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Author: Liang Ding
Publisher:
ISBN:
Category : Financial crises
Languages : en
Pages : 101
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Book Description
Financial markets demonstrate a large degree of comovement. Such comovement is important for a variety of investment and risk management decisions. This research is motivated by 2007-2008 financial turmoil. During the turmoil period, the markets co-move locally and globally, making it difficult for investors to hedge the risk. Although the cross market linkage is a topic of ongoing interest to researchers and practitioners, it seems that we are still in the preliminary stage to fully understand the cross market linkages, and even far away to prevent the crisis transmitting across markets. This dissertation attempts to answer two main questions, what are the major channels that link financial markets, and how those channels change in different periods. In this study, we examine two empirical tests on domestic markets and international markets linkage respectively. The first test focuses on the financial markets within U.S, and treats the stock, bond, CDS, stock option markets as a closely connected network. From 2004-2009, our tests find no evidence that static cross-market linkage becomes stronger in the crisis period than in the normal period. In terms of dynamic linkage, we find the information flow pattern become stronger in the crisis period. And we identify the role of volatility and liquidity in the financial network. The second test focuses on the international markets linkage using the derivatives market information. We use a family of volatility indexes from 1999-2009, including VIX, VSTOXX, VDAXNEW, VXJ, and VSMI, to filter the information diffusion through other channels. Therefore, the tests contribute a unique perspective to find out how the investors expect the interaction of the near-term volatility across U.S. and international markets. Our tests provide evidence that the linkages across corresponding markets are stable in the past decade. And we also find U.S. market plays a stronger role in a two way information flow structure with other markets through volatility linkage. The dissertation contributes a comprehensive research on the financial network linkage. The results obtained in this dissertation will improve our understanding of information diffusion process across financial markets and are expected to fill significant gaps in the current literature.
Author: Liang Ding
Publisher:
ISBN:
Category : Financial crises
Languages : en
Pages : 101
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Book Description
Financial markets demonstrate a large degree of comovement. Such comovement is important for a variety of investment and risk management decisions. This research is motivated by 2007-2008 financial turmoil. During the turmoil period, the markets co-move locally and globally, making it difficult for investors to hedge the risk. Although the cross market linkage is a topic of ongoing interest to researchers and practitioners, it seems that we are still in the preliminary stage to fully understand the cross market linkages, and even far away to prevent the crisis transmitting across markets. This dissertation attempts to answer two main questions, what are the major channels that link financial markets, and how those channels change in different periods. In this study, we examine two empirical tests on domestic markets and international markets linkage respectively. The first test focuses on the financial markets within U.S, and treats the stock, bond, CDS, stock option markets as a closely connected network. From 2004-2009, our tests find no evidence that static cross-market linkage becomes stronger in the crisis period than in the normal period. In terms of dynamic linkage, we find the information flow pattern become stronger in the crisis period. And we identify the role of volatility and liquidity in the financial network. The second test focuses on the international markets linkage using the derivatives market information. We use a family of volatility indexes from 1999-2009, including VIX, VSTOXX, VDAXNEW, VXJ, and VSMI, to filter the information diffusion through other channels. Therefore, the tests contribute a unique perspective to find out how the investors expect the interaction of the near-term volatility across U.S. and international markets. Our tests provide evidence that the linkages across corresponding markets are stable in the past decade. And we also find U.S. market plays a stronger role in a two way information flow structure with other markets through volatility linkage. The dissertation contributes a comprehensive research on the financial network linkage. The results obtained in this dissertation will improve our understanding of information diffusion process across financial markets and are expected to fill significant gaps in the current literature.
Author: Jacques Morisset
Publisher: World Bank Publications
ISBN:
Category : Capital movements
Languages : en
Pages : 32
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Book Description
Globalization has been a persistent phenomenon of the post-war period. The gross volume of cross-border capital flows has grown at an average of 25 percent a year, and trade in goods and services has also increased, albeit not as dramatically, but at least twice as fast as world GDP over the past 20 years. Yet, consumers and investors continue to spend and hold a disproportionate share of their assets in local markets--the so-called home-bias has been emphasized by many recent empirical studies. For many researchers, this home bias reflects information asymmetries and the fact that acquiring information across international borders is relatively costly. The main objective of the authors is to identify channels through which information gets disseminated across international markets. They consider three potential channels through which information can affect import and foreign equity purchase decisions in 14 OECD countries. The first channel consists of information spillovers from the commercial to the financial markets and vice-versa. Financial investors and importers share common information, which is also frequently conveyed to them by the same source--banks or financial intermediaries. The second and third channels emphasize seller and buyer reputations in international markets. The seller reputation channel stresses the importance given by, for example, importers in the United States who are considering buying products from Italy to the experience that Canadian and Japanese importers may have accumulated on Italian exporters. The buyer reputation channel examines to what extent a foreign investor or trader seeks information on the reliability of the foreign buyer by assessing his reputation in other countries. While the last two channels are equally important in explaining bilateral import flows, buyer reputation appears to be of greater importance for equity flows in the sample. The authors argue that these three channels may help provide some insights about the recent episodes of contagion across markets and countries that occurred over the past decade. These information channels can create virtuous or vicious circles that may, in turn, lead to unexpected changes in investors' and traders' behaviors across markets. This paper--a product of Trade, Development Research Group--is part of a larger effort in the group to understand international capital and trade flows.
Author: Ling Cen
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
We document large cross-sectional variation in the speed of information diffusion between U.S. suppliers and their international principal customers. Based on the rigorous and comprehensive framework of risks in emerging markets from Karolyi (2015), we find that market operating efficiency is the predominant country-level characteristic among six major dimensions in explaining this cross-sectional variation. Our results are robust under both panel data analysis and a quasi-natural experiment using exogenous short-selling regulation changes. We suggest that country-level characteristics play an important and distinct role in determining the diffusion of firm-specific information in international financial markets. Our results indicate that stock price efficiency of U.S. firms is partially determined by the institutional and regulatory environment abroad.
