Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?

This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. We find that well over half of the S&P 500 index by market capitalization and seven of its ten sector component indices exhibited at least some bubble-like behavior over our sample period. Thus the speculative bubble that grew in the 1990s and subsequently collapsed was surprisingly pervasive in the US equity market and it affected numerous sectors including financials and general industrials, rather than being confined to information technology, telecommunications and the media. In addition, we develop a joint model for cross-sectional contagion of bubbles across the sectors and we examine whether there is evidence for bubble spillovers.     

Stock return forecasting: Some new evidence

This paper makes three contributions to the literature on forecasting stock returns. First, unlike the extant literature on oil price and stock returns, we focus on out-of-sample forecasting of returns. We show that the ability of the oil price to forecast stock returns depends not only on the data frequency used but also on the estimator. Second, out-of-sample forecasting of returns is sector-dependent, suggesting that oil price is relatively more important for some sectors than others. Third, we examine the determinants of out-of-sample predictability for each sector using industry characteristics and find strong evidence that return predictability has links to certain industry characteristics, such as book-to-market ratio, dividend yield, size, price earnings ratio, and trading volume.     

Managerial sentiment,consumer confidence and sector returns

This paper investigates the relationship between managerial sentiment and sector returns. Using UK monthly data from January 1985 to December 2014 and a sample of consumer and business confidence indicators provided by the European Commission, we provide novel evidence on how managerial and consumer sentiment indicators affect stock returns. We find no support for consumer confidence as a predictor of stock returns. However, managerial sentiment shows a significant impact on aggregate market and sector return indices. Furthermore, we find that parameter estimates for sector groupings are not consistent, implying that the sentiment-return relationship differs across sectors. We also find parameters are sensitive to industry characteristics. Importantly, the overall sentiment-return relationship is dominated by sentiment associated with manufacturing firms.     

Individuals’ Trading Prior to Earnings Announcements

This paper investigates the relationship between individuals’ net trading and stock price movements before and after annual earnings announcements for the Taiwan Stock Exchange. We conduct an event study on the effects of pre‐event individual trade imbalances on pre‐ and post‐announcement abnormal returns. With a unique and comprehensive dataset, we accurately classify executed orders by aggressiveness of order price. The evidence indicates that while individuals, as a group, are not informed about impending earnings announcements, individuals who place aggressive orders are informed as their net trading coincides with contemporaneous and future stock returns. Aggressive individuals lose their edge during the financial crisis. More importantly, the advantage (disadvantage) for individuals who adopt aggressive (passive) orders weakens when foreign institutions own concentrated equity in firms. We also find that net individual trading contains information about abnormal returns that either past returns or volume does not subsume. Controlling for past returns, trading volume and volatility, or using an alternative measure of net individual trading does not change our conclusions.     

Credit contagion in the presence of non-normal shocks

We generalize existing structural credit risk models that account for contagion effects across economic sectors, to capture the impact of neglected skewness and excess kurtosis in the asset return process, on the shape of the credit loss distribution. We specify Skew-Normal and Skew-Student t densities for the underlying asset return process and estimate the derived credit loss density using sector default rates based on proprietary data from the Central Bank of Mexico for six firm sectors. We show that, out of the six sectors analyzed, there is a significant contagion effect in ‘Commerce’, ‘Services’ and ‘Transport’. Moreover, we show that the non-Gaussian modelling of the common factor provides a better characterization than its Gaussian counterpart for the ‘Services’ sector. This result has a significant impact on the shape and the corresponding Value-at-Risk levels of the ‘Services’ credit loss distribution. In this context, traditional Basel and vendor-based credit risk models are inadequate as these do not consider the individual or the joint impact of contagion and non-Gaussian asset returns.     

An event study of price movements following realized jumps

Price jumps are mostly related to investor reactions to unexpected extreme news. We perform an event study of price movements after jumps to analyse if investors’ reactions are affected by psychological biases. We employ recent non-parametric methods based on intraday returns to separate large price movements that are related to unexpected news from those merely caused by periods of high volatility. In general, we find evidence for irrational pricing, which can be associated with investors’ optimistic behavior in a bull market and the pessimism prevailing in a bear market. Furthermore, our analysis confirms the conjecture that small firms are more subject to speculative trading than large firms.     

Measuring the effects of dollar appreciation on Asia: A FAVAR approach

Exchange rate shocks have mixed effects on economic activity in both theory and empirical VAR models. In this paper, we extend the empirical literature by considering the implications of a positive shock to the U.S. dollar in a factor-augmented vector autoregression (FAVAR) model for the U.S. and three large Asian economies: Korea, Japan and China. The FAVAR framework allows us to represent a country’s aggregate economic activity by a latent factor, generated from a broad set of underlying observable economic indicators. To control for global conditions, we also include in the FAVAR a “global conditions index,” which is another latent factor generated from the economic indicators of major trading partners. We find that a dollar appreciation shock reduces economic activity and inflation not only for the U.S. economy, but also for all three Asian economies. This result, which is robust to a number of alternative specifications, suggests that in spite of their disparate economic structures and policy regimes, the dollar appreciation shock affects the Asian economies primarily through its impact on U.S. aggregate demand; and this demand channel dominates the expenditure-switching channel that affects a country’s export competitiveness.     

