Economic policy uncertainty and illiquidity return premium

In this study, we examine the relation between the price of liquidity, or illiquidity return premium, and the economic policy uncertainty (EPU). On average, an illiquid portfolio earns a 0.597% higher monthly return than a liquid portfolio. The results further show that the EPU index has a positive relationship with the illiquidity return premium. This indicates that investors require higher compensation for holding illiquid stocks when there is a higher economic uncertainty. We also show that EPU affects the illiquidity return premium through the market illiquidity channel. The rise of EPU could increase the risk of illiquid stocks and make investors more risk-averse, thereby requiring higher compensation for illiquidity. Finally, it is found that the relationship between EPU and the illiquidity return premium is stronger when market liquidity is impaired and during crises.     

房地产价格随机波动与房地产收益风险值(VaR)的研究

分析房地产价格的变化规律,科学准确地预测未来某一时点的价格,对房地产投资和国家针对房地产过热问题进行宏观调控具有重要指导意义。探讨了VaR方法在房地产收益波动性度量中的应用,并对上海住宅和办公楼价格指数时间序列收益率风险进行了实证研究;结果表明,SV模型能很好刻画价格指数实际特征,也能准确地预测房地产价格波动性。     

Real estate illiquidity and returns: A time-varying regional perspective

This paper proposes two new measures of illiquidity for real estate markets, utilising concepts from asset pricing. Segregating real estate through a regional lens, we provide an in-depth analysis of real estate returns and illiquidity for the US and UK. Our results provide statistically significant and economically meaningful evidence that real estate illiquidity predicts real estate returns out-of-sample over and above a variety of control variables.     

Forecasting stock market volatility: Can the risk aversion measure exert an important role?

In this paper, we predict realized volatility of stock return by utilizing time-varying risk aversion based on a simple linear autoregressive model. Our in-sample results suggest that time-varying risk aversion have significant impact for stock return volatility. In terms of out-of-sample forecasting performance, the empirical results indicate that the incorporation of time-varying risk aversion in the benchmark model can yield more accurate stock return volatility forecasts. Notably, the out-of-sample forecasting results confirm that our conclusions are robust when we apply alternative lag orders and alternative prediction evaluation periods. Finally, we study links between the prediction ability of time-varying risk aversion and the volatility of other stock indices and two kinds of crude oil, and find that the new predictor can effectively strengthen forecasting performance in most case. In view of the importance of volatility risk in the asset pricing process, our research is of great significance for financial asset participants.     

Market volatility and illiquidity during the COVID-19 outbreak: Evidence from the Saudi stock exchange through the wavelet coherence approaches

The aim of this paper is to examine the explanatory power of realized volatility on the illiquidity in Saudi stock market during the COVID-19 outbreak. To achieve this objective, we consider the Wavelet Coherence approaches as empirical tools to investigate the combined effect of realized volatility and COVID-19 counts on the market illiquidity across frequencies and over time space by taking in account the number of infected cases in Saudi Arabia and over the World, and the number of death cases in Saudi Arabia as well as over the World. Our study reaches two main findings. First, the preliminary results reported by the ARDL bound test as a benchmark model showed significant long-run and short-run effects of the market volatility on illiquidity in contemporaneous and lagged manner. Second, the wavelet coherence analysis tools exhibited important results: (i) the wavelet coherency between illiquidity ratio and realized volatility in Saudi Arabia appear highly pronounced over all time horizons. (ii) PWC plots showed a significant mutual effect between liquidity risk and realized volatility when eliminating the effect of local COVID-19 cases. (iii) MWC plots highlighted that the response of the market illiquidity index to both the amplification in confirmed local cases (resp. international confirmed cases) and the stock market volatility appear significant in the short and middle horizons.     

The COVID-19 pandemic uncertainty,investor sentiment,and global equity markets: Evidence from the time-frequency co-movements

We use daily data of the Google search engine volume index (GSVI) to capture the pandemic uncertainty and examine its effect on stock market activity (return, volatility, and illiquidity) of major world economies while controlling the effect of the Financial and Economic Attitudes Revealed by Search (FEARS) sentiment index. We use a time–frequency based wavelet approach comprising wavelet coherence and phase difference for our empirical assessment. During the early spread of the COVID-19, our results suggest that pandemic uncertainty, and FEARS sentiment strongly co-move, and increased pandemic uncertainty leads to pessimistic investor sentiment. Furthermore, our partial wavelet analysis results indicate a synchronization relationship between pandemic uncertainty and stock market activities across G7 countries and the world market. Our results are robust to the inclusion of alternative pandemic fear measure in the form of equity market volatility infectious disease tracker. The pandemic uncertainty and associated sentiment implications could be one plausible reason for increased volatility and illiquidity in the market, and hence, policymakers should look upon this issue for the financial market stability perspective.     

