Equity Markets Research Articles

The interplay among corporate bonds, geopolitical risks, equity market, and economic uncertainties

This study examines the dynamic interconnectedness and dependence between the USA’s corporate bond market (CMD) and economic and equity market uncertainties, as well as geopolitical risk. Using quantile Vector Autoregressive (QVAR) and Wavelet Local Multiple Correlation (WLMC) techniques, we place particular emphasis on the periods corresponding to the Russian–Ukrainian war and the COVID-19 pandemic. We find significantly higher interconnectedness, particularly at the upper quantile and large scale, during these two events, lending support to the use of asymmetric models. Additionally, our findings reveal that the impact is more robust when uncertainty increases compared to periods of decreased uncertainty. These results carry vital implications for policymakers and macro-prudential authorities, emphasizing the necessity to consider a changing macroeconomic environment and to reduce dependence on Russian energy sources to navigate a complex and evolving financial landscape.

Analyzing Nexus between Crude Oil, Gold, Dollar and Equity Markets with Structural Break: ARDL Evidence from India

This paper explores the price relations between the Crude oil, Gold, US dollar, and equities during several economic episodes. The long- and short-term causal relationships between asset markets are examined in this study. The research uses a ‘Vector Error Correction Model (VECM)’ and an ‘Autoregressive Distributed Lag (ARDL)’ bounds test to examine monthly data from April 1999 to March 2022. The results demonstrate the weak connections between asset markets throughout the different sample periods. Furthermore, the integration of most markets is uneven and changes over time. The currency and equity markets are adjusting to the long-run equilibrium only at a slow pace. We suggest that systematic risk factors must be taken into account while jointly modeling market linkages. This study improves on previous research in the subject by demonstrating the time-varying effects of asset price links on portfolio optimizations in different economic episodes.

Star analyst activities and stock price synchronicity: Korean equity market reforms

This study examines whether analysts' informativeness and activities change following regulatory reforms strengthening market surveillance in Korea. Only star analysts provide firm-specific information, particularly for firms with characteristics favored by fund managers. However, such information provision is only significant before the equity market reforms. After the reforms, star analysts tend to cover more financially stable firms with larger sizes, higher earnings, higher stock liquidity, and lower leverage. Difference-in-differences analyses confirm that the synchronicity of chaebol firms with brokerage firms is lower than those without brokerages, indicating that the reforms' effect is mitigated for those with chaebol-affiliated analysts.

Do agricultural swaps co-move with equity markets? Evidence from the COVID-19 crisis

Using proprietary data reported by swap dealers to the Commodity Futures Trading Commission, we first present new evidence on the size and composition of 13 over-the-counter agricultural swaps markets. We then utilize our novel dataset to show the existence of linkages with the equity markets. We use the spike in the Chicago Board Options Exchange Volatility Index in early 2020 to show that swaps trader positions were significantly impacted by the financial market volatility created by the COVID-19 pandemic. Following similar methods as Cheng et al. (2015), we find index swaps traders reduce their net long positions in response to tightening financial conditions, while commercial swaps traders absorb some of this risk by decreasing their net short positions. This internal swap market netting occurs in three of the four largest agricultural markets: corn, soft red winter wheat, and sugar. Concurrently, we observe a limited swap dealer hedging response in the futures market, especially when compared to other financial traders, consistent with swap market netting. Our results confirm that equity market shocks can affect financial traders in both commodity swaps and futures markets.

High inflation during Russia–Ukraine war and financial market interaction: Evidence from C-Vine Copula and SETAR models