Did institutions herd during the internet bubble?

We examine the trading behavior of institutional investors during the internet bubble and crash of 1998–2001, and its impact on stock prices. Similar to some recent findings concerning the trading behavior of hedge funds and NASDAQ 100 stocks, we find that during the bubble all types of institutions herded with great intensity into internet stocks for a comprehensive sample of institutional investors and internet stocks. In addition to this, we present three entirely new results. First, institutional herding was much greater than what can be explained by momentum trading. Second, institutions as a group continued to increase their holdings of internet stocks for two quarters past the market peak during the first quarter of 2000, and three quarters past the peak for individual stock prices, suggesting that institutions were unable to time the price peaks. Finally and most importantly, we find positive abnormal returns contemporaneous with institutional herding and negative abnormal returns (reversals) at the point that herding ceased. This finding suggests that institutions’ trading created temporary price pressures, and may have contributed to the bubble.     

The bivariate GARCH approach to investigating the relation between stock returns,trading volume,and return volatility

We use a bivariate GJR-GARCH model to investigate simultaneously the contemporaneous and causal relations between trading volume and stock returns and the causal relation between trading volume and return volatility in a one-step estimation procedure, which leads to the more efficient estimates and is more consistent with finance theory. We apply our approach to ten Asian stock markets: Hong Kong, Japan, Korea, Singapore, Taiwan, China, Indonesia, Malaysia, the Philippines, and Thailand. Our major findings are as follows. First, the contemporaneous relation between stock returns and trading volume and the causal relation from stock returns and trading volume are significant and robust across all sample stock markets. Second, there is a positive bi-directional causality between stock returns and trading volume in Taiwan and China and that between trading volume and return volatility in Japan, Korea, Singapore, and Taiwan. Third, there exists a positive contemporaneous relation between trading volume and return volatility in Hong Kong, Korea, Singapore, China, Indonesia, and Thailand, but a negative one in Japan and Taiwan. Fourth, we find a significant asymmetric effect on return and volume volatilities in all sample countries and in Korea and Thailand, respectively.     

The impact of company responses to exchange queries on the Australian equity market

This study examines the impact of company responses to trading‐induced queries made by the Australian Securities Exchange over the period January 2007–December 2008, inclusive. We utilise event study methodology and a matched sample approach to assess the impact of trading query announcements. We use multivariate analysis to investigate any cross‐sectional determinants affecting abnormal returns and volume, and find significant positive shareholder wealth and volume effects associated with query announcements. Further, the unexplained abnormal returns observed prior to the announcement of the trading query persist post‐announcement. Subsequent analysis reveals the industry effect reported in the literature loses significance after accounting for sample selection bias.     

中美贸易摩擦对国际贸易板块的冲击--基于事件研究法

中美建交40周年以来,中美经贸关系既有合作又有摩擦。自2018年3月美国向中国部分商品加征关税,中美贸易战正式打响,中美贸易摩擦持续升级,导致国际贸易板块剧烈波动,引发投资者恐慌情绪。本文基于事件研究法,分析"正面"和"负面"中美贸易摩擦新闻事件分别对国际贸易板块的影响,首先通过对"窗口期"平均异常收益率进行分析,为投资者分别提供在中美贸易新闻"正面""负面"事件冲击下利用股市"T+1"交易机制对国际贸易板块进行投资时获利的最佳投资点;其次通过对"窗口期"累计异常收益率的分析,为投资者分别提供在中美贸易"正面""负面"两种新闻事件冲击下对国际贸易板块进行投资的最佳区间,最大化其超额收益。为投资者在中美贸易摩擦时期对国际贸易板块进行投资时,合理的规避风险、最大化其超额收益,同时提升投资者在负面新闻事件发出时的情绪,减少国际贸易公司市值的进一步缩水。     

Impaired bank health and default risk

Empirical studies in corporate finance have long been focused on the role of banks in reducing the costs of financial distress. The environment and events in Japan provide a “natural experiment” that allows such empirical studies. The number of bankruptcies steadily increased throughout the 1990s, and peaked in 2000. During this period, Japan's banking sector, in contrast, faced considerable problems regarding the disposal of their bad loans. The purpose of this paper is to investigate how various measures of bank health and how defaults of major trading partners affected the probability of bankruptcy among medium-size firms in Japan. Using probit models, we examine the causes of bankruptcy for unlisted Japanese companies in the late 1990s and early 2000s. We find that several measures of bank-specific financial health have had significant impacts on a borrower's probability of bankruptcy, even when observable characteristics relating to these borrower's financial variables are controlled. In particular, a close bank–firm relationship—which usually reduces the probability of bankruptcy—exacerbates the impacts of a financial crisis, which substantially damages other bank health measures as well.     