Availability of Mortgage Loans in Volatile Real Estate Markets

This paper presents a default model for mortgages on single-family houses implying a higher probability of negative equity and thus default in real estate markets with high price volatility. Mortgage lenders compensate for the increased default probability in volatile markets by demanding higher downpayments or increased creditworthiness of loan applicants, thus making mortgage loans more difficult to obtain. An empirical analysis finds greatly varying price volatility in single-family real estate markets in a sample of 42 cities. Consistent with the implications of the model, the empirical analysis finds that the fraction of low-downpayment loans declines in volatile markets.     

Balance sheet effects and original sinners’ risk premiums

This paper describes an empirical model of country risk premiums and their determinants, relying on recent theories of balance sheet effects. We approach the latter by introducing a novel approach to country risk premiums that assumes that nominal exchange rates can move away from or towards equilibrium exchange rates, which allows exchange rate movements towards equilibrium to stimulate favourable competitiveness effects as opposed to adverse balance sheet effects. We investigate eight European emerging economies that suffer from “original sin” over the period 2001–2013, using the pooled mean group estimator of the dynamic panel error correction model. This methodology improves estimation efficiency and model performance, but also allows differentiation between long- and short-run country risk premium determinants. We find that, in the long run, country risk premiums increase in response to higher inflation and a higher total debt-to-GDP ratio, while they move in the opposite direction when the real GDP growth rate rises. Our results suggest that, in the short run, higher external debt service caused by exchange rate depreciation, i.e. the balance sheet effect, and market volatility tends to raise risk premiums, while higher international reserves and the federal funds rate tend to decrease them. Moreover, we show that the negative balance sheet effect is much stronger than the potentially favourable competitiveness effect, and that the rise in risk premiums is not due to the increase in the size of external debt, but to the larger debt burden represented by balance sheet effects.     

A note on stock market seasonality: The impact of stock price volatility on the application of dummy variable regression model

This article provides both statistical analysis and empirical evidence that the dummy variable regression models extensively employed in the market seasonality literature may wind-up misleading results. We show that the estimates of the said model tend to reject the null hypothesis incorrectly once the stock returns exhibit higher volatility for the specified period under examination. Our empirical results suggest that the so-called “January effect” could be attributed to the application of inappropriate statistical method.     

Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?

Existing empirical studies show that financial integration affects the behavior of average excess returns, cross-country equity market returns (EMR) correlations and real exchange rate (RER) volatility. We employ a recently developed two-country model with recursive preferences, frictionless and complete markets and highly correlated long-run innovations to examine whether full financial integration (i.e. full risk-sharing) affects the US-Canada EMR correlation and the US RER volatility, consistently with existing empirical findings. First, full risk-sharing gives rise to a relatively high RER volatility. Second, it induces very strong positive cross-country EMR correlations. Both quantities are higher than those observed in the US-Canada asset pricing data, and increase as the risk-sharing incentive increases. In contrast, “international consumption quantities” are weakly sensitive to changes in the level of aversion to consumption and utility risk.     

Market efficiency,asset returns,and the size of the risk premium in global equity markets

An important economic insight is that observed equity prices must equal the present value of the cash flows associated with the equity claim. An implication of this insight is that present values of cash flows must also quantitatively justify the observed volatility and cross-correlations of asset returns. In this paper, we show that parametric economic models for present values can indeed account for the observed high ex post return volatility and cross-correlation observed across five major equity markets—the U.S., the U.K., France, Germany, and Japan. We present evidence that cash flow growth rates contain a small predictable long-run component; this feature, in conjunction with time-varying systematic risk, can justify key empirical characteristics of observed equity prices. Our model also has direct implications for the level of equity prices and specific versions of the model can, in many cases, capture observed price levels. Our evidence suggests that the ex ante risk premium on the global market portfolio has dropped considerably—we show that this fall in the risk premium is related to a decline in the conditional variance of global real cash flow growth rates.     

