Dividend announcements under varying market conditions: The case of specially designated dividends

In this study the author examines differences in the behavior of stock returns surrounding the announcements of the specially designated dividends (SDDs) between bull markets and bear markets. Results show that SDDs declared during bull markets have a significantly higher positive effect on stock prices than those declared during bear markets. This evidence, new to literature, indicates that SDDs declared during bull markets are viewed by the market as more favorable than those declared during bear markets.     

Investor sentiment and energy futures predictability: Evidence from Feasible Quasi Generalized Least Squares

Contributing to the budding literature on how emotional and sentimental actions impact the performance of financial markets, this study examines the predictability of energy futures prices with investors’ sentiments. In particular, we examine which of the three (neutral, bear and bull) investors’ sentiments offer accurate forecast information on four energy futures prices. Using the predictability test proposed by Westerlund and Narayan (2015), we discover that all the forms of investors’ sentiments are significant predictors of the movements in energy futures prices. However, the bear sentiments outshine other variants in the forecast of crude oil futures prices, while the bull sentiments provide the most accurate forecast information for the remaining energy futures prices, namely heating oil, gasoline and natural gas. We also find this evidence consistent even when asymmetries are considered in the predictability models. Among other implications of these findings, investors in energy futures and portfolio managers are expected to consider often emotional perceptions in their portfolio constructions and the predictability of future gains.     

Stock market reactions to upside and downside volatility of Bitcoin: A quantile analysis

We investigate how sensitive developed and emerging equity markets are to volatility dynamics of Bitcoin during tranquil, bear, and bull market regimes. Intraday price fluctuations of Bitcoin are represented by three measures of realized volatility, viz. total variance, upside semivariance, and downside semivariance. Our empirical analysis relies on a quantile regression framework, after orthogonalizing raw returns with respect to an array of relevant global factors and accounting for structural shifts in the series. The results suggest that developed-market returns are positively related to the realized variance proxy across various market conditions, while emerging-market returns are positively (negatively) correlated with realized variance during bear (normal and bull) market periods. The upside (downside) component of realized variance has a negative (positive) influence on returns of either market category, and the dependence structure is highly asymmetric across the return distribution. Additionally, we document that developed and emerging markets are more sensitive to downside volatility than to upside volatility when they enter tranquil or bull territory. Our results offer practical implications for policymakers and investors.     

Dependence structures between Chinese stock markets and the international financial market: Evidence from a wavelet-based quantile regression approach

In this study, we investigate the dependence structures between six Chinese stock markets and the international financial market including possible safe haven assets and global economic factors under different market conditions and investment horizons. The research is conducted by combining a quantile regression approach with a wavelet decomposition analysis. Although we find little or insignificant dependence under short investment horizons, we detect the strong asymmetric dependence of oil prices and the US dollar index on the six Chinese stock markets in the medium and long terms. Moreover, not only is crude oil not a safe haven, it may damage Chinese stock markets as it increases over the long term, even in bull markets. Meanwhile, appreciation of the US dollar (depreciation of RMB) damages (boosts) Chinese stock markets during bull (bear) market conditions under long investment horizons. Moreover, we find that VIX (volatility index)-related derivatives may serve as good risk management tools under any market condition, while gold is a safe haven asset only during crisis periods.     

Non-linear causal linkages of EPU and gold with major cryptocurrencies during bull and bear markets

This paper sets out to explore whether the innovative Economic Policy Uncertainty (EPU) index and the safe haven asset of gold influence returns of high-capitalization cryptocurrencies in a non-linear manner. Estimations take place both concerning flourishing and stressed periods in the digital currency markets. Econometric outcomes reveal that the returns of almost half of the cryptocurrencies investigated are tightly connected to the EPU index in bull markets while even more currencies are linked with the index during bear markets. Similar findings are revealed as concerns gold as it proves to be more influential during bear markets due to its hedging capacities. There is also evidence that causality in variance is significant in all but the higher quantile concerning both EPU and gold estimations in both bull and bear markets.     

Identifying the true nature of price discovery and cross-market informational flow in the investment grade CDS and equity markets

We examine the comparative efficiency of systematic investment grade credit default swap (CDS) and equity markets using a time-varying coefficient vector autoregression. This modeling framework enables a view of cross-market informational flow along each point in the time-period under investigation by taking into account parameter instability. We obtain smoothing estimates of parameters capturing such flow between CDS and equity markets using daily data from 2004 to 2019, and measure the strength of flow via relative predictive gains. In contrast to prior studies, we find a two-way interactive effect in which certain types of information are captured more efficiently in prices by each market. We also find that the time-varying coefficient vector autoregression results in superior forecasting gains relative to models not accounting for price discovery. These results have implications for systematic investors, arbitrageurs and stakeholders who monitor systematic markets for their informational content.     

