Transitions in the stock markets of the US,UK and Germany

In an analysis of the US, the UK and German stock market, we find a change in the behaviour based on the stocks’ beta values. In the years 1995–2006, trades of stocks with high beta and large volume were concentrated in the IT and technology sector, whereas in 2006–2012 those trades are dominated by stocks from the financial sector. We show that an agent-based model can reproduce such a transition. We further show that the initial impulse for the transition might stem from the increase of high-frequency trading at that time.     

Time varying stock return predictability: Evidence from US sectors

This paper argues that dividend yield stock return predictability is time-varying. We conjecture that such time-variation is linked to the business cycle. Employing monthly data for US sector portfolios we estimate 5-year rolling fixed window predictive regressions. The resulting series of time-varying predictive coefficients is regressed on industrial production growth and a recession dummy. Our results support the view of a negative relationship between predictability and output growth. That is the strength of the predictive relationship between returns and the dividend yield is stronger during contractionary periods, while during expansions the magnitude of the relationship declines.     

On the stability of long-run relationships between emerging and US stock markets

While most studies have found no cointegration between emerging and US stock markets, some recent studies do find a long-run relationship exists between these markets. In view of these mixed findings, this study examines the stability of long-run relationships between a number of emerging stock markets and the US stock market using recursive cointegration analysis. The results show that no long-run relationship exists between emerging markets and the US market over most of the sample period throughout 1997. However, we do find clear evidence of cointegration in response to the recent global emerging market crisis in 1997–1998. We conclude that significant crisis events can change the degree of cointegration between international stock markets and, therefore, need to be taken into account in studies of long-run relationships between international stock markets.     

Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets

This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It contributes to the existing literature by considering both the US and the entire European stock markets and by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 is based on the common four-factor model according to Carhart (1997), which comprises market return, size, value, and momentum factors. We show for the US and the European stock markets that SRI is associated with large-sized firms. The insignificant abnormal stock returns for SRI in both regions are the main result of our paper. Therefore, our study supports the view that SRI stocks are correctly priced by market participants, although we cannot rule out that a corresponding mispricing has existed before the beginning of our observation period in 1998.     

Explaining co-movements between stock markets: The case of US and Germany

We explain co-movements between stock markets by explicitly considering the distinction between interdependence and contagion. We propose and implement a full-information approach on data for US and Germany to provide answers to the following questions:

(i) Is there long-term interdependence between US and German stock markets?

(ii) Is there short-term interdependence and contagion between US and German stock markets, i.e. do short-term fluctuations of the US share prices spill over to German share prices and is such co-movement unstable over high-volatility episodes?

Our answers are, respectively, no to the first question and yes to the second one.     

Integration of emerging stock markets with global stock markets

Financial integration for emerging economies should be seen as a long-term objective. In this paper, we examine stock market integration among five selected emerging stock markets (Brazil, China, Mexico, Russia and Turkey) and developed markets of the US, UK and Germany. The bounds testing approach to cointegration and error-correction modeling are used on monthly data from January 2001 to December 2014 to determine the short-run and long-run relationship between emerging stock market returns and the returns of the developed stock markets. The results show evidence of the existence of short-run integration among stock markets in emerging countries and the developed markets. However, the long-run coefficients for stock market returns in all emerging countries show a significant relationship only with Germany stock market return. The empirical findings in this study have important implications for academicians, international investors, and policymakers in emerging markets.     

Spillovers of stock return volatility to Asian equity markets from Japan and the US

This paper examines the magnitude of return and volatility spillovers from Japan and the US to seven Asian equity markets. I construct a volatility spillover model that deals with the US shock as an exogenous variable in a bivariate EGARCH for Japan and Asian markets. First, only the influence of the US is important for Asian market returns; there is no influence from Japan. Second, the volatility of the Asian market is influenced more by the Japanese market than by the US. Third, there exists an adverse influence of volatility from the Asian market to the Japanese market.     

Risk spillovers from China's and the US stock markets during high-volatility periods: Evidence from East Asianstock markets

This paper studies cross-country risk spillovers through C-vine copula quantile regression. We find Both China's and the US markets can result in large risk spillovers to East Asian markets. Furthermore, their significant conditional spillovers indicate they can emit risk through an intermediary market. However, their distinctive dependency structures with East Asian markets reflect their differences in spillovers to the markets in magnitude. The risk spillovers from US are stronger than China in magnitude. Moreover, the risk spillover from China's stock market during its high-volatility period is weaker than the whole period, which is contrary to the US market. It may imply Chinese financial influences gradually increase with Chinese financial liberalization and regional integration. Our results have implications for macroprudential regulators adopt the effective supervision and regulation to deal with the cross-border risk spillovers, and for international investors in risk hedging, derivative valuation and investment.     

