A Test of Integration and Cointegration of Commercial Mortgage Rates

Little empirical work examines the extent to which commercial mortgage markets are integrated into broader capital markets. We use time series data on commercial mortgage yields and yields on comparable-maturity Treasury securities to identify a long-run cointegrating relationship between the two yield series. Our empirical evidence suggest that, while the yield on commercial mortgage is cointegrated with that on comparable-maturity Treasury securities, the cointegrating relationship is far less than that found between the yield on residential mortgage rates and that on comparable-maturity Treasury securities during 1980–1990 time period. However, our results also show that the spate of commercial mortgage securitization that began in early 1991 may have been a market-integrating force and caused the commercial mortgage market to become more integrated into broader capital markets. Indeed, our results suggest that changes in capital market rates are now much more rapidly reflected in commercial mortgage rates than in the 1980–1990 time period, although there is a lag.     

An empirical evaluation of the overconfidence hypothesis

Recently, several behavioral finance models based on the overconfidence hypothesis have been proposed to explain anomalous findings, including a short-term continuation (momentum) and a long-term reversal in stock returns. We characterize the overconfidence hypothesis by the following four testable implications: First, if investors are overconfident, they overreact to private information and underreact to public information. Second, market gains make overconfident investors trade more aggressively in subsequent periods. Third, excessive trading of overconfident investors in securities markets contributes to the observed excessive volatility. Fourth, overconfident investors underestimate risk and trade more in riskier securities. To document the presence of overconfidence in financial markets, we empirically evaluate these four hypotheses using aggregate data. Overall, we find empirical evidence in support of the four hypotheses.     

Who is the more overconfident trader? Individual vs. institutional investors

Guided by the Gervais and Odean (2001) overconfident trading hypothesis, we comprehensively investigate the trading behavior of individual vs. institutional investors in Taiwan in an attempt to identify who is the more overconfident trader. Conditional on the various states of the market, on market volatility, and on the risk level of the securities they trade, we find that both individual and institutional investors trade more aggressively following market gains in bull markets, in up-market states, in up-momentum market states, and in low-volatility market states and that only individual investors trade more in riskier securities following market gains. More importantly, we find that individual investors trade more aggressively following market gains in the three conditional states of the market and in high-volatility market states than institutional investors. Also, individual investors trade more in relatively riskier securities following gains than institutional investors. These findings provide evidence that individual investors are more overconfident traders than institutional investors.     

Trading Activity and Financial Market Integration

We investigate the effect of trading activity in the Asian emerging markets on the market integration across Asian emerging and major developed markets over the sample period of 1997 to 2009. The empirical evidence confirms that higher trading activity in Asian emerging markets can induce these markets and developed markets to become more integrated. Furthermore, we identify the mediation effect of market volatility on Asian emerging markets. This effect demonstrates that trading activity in Asian emerging markets not only directly enhances market integration, but also intensifies market volatility, indirectly increasing market integration.     

Intermarket efficiency: An application of interbattery APT to mortgage-backed securities

Increasing popularity of investments in mortgage-backed securities has led to closer integration of the mortgage market into traditional capital markets. Using monthly returns during 1982–1988 for common stocks, Treasury bonds and GNMA and FHLMC mortgage-backed securities, the interbattery factor analytic Arbitrage Pricing Theory of (Cho, 1984) is used to test five hypotheses for intramarket and intermarket integration. Results indicate that three to five common factors are found within the same security market, while only one to three factors are found common between different markets.The APT could not be rejected within the same security market, but was rejected in most intermarket comparisons. While risk-free rates are found to differ between markets, the risk premium tests are conclusive indicators of integration. Our results support claims that the stock, bond, and the mortgage-backed securities markets are integrated.     

The financial crisis of 2008 in fixed-income markets

We explore how a relatively small amount of heterogeneous securities created turmoil in financial markets in much of the world in 2007 and 2008. The drivers of the financial turmoil and the Financial Crisis of 2008 were heterogeneous securities that were hard to value. These securities created concerns about counterparty risk and ultimately created substantial uncertainty. The problems spread in ways that were hard to see in advance. The run on prime money market funds in September 2008 and the effects on commercial paper were an important aspect of the crisis itself and are discussed in some detail.     

What Works in Securities Laws?

We examine the effect of securities laws on stock market development in 49 countries. We find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets.     

