furthermore, the CNY’s intermediating role in inducing co-movement between Asian currencies is examined by applying dynamic partial correlation analysis based on the multivariate factor SV model and partial wavelet coherence analysis, which evaluate the degree of the co-movement between Asian currencies after controlling for the common influence of the CNY. The results clearly indicate the prominent role of the CNY in facilitating region-wide connectedness of Asian currency markets.     

Does domestic cooperation lead to business-cycle convergence and financial linkages?

We test for convergence – à la Massmann and Mitchell [Massmann, M., & Mitchell, J. (2004). Reconsidering the evidence: Are Euro area business cycles converging? Journal of Business Cycle Measurement and Analysis, 1(3), 275–307] – among the industrial sectors of some APEC members—Japan, South Korea, Malaysia, Mexico, the U.S. and Canada for January 1971–March 2004; and, Australia, Japan and South Korea for 1957:01–2003:04. We conclude that business-cycle convergence is far from complete. We also reject convergence in the stock and exchange rate markets. A less stringent definition of co-movement, due to Vahid and Engle [Vahid, F., & Engle, R. (1993). Common trends and common cycles. Journal of Applied Econometrics, 8(4), 341–360], provides evidence of common cycles in the industrial sectors of Australia, Japan and South Korea, and in the stock and exchange rate markets of developed and growth-competitive economies belonging to APEC.     

Empirical evidence on the reaction speeds of housing prices and sales to demand shocks

This article studies the co-movement and dynamics between price movements and transactions in the housing market using data for the period 1988–2008 from Finland. While the previous related literature examines the reactions of sales and prices to an interest rate shock only, this study investigates the responses to income and debt shocks as well. The empirical estimations show that the response of prices to demand shocks is substantially slower than that of sales. The estimated reactions of sales substantially differ from those reported in the earlier literature. The reaction patterns can create the kind of strong positive co-movement between price movements and sales volume and the kind of negative correlation between price level and sales that have been found in several housing markets.     

Spatial analysis of liquidity risk in China

This study investigates the interaction of liquidity risk in Chinese banks through a spatial econometric method that includes geographical and economic relations. The former is defined as sharing the same border, and the latter considers both bank type and lending behavior. We find evidence of liquidity spillovers through varying spatial dependence based on geographical and economic closeness within banks. The results highlight the importance of liquidity management and provide evidence of risk co-movement for regulators taking a new viewpoint on liquidity regulation.     

Can crude oil drive the co-movement in the international stock market? Evidence from partial wavelet coherence analysis

In this paper, we employ partial- and multiple-wavelet coherence analyses to examine co-movement between international stock markets by considering the influence of crude oil in a time domain perspective. Overall, we find that crude oil is a major factor driving co-movement between international stock markets in the median and long term. However, when considering the oil-importing and oil-exporting countries differently, we still find that crude oil is a driver for interdependence between oil-importing and oil-exporting countries. In contrast, the crude oil has relative lower impact on the co-movement in oil-importing or in oil-exporting countries, which indicates its co-movement is caused by other factors. In addition, Gulf Cooperation Council stock market may lead the stock markets of oil-importing countries in the long term. Our empirical results provide meaningful information for investors and policymakers.     

MORE THAN A FEELING: CONFIDENCE,UNCERTAINTY, AND MACROECONOMIC FLUCTUATIONS

Economists, observers, and policy-makers often emphasize the role of sentiment as a potential driver of the business cycle. In this paper, we provide three contributions to this debate. First, we give an overview of the recent literature on the nexus between sentiment (considering both confidence and uncertainty) and economic activity. Second, we review existing empirical measures of sentiment, in particular consumer confidence, stock market volatility (SMV) and Economic Policy Uncertainty (EPU), on monthly data for 27 countries, 1985–2016. Third, we identify some new stylized facts based on international evidence. While different measures are surprisingly lowly correlated on average in each country, they are typically highly positively correlated across countries, suggesting the existence of a global factor or sizeable international spillovers of sentiment. Consumer confidence has the closest co-movement with economic and financial variables, and most of the correlations are contemporaneous or forward-looking, consistent with the view that economic sentiment is indeed a driver of activity.     