Modifying a simple agent-based model to disentangle the microstructure of Chinese and US stock markets

We modify a simple agent-based model (ABM) proposed by Franke and Westerhoff [J. Econ. Dyn. Control, 2012, 36(8), 1193–1211] through considering the price limits and the motion of the fundamental value. The method of simulated moments is applied to calibrate both initial and modified ABMs with CSI 300 and S&P 500 respectively, and the goodness-of-fit of each ABMs is tested. The calibration results indicate that the modified model performs better than initial one. Then, we utilize the GSL-div, proposed by Lamperti [Econometrics Stat, 2018, 5, 83–106.], to verify the explanatory power of ABMs. In this procedure, 13 ARCH family models are introduced as benchmarks. The result shows that the explanatory power of modified ABM exceeds ARCH models in both markets, while initial ABM may be defeated by some of the ARCH family models in explaining the microstructure of CSI 300. Finally, a heuristic algorithm is designed to disentangle the insights of Chinese and US stock markets to the observed time horizon through calibrating the initial fundamental value, and Kupiec test is used to check the robustness of the calibration. The result indicates that the explanation of modified model is robust in both markets, while initial model lost its robustness when explaining S&P 500.     

Are the China-related stock markets segmented with both world and regional stock markets?

Implementing the Capital Asset Pricing Model framework, this study investigates the integration of three China-related stock markets, namely, the A-, B- and H-share markets, with both the Hong Kong stock market and the world market. An analysis of market segmentation versus integration using the Jorion and Schwartz model suggests that the A-share market was a segmented market during the period 1995–2004. However, evidence of a higher-level integration between the A- and B-share markets, and the A-share and Hong Kong stock markets is found in the sub-period tests. The hypothesis that the B- and H-share markets are becoming increasingly integrated with the world stock market is not supported.     

Intraday volatility in the stock index and stock index futures markets

We examine the intraday relationship between returns and returnsvolatility in the stock index and stock index futures markets.Our results indicate a strong intermarket dependence in thevolatility of the case and futures returns. Price innovationsthat originate in either the stock or futures markets can predictthe future volatility in the other market. We show that thisrelationship persists even during periods in which the dependencein the returns themselves appears to weaken. The findings arerobust to controlling for potential market frictions such asasynchronous trading in the stock index. Our results have implicationsfor understanding the pattern of information flows between thetwo markets.     

Growing pains: The evolution of new stock index futures in emerging markets

Analyzing the first seven years of trading in Turkish stock index futures (BIST 30) and contrasting that to the progress of Korean (KOSPI 200) and Taiwanese (TAIEX) markets, we find that BIST 30 initially experiences a persistent mispricing and speculative trading similar to KOSPI 200 but it also experiences the largest increase in hedge effectiveness, becoming hedger-dominated similar to TAIEX. Most significantly, we demonstrate that spot market short-sell quote volume is a good measure of short-sale constraints and a significant determinant of mispricing in BIST 30. A methodological contribution of this paper is a four-equation multivariate VAR framework to analyze the volatility impact of futures.     

A common factor analysis for the US and the German stock markets during overlapping trading hours

We employ a bivariate common factor model to establish a permanent-transitory decomposition of two major stock indices (the Deutsche Aktienindex (DAX) for Germany and the Dow Jones Industrial Average (DJIA) for the United States). Using high-frequency data, we (1) identify a common trend shared by both indices, (2) find that the DJIA contributes up to 95% to the total innovation of the common factor, (3) show that both markets adjust within minutes to a system-wide shock, and (4) verify by hypothesis testing that the DJIA is the driving force in the transatlantic system of stock indices.     

