Equity Market Returns Research Articles

An Empirical Study on Asset Pricing Models Based on The Chinese A-Share Market

Based on the analysis of the A-share markets in Shanghai and Shenzhen Stock Exchange from 2000 to 2023, this paper systematically evaluates the applicability and explanatory power of the Capital Asset Pricing Model (CAPM), the Fama-French Three-Factor Model (FF3) and the Fama-French Five-Factor Model (FF5) in the Chinese market. The study finds that although CAPM has some explanatory power in the early stage, the three-factor and five-factor models can better explain the cross-sectional changes in stock returns as the market develops. In the descriptive statistics, each factor's volatility and correlation reveal the Chinese market's unique characteristics, such as the relative strength of small-cap and growth stocks. In the regression analysis, the results of the Fama-MacBeth regression showed that the significance and explanatory power of the market factor, size factor and value factor were different in different models. Further robustness analysis reveals the COVID-19's impact on the model's performance through the sub-period analysis. This paper provides a new perspective on understanding the asset pricing of China's A-share market and a theoretical basis for investors' investment decisions. It also points out the limitations of existing models in explaining emerging market equity returns. It suggests that future research can deeply explore the performance of more factors in different market environments.

Global Equity Markets: An Empirical Study of Return Prediction and Diversification Benefits

My research delves into the equity market trends of China, Japan, and the UK in the post-2000 era. I analyze a dataset of macroeconomic variables from 2000 to 2022 to assess their ability to predict equity market returns. My study reveals that all three nations have seen an upward trajectory in their equity markets, with China's market experiencing the most substantial growth. In addition, I explore how macroeconomic variables affect stock prices and identify the variables that have the most significant impact on equity market returns. Finally, I conclude that a diversified investment strategy in multiple countries stock markets produces higher Sharpe ratios than any single-country investment.

A Microstructure Study of Indian Corporate Bond Market: A Review

This Review study explores various dimensions of the Indian capital market, encompassing both equity and bond markets. It delves into the influence of equity market factors, macroeconomic variables, and corporate bond market growth on the overall financial landscape. The relationship between equity market returns, equity market volatility (VIX), and the rupee-dollar exchange rate on bond yields. They highlight that increasing volatility in the equity market leads to a higher demand for fixed income securities, subsequently reducing bond returns. The underscores the significance of a robust corporate bond market for financial system stability, credit availability, and mitigating corporate sector crises. It reviews the growth of the Indian corporate bond market and its implications for monetary, fiscal, and economic variables. The results indicate that a comprehensive corporate bond market does not exhibit a significant positive or negative association with these variables. However, GDP emerges as a crucial factor for India's bond market development, particularly in terms of foreign participants. Lastly, the influence of macroeconomic variables on the Indian corporate bond market over a 23-year period. They reveal a significant correlation between corporate bond market issuance and foreign exchange reserves. Through multiple regression analysis, they found that all selected variables, except GDP and trade openness, significantly explain the volumes of corporate bonds. Collectively, their findings contribute to a comprehensive understanding of the interplay between equity market dynamics, corporate bond market growth, and macroeconomic factors in the Indian capital market. The study provides valuable insights for policymakers and investors, aiding in informed decision-making regarding investment strategies, market stability, and economic growth.

Equity markets volatility clustering: A multiscale analysis of intraday and overnight returns

Volatility clustering, widely observed in daily equity market returns, has not been analyzed for high-resolution intraday and overnight returns, nor has its time scale dependency been systematically explored. This paper examines the volatility clustering of intraday and overnight returns in 15 global equity markets, both developed and emerging. Findings reveal universal volatility clustering in intraday and overnight returns across various time scales, from daily to monthly and beyond. It appears that the volatility clustering of overnight returns is even more pronounced than intraday returns. However, the cross clustering between two volatility series is generally weak within each market. These observations suggest both short- and long-term investment risks, providing meaningful insights for equity market investors’ risk management.

A Bibliometric Evaluation of Country Risk, Volatility Spillover and Equity market return of BIMSTEC Nation.

