Increase In Market Volatility Research Articles

War and Financial Statements: Assessing the Impact of the Russia-Ukraine Conflict on International Accounting and Reporting Standards

Purpose: This study aims to assess the impact of the Russia-Ukraine conflict on international accounting and reporting standards. The focus is on understanding how geopolitical tensions influence regulatory divergence, enforcement challenges, financial reporting practices, and market dynamics. Research Design and Methodology: A qualitative methodology was employed, involving a systematic review of scholarly articles, books, reports, and other academic sources. Data were collected from comprehensive searches on databases like Google Scholar and JSTOR, with thematic analysis used to identify recurring themes and patterns. Triangulation, member checking, and reflexivity ensured the validity and reliability of the findings. Findings and Discussion: The findings reveal that the Russia-Ukraine conflict exacerbates regulatory divergence, complicates enforcement of international accounting standards, and increases complexities in financial reporting. Geopolitical tensions lead to fragmented regulatory responses, undermining efforts toward harmonization. Corporations adopt enhanced risk disclosures and conservative reporting approaches to navigate uncertainties and reassure stakeholders. Investor sentiment and market perceptions are significantly influenced, resulting in increased market volatility and shifts in investment strategies. Implications: This study highlights the need for adaptive regulatory responses and collaborative efforts to promote harmonization of accounting standards. Technological innovations, such as blockchain and artificial intelligence, offer promising avenues for enhancing regulatory compliance and transparency. The findings underscore the importance of interdisciplinary research and longitudinal studies in informing policy interventions, corporate strategies, and regulatory reforms, promoting financial stability, transparency, and resilience in conflict-affected environments.

Ways to achieve a balance in the global oil market under sanctions restrictions

Subject. The article considers the oil market functioning under sanctions restrictions. Objectives. The aims are to determine indicators characterizing the ability of the oil market to resist the sanctions, develop tools to study the impact of sanctions on the stability of the energy market, analyze economic consequences of the embargo on the purchase of oil from some producers, perform an economic analysis of possibilities of achieving equilibrium market conditions under an oil embargo. Methods. The main research tool is mathematical modeling of the market. The methodology rests on the study of changes in the typification of the market, caused by the introduction of sanctions restrictions into its regulatory system. This enables to build a game-theoretic model of the market, suitable for its research in the current state. Results. I determined the main indicators characterizing the global oil market functioning under sanctions, constructed a game-theoretic model, examined the market and determined its critical parameters during the introduction of the embargo on the purchase of oil from some producers. The paper defines ways to stabilize the market under the embargo. Conclusions. The model is suitable for studying the current state of the global oil market. Under the current conditions, attempts by consumer countries to circumvent their own sanctions are possible to stabilize the market, which lead to the introduction of secondary sanctions and an increase in market volatility. It is also feasible to enter into contracts between individual large oil producers and consumers at preferential prices. The study of non-market methods of market regulation, specific to the current market situation, is possible by including consumer countries in the model’s set of players.

Can ETFs affect U.S. financial stability? A quantile cointegration analysis

This study evaluates whether exchange traded funds (ETFs) threaten financial market stability by testing two hypotheses relating the growing importance of ETFs to increased market volatility and rising equity valuations. We estimate quantile cointegration models using Standard & Poor's 500 Index (S&P 500) and Chicago Board Options Exchange volatility Index (VIX) data for 1994–2020. We found that an increase in ETFs is positively and significantly related to the long-term valuation of the S&P 500 for quantile values above the median. By contrast, ETFs have only a negative and significant effect on the VIX for quantiles around the median. Ultimately, two novel results were obtained. First, the distortion in the value of the S&P 500 relative to its fundamentals is driven by investor flow into ETFs during a bull market. Second, the impact of equity ETFs on the VIX is only affected when fundamental factors are in play, decreasing it. Therefore, ETFs contribute to forming equity bubbles and support valuation market dynamics. Both regulators and policymakers should consider these conclusions.

Unleashing the economic and ecological potential of energy flexibility: Attractiveness of real-time electricity tariffs in energy crises

The European energy crisis in 2021 and 2022 emphasized the importance of energy flexibility to mitigate price peaks and manage increased market volatility. Dynamic electricity tariffs are key to unlocking the potential of energy flexibility, as they incentivize flexible consumers to reduce their costs by shifting their load to periods of low prices. We quantify the potential of dynamic tariffs and focus on their economic and ecological potential particularly in energy crises. Using German Day-Ahead spot market data covering 2019 to 2022 as basis for a dynamic tariff, we determine the cost and emission spread between non-flexible and flexible industrial processes. Our results show that energy flexibility together with the real-time electricity tariff lead to energy cost reductions, with relative cost reductions of flexible loads being up to 12 times higher in the energy crisis. Moreover, pre-crisis electricity costs and associated emissions were highly positively correlated, implying flexibilities in real-time electricity tariffs may minimize electricity costs while simultaneously reducing emissions. Based on our results, we conclude that real-time electricity pricing provides a suitable instrument to (1) incentivize necessary investments in energy flexibility, especially in energy crises, and (2) facilitate flexible consumers to reduce costs and emissions at the same time.