The impacts of climate policy uncertainty on stock markets: Comparison between China and the US

The interplay between climate policy uncertainty and stock market performance has emerged as a pressing research question in light of the challenges posed by climate change to financial markets. This paper measures China's daily and monthly climate policy uncertainty (CPU) from Jan 2000 to Mar 2022 based on Chinese news data for the first time. Then, the nonlinear and lag impacts of the US CPU and China's CPU on the return, volatility, correlation and tail dependence of China's and US stock markets are investigated and compared by adopting copula function and the distribution lag nonlinear model (DLNM). The data of stock markets includes the Shanghai Composite Index (SSCI) and NASDAQ from Jan 2000 to Mar 2022 from the Choice database, and the Shenzhen Composite Index (SCI) and S&P 500 are used for the robustness test. The empirical results indicate that (1) the growth trend of China’s CPU index is similar to that of the US. However, there are significant differences between the impacts of these two CPUs on stock markets. (2) For China, high CPU decreases current stock market return and increases volatility but decreases it in the future. It could also increase the upper tail dependence between China’s and the US stock markets’ volatilities in current period. (3) For the US, CPU decreases stock market return in the short term but increases it in the long term. High CPU increases volatility in short term, decreases volatility in 5 months and increases it again after 6 months. Both low and high CPU could increase the correlation between China's and US stock markets' volatilities.     

Predicting returns in the stock and bond markets

Several predetermined variables that reflect levels of bond and stock prices appear to predict returns on common stocks of firms of various sizes, long-term bonds of various default risks, and default-free bonds of various maturities. The returns on small-firm stocks and low-grade bonds are more highly correlated in January than in the rest of the year with previous levels of asset prices, especially prices of small-firm stocks. Seasonality is found in several conditional risk measures, but such seasonality is unlikely to explain, and in some cases is opposite to, the seasonal found in mean returns.     

Firm ratings, momentum strategies, and crises: evidence from the US and Taiwanese stock markets

This paper investigates whether there is a link between momentum profitability and firm ratings. We follow traditional and practical (non-) investment-grade classifications to divide into three rating groups, high, median, and non investment-grade group (HIG, MIG, and NIG) since firm ratings express risk in relative rank order to contain valuable information. This study considers the US and Taiwanese stock markets. We find that firm ratings momentum strategies can even earn positive profits, larger than na?ve momentum, supporting that firm ratings can be used to strengthen naive momentum effects. By comparisons, the US firm ratings momentum with NIG produces larger profits than HIG but opposite in direction and V-shaped pattern in Taiwan. With an examination of crises on firm ratings momentum, we find that firm ratings momentum indeed helps increase the payoff during (non-)crises although firm ratings momentum profits should be strong following non-crises states and weak following crises states. However, firm ratings momentum profits partially result from the predictability of business cycle, calendar months, and information asymmetries. Our results highlight the critical importance of using firm ratings screens in empirical momentum studies.     

Transmission of movements in stock markets

The paper analyses the relationships between three stock markets: New York, Tokyo and Frankfurt. The non-simultaneity of the trading times in these three markets determines the results of cross-correlations and regressions with daily returns. To cope with this and other problems, an empirical model is proposed and estimated. This model allows the separation of the ability to influence and the sensitivity of the different markets, and New York is found to be the most influential market, with Tokyo the most sensitive.     

Non-random topology of stock markets

We have analysed the cross correlations of daily fluctuations for [iopmath latex="$N=6358$"] N = 6358 [/iopmath] US stock prices during the year 1999. From those [iopmath latex="$N(N-1)/2$"] N(N-1)/2 [/iopmath] correlation coefficients, the minimum spanning tree (MST) has been built. We have investigated the topology exhibited by the MST. Even though the average coordination number of stocks is [iopmath latex="$langle n rangleapprox 2$"] n2 [/iopmath], the variance [iopmath latex="$sigma$"] [/iopmath] of the topological distribution [iopmath latex="$f(n)$"] f(n) [/iopmath] diverges! More precisely, we have found that [iopmath latex="$f(n) sim n^{-2.2}$"] f(n)~n ^-2.2 [/iopmath] holds over two decades. We have studied the topological correlations for neighbouring nodes: an extremely broad set of local configurations exists, confirming the divergence of [iopmath latex="$sigma$"] [/iopmath].     

The relationship between stock returns and volatility in international stock markets

This study examines the relationship between expected stock returns and volatility in the 12 largest international stock markets during January 1980 to December 2001. Consistent with most previous studies, we find a positive but insignificant relationship during the sample period for the majority of the markets based on parametric EGARCH-M models. However, using a flexible semiparametric specification of conditional variance, we find evidence of a significant negative relationship between expected returns and volatility in 6 out of the 12 markets. The results lend some support to the recent claim [Bekaert, G., Wu, G., 2000. Asymmetric volatility and risk in equity markets. Review of Financial Studies 13, 1–42; Whitelaw, R., 2000. Stock market risk and return: an empirical equilibrium approach. Review of Financial Studies 13, 521–547] that stock market returns are negatively correlated with stock market volatility.