This paper examines the interaction between three financial markets: energy and non-energy commodities, bonds and equities, in a particular context of high inflation worldwide, that of Russia–Ukraine war. Our data cover the period January 2016-October 2022. Using a SETAR-GARCH C-Vine Copula model, we provide evidence of two inflation breakouts within COVID pandemic and shortly before Russia–Ukraine war, for all assets considered, and particularly for US 10-Year bond, as an inflation-indexed asset. Over the Russia–Ukraine war period, both linear and nonlinear models explain the studied assets’ behavior faced with high inflation. C-Vine Copula analysis shows that oil prices (WTI), as an inflation-producing assets, impact the volatility of financial markets (VIX) in times of war. This analysis indicates also that the NASDAQ index, as an inflation-exposed assets, is sensitive to commodities and energy prices that drive inflation. Furthermore, we find a high positive Kendall’s tau for all combinations between US 10-Year and all other assets. These results provide strong evidence of the association between US 10-Year futures, as a vehicle of inflation, and all studied assets. Lastly, our findings confirm the evidence that Russia–Ukraine war generated two significant shocks, Gas (NG) prices and financial markets’ volatility (VIX). This study is of crucial interest to policy and decision makers to the extent that it provides a framework for understanding, in a context of high inflation, the mechanisms linked to the vehicles for transmitting this inflation, its pricing process, and its impact on the equity market.

Sector-specific calendar anomalies in the US equity market

While previous studies have predominantly examined market-wide calendar anomalies, they have overlooked the seasonal patterns in each sector. This study bridges this gap by identifying sector-specific calendar anomalies within the US equity market. Using the longest available data (January 1999–December 2023) on sectoral exchange-traded funds (ETFs) without overlapping constituents, we statistically estimate significant positive and negative month-of-the-year effects across nine sectors as well as the S&P500. We present a comprehensive analysis of which months exhibit statistically significant and persistent calendar anomalies within individual sectors using two sample periods. Where necessary, we capture volatility clustering in a number of ETFs to improve the efficiency of our estimators. We also check the stability of the estimated models to reinforce the generalizability of our findings. Inter alia, the findings suggest that eight out of nine sectoral ETFs consistently yield positive returns in April and/or November and/or December. In both sample periods, none of the ten ETFs (including SPY) exhibited a significant positive or negative calendar anomaly in the muted months of March, May, June, August, September, and October. This study offers investment strategists useful insights for portfolio rebalancing, allowing them to capitalize on the most likely seasonal patterns affecting equity returns in specific sectors.

Strategic Business Turnaround: Role Play of the CFO

Several companies across the globe fail to create enough value to the expectation of the equity market and shareholders. Managing people is the key for developing a high performing team. Drop out people who are not committed, who do not go that extra mile to get that job done, who lack solid functional skills and do not develop specialized skills to perform the task, who are not transparent and so on create hurdles in the development of an organisation. It makes sense to identify and recruit highly skilled people through a robust interview process especially focusing on integrity, trust worthiness with demonstrated leadership quality. Develop ideas for resolving problems and issues, be creative, and look for eureka moments. Develop a robust strategic action plan for each function. Strategy execution is the success mantra to turnaround a business. The CFO should think beyond his/her normal role of duty and take extra responsibility in facilitating CEO and CXO team in developing and executing business strategy that helps in revenue growth and profitability.

Expected return, volume, and mispricing: Evidence from China

We investigate the relation between trading volume and future stock returns across stocks with different levels of mispricing in the Chinese equity market. We first show a negative relation between trading volume and future stock returns. When replicating the main results reported in Han, Huang, Huang and Zhou (2022), we find no evidence of the volume amplification effect in Chinese equities. There is no strong evidence that mispricing plays a role in explaining the volume-return relation. Overall, the results from China suggest that the mechanism in the volume-return relation is somewhat different when compared to those documented in Han et al. (2022).

A STUDY ON THE FACTORS INFLUENCING INVESTORS DECISIONS IN INVESTING IN SHARES WITH SPECIAL REFERENCE TO GENDER IN BIKANER

With a sample of one hundred investors in Bikaner, Rajasthan, the current study aims to identify the key determinants of their share investment decisions. Behavior finance is a revolution in the finance business that has emerged and developed. When making decisions about their investments, investors hardly ever act rationally. Essentially, investors take action based only on the facts at their disposal. Prior to making an investment in the equities market, a great deal of thought must be given. One must take ratio analysis into account. When making an investment in the capital market, one must consider a comprehensive economic study as well as the technical and financial evaluation of the company. The objective of research project is to ascertain how male and female investors perceive different factors that should be taken into account when making equity market investments. The aim of this research is to summarize how different types of investors—male and female—feel about different investing options. From the cities of Bikaner, the researchers have collected 52 female and 47 male contributors. To verify the hypothesis, the study employs mean scores and an independent t-test. The article ends by recommending that, before purchasing shares, investors attempt to conduct fundamental, technical, and financial research. Investing in various assets requires investors, regardless of gender, to consider all available options. While allocating their money, investors ought to consider all options. Investors should select riskier or less risky assets based on their age, as certain investments carry a higher risk than others.