我国上市公司房地产与公司绩效关系的实证研究

房地产能否增加公司的股票市场价值、提高其收益率和公司的整体赢利能力是公司房地产领域一个很重要的问题。文章采取深圳股票市场非房地产上市公司的股票以及其公司房地产信息,结合三因素模型,对该问题做了实证分析。实证结果表明,公司房地产比率对所有行业整体的平均股票收益率影响并不显著,却对信息技术行业影响显著;同时公司房地产的规模对公司的赢利能力有比较显著的影响。     

Changes in urban land values: 1836–1970

A model is developed for measuring the return to holding land and those returns are examined using a random coefficient estimation procedure for specific periods from 1836 to 1970. This statistical model provides a mean rate of return for land and a predictor for each time period. The results suggest that the long-term return to holding land is no higher than the rate of return to holding high-grade bonds. For shorter holding periods, the returns vary significantly.     

Do real estate investors trade on momentum?

Real estate markets are known to be less-than-efficient for many reasons, but what roles short-term trading plays are unclear. Do short-term investors bring additional risk to the market and cause prices to deviate from fundamental values? Based on an extensive dataset of property transactions and a policy shock that substantially raised the cost of short-term trading in Hong Kong, we estimate ‘real estate risk’ with and without short-term trading based on return predictability, return volatility, and price dispersion. Our results show that as short-term investors exit the market, market returns are less predictable and less volatile, while prices are less dispersed cross-sectionally. Consistent with herding models in behavioral finance, the findings suggest that short-term investors are momentum traders who do not enhance price efficiency.     

Leverage effect on stochastic volatility for option pricing in Hong Kong: A simulation and empirical study

This paper explores the importance of incorporating the financial leverage effect in the stochastic volatility models when pricing options. For the illustrative purpose, we first conduct the simulation experiment by using the Markov Chain Monte Carlo (MCMC) sampling method. We then make an empirical analysis by applying the volatility models to the real return data of the Hang Seng index during the period from January 1, 2013 to December 31, 2017. Our results highlight the accuracy of the stochastic volatility models with leverage in option pricing when leverage is high. In addition, the leverage effect becomes more significant as the maturity of options increases. Moreover, leverage affects the pricing of in-the-money options more than that of at-the-money and out-of-money options. Our study is therefore useful for both asset pricing and portfolio investment in the Hong Kong market where volatility is an inherent nature of the economy.     

房地产市场泡沫的金融支持以及演化风险分析

本文从房地产行业价格形成的交易模型入手,分别分析了没有金融支持和有金融支持的市场均衡过程,研究了金融支持对房地产市场泡沫形成的推动作用。进而探讨了房地产市场泡沫化带来的金融风险,并在此基础上提出了遏制房地产市场泡沫的政策建议。     

Herding behavior,market sentiment and volatility: Will the bubble resume?

This paper aims to investigate herding behavior and its impact on volatility under uncertainty. We apply a cross-sectional absolute deviation approach as well as Quantile Regression methods to capture the herding behavior in daily and monthly frequencies in US markets over several time-periods including the global financial crisis. In a novel attempt we modify the empirical CSAD herding modeling by introducing implied volatility as a measure of agent risk expectations. Our findings indicate that herding tends to be intense under extreme market conditions, as depicted in the upper high quantile range of the conditional distribution of returns. During crisis periods herding is observed at the beginning of the crisis and becomes insignificant towards the end. The US market herding behavior exhibits time-varying dynamic trading patterns that can be attributed e.g., to overconfidence or excessive “flight to quality” features, mostly observed in the aftermath of the global financial crisis. Moreover, implied volatility reveals asymmetric patterns and plays a key role in enforcing irrational behavior.     

城市住房价格指数编制方法的拓展设计及实证检验

科学监测城市房价走势,在当前环境下尤为重要。为拓展国际通行方法编制国内单一城市房价指数的适用性,引入样本匹配重复交易法构建房价指数,以提高样本容量与可比性。基于上海数据的实证结果表明,相较于传统重复交易法和特征价格法,样本匹配重复交易法能更准确地反映住房价格变动,结果异常波动性更小,噪声影响程度更低,在克服样本代表性误差和变量缺失误差方面效果更显著,对编制国内城市房价指数具有较好应用价值。     

Returns,volatility and spillover – A paradigm shift in India?

We investigate spillovers in returns and volatility among five major financial assets in India. Spillovers account for more than 25 percent of the forecast error variance in all the five markets. Banking, real estate and gold matter the most for India. Shocks from US economy to India arrive via Gold and forex markets. Events including the general elections and demonetization were contemporaneous to major episodes of return and volatility spillovers in the analyzed assets. Demonetization policy and President Trump’s election have increased regulatory risk for the Indian IT sector outlining its importance for gold and banking sector volatility shock transmission.