Mispricing and lasting arbitrage between parallel markets in the Czech Republic

If co-existing parallel markets are efficient, then arbitrage will maintain a correct pricing relationship. A related question is whether two parallel emerging markets offering more or less the same securities but using different institutional designs, can behave as a single, fully integrated market. In this paper an explicit model of price convergence (with transaction costs) is introduced, in which price differences are studied using levels of arbitrage activity. For the empirical analysis two parallel markets in the Czech Republic are used — the Prague Stock Exchange (PSE) and the RMS (over-the-counter system). In particular, the degree of arbitrage activity is studied for different segments of the PSE and the evolution of arbitrage in the early history of these emerging markets. The empirical results provide evidence of market linkage for actively traded stocks. A significant relationship is found between the segment of the market to which a given firm belongs and the estimated level of arbitrage trading. Moreover, the level of arbitrage activity increases over time for all market segments, and as the markets mature, the differences among the segments gradually disappear.     

Who makes on-the-run Treasuries special?

The most recently issued, on-the-run, Treasuries are extremely liquid and frequently trade at a premium in both the cash and repo, or financing, markets. Previous research suggests that both the cash and repo premiums reflect demand from buy-and-hold investors who value the superior liquidity of these securities and are reluctant to lend them in the repo market. We find evidence that premiums in the repo market are also closely related to market participants’ demand to hedge interest rate risk associated with their holdings of fixed income securities.     

An empirical investigation of stock market behavior in the Middle East and North Africa

This paper analyzes excess market returns in the relatively understudied financial markets of nine Middle Eastern and North African (MENA) countries within the context of three variants of the Capital Asset Pricing Model: the static international CAPM; the constant-parameter intertemporal CAPM; and a Markov-switching intertemporal CAPM which allows for the degree of integration with international equity markets to be time-varying. On the whole we find that: (1) Israel and Turkey are most strongly integrated with world financial markets; (2) in most other MENA markets examined there is primarily local pricing of risk and evidence of a positive risk-return trade-off; and (3) there is substantial time variation in the weights on local and global pricing of risk for all of these markets. Our results suggest that investment in many of these markets over the sample studied would have provided returns uncorrelated with global markets, and thus would have served as financial instruments with which portfolio diversification could have been improved.     

Incomplete markets and incentives to set up an options exchange

Traditional analyses with incomplete markets take the securities that are traded as exogenous. In this paper we endogenize the market structure by considering incentives to introduce (costly) options exchanges which issue derivative securities. The method of financing the exchange is critical in determining whether the market structure is socially efficient. If the exchange can charge fees to all agents and make every agent's participation a necessary condition for establishing the exchange then the market structure chosen in equilibrium is efficient. However, if either of these conditions is not satisfied then an inefficient market structure may be chosen.We would like to thank the editor, Herakles Polemarchakis, and an anonymous referee for helpful comments and suggestions. Financial support from the NSF (Grant nos. SES-8813719 and SES-8720589 for the two authors respectively) is gratefully acknowledged.     

Regulation of Securities Trading (MiFID) and The Evolution of Exchanges,Clearing & Settlement

In this paper the author reflects on two major families of market development and regulatory change, both of which lie at the heart of our capital markets: the creation of an integrated securities trading market through MiFID; and the swift evolution in exchanges and post‐trade institutions which set in around the beginning of the new millennium.     

证券、期货犯罪防范体系构建探析——以股指期货交易为切入点

股指期货是连接证券市场和期货市场的纽带,为证券市场提供了有效的避险工具。通过对股指期货犯罪行为的分析,笔者认为,操纵股指期货的行为必须纳入刑法规制范畴,同时还应当警惕并防范股指期货挂牌交易后因设计缺陷所产生的"新型老鼠仓"行为。并且单独罪名无法有效防止犯罪行为发生,应当建立综合性证券、期货犯罪防范体系。     

基于MF-DCCA方法的证券市场间交叉相关性研究

运用多重分形去趋势波动交叉相关分析法(MF-DCCA),考量上海证券市场和香港证券市场之间的交叉相关关系。实证表明：上海证券市场和香港证券市场之间存在交叉相关性,且呈现出多重分形特征;当证券市场出现较大的波动时,上海证券市场和香港证券市场的交叉标度指数要大于其平均标度指数,即两个证券市场之间的交叉相关性要大于其自相关性。     