Time-frequency co-movement and network connectedness between green bond and financial asset markets: Evidence from multiscale TVP-VAR analysis

This study examines the time-frequency co-movement and network connectedness between green bonds and other financial assets in China. We propose wavelet coherence and multiscale TVP-VAR to explore the time-frequency co-movement and spillover connectedness. The empirical results are as follows. First, green bonds positively co-move with conventional bonds across time scales and negatively co-move with stocks and commodities. Second, there is a significant network connectedness of green bonds with conventional bonds in the short term, and the connectedness with stocks and commodities gradually strengthens with the increase in time scales. Third, the dynamic spillover between green bonds and other assets is much greater in the long and medium terms than in the short term. Finally, under crisis shocks, the spillovers spike temporarily in the short term, while they are persistent and at a high level in the long term. Overall, some practical implications are proposed for investors and policymakers.     

Bubble-like housing boom–bust cycles: Evidence from the predictive power of households’ expectations

This study examines the role of households’ expectations in predicting the housing boom–bust cycles in the United States. It incorporates two nonlinear features of housing price dynamics: a threshold co-movement between households’ expectations and housing price growth and a structural break in their interrelation. It uses the monthly good-time-to-buy (GTTB) index as a proxy for households’ expectations about the U.S. housing market, and employs the structural break threshold vector autoregression (SBTVAR) to specify breakpoints in housing market dynamics during the recent decades. The findings indicate that shifts in interactions between households’ expectations and housing price growth are synchronous with the recent housing boom–bust cycles. The SBTVAR framework outperforms other models as it captures more of the housing market's unique dynamic characteristics. The GTTB index, which governs expectation regime-switching patterns, is able to signal the recent housing bust three periods in advance.     

Greek sovereign bond index,volatility, and structural breaks

This article investigates volatility changes in the 10-year Greek sovereign bond index returns using the multiple structural break test developed by Bai and Perron (Econometrica 66:47–78, 1998, J Appl Econ 18:1–22, 2003), which allows for endogenous identification of break dates. We find that there exists one break date in volatility, April 2010, when the European debt crisis worsened and the Greek sovereign bond was downgraded to junk status. We also obtain evidence of performance improvement in our modeling by including structural break dummies into the variance equation. We observe sharp drops in a measure of volatility persistence after incorporating the structural change. Our findings are important for not only investors who assess the volatility of sovereign bonds for portfolio risk management, but also for policy makers who wish to understand and minimize the impacts of excess volatility on the financial system in government bond markets.     

Dynamic connectedness of China’s green bonds and asset classes

This paper quantifies the co-movement and time-varying integration between China's green bonds and other asset classes across different time domains using the wavelet coherence and time-frequency connectedness model based on the time-varying parameter VAR (TVP-VAR). First, we predominantly detect a strong positive co-movement of green and conventional bonds, especially in the medium and long term. Second, strong bidirectional spillovers exist between green bonds and treasury, corporate, and financial bonds regardless of the time horizon. Lastly, cross-market spillovers between the green bonds and the stock, energy, low-carbon stock market were quite limited in the short-run but strengthened towards the long-term except during the 2015 China stock market crash and the COVID-19 recession when short-term integration rose sharply. The results document some practical enlightenment for investors and policymakers with various time horizons.     

Investor protection and value creation in cross‐border M&As by emerging economies

Previous research investigating cross‐border M&As (CBM&As) by emerging economies (EEs) provided contrasting evidence on the value enhancement role of investor protection rules. We conduct a new empirical study to address the issue with an accurate sample selection of bidders from more homogeneous developing countries and transactions on developed countries only. Our analysis over the 1997–2012 period on a sample of M&A deals by companies from Brazil, Russia, India, China, and South Africa (BRICS) does not provide evidence that better institutional standards in the destination country are rewarded by the local stock market. We find that foreign governance quality is not associated with positive excess stock returns around the announcement date. Rather, these returns are affected by firm‐specific and deal‐specific factors, such as the relative deal size, the listed status of the target company, and the acquirer size. Comparison with other studies on excess returns for emerging markets (including BRICs) suggests that the results could be driven at least partially by country choice.     