IMF-related announcements and stock market returns: Evidence from financial and non-financial sectors in Indonesia,Korea, and Thailand

We examine the changes in daily financial sector stock returns in Indonesia, Korea, and Thailand in response to IMF-related news during the Asian crisis and compare them with those in non-financial sectors. We find that news of both program negotiations and approval increased financial sector returns in Indonesia and Korea, whereas only program approval is associated with higher returns in the financial sector in Thailand. Sectors such as cyclical consumer goods and non-cyclical services experienced higher returns in Thailand and Indonesia, while almost all sectors enjoyed higher returns in South Korea. We interpret the empirical results based on the characteristics of corporate governance and industrial development policies in these countries.     

Optimal Environmental Taxation with Capital Mobility*

Climate policy exemptions for energy‐intensive sectors are often justified with distributional concerns. One concern is that households employed in energy‐intensive sectors might be affected disproportionally because of (international) capital mobility. By assuming that workers cannot move freely between sectors, we can reproduce this concern: uniform climate policy causes more inequality between the sectors when capital is mobile than when it is not. However, we find that affected households can be relieved more effectively with sector‐specific labour taxes than with sector‐specific climate policy. The reason for this finding is that households benefit more directly from sector‐specific labour tax cuts than from climate policy exemptions. Keeping climate policy uniform across sectors has the added benefit of creating incentives for long‐term decarbonisation. In addition, we find that the differential effect of capital mobility depends on the government's degree of inequality aversion – redistribution is more expensive when capital is mobile.     

The information content of stock split announcements: Do options matter?

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.     

Can margin traders predict future stock returns in Japan?

A growing body of literature suggests that investor sentiment affects stock prices both at the firm level and at the market level. This study examines the relationship between investor behavior and stock returns focusing on Japanese margin transactions using weekly data from 1994 to 2003. Margin trading is dominated by individual investors in Japan. In analysis at the firm level, we find a significant cross-sectional relationship between margin buying and stock returns. Both market-level and firm-level analyses show that margin buying traders follow herding behavior. They seem to follow positive feedback trading behavior for small-firm stocks and negative feedback trading behavior for large firm stocks. Our results show that information about margin buying helps predict future stock returns, especially for small-firm stocks at short horizons. The predictive power does not diminish even after controlling for firm size and liquidity.     

The S&P500 index effect reconsidered: Evidence from overnight and intraday stock price performance and volume

This study focuses on S&P500 inclusions and deletions, examining the impact of potential overnight price adjustment after the announcement of an S&P500 index change. We find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly, observing the tick-by-tick stock price performance and volume effects on the key days during the event window for the first time, we find evidence of consistent trading patterns during trading hours. A separate analysis of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect at an intra-day level. We find that index funds appear to cluster their rebalancing activities near to and after the close on the event date, suggesting that they are more concerned with tracking error than profit.     

Evaluating the information in the federal reserve stress tests

We present evidence that the Federal Reserve stress tests produce information about both the stress-tested bank holding companies and the overall state of the banking industry. Our evidence goes beyond a standard event study, which cannot differentiate between small abnormal returns and large, but opposite-signed, abnormal stock returns. We find that stress test disclosures are associated with significantly higher absolute abnormal returns, as well as higher abnormal trading volume. More levered and riskier holding companies seem to be more affected by the stress test information. We find no evidence that stress test disclosures have reduced the production of private information. After disclosure begins, stress tested firms attract equity analysts without changing analysts’ forecast dispersions or their mean forecast error.     

Investor wealth,the IMF,and the Asian crisis

This study further investigates the impact of IMF actions on stock markets during the Asian crisis. Extending two earlier studies by Kho and Stulz (2000) and Evrensel and Kutan (2007), we investigate the long-term shareholder wealth impact of IMF actions and programs on both financial and real sector returns in the stock markets of Thailand, Indonesia, and Korea. We perform a series of tests employed in Cornett and Tehranian (1989, 1990) that incorporate heteroscedasticity across sectors and contemporaneous dependence of the disturbances. The findings indicate that IMF actions regarding liquidity disbursement or liquidity concerns in markets are the most important events affecting abnormal returns and hence investor wealth in both real and financial sectors. However, the response of the financial sector to IMF actions is much stronger than that of the real sector. In addition, the results suggest moral hazard effects during the Asian crisis in all the three countries.     

Stock Market Reaction to Monetary Policy: An Event Study Analysis of the Brazilian Case

This article examines the relationship between the monetary policy implemented by the Central Bank of Brazil and the stock market. We implement event study analysis and analyze the effect of the anticipated and unanticipated components of monetary policy decisions on the returns of the IBOVESPA index and 53 stocks. We find that monetary policy has a significant effect on the stock market, but is only responsible for a small proportion of market variation. The analysis at the sector level with expected returns identifies that the financial sector is the most affected by this policy, whereas with excess returns only industrial goods are significantly affected. Moreover, individual assets respond in a rather heterogeneous fashion to monetary policy; however, when we look at excess returns, we identify a reduction in the intensity and in the number of companies impacted by monetary policy. Finally, the monetary shock is explained by unanticipated variations in the unemployment rate, in the Industrial Production Index, in the General Market Price Index, and in the Broad Consumer Price Index.