Spillovers between sovereign CDS and exchange rate markets: The role of market fear

As important variables in financial market, sovereign credit default swaps (CDS) and exchange rate have correlations and spillovers. And the volatility spillovers between the two markets become further complicated with the effect of market fear caused by extreme events such as global pandemic. This paper attempts to explore the complex interactions within the “sovereign CDS-exchange rate” system by adopting the forecast error variance decomposition method. The results show that there is a relatively close linkage between the two markets and the total spillover index of the system is dynamic. For most of the past, the exchange rate has a higher spillover effect on the sovereign CDS than vice versa. Moreover, after the market fear variables are introduced, the “sovereign CDS-exchange rate” system and market fear variables present bidirectional spillovers. The results of the study have particular significance for maintaining the financial stability and preventing risk contagion between markets.     

Microfoundations of network exploration and exploitation capabilities in international opportunity recognition

While international entrepreneurship (IE) recognizes opportunity recognition (OR) as a central activity and the prominent role of network capabilities in OR, it is not informative as to how different network capabilities influence OR in international markets. We utilize dual network capability through the lens of exploration-exploitation to better understand how these two different capabilities influence the identification of international opportunities. Given that microfoundations perspective and prior experience in IE are under-developed and under-theorized, we explore founder’s prior experience as an essential microfoundation for the dual network capability. By employing structural equation modeling on a sample of 647 early internationalizing firms from a developing country, the study demonstrates that founders’ prior experience is a significant microfoundation of dual network capability in international OR. However, both exploration and exploitation capabilities fail to bring new opportunities in a changing market environment. A post-hoc analysis reveals that at a higher level of market change, younger firms benefit more from network exploration, whereas older firms achieve greater success when leveraging benefits from network exploitation. The study concludes with implications and future research avenues.     

金融创新如何缓解信任品市场失灵?——中国食品安全责任强制保险的自然实验

信任品市场(如食品、医药等)存在的问题一直困扰着中国和世界很多国家。关于产品和服务质量的信息不对称(道德风险和逆向选择)会导致信任品市场失灵。缓解信任品市场失灵,一种常见的解决方案是政府监管;而经济学家认为更加基于市场的解决方案(例如强制责任保险等金融创新)可能更为有效。在理论上,强制责任保险有两种相反的效应:保险公司的监督减少了道德风险 vs. 保险加剧了企业的道德风险,但一直亟待实证检验。幸运的是,中国食品安全责任强制保险的改革实验走在了世界的前列。本文利用了中国在不同地区、不同时间推行的这个自然实验,通过双重差分的方法识别出责任保险对于信任品市场的因果效应。本文的研究发现,强制责任保险能显著降低食品安全事故发生概率。这表明政府强制推行的金融创新可以成为信任品市场失灵的一种有效的替代性解决方案。     

Market structure and rating strategies in credit rating markets – A dynamic model with matching of heterogeneous bond issuers and rating agencies

This paper investigates the impact of rating agencies in a market with asymmetric information. In particular, the role of credit rating agencies as an intermediary between investors and bond issuers is discussed. We model this setting in a dynamic framework in which both rating agencies and bond issuers are of heterogeneous quality. Rating agencies can apply costly research technology to reveal the fundamental nature of bond issuers and engage in rating smoothing. We show that rating smoothing can compensate for low research quality, even though it is accompanied by a quality deterioration in the rating market and market clustering. Moreover, low-quality bond issuers have a general tendency to match with low-quality rating agencies. If investors place a strong emphasis on the reputation of rating agencies, rating markets also tend to be strongly clustered.     

Fancy Bitcoin and conventional financial assets: Measuring market integration based on connectedness networks

We investigate the relationship between Bitcoin and conventional financial assets from a perspective on the connectedness of asset networks. We adopt the method of measuring connectedness proposed by Diebold and Yilmaz (2009, 2012, and 2014) in a VAR system to study the dynamic interdependence between returns in Bitcoin, stocks, oil, and gold. We find that the connectedness between bitcoin and conventional assets is weak. The separation of positive and negative returns in the Bitcoin market shows the existence of an asymmetric pattern of the spillover effects between Bitcoin and conventional assets. A rolling window analysis finds that although Bitcoin prices experience a rising link to other financial assets, the magnitude is proven to be moderate. However, connectedness via negative returns is much stronger than via positive ones and exhibits a clearly increasing trend in recent periods. Our results in application are generally robust to other popular cryptocurrencies, such as ETH and Ripple. The findings presented in this paper have important implications for financial market participants, policymakers, and researchers in light of projected increases in the adoption of Bitcoin, as well as the rapid development of cryptocurrency.     