The impact of COVID-19 on the G7 stock markets: A time-frequency analysis

We examine the co-movement of the G7 stock returns with the numbers of confirmed COVID-19 cases and causalities based on daily data from December 31, 2019 to November 13, 2020. We employ the wavelet coherence approach to measure the impact of the numbers of confirmed cases and deaths on the G7 stock markets. Our findings reveal that both the number of confirmed COVID-19 cases and the number of deaths exhibit strong coherence with the G7 equity markets, although we find heterogeneous results for the Canadian and Japanese equity markets, in which the numbers of COVID-19 cases and the deaths exhibit only a weak relationship. This evidence is more pronounced in the long-term horizon rather than the short-term horizon. Moreover, the lead-lag relationship entails a mix of lead-lag relations across different countries. We present the implications of these findings for both policymakers and the international investment community.     

Time–frequency quantile dependence between Bitcoin and global equity markets

In this paper, we examine return dependence between Bitcoin and stock market returns using a novel quantile cross-spectral dependence approach. The results suggest a right-tail (high return) dependence between Bitcoin and the stock markets in the long term and that said dependence decreases significantly from yearly to monthly investment horizons. Furthermore, right-tail dependence between Bitcoin and the US stock market is the strongest compared with other stock markets. We also extract information on the time-varying and time–frequency structure of co-movements between Bitcoin and the stock markets using wavelet-coherence analysis, the results of which suggest that the co-movement between Bitcoin and the US stock market is positive, whereas, for other stock markets, it is negative at certain frequencies and time periods. Overall, the findings highlight additional risk-management capabilities of Bitcoin according to different stock markets.     

Are the stock and real estate markets integrated in China?

This paper examines the dynamic short-run and long-run co-movement between the real estate and stock markets in China by employing a continuous wavelet method. We use gross domestic product and M2 (broad money supply) as control variables to eliminate the common factors of the two markets and to identify the real nexus between them. The empirical results show that the co-movement between real estate and stock prices is weak in the short run, except during the financial crisis period. Since the stock market is highly volatile, while real estate prices are relatively stable, the two markets are less correlated in the short run. The results also show that real estate prices affect stock prices in the long run, which supports the existence of a credit-price effect in China. Real estate prices remained very high in most time periods. Enterprises and individuals can obtain funds from bank loans to invest in the stock market, thus raising stock prices. These findings indicate that the two markets are generally segmented in the short run but are integrated in the long run. The stabilization of the real estate market is critical for stability in the stock market, but not vice versa. Additionally, investments in the two markets may not provide a high level of risk dispersion in the long run in China.

     

The Predictive Value of Earnings, Cash flows and Accruals in the Period Surrounding the Asian Financial Crisis: Evidence from Hong Kong, Malaysia, Singapore and Thailand

This paper examines the predictive value of earnings, operating cash flows and accruals in Hong Kong, Malaysia, Singapore and Thailand for the period 1994–2001. We also examine the impact of the Asian financial crisis of 1997 on the predictive power of the accounting performance measures. We regress future cash flows and future excess returns on earnings (or cash flows and accruals) for the periods 1994–1996 (pre‐crisis period), 1997–1998 (crisis period) and 1999–2001 (post‐crisis period). Our findings indicate that the accounting measures have explanatory power for 1‐year ahead cash flows. Our analyses of 1‐year ahead excess returns indicate that investors may have undervalued the accounting measures in the pre‐ and post‐crisis periods, and overvalued the measures during the crisis period.     

Estimating heterogeneous agents behavior in a two-market financial system

In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (J Econ Behav Organ 83(3):446–460, 2012). Using monthly data of French and US stock markets, the regression shows that individual markets have features of a two-regime switching process. By including inter-market traders whose trading decision is based on fundamental value of foreign market, the two-market model has a better capability in explaining both markets with domestic fundamental traders turning to be significant. The existence of inter-market traders implies that the two markets impact each other through their fundamentals and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement.