Is gold a hedge and safe haven for stock market?

The paper aims to examine the hedge and safe haven properties of gold relative to Dow Jones stock industry indices using quantile-GARCH approach. Splitting the sample period into two sub-periods, our results show that the hedge and safe haven properties of gold have a changing nature. In a whole period (1980–2017), gold is not a hedge for Oil&Gas, Basic materials and Utilities; gold is a safe haven for almost all sectors except Technology. While in sub-period I (1980–1995) gold is not a hedge for Oil&Gas but a strong safe haven for all sectors. In sub-period II (1996–2017) gold is not a hedge for Oil&Gas, Basic materials and Utilities, also not a safe haven for Oil&Gas, Basic materials, Utilities, Telecom and Technology.     

Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach

This paper aims to study the role of gold as a hedge against inflation based on local monthly gold prices in China, India, Japan, France, the United Kingdom and the United States of America in periods ranging from 1955 to 2015. We extend the literature by using a novel approach with the nonlinear autoregressive distributed lags (NARDL) model (Shin et al., 2014). The main advantage of this model relies on its ability to simultaneously capture the short- and long-run asymmetries through positive and negative partial sum decompositions of changes in the independent variable(s). Moreover, we rely on local gold prices instead of those from London converted into local currencies like in most of previous studies. The results show that gold is not a hedge against inflation in the long run in all cases. In the short run, gold is an inflation hedge only in the UK, USA, and India. Furthermore, there is no long-run equilibrium between gold prices and the CPI in China, India and France. This difference may be due to traditional aspects of gold and custom controls for gold trade in these countries. Our robustness check suggests that the data time-frequency does not change the specification of the NARDL model but can change conclusions regarding the role of gold as a hedge against inflation in certain countries.     

The role of Chinese stock market in global stock markets: A safe haven or a hedge?

The contribution of the study is threefold. First, the paper proposes a new empirically testable definition for a safe haven and a hedge from the viewpoint of extreme and regular dependences measured by a modern statistical tool of copulas. Second, this paper investigates the extreme and regular dependences between the Chinese and the G7 stock markets, using a mixture copula specification, and the results reveal that the Chinese stock market has been not only a hedge but also a safe haven for the G7 stock markets all these years. Finally, this study suggests that the Chinese stock market is the target market for global stock fund managers and international investors, who are seeking a hedge or a safe haven for their portfolios, under turbulence.     

Is the stock market sticker shocked? A study of market response to recent CAFE regulations in the US

In response to increasing environmental concerns, to improve energy security and to conserve energy use, the US government has proposed a new round of Corporate Average Fuel Economy (CAFE) standards. Many studies have focused on how the CAFE standard can be met by various automakers that have sales in the US market, and the costs and benefits of the companies meeting the standard. However, the stock markets’ view on the impact of the standard on automakers’ profitability is largely absent. We study the more recent episode of the CAFE regulation in an effort to try to detect the market response using the standard event study method. Our empirical findings suggest that while the stock market had some responses to the regulation, the large-scale and systematic reaction to the regulation is absent. In addition, the market response pattern to the regulation appears to be tied to the individual company’s compliance condition if there is any significant response at all.     

Currency exposures of the oil and natural gas stock prices in the Hushen-300 stock market： A nonlinear model approach

The paper embarks to investigate the relationship between currency risk and stock prices of the oil and natural gas exploitation industry in the value-weighted Hushen-300 stock market, by applying the standard Capital Asset Pricing Model （CAPM） and nonlinear exchange rate exposure model to the Renminbi against US dollar. The results show that the currency exposure does vary in the oil-gas stock prices throughout the bull and bear market. The study suggests that the models of the equilibrium exchange rate exposure must be extended to considering the nonlinear exchange rate exposure, the regime periods of bull and bear market, and the industry types that is sensitive to the currency exposures. The nonlinear dynamic relationship between the exchange rate changes and the Chinese energy stock prices throughout the bull and bear market add to the recent empirical evidences that foreign exchange markets and stock markets are closely correlated.     

Is inflation targeting credible in Asia? A panel GARCH approach

We examine the relationship between inflation targeting and the behavior of the level and volatility of inflation for eight Asian countries over the period 1987–2013. In contrast to existing studies that rely upon time series methods, we employ a novel panel GARCH model that accounts for heterogeneity and interdependence across countries. Our main contribution is to shed new light on the inflation targeting credibility hypothesis based on lower inflation and inflation volatility as well as on the correlation between unanticipated inflation shocks within a panel GARCH framework. We find strong evidence of a reduction in the level of inflation that operates from the impact of actual inflation targets in the Philippines, South Korea and Thailand. We also find that the adoption of inflation targeting helped lower inflation volatility in the Philippines and South Korea. Overall, the results suggest that Asian inflation targeting regimes are more credible in terms of reducing the level of inflation than lowering inflation volatility. There is also evidence that the covariance of inflation shocks among inflation targeting and non-targeting countries tends to increase.     

Is it China that leads the Asian stock market contagion in 2015?

This article examines the influence of China B-share aggregates on major Asian stock market aggregates during 2015 China crash. Results indicate the China market shows strong negative impact and is highly responsible for leading most markets down during the crash.     

Where does the risk lie? Systemic risk and tail risk networks in the Chinese financial market

This paper studies tail risk connectedness and systemic risk in the Chinese financial market in the post-crisis period of 2009–2017. We adopt the conditional value at risk (CoVaR) and complex theory to construct the tail risk connectedness network and identify the systemically important financial institutions during the Chinese financial turbulence. We precisely characterize the dynamic evolution of the tail risk connectedness at the institutional, sector and market levels. We find that, during normal times, the banking sector contributes the most tail risk to the market and that the real estate sector contributes the least. However, during the crisis period, the real estate sector played its role and became the most significant tail risk emitter. In addition, we identify the significant important financial institutions in the Chinese financial market, highlighting the fact that the four state-owned commercial banks and two largest insurance companies dominate. Our results are helpful to both regulators for developing macroprudential supervision policies and investors interested in the Chinese financial market for making risk management strategies.     

Investors’ fear and herding in the stock market

ABSTRACT

In this article, we examine herding in three developed stock markets testing for the impact of investors’ ‘fear’ on herding estimations. To this end, we employ daily data of all listed stocks from USA, UK and Germany from January 2004 to July 2014. We examine herd behaviour applying the cross-sectional dispersion approach. Moreover, we investigate the asymmetric herding behaviour under different market states and sub-periods. The stock markets under examination provide comparable implied volatility indices which are used as a proxy for fear. As a result, apart from the standard herding estimations within and across markets, we also augment the benchmark model with the fear indicator. Our empirical results document the statistically significant impact of fear on herding estimations. Moreover, there is evidence of cross market herding as well as evidence of herding in the UK during specific sub-periods.     

Should ASEAN-5 monetary policy-makers act pre-emptively against stock market bubbles?

Stock market rises and asset price inflation in ASEAN economies have raised the question of whether monetary authorities in these economies should act pre-emptively against these rising trends to prevent impending financial crises. Using structural vector error correction models (SVECMs) which incorporate mixed data characteristics, we examine the effects and interactions between monetary policy and stock market shocks for Singapore, Malaysia, Thailand, Indonesia and the Philippines. The results suggest that monetary policy focused on the stock market detracts from price stability objectives, in particular because containing a stock market bubble may inadvertently depress output and inflation.     

Periodically collapsing bubbles in the US stock market?

The existence of periodically collapsing bubbles in stock markets, applying the Enders–Siklos momentum threshold autoregressive (MTAR) model, is empirically investigated in this paper. Using this nonlinear time series technique, we are now able to analyse bubble-driven run-ups in stock prices followed by a crash in a cointegration framework with asymmetric adjustment. Therefore, applying this technique makes possible a deeper insight into the behavior of stock prices than was previously possible using conventional cointegration tests. Although the results from the subsample 1871–1995 cannot be interpreted in favor of the existence of periodically collapsing bubbles in the US stock market, the findings from the 1871–2001 sample period indicate their presence.     