Economic globalization and economic regionalization are influenced by country risk, volatility spillovers, and equity market return. The aim of this study is to use bibliometric analytics approaches to evaluate reliable articles on the relationship between country risk, volatility spillovers, and the return of the Bimstec equities market. The present study reviews the peer-reviewed articles available in the Web of Science (WoS), database relating to 1129 publications for the period 1973-2022. The R software is used to graph the bibliographic documents. The following properties were observed during the bibliometric investigation: (1) The major studies investigate the impact of country risk, volatility spillovers, and stock market return on regional trading bloc members. (2) The main authors deal with different types of volatility spillover, different types of country risk, and different patterns of equity market return and their effects on the global economy and regional trade blocks; (3) the most recent trend topics are related to different methods for calculating the weightage of country risk, volatility spillovers, and equity market return of regional trading blocks such as Bimstec. Numerous studies on economic globalization and regional trading blocs have found considerable impact rates. It promotes commerce investment and technological exchange, and it contributes to the peace, progress, and prosperity of the shared region. Overall, this work lays the groundwork for future scientific investigations that will aid in the growth of this research field.

An empirical study on examining the influence of mutual fund investment growth on equity market performance

In the realm of financial markets, understanding the interplay between mutual fund investment growth and equity market performance is paramount for investors, fund managers, and policymakers alike. This empirical study embarks on a comprehensive exploration of this intricate relationship, employing advanced econometric techniques to dissect historical data and uncover underlying patterns and dynamics. Building upon hypotheses positing significant associations between mutual fund investment growth and equity market performance, the study delves into regression analysis and statistical modelling to discern causality and quantify the impact of mutual fund investments on equity market behavior. In addition, the study investigates the influence of mutual fund performance metrics, such as annualized return, on equity market returns, shedding light on the part of mutual funds in shaping market outcomes. Despite inherent limitations, including data constraints and potential endogeneity issues, the findings contribute valuable empirical evidence and actionable insights for stakeholders navigating financial markets. Through its rigorous empirical approach and robust analytical framework, this study advances financial research and informs decision-making processes, empowering stakeholders to navigate the complex landscape of investments and market participation effectively.The findings contribute to a deeper understanding of how mutual fund investments impact equity market performance, offering valuable implications for the various players in navigating financial markets.

The Virtue of Complexity in Return Prediction

ABSTRACTMuch of the extant literature predicts market returns with “simple” models that use only a few parameters. Contrary to conventional wisdom, we theoretically prove that simple models severely understate return predictability compared to “complex” models in which the number of parameters exceeds the number of observations. We empirically document the virtue of complexity in U.S. equity market return prediction. Our findings establish the rationale for modeling expected returns through machine learning.

Do positive and negative variations in stock indexes lead to depreciation in local currencies? A beyond symmetrical evidence from ASEAN-5 region

Preliminary studies overlooked the importance of the financial crisis in the asymmetric transmission of financial market shocks to FX market returns. Moreover, existing studies also concentrated on the response of aggregate equity market returns to the forex market returns rather than the vice versa asymmetric effect for the ASEAN-5 region. We utilised the panel based ARDL and NARDL framework using pooled mean group method for conducting this study. There are 415 observations spanning the pre-crisis period of January 2001 to December 2007. Furthermore, 595 and 1135 observations are taken into consideration when post-recessionary, and overall sampling periods of January 2010 to December 2019 and January 2001 to December 2019 are considered, correspondingly. Overall, the findings indicated that in the short run, only negative equity market returns caused depreciation in the local currencies of ASEAN-5 member countries during the pre-crisis period, whereas only positive shocks during the post-crisis regime appreciated the local currencies of ASEAN-5 member countries. Furthermore, only longer-term negative financial market shocks contribute to post-crisis local currency deflation in the ASEAN-5 member nations. This demonstrates that investors and exporters must consider the importance of the particulate crisis period when formulating forward currency arrangements.

