Financial literacy and stock market participation

We have devised two special modules for De Nederlandsche Bank (DNB) Household Survey to measure financial literacy and study its relationship to stock market participation. We find that the majority of respondents display basic financial knowledge and have some grasp of concepts such as interest compounding, inflation, and the time value of money. However, very few go beyond these basic concepts; many respondents do not know the difference between bonds and stocks, the relationship between bond prices and interest rates, and the basics of risk diversification. Most importantly, we find that financial literacy affects financial decision-making: Those with low literacy are much less likely to invest in stocks.     

货币供应量、利率与银行系统性金融风险——基于CoVaR方法的实证研究

在常态化疫情防控的背景下,商业银行系统性金融风险有上升迹象,这对央行实施货币政策工具和力度的把握提出了更高要求。本文利用条件在险值模型检验了我国货币供应量、利率与银行系统性金融风险的关系。研究结果表明,货币供应量和利率与银行系统性风险之间的关系不是线性的,而是U型的,即存在最优的货币供应量和利率能够使商业银行的系统性金融风险最低。当货币供应量和利率小于这个最优组合时,增加货币供应量和提高利率能够有效降低商业银行的系统性金融风险;而当货币供应量和利率大于这个最优组合时,增加货币供应量和提高利率反而会增加银行系统性金融风险,进而降低商业银行的金融稳定性。     

Conditional interest rate risk and the cross‐section of excess stock returns

Differences in excess stock returns can be rationalized by their sensitivities to conditional interest rate risk. Value stocks are particularly sensitive to upside movements in interest rate growth, while growth stocks react strongly to downside movements in interest rate growth. Consistent with the basic asset pricing theory, the upside interest rate risk commands a negative premium which is higher than the premium associated with the downside interest rate risk. Upside beta pertains its explanatory power after controlling for exposure to regular unconditional interest rate and various sources of financial and conditional macroeconomic risk.     

汇率敏感性会影响企业贷款利率吗？——基于中国上市公司的分析

本文基于中国A股上市公司2009-2018年的数据,测算了企业价值对人民币汇率变动的敏感性。在此基础上,实证检验了汇率敏感性(企业价值对汇率变动的敏感程度)对企业贷款利率的影响和作用机制。研究发现:汇率敏感性与企业贷款利率之间显著正相关,且这种关系在拥有境外收入、境外投资和使用外汇衍生品的公司中更加显著。进一步分析发现,对于存在密切银企关系、较大的股东债权人利益冲突以及抵押品价值较低的企业,汇率敏感性与贷款利率之间的正相关关系更加显著。本文研究结果表明,随着我国市场化改革的进一步深化,贷款利率将会更加显著地反映企业的汇率敏感性特征。这种效应对于存在海外业务、银行更了解借款公司信息,以及违约可能性更高的公司更加明显。本文研究对于增强我国企业应对汇率风险能力,完善金融机构风险定价能力,引导金融机构服务实体企业具有一定参考意义。     

MONEY SUPPLY ANNOUNCEMENTS AND INTEREST SENSITIVE STOCKS

Much of the money announcement literature provides evidence that there is a significant response of nominal interest rates to unexpected changes in the money stock, especially in the October 1979-October 1982 period. These money announcements provide a proxy for unexpected interest rate changes which can be used in a novel test for the interest sensitivity of stocks. Using the response of disaggregated stock price data to money announcements, we reach two major conclusions. First, that the interest rate response observed in the money announcement literature was predominantly a change in real rates. Second, an unusual group of stocks are excessively sensitive to these real rate changes and many groups of stocks that might logically have been expected to be sensitive are not.     

AN ECONOMETRIC ANALYSIS OF EQUITY COSTS AND RISK PREMIUMS IN THE ELECTRIC UTILITY INDUSTRY: 1971–1985

This paper develops a varying parameter econometric model that estimates the cost of equity of individual utility firms from 1971 to 1985. The equity costs estimated in this framework can be analyzed in terms of their statistical precision. The paper also examines, theoretically and empirically, the relationship between the econometric estimates of the equity risk premiums and the risk-free interest rates. The data do not support the hypothesis that risk premiums are independent of interest rates. Also, the relationship appears to vary over time. These results invalidate the risk premium approach in which equity costs are estimated by adding a constant, historical average risk premium to the prevailing interest rates.     