沪深股市在牛市和熊市阶段的波动非对称效应实证分析

本文分别采用EGARCH-M、TGARCH-M模型对沪深股市在牛市和熊市阶段的非对称波动效应进行了分析,这两个模型得出了相同的结论,在牛市阶段利好消息引起股市更大的波动,在熊市阶段利空消息引起股市更大的波动,而且这两个模型同时也说明了我国股市风险和收益的正相关关系,并从我国股票市场交易者构成和交易机制两方面说明了波动非对称的原因。     

Business,housing, and credit cycles

We use multivariate unobserved components models to estimate trend and cyclical components in gross domestic product (GDP), credit volumes, and house prices for the USA and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium‐term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real‐time estimates of credit and house price cycles is roughly comparable to that of GDP cycles.     

定向增发公告效应在股市中的异化现象——关于中国证券市场的实证研究

本文以中国证券市场2006～2008年成功进行定向增发的上市公司为样本,研究了定向增发公告效应在牛市、熊市中的异化现象。研究发现在牛市周期中仅仅公告日当天存在显著的正公告效应,公告日前后都不存在显著的正公告效应;但是在熊市周期中不仅公告日当天存在显著正公告效应,而且从公告日前两天开始一直到公告日后10天都存在显著正公告效应。在不同市场态势下,公告效应与折扣的关系也不相同:在熊市周期中,随着定向增发折扣的增加,公告效应相应减弱,而在牛市周期中公告效应增强。最后,论文给出了基于投资者情绪的理论解释以及相应的启示。     

Great Places to Work®: Resilience in Times of Crisis

We study the resilience of the “100 Best Companies to Work for in America” in times of financial crisis by analyzing their long‐term financial performance. Apart from implementing methods that tackle the statistical problems of stock returns, we use a conditional model to measure financial performance in periods of market growth (bull markets) and market downturn (bear markets). We find that best places to work are indeed resilient in times of crisis since neither their financial performance nor their systematic risk are affected during bear markets: top companies continue to outperform the market during periods of crisis, and the performance of lower‐ranked great workplaces does not deteriorate. Moreover, we find that previous studies were overestimating performance, and only great workplaces on the top half of the rankings exhibit positive excessive returns. © 2015 Wiley Periodicals, Inc.     

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.     

Time-frequency effect of crude oil and exchange rates on stock markets in BRICS countries: Evidence from wavelet quantile regression analysis

This study examines the effects of oil prices and exchange rates on stock market returns in BRICS countries (Brazil, Russia, China, India and South Africa) from a time–frequency perspective over the period 2009–2020. We use wavelet decomposition series to develop a threshold rolling window quantile regression to detect time–frequency effects at various scales. The empirical results are as follows. First, our findings confirm that the effects of both crude oil prices and exchange rates on BRICS stock returns are asymmetric. Positive shocks of crude oil have a greater impact on a bull market, whereas negative shocks have a greater impact on a bear market. Second, there is a short-term enhancement effect of crude oil and exchange rate on BRICS stock markets. In addition, volatility in the macro financial environment also exacerbates the impacts of oil prices and exchange rates on the stock market, and these fluctuations are heterogeneous. Overall, these findings provide useful insights for international investors and policy makers.     

The transmission of US economic policy uncertainty shocks to Asian and global financial markets

This paper proposes a novel approach to investigating the spillover effects of US economic policy uncertainty shocks on the global financial markets. Employing a factor-augmented vector autoregression (FAVAR), we model US economic policy uncertainty jointly with the latent factors extracted from equity prices, exchange rates, and commodity prices. We find that US economic policy uncertainty affects these factors significantly. A country-level analysis shows heterogeneous responses to an increase in US economic policy uncertainty. With regard to equities, US economic policy uncertainty adversely affects equity prices. However, its impact on the Chinese equity market is relatively small. As for foreign exchange markets, while many currencies depreciate in response to an increase in US economic policy uncertainty, the US dollar and the Japanese yen appreciate, reflecting their safe-haven status. The Chinese yuan, whose nominal exchange rate is closely linked to the US dollar, also appreciates in response to uncertainty shocks.     