Asymmetric Impact of Structural Shocks of Crude Oil Price on Equity Market in Two Large Emerging Market Economies: Evidence from China and India

The objective of this particular study is to understand the asymmetric impact of structural shocks (in terms of supply and demand shocks on crude oil price) on equity market returns in the context of the largest two emerging market economies, that is, China and India. The timeframe of this study is January 1996 to January 2022. The study has been conducted, based on monthly data. The present study employs a structural vector auto regression as well as NARDL model to understand the asymmetry of these structural shocks. Our findings are in contradiction to the popular perception of the Press that crude oil price and equity market returns are inversely related. The present study found that different structural shocks have very different impacts on the stock returns. Our study also adds to the existing literature, as it showed that both the Chinese and Indian markets react in similar fashion to structural shocks in the crude oil market. Structural shocks have no impact on the Indian market, whereas there is a significant asymmetric impact of only precautionary demand shock in, both, the long and short runs, in the context of the Chinese market.

Modelling delayed correlation between interest rates and equity market returns

We model the interaction between interest rates and equity markets using wavelet analysis. This approach allows us to study the lead–lag relationships in an intuitive way considering variation across frequencies and over time. Analysis is done progressively on varying scales where the lower scales encompass high-frequency components of the data over a shorter time scale; whereas, higher scales encompass low-frequency components over a longer time scale. We use daily data obtained from Kenya for the period October 2003–2019. The Nairobi Securities Exchange 20 share index returns are used as a proxy for equity returns; whereas, the interbank rates represent interest rates. Three key findings emerge: (1) There is at least 2-month delay in the correlation between interest rates and equity market returns, (2) The correlation is lower in the lower time scales of 4–8 days and higher in higher time scales of 512–1024 days, and (3) Equity returns lead interest rates in Kenya. Unlike common practice of assuming static relationships in asset markets, our findings reiterate the need for modelling dynamic relationships considering delays, time variation and scaling over time horizons.

A Bibliometric Evaluation of Country Risk, Volatility Spillover and Equity market return of BIMSTEC Nation.

A Bibliometric Evaluation of Country Risk, Volatility Spillover and Equity market return of BIMSTEC Nation.

INVESTOR SENTIMENTS AND STOCK RETURNS IN EMERGING MARKET: EVIDENCE FROM PAKISTAN STOCK EXCHANGE (PSX)

Research is being done to determine whether investor mood has a substantial influence on Pakistan's diverse industry returns. Investor sentiment research mostly focuses on the stock market, with little emphasis given to how investor sentiment affects returns in particular industries. Using Principle Component Analysis, our research work used a repetitive variable to investigate the association between investor sentiment and the equity market returns of a certain sector. Study discovers a correlation between market investor sentiment and selected industrial returns. According to the intended research, investor sentiment can be divided into two categories: optimistic and pessimistic. The findings reveal that optimistic investor sentiment positively affects equity returns in the cement, textile, and auto industries, while pessimistic investor sentiment has no impact on stock returns in the food, fertilizer, power, pharmaceutical, and oil industries. For the time period spanning 2017–2021, we used the most recent statistical method, the Markov Switching Model, to examine the robustness of long-term correlations among the research variables. Additionally, the consequence of the optimistic and pessimistic states on the profits of various Pakistani businesses is also looked at. The findings showed a substantial relationship between industry performance and investor sentiment. Keywords: Investor sentiments, behavioral finance, stock returns, leverage effect, Markov Switching Model.

Macroeconomic Factors and Equity Prices: An Empirical Investigation by Using ARDL Approach