Risk Premium and Volatility Analysis on Indonesia Stock Exchange

Market risk premium and market volatility are important in investment decisions. Volatility is an important variable in derivative securities which is a measure of changes in stock returns. The research focuses on stock return volatility, research that points to a risk premium in emerging markets. The purpose of this study is to explain the relationship between market equity premium and volatility using GARCH (1.1) on the Indonesia Stock Exchange. This research uses daily closing price data of the Indonesia Stock Exchange Composite Index (JCI). The result of this study, that there is a relationship between risk premium and volatility in the Indonesian stock market. The conclusion of this study is to try to test whether there is a relationship from the volatility of return to risk premium in the Indonesian stock market. Using the daily trend of the Indonesian stock market (IDX) from January 2010 to September 2023.

Validity of Capital Structure Theories in the Shipping Industry: An Application on U.S. Equity Markets

This paper analyses the financial factors that affect the capital structure decisions of 29 shipping companies in the U.S. equity markets. The study focuses on the impact of International Maritime Organization (IMO) regulations and new initiatives. The results show that leverage has a negative impact on profitability and size, in contrast to tangibility. It is also confirmed that the decisions of shipping companies regarding capital structure align with the pecking order theory of capital structure.

A Study on Assessing the Role of Financial Literacy in Stock Market Engagement

This article offers the results of an extensive study that examines the many elements that impact individuals' engagement in the stock market. The research investigates the factors contributing to the consistently low rates of involvement in the global equities market, with a specific focus on emerging nations such as India. These factors include consumer financial literacy, risk aversion, financial wellness, regulatory perception, social impact, and investing difficulties. The research uses qualitative interviews and literature review to generate conceptual models that introduce new dimensions of regulatory perception and investment difficulties. These models are subsequently confirmed by quantitative research, drawing upon existing theories. The research provides significant contributions to policymakers, regulators, and investors by deepening comprehension of financial decision-making processes and cultivating a more knowledgeable investing environment. Key words: financial literacy, Risk avoidance, perception social influence Investment, hassles Emerging economies, Equity products Investment behaviour.

Internal Determinant Of Firm’s Security Returns On Commercial Banks Listed On Nairobi Securities Exchange

The market for securities improves the exchange of shares of public firms. Companies utilize the essential market to float shares to the public through an initial public offer in return for financed capital. A firm’s performance concerning equities is a solid marker of how it is fairing financially and its contribution to the macroeconomy. The equity market records are a sign of the monetary solidness of the economy. Thus, the current study sought to establish the influence of market determinants on stock market returns among listed commercial banks at Nairobi Securities Exchange in Kenya. In Kenya, such risks as liquidity risks, non-performing loans (NPLs), and poor performance, among others, have been of significant concern for quite some time. Many studies have been carried out in Kenya concerning the stock market performance of the banking sector. While there may be several factors, such as favorable government policies, explaining these performances, there is a shortage of information on the justification of strategic bank factors influencing the financial performance of these banks. Hence, the research sought to address hypothesis around the influence of the determinants such as capital adequacy, asset quality, management efficiency and influence of liquidity on stock market returns among Commercial Banks listed in Nairobi Securities Exchange. The research adopted credit risk theory, liquidity risk theory transaction cost theory, capital structure theory and signaling hypothesis theory. The study also applied panel data analysis and survey design on 10-year primary and secondary data from from 2013 to 2022. The target population constituted 11 commercial banks listed on Nairobi Securities Exchange. The study used quantitative data sorted and analyzed using descriptive and inferential statistical techniques. The descriptive analysis results were in the form of mean, standard deviations, frequencies, and percentage forms. Tables, diagrams, and charts were adopted. From the study findings, asset quality and management efficiency ratios had a negative and significant association with stock market returns respectively. On the other hand, capital adequacy and liquidity had a positive and significant relationship with stock market returns respectively. Based on the study results, the study recommends that banks should balance asset quality and lending stringency due to its negative correlation with stock returns. Strengthening capital adequacy and maintaining optimal liquidity positively impact stock market returns. In addition, a focus on service quality and employee morale is recommended for indirect benefits on stock performance.