Technology transactions,announcement effect,and reversal: Dissecting an anomaly

We examine the short term stock price performance of firms that acquire or sell technology rights. We find significant positive announcement-period abnormal returns to the acquirers and sellers. However, the price increases reverse during the subsequent twenty trading days. These quick fortune reversals cannot be attributed to methodology; they prevail in the late 1970s through the 2000s, in bear and bull stock markets, and in both high and low technology industries. Upon splitting the sample into two subsamples comprised each of stocks with either pre-announcement price run-up or decline; we find that the abnormal return reversal is confined to the latter subsample. Stocks that witness price run-up prior to the announcement do not reverse to original prices but lose the momentum right after the announcement-period. We believe this is caused by the combination effect of the momentum prior to-and the impact of the announcement.     

The role of beliefs in inference for rational expectations models

This paper discusses inference for rational expectations models estimated via minimum distance methods by characterizing the probability beliefs regarding the data generating process (DGP) that are compatible with given moment conditions. The null hypothesis is taken to be rational expectations and the alternative hypothesis to be distorted beliefs. This distorted beliefs alternative is analyzed from the perspective of a hypothetical semiparametric Bayesian who believes the model and uses it to learn about the DGP. This interpretation provides a different perspective on estimates, test statistics, and confidence regions in large samples, particularly regarding the economic significance of rejections in rational expectations models. A suggestive application to the equity premium puzzle is examined.     

A financial accelerator in the business sector of a macroeconometric model of a small open economy

We have incorporated a financial accelerator mechanism operating through investments in the business sector in a dynamic macroeconometric model of the Norwegian economy. In this new and amended model aggregated credit and equity prices are determined simultaneously in a system characterized by a two-directional contemporaneous causal link, which has been designed and estimated by a new procedure for simultaneous structural model design. Combined with a mechanism where credit and asset prices are mutually influenced by real investments, this creates a financial accelerator amplified by a credit-asset price spiral. Simulations illustrate how the introduction of a financial accelerator significantly reinforces and extends the economic cycles in projections and forecasts, in particular when confronted by a severe shock. Furthermore, monetary policy has a markedly stronger effect in the short and medium term, while the impact of fiscal policy is affected to a relatively small degree as it is more remotely linked to financial markets.     

Evaluating mutual funds on a small market: is benchmark selection crucial?

This paper focuses on mutual fund performance analysis on a small market during a turbulent period. Firstly, we address the question of proper measures and benchmarks. A potentially critical issue on a small market concerns large market weights for individual stocks, which in combination with mutual fund legislation may prevent funds from following the index. Secondly, our investigation period was characterized by persistent bull and bear markets, which makes it interesting to investigate whether successful market timing was possible. Different measures of performance are compared and benchmark sensitivity is analysed with the help of various market timing and multiple index models, including benchmarks such as the FOX and HEX indices, a small-firm index, and a bond index. Contrary to many studies that record great benchmark sensitivity, we find markedly similar ranking for different benchmarks. Performance measures are also related to certain fund characteristics such as fund expenses, and fund size. We find that fund characteristics (especially fund expenses) are significantly related to fund performance, a relationship that may be used to increase the power of tests of fund performance.     

Minute by minute: Efficiency,normality, and randomness in intra-daily asset prices

In this study we test the efficiency of asset markets at intervals as short as 30 seconds. We also describe the properties of a simple new stochastic process as a potential model of the behaviour of asset prices and test it on intra-daily Deutsche Mark futures prices. According to this process, asset prices are constant between economically relevant events, which occur at the random times generated by a Poisson process. At the moments of these events, prices jump to new values; the size of the jump is drawn from a normal distribution. Tests of this process indicate that it cannot be rejected for most of the days in the sample.     

Dependent relationships between Chinese commodity markets and the international financial market: Evidence from quantile time-frequency analysis

In this article, the quantile time–frequency method is utilized to study the dependence of Chinese commodities on the international financial market. The impacts of risk management and diversification benefits of different portfolios are examined by calculating the reduction in downside risk. Moreover, we estimate and compare Sharpe Ratios (SRs) and Generalized Sharpe Ratios (GSRs) based on the frequencies of the investigated portfolios. Our empirical results reveal a strong asymmetric response from Chinese commodity markets. Specifically, we find that gold is a safe-haven asset, and due to negative correlations found at lower quantiles in medium and long term, an increase in the USD index damages bull commodity markets but boosts bear conditions under long-term investments, and negative (positive) tail correlations with interest rates (IRs) in bull (bear) markets are observed. It is proven that WTI can decrease short-run risks while USD and GOLD are more efficient in the diversification of downside risk. Adding international commodities may not improve the returns of Chinese commodities at given risk levels in the short and medium term through SRs and GSRs. In brief, investors should consider these dependence structures and modes of risk management in terms of time and frequency.