The 2011 European short sale ban: A cure or a curse?

This paper examines whether the 2011 European short sale ban on financial stocks proved to be successful or had a negative impact on financial markets. We explicitly take an options market perspective and focus on market participants’ changes in beliefs and expectations. During the ban, short positions in banned stocks decreased, whereas they increased for non-banned stocks. Our results indicate that the ban increased implied jump risk levels, thereby negatively impacting the banned financial stocks. However, we also observe that after the announcement of the ban, financial contagion risk actually dropped for banned stocks. Instead of a substitution effect between regular short selling and synthetic shorting through single stock puts, we observe a migration out of single stock puts into the EuroStoxx 50 index options market. We conclude that this type of migration diversified selling pressure initially concentrated in financial stocks across a larger share of the stock market, thereby reducing systemic risks and enhancing overall financial stability.     

Risk and Return: A Revisit Using Expected Returns

This paper uses direct estimates of expected returns to examine the link between standard measures of financial risk and investor return requirements. The results show that systematic risk commands a significant positive risk premium, much larger than found using historical returns as proxies for expectations. Furthermore, there are nonlinearities in the relationship between risk and return. Finally, we show that expected returns and risk premiums in the equity markets change over time and that these changes are related to changes in interest rates on U.S. government obligations.     

Forecasting multiple-term structures from interbank rates

The classic relationship between deposit rates and interest rate derivatives has been fractured since August 2007. Uncertainty in the interbank money market has increased the risk premia differentials on unsecured deposit rates of different tenors, such as Euribor, leading to a new pricing framework of interest rate derivatives based on multiple discount curves. This article analyzes the economic determinants of this new multi-curve framework. We employ basis swap (BS) spreads – floating-to-floating interest rate swaps – as instruments for extracting the interest rate curve differentials. Our results show that the multi-curve framework mirrors the standard single-curve setting in terms of level, slope and curvature factors. The level factor captures 90% of the total variation in the curves, and this factor significantly covariates with the spread between financial and risk-free bond yields, a proxy of systemic risk. This variable anticipates future movements of the curve level for all tenors. Moreover, unidirectional causality running from market-wide liquidity to curve residuals is also detected. Finally, we show how the information content in liquidity and systemic risk could improve the forecastability of interest rate curves under financial distress.     

AN ASSESSMENT OF THE RISK AND RETURN OF FRENCH COMMON STOCKS

In this paper the relationship is examined between the average return and the risk of a sample of 144 French common stocks which traded continuously over the decade 1969–1979. Although it was found that a negative relationship existed between average return and systematic risk, sufficient evidence could not be gathered to reject the hypothesis that the pricing of French common stocks conforms to the Capital Asset Pricing Model. The nature and implications of the observed negative risk-return trade-off are discussed.     

Do hedge funds' exposures to risk factors predict their future returns?

This paper investigates hedge funds' exposures to various financial and macroeconomic risk factors through alternative measures of factor betas and examines their performance in predicting the cross-sectional variation in hedge fund returns. Both parametric and non-parametric tests indicate a significantly positive (negative) link between default premium beta (inflation beta) and future hedge fund returns. The results are robust across different subsample periods and states of the economy, and after controlling for market, size, book-to-market, and momentum factors as well as the trend-following factors in stocks, short-term interest rates, currencies, bonds, and commodities. The paper also provides macro-level and micro-level explanations of our findings.     

News spillovers from the Greek debt crisis: Impact on the Eurozone financial sector

We examine the impact of changes in Greek sovereign yield spreads on abnormal returns of financial sector stocks for a sample of Eurozone countries, during the Greek debt crisis. We find that increases in yield spreads are associated with negative abnormal returns on financial stocks in the Portugal, Spain and Netherlands. These abnormal returns are driven in part by ratings downgrades and other unfavorable news announcements about Greece. We isolate the effects of known transmission channels–impairment of financial firms’ asset base due to cross-holdings of Greek bonds, from increases in domestic interest rates and higher funding costs. Our analysis indicates that news events lead to spillovers in excess of what can be explained by these channels of transmission.     

