1,722,804 research outputs found
The Equity Premium Puzzle: Pitfalls in Estimating the Coefficient of Relative Risk Aversion
Full text linkOn the Role of Liquidity in Emerging Market Stock Prices
Full text linkThis paper investigates the impact of liquidity on emerging markets' stock prices. Particular attention is given to the estimation of Jensen's alpha and the quantity of risk. Our empirical analysis gives rise to two main issues. The first is related to the presence of an extra premium, i.e. "alpha puzzle". The second is the time-varying component of the quantity of risk, i.e. "beta puzzle". We find that local liquidity factors do not explain the presence of positive and statistically significant alphas. This puzzle is solved by means of transaction costs. In addition, we show that global liquidity factors, such as VIX and Open Interest, statistically affect the market price of risk. Our empirical finding proves the time varying nature of the global risk factors. Finally, we argue that standard asset pricing models cannot solve the two puzzles simultaneously. © 2012 University of Venice
Innovation Dynamics and Fiscal Policy: Implications for Growth, Asset Prices, and Welfare
No full textIs there heterogeneity in financial integration dynamics? Evidence from country and industry emerging market equity indexes
No full textThis paper examines the dynamics of the financial integration process across equity markets in one global emerging region (Emerging) and three emerging sub-regions (Asia, Eastern Europe, Latin America) over the last two decades. The proportion of total variation in individual excess returns explained by the first principal component serves as a robust measure of integration. Financial integration is measured in the "national equity market" (market) and in ten different "industrial equity markets" (basic materials, consumer goods, consumer services, financials, healthcare, industrials, oil and gas, telecommunications, technology and utilities). We obtain two main results. First, we observe that the level of integration across emerging equity markets in emerging regions is rather low, both at the country and industry level. Second, the shape of the financial integration process is not homogeneous among different industries. Specifically, J-shaped, U-shaped and increasing trends are observed. Overall, our integration numbers and dynamics simultaneously improve portfolio diversification benefits and reduce risk-sharing opportunities. This is supported by a CAPMbased analysis. (C) 2014 Elsevier By. All rights reserved
The Behavior of International Stock Market Excess Returns in an Increasingly Integrated World
Full text linkThis chapter studies the behavior of international (i.e., emerging and advanced) stock market excess returns, both at the country and sector level, in a dynamic and globally integrated context. A preliminary analysis confirms that emerging stock markets have compensated international investors with generous excess returns and tend to be highly unstable. In addition, the correlation between international stock market excess returns is increasing over time. Preliminary statistics also suggest that emerging stock market excess returns have been largely influenced by the domestic shocks of the late 1990s and early 2000s (i.e., emerging crises). In contrast to existing empirical findings, this chapter shows that financial market liberalizations do not necessarily imply economic integration. Using the R 2 of a multi-(. artificial) model as a robust measure of financial integration and the trade-to-GDP ratio as a measure of real integration, it is shown that (i) there is a delay between financial market liberalizations and de facto integration; (ii) international stock markets are increasingly integrated; and (iii) average excess returns rise as de facto integration rises. The empirical findings of this chapter might have strong implications for the estimation of the cost of capital and the implementation of international portfolio diversification strategies
Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?
Full text linkExisting empirical studies show that financial integration affects the behavior of average excess returns, cross-country equity market returns (EMR) correlations and real exchange rate (RER) volatility. We employ a recently developed two-country model with recursive preferences, frictionless and complete markets and highly correlated long-run innovations to examine whether full financial integration (i.e. full risk-sharing) affects the US-Canada EMR correlation and the US RER volatility, consistently with existing empirical findings. First, full risk-sharing gives rise to a relatively high RER volatility. Second, it induces very strong positive cross-country EMR correlations. Both quantities are higher than those observed in the US-Canada asset pricing data, and increase as the risk-sharing incentive increases. In contrast, "international consumption quantities" are weakly sensitive to changes in the level of aversion to consumption and utility risk. (C) 2014 Elsevier Inc. All rights reserved
Non-Macro-Based Google Searches, Uncertainty, and Real Economic Activity
Full text linkWe propose a set of novel non-macro-based uncertainty indicators that rely on the frequency of Google searches (NM-GSIs) for the following health-, environmental-, security-, and political-related topics: “Symptom” “Pollution” “Terrorism” and “Election”. By means of VAR investigations, we document that an intensification of people interest in non-macro-based topics harms the US real economic activity. In particular, NM-GSI shocks generate (i) a significant drop in consumer credit and (ii) a mild decrease (increase) in production (unemployment) levels. Noteworthy, rising non-macro-based uncertainty is found to have stronger influence on the outstanding level of consumer credit than rising macro-based uncertainty. Our findings suggest that increasing interest in specific non-macro-based topics might be associated with raising people's anxiety. A battery of robustness checks confirms our main findings
The Agency Problem, Financial Performance and Corruption: Country, Industry and Firm Level Perspectives
Full text linkThis paper studies the relationship between the agency problem, financial performance and corruption from country, industry and firm level perspectives. First, we observe that companies operating in countries with a high level of corruption tend to display relatively low returns. Second, in an industry-by-industry context, we find that the negative relationship between corruption and average stock returns is stronger in specific industries, which
we define as ‘corruption sensitive’. Third, at the firm level, we show that agency problems are exacerbated in corruption-sensitive industries. Our study builds on the existing literature in three main areas. First, it proposes a novel macro-based approach aimed at identifying corruption-sensitive industries. Second, it provides evidence supporting that corruption exacerbates agency conflicts. Third, it provides evidence on the generalizability of standard corporate governance predictions to companies operating in corruption-sensitive industries
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