Is gold a weak or strong hedge and safe haven against stocks? Robust evidences from three major gold-consuming countries

In this article, we test nexus between gold and stocks for the three major gold consumers by using the range of methodologies. First, we assess if there is any time-varying correlation between the two assets. We fail to find any significant time-varying correlation between gold and stock returns in India and the United States. Second, we attempted to investigate the safe-haven property of gold by analysing the decile-wise conditional correlation between stock returns and gold returns at different deciles of stock returns. Third, in order to test the robustness of the results drawn from the decile-wise correlation, we employ wavelet coherence in continuous wavelet framework to test the time and frequency varying nexus between the pair of assets. The range of methodologies employed seems to indicate the weak hedge and safe haven-property of gold for stocks.     

Is firm-sponsored training a palliative? A common agency approach

We analyse the issue of firm-sponsored training under product market imperfections. In this setting, qualification becomes a public good for firms when their profits are increasing in the stock of skilled workers but remains a private good to students/workers. Students have to pay a tuition fee but at the same time firms sponsor education: universities sell training to both. We prove that the proportion of skilled workers is larger in more competitive economies/industries while the share of firms in the financing of training is a monotonically decreasing function of the degree of competition. An increase of the latter indeed increases the equilibrium skilled wage while reducing its sensitivity to an increase of the supply of skilled workers. The firms’ aggregate expenditures on training per worker are nevertheless a nonmonotonic function of the competitiveness of the economy.     

What does high-dimensional factor analysis tell us about risk factors in the Australian stock market?

Estimates of the cost of equity are often sensitive to the specification of the linear factor model used in their construction. In this article, we use techniques developed for high-dimensional factor models to consider the identity of systematic risk factors in the Australian equities market. Our results support the use of neither the Capital Asset Pricing Model (CAPM) nor the Fama and French model, although they provide an explanation for the empirical performance of these models. Many other model specifications are also rejected. We find that a single-factor model with an equal-weighted market index is the best model for estimating the cost of equity in the Australian context.     

Do speculative bubbles migrate in the Chinese stock market?

In this paper, a duration dependence test for speculative bubbles in the Chinese stock market is developed. It is found that bubbles in the aggregate stock price existed before the split share reform. After the reform, we observe the phenomenon of bubble migration across industries. In particular, bubbles migrate from the telecommunications industry to the health care industry. Moreover, we find that monetary policy used to have a significant impact on the bubble size before the reform but the impact diminished after the reform.

     

Do political connections decrease the accuracy of stock analysts' recommendations in the Chinese stock market?

This paper studies the association between the accuracy of analysts' recommendations and political connections in the Chinese stock market. As most brokerage firms in China are state-owned, it raises concerns about conflicts of interest among their employed analysts issuing recommendations for Chinese state-owned enterprises. Based on 8469 analysts' recommendations with different ratings for both state-owned and non-state-owned enterprises from 74 brokerage firms, we document that analysts' recommendations are less accurate for Chinese state-owned enterprises, which supports the hypothesis that conflicts of interest create recommendation biases. Political connections encourage analysts to be more optimistic on SOEs and even to generate misleading “Buy” and “Hold” recommendations. Our results demonstrate the existence of an optimism bias among politically connected analysts on state-owned enterprises in China.     

How does leverage in stock market influence the margin of stock index futures?

In this article, we propose a margin-setting model under the assumption of extreme stock price changes. Specifically, extreme stock price changes are caused by the positive feedback effect of leverage and market impact. By introducing these factors into the futures price changes through a cost-of-carry model for setting the margin of stock index futures, we find that leverage and market impact in stock market are positively correlated with the margin.     

The relationship between the Vietnam stock market and its major trading partners – TECM with bivariate asymmetric GARCH model

This study employs threshold error-correction model with bivariate Glosten–Jagannathan–Runkle-generalized autoregressive conditional heteroscedasticity model to examine the relationship between the Vietnam stock market and its major trading partners, the United States, Japan, Singapore and China. The results indicate that the Vietnam stock market and return risks are influenced by Japan and Singapore stock markets. We also find that the volatility of stock market in Vietnam and its trading countries have an asymmetrical effect. These findings could be valuable to individual investors and financial institutions holding long-run investment portfolios in the Vietnam stock market.