Daily short interest,idiosyncratic risk,and stock returns

This paper examines the relation between short selling and returns and the impact of arbitrage costs on short sellers’ behavior. Using daily UK short selling data, we find that stocks with low short interest levels experience significant positive returns on both an equal- and value-weighted basis. Economic theory predicts that short sellers avoid establishing positions in stocks with high idiosyncratic risk. Our results indicate a negative relation between short interest and returns among high idiosyncratic risk stocks and that short selling activity is mostly concentrated in low idiosyncratic risk stocks where it is less costly to arbitrage fundamental risk.     

On the Economic Link Between Asset Prices and Real Activity

Abstract:  This paper presents a model linking two financial markets (stocks and bonds) with real business cycle, in the framework of the Consumption Capital Asset Pricing Model with Generalized Isoelastic Preferences. Besides interest rate term spread, the model includes a new variable to forecast economic activity: stock market term spread. This is the slope of expected stock market returns. The empirical evidence documented in this paper suggests systematic relationships between business cycle's state and the shapes of two yield curves (interest rates and expected stock returns). Results are robust to changes in measures of economic growth, stock prices, interest rates and expectations generating mechanisms.     

Estimation of global systematic risk for securities listed in multiple markets

In this era of rapid globalization of financial markets there has been a substantial increase in cross-listings of stocks in foreign and regional capital markets. As many as a third to a half of the stocks in some major exchanges are foreign listed. The multiple listings of stocks has major implications for the concept of systematic risk. This paper demonstrates that the estimator for systematic risk and the methodology itself changes when stocks are listed in multiple markets. The paper suggests general procedures, using maximum information from the multiple markets, to obtain the estimator of beta under a variety of assumptions about the error terms of the market models in the different capital markets. The assumptions pertain both to the volatilities of the abnormal returns in each market, and to the relationship between the markets.     

An Investigation of the Impact of Interest Rates and Interest Rate Volatility on Australian Financial Sector Stock Return Distributions

Abstract:   This paper extends the existing literature by analysing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multivariate GARCH‐M model is used to analyse the impact of deregulation on the financial institutions sector. It was found that there is a consistent inter‐temporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks – effectively increasing the required rate of return and explaining the continued rationalisation of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre‐deregulation period to negative in the post‐deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.     

利率市场化能降低企业营运风险吗?——基于融资约束和企业金融化的双重视角

如何提高金融服务实体经济的结构性调节功能并促进企业有序运营与健康发展是金融供给侧结构性改革的重要目标。利率市场化改革作为金融领域最重要的改革之一,其在微观层面如何影响实体经济运行引起了高度关注。本文首先从理论上诠释了利率市场化通过缓解融资约束、抑制金融化进而降低企业营运风险的逻辑关系。为识别利率市场化与企业营运风险之间的因果效应,本文以中国人民银行2004年10月取消金融机构贷款利率上限和2013年7月取消金融机构贷款利率下限为外生冲击,基于融资约束差异构造准自然实验为上述理论推断提供经验证据。特别地,利率市场化每增加1单位标准差,企业营运风险平均约下降样本标准差的2.39%。异质性分析表明,利率市场化对企业营运风险的抑制效应在融资约束程度较高、行业竞争程度较高、投资机会较多的企业中尤为明显。本文研究对于进一步优化资源配置效率、实现金融与实体经济高质量发展具有一定参考意义。     

Financial intermediation in the theory of the risk-free rate

This paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short-term volatility of real interest rates. The main findings of the paper are as follows. When financial intermediaries issue contingent (non-contingent) liabilities, an increase in the consumers’ relative risk aversion coefficient decreases (increases) the interest rate. Also, the interest rate rises when capitalists are less risk-averse and financial intermediaries are hit by a liquidity shock.     

Which financial stocks did short sellers target in the subprime crisis?

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subprime assets exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also be seen as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.     

Is there a tradeoff between bank competition and financial fragility?

We use a model of mean-shifting investment technologies to study the relationship between market structure, risk taking and social welfare in lending markets. Introduction of loan market competition is shown to reduce lending rates and to generate higher investments without increasing the equilibrium bankruptcy risk of borrowers. Hence, there need not be a tradeoff between lending market competition and financial fragility. Such a tradeoff may not emerge either when banks compete by conditioning interest rates on investment volumes irrespectively of whether credit rationing takes place or not.