Global and Extreme Dependence Between Investor Sentiment and Stock Returns in European Markets

The authors investigate the global and extreme dependence structure between investor sentiment and stock returns in 7 European stock markets (Belgium, France, Germany, Greece, the Netherlands, Portugal, and the UK), over the period 1985–2015. Global dependence refers to the correlation of changes in sentiment and stock returns over the whole range of these 2 variables, and extreme dependence refers to the local correlation of high (i.e. asymptotic) changes in sentiment and high stock returns. Using copula models and a bootstrap procedure, 6 statistical tests are performed for this purpose. Among the results of the tests, the authors highlight those that provide evidence of contemporaneous lower extreme dependence and contemporaneous upper extreme independence between sentiment and returns. As policy implications, these results suggest that financial stability can be promoted if regulators consider the impact of their decisions on investor sentiment. Also, the results seem to support the arguments in favor of short selling ban during turmoil periods. Finally, overall, the results are relevant for both investors and regulators and reinforce the importance of considering investor sentiment to better understand the behavior of financial markets.     

Open‐shop unions and product market competition

Abstract Evidence on the effect of product market competition on unionized wages is mixed. In this paper we show theoretically that the result may reflect genuine heterogeneity in the response of union wages to product market conditions. For low levels of unionization, union bargaining power may actually be enhanced by market competition, as firms have more to lose when there is a strike. Using recent data from the UK, we explore interactions between the level of industry competition and unionization, and find supporting evidence for this hypothesis.     

Inequality and criminality revisited: further evidence from Brazil

The objective of this study is to shed light on the determinants of criminality rates in Brazil. A panel data model was estimated using Brazilian states’ data. Our main result suggests that income inequality plays an important role in the determination of the crime rate. Furthermore, there are evidence suggesting that both unemployment and urbanization rates are positively related to crime. Based on a GMM approach we find the existence of an “inertial effect” on criminality. Besides that, the GMM results show that public security spending is effective in reducing criminality rates. Contrary to the common wisdom, we could not find evidence that poverty increases violent crimes. Finally, we have evidence that income inequality Granger causes crime, but not the reverse.     

EBITDA margin in brazilian companies Variance decomposition and hierarchical effects

This study explores the controversy between the business and academic perspectives regarding earnings before interest, taxes, depreciation, and amortization (EBITDA). Some authors argue that EBITDA is not useful as an indicator, except for comparing companies within the same sector (Assaf Neto, 2003, McClure, 2006, Stumpp, 2000). On the other hand, the business world strongly uses this type of indicator as a tool to support its decisions (Schmalensee, 1985, Moraes, 2005). This difference in opinions has aroused interest in understanding the reasons for its use and has raised questions regarding the usefulness of EBITDA for comparing companies from both the same and different sectors. By applying Hierarchical Linear Modeling (HLM), the main goal of this research is to observe EBITDA behavior across companies selling goods in Brazil, comparing them within the same sector and across different sectors over time. This research allows for the analysis of the reasons why EBITDA patterns occasionally occur. The results show significant variation in EBITDA among companies across the same sector and across companies from different sectors. On the other hand, our results have shown, nevertheless, that the variability among companies from the same sector was the highest one, raising questions on the actual usefulness of this indicator to compare companies from the same sector.     

Periodograms on fiscal illusion: discussing the cycle lengths of public finances in European countries

In this article, we study the duration of public finance cycles in 12 European countries since 1960. We applied periodogram techniques on the levels of fiscal illusion found for these established democracies and tested the statistical significance of the Fourier frequency peaks. Our empirical efforts revealed that most of the cycles in these countries could be characterized as long-term cycles (approximately 30 years), embodying subcycles of approximately 15 years. These findings show that in addition to the commonly studied electoral cycles or real business cycles, our democracies demonstrate extended public finance cycles that extend over various legislative tenures ruled by different political parties.     

Information and \sigma -algebras

In this work, we clarify the relationship between the information that an agent receives from a signal, from an experiment or from his own ability to determine the true state of nature that occurs and the information that an agent receives from a $\sigma $ -algebra. We show that, for countably generated $\sigma $ -algebras, the larger it is, the larger the information is. The same is true for general $\sigma $ -algebras after the removal of a negligible set of states.     

Capital Structure of Portuguese Service Industries: A Panel Data Analysis

Using panel data for the period 1999–2003, this study shows that internal and external financing are not perfect substitutes, not corroborating the theorem of Modigliani and Miller. Portuguese service industries prefer internal to external financing, corroborating Pecking Order theory. The bigger the size of the company, the greater the level of debt, corroborating Trade-Off and Signalling theories. The negative relationship between the amount of fixed capital and debt corroborates Agency theory. The results allow us to conclude that debt contributes to improving management efficiency, agency problems between shareholders and creditors having little relevance.     

Are there nonlinear relationships between the profitability of Portuguese service SME and its specific determinants?

Using quantile regressions, this paper examines the possibility of significant nonlinear relationships between the profitability of Portuguese service small- and medium-sized enterprises (SMEs) and its specific determinants. The results lead to the conclusion that there is a significant nonlinearity between specific determinants and profitability in Portuguese service SMEs. In the lower quantiles of the distribution of profitability of Portuguese SMEs, it is found that profitability on the one hand is catalysed by size, long-term debt and managerial control, and on the other hand, it is restricted by risk and research and development intensity. In the upper quantiles of the profitability distribution of Portuguese service SMEs, liquidity and research and development intensity serve as catalysers of profitability, while long-term debt restricts the level of profitability.     

A Complete Nonparametric Event Study Approach

Event studies have been used to examine the direction, magnitude, and speed of security price reactions to various phenomenon. Concerns over the lack of normality in stock return distributions motivated the introduction of nonparametric test statistics in the event study literature. A parametric procedure (OLS), however, has been extensively employed in the estimation of parameters for the market model. This paper, in contrast, applies Theil's nonparametric regression in the estimation of abnormal returns; an approach which is distribution free and provides a complete nonparametric approach for the detection of abnormal performance. Simulation results indicate Theil's estimation procedure offers a slight improvement in power in the detection of abnormal performance over the traditionally employed methodology. The results suggest employing Theil's nonparametric estimation procedure combined with the rank statistic. This complete nonparametric combination offers similar power with fewer underlying assumptions.     

The Evolution of Industrial Earnings Inequality in Mexico and Brazil

Industrial data are used to derive estimates of the pattern of change in wage inequality in Mexico and Brazil. Using the group decomposition of Theil's T -statistic, the paper presents monthly changes in the dispersion of industrial wages for Brazil (1976 through 1995) and for Mexico (1968 through 1998). Both countries show increases in wage dispersion over time, and a strong negative correlation is found with the rate of real economic growth. Other things equal, the later Brazilian heterodox stabilization plans seem to have reduced inequality in the short run.