Left-tail risk and UK stock return predictability: Underreaction, overreaction, and arbitrage difficulties

Recent studies challenge the standard model risk-return trade-off by showing inverse predictive power of firm-specific left-tail risk for future returns (i.e., left-tail momentum). In this work, we investigate the pricing of left-tail risk in UK stocks. Both the portfolio construction approach and Fama-MacBeth regressions reveal the underperformance of stocks with high left-tail risk. We examine alternative channels behind this pricing anomaly, namely, investor underreaction behaviour, continuous overreaction behaviour, and limits to arbitrage. Our findings suggest that the observed underperformance associated with high left-tail risk is largely a manifestation of investor underreaction to bad performance. However, the results also show that the predictable underperformance of high left-tail risk stocks is manifest in past winners. The empirical investigation reveals that, in addition to underreaction, limits to arbitrage interacts with investor high attention levels to explain part of the anomaly. The empirical findings provided here suggest several important implications for practitioners in the equity market.

Tail risk transmission from the United States to emerging stock Markets: Empirical evidence from multivariate quantile analysis

This paper explores the transmission of risk from the United States equity market to the equity markets of the BRICS countries using a multivariate quantile process. The focus is on the contagion effect at the extreme quantiles, both upside and downside. In addition, a pseudo-impulse-response function (PIRF) analysis is conducted to investigate the responses of the five emerging stock markets to a shock in the US market. We conduct an empirical study against the backdrop of the COVID-19 event and the Russia-Ukraine conflict, finding that risk spillovers between the US stock market and the five emerging stock markets are significantly enhanced during the COVID-19 period. Moreover, a shock in the US market produces a stronger and more persistent negative effect at the downside quantiles compared to upside quantiles. However, we find little evidence of cross-market risk spillovers among the investigated variables during the Russia-Ukraine conflict period. We also discuss the implications of these findings for investors and policymakers in terms of portfolio holdings and policy coordination.

Dynamic connectedness, portfolio performance, and hedging effectiveness of the hydrogen economy, renewable energy, equity, and commodity markets: Insights from the COVID-19 pandemic and the Russia-Ukraine war

This study employs a Time-Varying Parameter Vector Auto Regressive (TVP-VAR) connectedness approach to investigate the dynamic interconnections, portfolio performance, and hedging effectiveness across hydrogen economy, renewable energy markets, equities, and energy commodities amidst the backdrop of the COVID-19 pandemic and the Russia-Ukraine conflict. Our findings reveal a consistent level of average connectedness during both black swan events, with dynamic connectedness reaching its peak during the COVID-19 crisis. While some assets (hydrogen economy index, renewable, solar and clean technology index) persistently function as net transmitters, the others (geothermal index, crude oil, natural gas, biofuel, and gold) consistently act as net receivers. We also find that the role of equity indices (wind energy, fuel cell, FTSE_100, and S&P 500) as net transmitters or receivers changes over time. The network plot results show that the hydrogen economy typically functions as shock transmitters for equity market indices and commodities. Portfolio analysis underscores the superior risk-adjusted performance of the minimum variance (connectedness) portfolio during the COVID-19 crisis in comparison to the Russia-Ukraine conflict. Furthermore, our examination of effective hedge and portfolio strategies demonstrates that managed collateralized portfolio weights of hydrogen economy and renewable energy assets (equities) in the minimum variance portfolio increase (decrease) from 7% to 12% (53%–41%) during the COVID-19 crisis, and subsequently decline (rise) further to 6% (53%) amidst the Russia-Ukraine conflict. These findings suggest a preference for hydrogen economy and renewable energy assets as hedging instruments in health-related financial crises over crises precipitated by military conflicts.