The relationship between macroeconomic variables and the equity prices has attracted the curiosity of academicians and practitioners since the publication of seminal paper of Chen, et al. (1986). Many empirical studies those tested the relationship reveal that asset pricing theories do not properly identify macroeconomic factors that influence equity prices [Roll and Ross (1980); Fama (1981); Chen, et al. (1986); Hamao (1986); Faff (1988); Chen (1991); Maysami and Koh (2000) and Paul and Mallik (2001)]. In most of these studies, variable selection and empirical analyses is based on economic rationale, financial theory and investors’ intuition. These studies generally apply Eagle and Granger (1987) procedure or Johanson and Jusilieus (1990, 1991) approach in Vector Auto Regressor (VAR) Framework. In Pakistan, Fazal (2006) and Nishat (2001) explored the relationship between macroeconomic factors and equity prices by using Johanson and Jusilieus (1990, 1991) procedure. The present study tests the relationship between macroeconomic variables such as inflation, industrial production, oil prices, short term interest rate, exchange rates, foreign portfolio investment, money supply and equity prices by using Auto Regressive Distributive Lag (ARDL) bounds testing procedure proposed by Pesaran, Shin, and Smith (1996, 2001). The ARDL approach in an errorcorrection setting has been widely applied to examine the impact of macroeconomic factors on economic growth but it is strongly underutilised in the capital market filament of literature. This methodology has a number of advantages over the other models. First, determining the order of integration of macroeconomic factors and equity market returns is not an important issue here because the Pesaran ARDL approach yields consistent estimates of the long-run coefficients that are asymptotically normal irrespective of whether the underlying regressors are I(0) or I(1) and of the extent of cointegration. Secondly, the ARDL approach allows exploring correct dynamic structure while many econometric procedures do not allow to clearly distinguish between long run and short run relationships.

The impact of unpredictable resource prices and equity volatility in advanced and emerging economies: An econometric and machine learning approach

Global stock markets are incredibly unpredictable. Resource prices have a significant market impact on varying securities. With the use of cutting-edge technology like artificial intelligence, analysts and researchers are employing various machine learning techniques and econometrics methodologies to anticipate stock price trends in order to better comprehend stock market volatility. Volatility is the degree of variation in a time sequence of market rates. Stock market equity returns depend on the business output where the investor has trust in high and low equity. This research explores the interaction between industrialized and developing economies' market volatility relationships between 2000 and 2020 as well as the aforementioned impacts taking place on developing financial prudence worldwide. The aim of the study is to integrate an appropriate GARCH framework to estimate the uncertainty dependent on market conditions in the European Union, the Pacific, South America, Latin America, East Asia, West Asia and South Asia stock return indices. The Generalized Auto-Regressive Conditional Heteroscedasticity method is used for analyzing the effect of updates from the USA that influences the returns of S&P 500 globally as well as European Union, Pacific, South American, Latin American, East Asian, West Asian and South Asian indices returns. For capital markets of the world, there is a significant gap in equity return uncertainty. Such results have major effects on investors looking to diversify their portfolios. For international and domestic institutional shareholders, this paper is significant. The impact of international institutional investors' investments and effects of the growth of the equity market return may be omitted as the analysis is restricted exclusively to the European Union, the Pacific, South America, Latin America, East Asia, West Asia, and South Asia.

Independent and major equity market and commodity return sources around the time of hydraulic fracking and horizontal drilling revolution: a differences-in-decompositions approach

ABSTRACT Fracking and unconventional drilling have revolutionized international oil and natural gas production. Fracking increases the likelihood of well completion and decreases oil and gas equity and commodity market risk. Oil and gas Majors are producers with the greatest time and liquidity in the industry and are the largest integrated producers. Independents are smaller upstream, midstream, and downstream producers that have different capital and infrastructure and are less liquid than Majors. The fracking and unconventional recovery transition decreased returns to Independent equity market returns more than the Majors equity market decrease. Major oil returns increased with the transition by more than Independents. Independent equity returns across groups were higher after the transition than Majors both across and within groups. Fracking technology increased the likelihood of successful well completion, and with lower financial market risk, equity returns decreased in the post-fracking period.

Carry Trade and Capital Market Returns in South Africa

This paper assesses the extent to which carry trade operations affect the performance of equity and bond markets in a target country, South Africa, by considering the US and the euro area as the funding countries. A two- and three-factor capital asset pricing model (CAPM) is employed to assess whether the pricing of equity and bond markets in South Africa depends on the US dollar/rand and euro/rand carry trade returns. Moreover, the paper uses the quantile regression technique to assess whether this pricing varies with the distribution of the equity and bond returns. The findings support that the US- and euro-funded carry trade are essential factors for the pricing of equity and bond markets in South Africa. Moreover, the results of the two-factor model show a negative relationship between the equity excess return and the US-carry trade returns at lower quantiles of the equity market returns. The positive relationship is observed in the upper quantiles of the equity market. The negative relationship means that carry trade activities reduce equity market returns during a bear market as investors close out their position when conditions in the equity market become unfavourable. The results of the three-factor model, controlling for the global volatility or uncertainty, show that carry trade investors exit the equity market to invest in the bond market when global uncertainty rises. This finding shows that carry trade investors choose less risky assets during rising global uncertainty.

Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India

The interrelationship between equity, bond, commodity and forex movements can provide investors with abundant trading opportunities regardless of whether one market is trending upward or downward. Hence, to understand the interlinkage between markets, this study examines the long-run and causal linkage between forex, G-sec bonds, oil prices, gold rates, foreign institutional investment (FII) flows, and equity market and sectoral index returns. Daily time-series data from August 2012 to August 2021 were considered for empirical analysis. Johansen’s cointegration test revealed that foreign exchanges like USD, Euro, GBP and Yen, oil and gold rates, G-bond returns and FII flows were significantly cointegrated with the stock market and sectoral indices in the long run. Further, Granger causality found a uni-directional relationship between forex rates (i.e., USD, Euro, Yen) and the market, as well as sectoral indices, except Nifty 50 and Nifty IT indices. Oil price movements were found to effectively predict future price changes of Nifty consumer durables, auto, IT indices. Gold prices are useful to predict Nifty-Auto, Bank, Financial Services, Oil & Gas and PSU. The study also found a bi-directional relationship from FII inflows to the stock market and sectoral indices. The findings suggest that forex rates, oil prices and FII flows significantly affect India’s stock market and sectoral performance. The study contributes to the existing literature by comprehensively examining the interlinkage between commodities such as oil and gold, foreign exchanges like USD, Euro, GBP and Yen, G-bond, FII flows and the stock market, and fourteen sectoral indices in the Indian context.

Stock market volatility predictability in a data-rich world: A new insight

This study develops a shrinkage method, LASSO with a Markov regime-switching model (MRS-LASSO), to predict US stock market volatility. A set of 17 well-known macroeconomic and financial factors are used. The out-of-sample results reveal that the MRS-LASSO model yields statistically and economically significant volatility predictions. We further investigate the predictability of MRS-LASSO with respect to different market conditions, business cycles, and variable selection. Three factors (equity market returns, a short-term reversal factor, and a consumer sentiment index) are the most frequent predictors. To investigate the practical implications, we construct the expected variance risk premium (VRP) by using volatility forecasts generated from the LASSO and MRS-LASSO models to forecast future stock returns and find that those models are also powerful.

The sum of all SCARES COVID-19 sentiment and asset return

In this study, I constitute a search based COVID-19 sentiment index using Google search volume. I develop an alternative Scared COVID-19 Attitude Revealed by Eager Search (SCARES) index using the household search volume i.e. “coronavirus pandemic”, “coronavirus epidemic”, and “coronavirus outbreak” of United States (US) during the COVID-19 pandemic. Using daily data from May 1, 2020 to July 30, 2021, I find that SCARES index negatively explains stock market return and subsequent return reversals, implying that households’ increased pandemic sentiment negatively affects equity market return. Furthermore, decile regressions on characteristics-sorted portfolio returns show that SCARES index predicts the return reversals of firms that are small, less profitable, and with low investment. I also report that COVID-19 search shocks of households do not significantly predict any of the Fama-French five-factors except SMB (small-minus-big). Moreover, I use two state Markov switching model and find that structural breaks associated with pandemic phases make SCARES positively related to indices i.e. twitter based uncertainty, volatility index, economic policy uncertainty, and business condition in high volatility regime. Finally, sub-period analysis reports that, in stock market context, people start to react slowly and become relatively less responsive to the COVID-19 search keywords. The findings of this paper can assist key stakeholders in the market to carefully analyze the asset return pattern during pandemic regimes.

The Impact of Macro-economic Factors on Equity Market Return of Pakistan Stock Exchange (PSE)

The Impact of Macro-economic Factors on Equity Market Return of Pakistan Stock Exchange (PSE)