股票、股指期货跨市场信息监管的国际比较及借鉴

股指期货推出后,股票市场和股指期货市场跨市场信息监管成为金融监管机构亟待解决的问题。本文以金融市场微观结构理论和信息经济学为基础,结合股指期货和股票市场的风险关联特性,研究信息在股指期货市场和股票市场传导的一般规律,并分析了跨市场信息监管在信息传导过程中的作用;以此为基础,分析比较了海外证券市场跨市场信息监管具体运作体系,并结合我国证券市场特殊性提出我国股票市场和股指期货市场跨市场信息监管框架、流程和以跨市场信息监管为核心的监管手段。     

Barriers to international investing and market segmentation: Evidence from Indian GDR market

In this paper we evaluate market segmentation and its effect on the pricing of cross-listed securities using Indian Global Depositary Receipts (GDRs). When international capital markets are segmented, cross-listed securities may trade at different prices. We test this market segmentation hypothesis using a theoretical and empirical model developed along the lines of Hietala [Hietala, P.T., 1989, Asset pricing in partially segmented markets: Evidence from the Finnish market, Journal of Finance 44, 697–718]) and Foerster and Karolyi [Foerster, S.R., Karolyi, A.G., 1999, The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States, Journal of Finance 54, 981–1013; Foerster, S.R., Karolyi, A.G., 1999, The long-run performance of global equity offerings, Working Paper, Ohio State University]. Our model looks at a specific type of market segmentation in India, where capital flow barriers are such that domestic investors are allowed to invest only in domestic securities, while the foreign investors can invest in dollar-denominated Indian GDRs as well as other foreign securities. Tests on these GDRs indicate that foreign investors, who hold these depositary receipts, estimate the expected returns at a lower level than the domestic investors do. This leads to the GDRs being priced at a premium over the exchange rate adjusted prices of the underlying Indian securities. GDR index returns are affected by both domestic and international factors, while the underlying Indian securities are affected only by domestic variables.     

基于互谱分析的证券市场危机传染研究

以次贷危机为背景,通过互谱分析实证研究了美国和中国证券市场的危机传染效应.研究结果表明,次贷危机发生后美国和中国证券市场之间的关联性在短期内发生了显著性的加强,说明两个证券市场之间发生了危机传染.在危机传染中虽然中国证券市场在非常短的周期内会影响到美国证券市场,但主要是美国证券市场领先中国证券市场.     

Price synchronicity: The closing call auction and the London stock market

In this paper, we consider the impact of the introduction of a closing call auction on market quality of the London Stock Exchange. We employ the market model, RDD and MEC metrics of market quality. These signify substantial improvements to market quality at both the close and open for migrating stocks. We note that these improvements are larger at the open than the close. An important contribution of our paper is that we show that changes to market quality are stronger in those securities that have the lowest liquidity in the pre-call period. In contrast, market quality changes following the introduction of a closing call auction are approximately neutral for high-liquidity securities. We conclude that the implementation of a closing call auction, for high-liquidity securities may not enhance market quality.     

Investment barriers and international asset pricing

In this article a multicountry model of international asset pricing is developed. This model incorporates a more general representation of the degree of segmentation in the international capital market. Specifically,N types of investors andN classes of securities are postulated. In general, thenth (n=1, 2, 3, ...N) type of investor has access to all security markets up to and including thenth class. Using the standard mean-variance framework, closed form equilibrium risk return relationships are obtained for all classes of securities. It is also shown that class 1 securities are priced as if markets are integrated, classn (n=2, 3 ...N) securities commandn different risk premia. Finally, the nature of the model specification allows us to investigate the effects of partial integration on investor welfare. It is shown that, in general, all investors prefer full integration to any form of partial integration.     

U.S. leveraged loan and debt markets: Implications for optimal portfolio and hedging

This paper offers fresh empirical evidence on the relationship between leverage loans and US debt markets by investigating the distributional predictability and directional predictability between leveraged loans and treasury bonds, fixed income securities and corporate bonds in the U.S economy. We use daily price data from January 2013 to April 2021. First, we analyze the causal relationship between variables by applying non-parametric causality-in-quantiles test and find that quantile causality in variance shows the stronger impact of leverage loan market returns on US debt market returns over the entire quantile range. Second, quantile dependence and directional predictability between leverage loan market and US debt markets are analyzed by applying cross-quantilogram approach and estimated results show the heterogeneous quantile relations from leverage loan market to US debt market. Moreover, the cross-quantile correlation results demonstrate the evidence of negative predictability from leverage loan market to US debt market in low, medium and high quantile range. These evidences are important for US investors and portfolio managers.