Fama and French Three Factor Model

This study seeks to investigate the application of FF3FM in the Nigerian stock market. The study examined the behaviour of stock returns in relation to market beta, firm size (market equity), and book-to-market equity (BE/ME) factors. Sixty- eight (68) sample size was selected from all stocks quoted on the Nigerian Stock Exchange (NSE) from 2013 to 2022. Time series regression analysis was adopted. Monthly excess portfolio returns were regressed on firm size, excess market returns and book-to-market-equity ratio. The findings showed a strong correlation between book-to-market equity variables, firm size, and excess stock market returns and predicted portfolio returns. This suggests that the variation in stock returns in the Nigerian stock market can be explained by the FF3FM.

Risk Premium for Emerging Market Equities Versus Developed Market Equities

The paper provides the most recent view on the difference in ERP (Equity Risk Premiums) across various economic regions, analyzing data sets from the early 2000s to May 2023. The study demonstrates a significant shift in the relationship between ERPs in emerging and developed markets over the past two decades, which runs contrary to the existing research on the matter. The author estimated the average ERPs per country and economic region, analyzed ERPs on the industry level, and conducted the regression analysis using macroeconomic factors and analysis of upside and downside betas. The research established that, following the 2008 economic crisis, developed markets displayed greater resilience to negative economic shocks. Moreover, investing in emerging markets entails higher risks, characterized by elevated negative beta and higher volatility, but also increased upside beta. The regression analysis revealed negative associations between ERP and higher GDP growth and local interest rates, while a positive correlation emerged with a higher unemployment rate. Additionally, the paper incorporates the Democracy Index, indicating that less democratic countries tend to exhibit higher ERPs.

Factors Influencing Private Equity Investments in Asian Countries

An overview of investment activities of the Asian private equity market is presented in this paper. The study began with a close examination of the movements in the Asian private equity market over the last few years and a comparison of Asian and other developed nations' private equity investing practices. The observation gave rise to a hypothesis that Asian and Western economies may not be directly comparable in terms of their influencing factors. As a result, investigating the variables impacting private equity investments in Asian economies has become the primary research question. The private investment activity of five Asian economies—China, Japan, South Korea, Singapore, and India—between 2010 and 2023 was examined in this study. The total private equity investment value across all five Asian economies' sectors was used to gauge the level of investment activity. The study was based on about three major dimensions: the investment environment, economic conditions and research & development. Eight explanatory variables, including GDP, inflation, interest rates, stock market capitalization, research and development expenditure as a percentage of GDP, and the Intellectual Property Rights Index (IPRI), were included in the dataset. The correlation study between each of the eight variables has been performed before more in-depth analysis. The study was conducted using the regression analysis approach. The analysis identified that IPO, GDP and Research & Development (R&D) have a strong and significant impact on private equity investments, being significant drivers in attracting investments. The inflation has shown least influence on private equity investments. The IPRI index, stock market capitalization and liquidation showed no influence on the private equity investments. Lastly the results are subjected to limited data available about the factors. Keywords: Asian economies, Private equity, Investments

INFECTIOUS DISEASE AND ASYMMETRIC INDUSTRIAL VOLATILITY

We examine the time-varying effect of stock market volatility due to infectious diseases on industrial sectorsin the US from 2012 to 2021. We extend the current literature by exploring the diverse impact of infectiousdiseases on various industrial sectors and decomposing industrial volatility into good and bad volatility toquantify how good and bad components vary in response to the transmission of shocks due to infectiousdiseases. The results show that the transmission of volatile shocks from the stock market more stronglyenhances the good component of industrial volatility as compared with bad volatility during COVID-19. Weconclude that the relationship between infectious disease equity market volatility and industrial volatilitydepends on the good and bad volatile components and their respective conditions at different quantiles.