央行货币政策报告文本信息、宏观经济与股票市场

本文利用金融情感词典和文本分析技术,分析中国人民银行货币政策执行报告的文本情绪、文本相似度和文本可读性等多维文本信息,刻画央行货币政策执行报告的文本特征,探究货币政策报告的文本信息与宏观经济和股票市场的关系。实证研究发现,货币政策报告的文本情绪的改善会引起显著为正的股票市场价格反应,报告文本相似度的增加会引起股票市场波动性的显著降低,报告可读性对公布后股票市场的波动性影响不显著。货币政策报告文本情绪还与诸多宏观经济指标显著相关。进一步研究发现,引起股票市场显著反应的是报告文本情绪中反映货币政策指引的部分,而反映宏观经济历史状态的部分对股票市场的影响不显著。本文从文本大数据分析角度证明了我国央行沟通的有效性,对国内央行沟通相关研究形成了有益补充。     

The price of going green: the role of greenness in green bond markets

In this paper, we empirically investigate how greenness information is priced in the green bond market. Our comparison of liquidity-adjusted yield premiums of green bonds versus synthetic conventional bonds indicates that, on average, there is no robust and significant yield premium or discount on green bonds. However, green bonds certified by an external reviewer enjoy a discount of about 6 bps. Furthermore, green bonds that obtain a Climate Bonds Initiative certificate show a discount of around 15 bps. The findings suggest that a universally accepted greenness measure can benefit the development of the green bond market.     

Assessing the reversal of investor sentiment

Assessing the reversal of sentiment in stock markets is needed because, according to the social mood cycle, the change of social mood over time is an antecedent of price movements. The purpose of this study is to empirically assess reversal of investor sentiment, to show the phases of social mood cycle from increasing mood to decreasing mood, and to explain the dynamic change in market inefficiency from increasing to decreasing. Growth modeling, developed particularly for dealing with the change over time, is used in this study for assessing the reversal of investor sentiment. The autocovariance structure of errors and the variances/covariances of the random coefficients are all taken into account in the model. The results have indicated that the change in investor sentiment over time is inverted U-shaped for the entire market. Moreover, arbitrage constraint and stock characteristics exert a joint moderating effect on sentiment reversal. Less arbitrage constraint can strengthen sentiment reversal only when the market for individual stocks is dominated by noise traders. Based on the results obtained, we discuss asset pricing, liquidity management, and market intervention.     

UK's stock market reaction to Brexit process: A tale of two halves

We examine the UK's stock market reaction to 27 events associated with the likelihood of Brexit. Though the overall market reactions to these events is negative, a dissection of these events into the pre and post Brexit referendum events unearth interesting facts. In particular, we find that the market reaction is negative and significant to the events leading up to and including the announcement of Brexit results. This negative reaction is not confined to the day of announcement of the outcome of Brexit referendum only rather it spans over the events that enhanced the likelihood of the Brexit in the pre-Brexit referendum period. However, our results show a positive market reaction to events that occurred after the Brexit referendum. These findings suggest that initially market reacted negatively to the Brexit; however, as the UK's future economic relations with EU started to take a shape, the market started to see the positive side of Brexit. Consistent with this notion, our cross-sectional analysis shows a positive market reaction for the firms that are engaged in foreign sales and that much of the negative market's reaction relates to the firms that openly stated the negative effect of Brexit on their operations. Finally, we do not find evidence of market reaction to UK firms depending on European labor force; however, we do find significantly positive stock market reaction to the firms involved more in international trade. An important caveat of our study is that our reported results are sensitive to the choice of market index.     

Testing commodity futures market efficiency under time-varying risk premiums and heteroscedastic prices

We propose a novel test to measure market efficiency while estimating the time-varying risk premiums of commodity futures, given that the prices are heteroscedastic. The risk premium is estimated using a state-space model with a Kalman filter modified for heteroscedasticity. Using 79 commodity futures traded on 16 exchanges during the period 2000–2014 and a Monte Carlo simulation, we demonstrate that the proposal produces robust results compared with conventional approaches. The global financial crisis has improved the efficiency and affected the trading volumes of commodity futures, but it has had no effect on the average or the volatility of risk premiums.