Author: Aaron Paul Burt
Publisher:
ISBN:
Category : Stock exchanges
Languages : en
Pages : 153
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Book Description
My dissertation is a compilation of three separate research studies that explore how information diffuses in financial markets. The first chapter examines how non-uniform information diffusion through distinct networks segments U.S. financial markets. Using changes in newspaper ownership networks, I document that a network link between different geographic areas leads to increased comovement of turnover and returns between stocks headquartered in those areas. Consistent with delayed content sharing within a network, the largest increase in comovement is observed using weekly data. I show that the network-driven comovement is not driven by fundamentals and is weaker for large firms with high institutional ownership and decreases over time. I also document that a network link causes price levels of linked stocks to become more similar. My findings show that segmented information networks lead to segmented financial markets with implications for market efficiency, home bias, and the effects of changes in the U.S. media landscape on financial markets. The second chapter shows that investors do not fully monitor the information about directors available in the past prices of firms within the network the directors oversee. A long-short portfolio using this information yields an annual alpha of 6.6%. This predictability is limited to when firms share a director and is not driven by industry or previously identified economic links between firms. The predictability is largest in the long end, when small firms predict big firms, and when information on shared directors is costlier to obtain. Trading by the shared directors is a key mechanism: filtering on their trades increases the annual alpha to 15%. The third chapter studies the econometric properties of a commonly used network-based measure of information diffusion between economically linked firms. Previous studies use this measure to document failures of market efficiency with price discovery requiring up to a year. The measure is constructed as the long-short alpha of portfolios formed sorting on the preceding returns of firms economically linked to portfolio firms. We show that correlated alphas between linked firms bias these measures. Existing studies have monthly biases as large as a factor of two. This bias creates predictability even after price discovery completes. Subtracting the predicted return from the sorting firms' returns removes this bias. Eliminating this bias reveals a more efficient market than previously documented: price discovery takes one month.
Author: Ali R. Tafti
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Do spikes in Twitter chatter about specific firms precede unusual stock market trading activity for those firms, within a resolution of ten to forty minutes? If so, Twitter activity may provide useful information about impending financial market activity in real-time. We study the real-time relationship between chatter on Twitter and the stock trading activity of 96 firms listed in the Nasdaq 100, during 193 days of trading in the period from May 21, 2012 to September 18, 2013. We adopted a quasi-experimental design, in which we identified observations featuring firm-specific spikes in Twitter activity, and randomly assigned each observation to a ten-minute increment matching on the firm and a number of repeating time indicators. We examine the extent that unusual levels of chatter on Twitter about a firm portend an oncoming surge of trading of its stock within the hour, over and above what would normally be expected for the stock for that time of day and day of week. We also compare the findings from our explanatory model to the predictive power of Tweets. Our results suggest that, through monitoring of chatter on Twitter about firms listed on the Nasdaq 100, identifying firm-specific spikes in Twitter activity affords a non-trivial degree of foresight into oncoming surges in trading volume.
Author: Joël Peress
Publisher:
ISBN:
Category : Journalism, Commercial
Languages : en
Pages : 56
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Book Description
The media are increasingly recognized as key players in financial markets. I investigate their causal impact on trading and price formation by examining national newspaper strikes in several countries. Trading volume falls 12% on strike days. The dispersion of stock returns and their intraday volatility are reduced by 7%, while aggregate returns are unaffected. Moreover, an analysis of return predictability indicates that newspapers propagate news from the previous day. These findings demonstrate that the media contribute to the efficiency of the stock market by improving the dissemination of information among investors and its incorporation into stock prices.
Author: Marco Di Maggio
Publisher:
ISBN:
Category : Institutional investments
Languages : en
Pages : 74
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Book Description
This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just before the filing of the 13D. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.
Author: Alejandro Izquierdo
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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Book Description
Globalization has been a persistent phenomenon of the post-war period. The gross volume of cross-border capital flows has grown at an average of 25 percent a year, and trade in goods and services has also increased, albeit not as dramatically, but at least twice as fast as world GDP over the past 20 years. Yet, consumers and investors continue to spend and hold a disproportionate share of their assets in local markets - the so-called home-bias has been emphasized by many recent empirical studies. For many researchers, this home bias reflects information asymmetries and the fact that acquiring information across international borders is relatively costly.The main objective of the authors is to identify channels through which information gets disseminated across international markets. They consider three potential channels through which information can affect import and foreign equity purchase decisions in 14 OECD countries. The first channel consists of information spillovers from the commercial to the financial markets and vice-versa. Financial investors and importers share common information, which is also frequently conveyed to them by the same source - banks or financial intermediaries. The second and third channels emphasize seller and buyer reputations in international markets. The seller reputation channel stresses the importance given by, for example, importers in the United States who are considering buying products from Italy to the experience that Canadian and Japanese importers may have accumulated on Italian exporters. The buyer reputation channel examines to what extent a foreign investor or trader seeks information on the reliability of the foreign buyer by assessing his reputation in other countries. While the last two channels are equally important in explaining bilateral import flows, buyer reputation appears to be of greater importance for equity flows in the sample.The authors argue that these three channels may help provide some insights about the recent episodes of contagion across markets and countries that occurred over the past decade. These information channels can create virtuous or vicious circles that may, in turn, lead to unexpected changes in investors' and traders' behaviors across markets.This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand international capital and trade flows.
Author: Ana Babus
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Aaron Paul Burt
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