Assessment of the impact of inflation on financial losses and real income of Russian enterprises

Aim. To assess the impact of inflation on financial losses and real income of Russian enterprises, as well as to develop recommendations to reduce this negative impact.Objectives. To determine the financial losses of the enterprises of the real sector of the economy from the impact of inflation and inflation risks; to study and evaluate the relationship between changes in inflation and exchange rates at different levels of market volatility; to give recommendations on the choice of the least sensitive to the impact of inflation technologies of settlement with the creditor and obtaining investment income.Methods. The author applied quantitative methods of time and inflation factors accounting, methods of system, logical, situational comparative analysis and financial risk management.Results. Analytical assessments of inflation impact on financial losses, real income and real profitability of Russian enterprises have been obtained. Practical recommendations on the choice of the least inflation-sensitive technologies of settlement with the creditor and obtaining investment income are given. According to the results of the research, evaluation of the interrelation between the changes in inflation and exchange rates, the conditions of application of the theory of purchasing power parity of the national currency of G. Cassel are determined and recommendations are given on forecasting inflationary and currency risks depending on the filling of commodity markets.Conclusions. The quantitative estimates obtained in this article and the developed recommendations are a theoretical and methodological basis for making adequate financial decisions in conditions of increased market volatility, as well as can serve as a basis for the development and implementation of preventive measures aimed at reducing the negative impact of inflation risks.

Shipping alliances under an unexpected shock: Effects on market volatility and social welfare

This paper analyzes the impact of container shipping alliances on the market stability of prices and volumes in the event of an unexpected shock. Given two complementary or substitutable ports in which oligopolistic liners are operating, an alliance between complementary liners, referred to as “global alliance”, enhances their strategic complementarity, which makes shocks more easily propagating among ports and increases volatility of the price and volumes of shipping services. Furthermore, due to incomplete adjustment of production facilities of shippers facing unexpected shocks, the shipping demand in the short term is less elastic than that in the long term. It is shown that the increased market volatility of global alliance causes a greater decline in shippers' benefit under a shock through i) shippers' inefficient investment and ii) an excessive price increase in transportation services, while the liners’ profit may even increase owing to the second effect.

Investor decision making within retirement savings schemes

We study the investment allocation decisions of over 32,000 investors in a retirement savings program using data from 1994 to 2019. Investors exhibit a “reduce risk or increase risk response” when faced with signals of increased market volatility. Investors behave as if they perceive patterns in prices. Different age cohorts display different decision-making “cultures”, but all age groups display a bias towards choosing less risky allocations rather than riskier strategies. Our findings suggest that behavioral biases can contribute to lower superannuation balances being available to people when they retire.

Examining the hedge performance of US dollar, VIX, and gold during the coronavirus pandemic: Is US dollar a better hedge asset?

This study utilizes the hedging potential of the U.S. Dollar Index (USDX) during the COVID-19 period, specifically comparing its positive effects on optimal portfolio weights and hedging ratios with those of traditional hedging assets, such as the VIX and gold. The scalar BEKK GARCH model is employed to forecast volatility and calculate hedging indicators. The results show that USDX exhibits strong hedging abilities against S&P 500 index volatility. These findings highlight the advantageous role of the USDX as a hedging instrument, particularly during periods of heightened market uncertainty, such as during the COVID-19 crisis. Despite the increased market volatility during the COVID-19 pandemic, the value of the optimal portfolio weights is stable and the volatility of the weights is significantly reduced, demonstrating the strength of the USDX's low risk and volatility in hedging against market fluctuations. Moreover, the increase in the hedge ratio indicates that more capital is allocated to hedging, reflecting the increased correlation between the USDX and S&P 500 index. These results emphasize the beneficial role of the USDX as a hedging instrument during times of elevated market uncertainty, such as during the COVID-19 crisis. Ultimately, USDX can provide valuable insights for market participants seeking effective hedging strategies.

Assessing the Impact of the COVID-19 Pandemic on the Saudi Stock Market’s Performance and Sustainability

The research investigates the immediate impact of the COVID-19 pandemic on the Saudi Stock Exchange (Tadawul) by analyzing the Tadawul All Share Index (TASI). Relying on a robust quantitative methodology, the study involved de-seasonalizing daily TASI 'Close' values using a 7-day moving average and employing ARIMA modeling to examine time-series characteristics for periods before and after the first reported case of COVID-19 in Saudi Arabia on March 2, 2020. The study spanned 115 days, with 56 days before and 59 days after the outbreak, resulting in a total of 115 observations. Advanced statistical tests, including a two-sample t-test and effect size calculation (Cohen's d), were conducted to statistically validate the differences in market performance. The findings revealed a significant decrease in TASI performance post-COVID-19, with increased market volatility. This data aligns with global observations of market disruptions during the pandemic and contributes to the understanding of crisis-induced market behaviors. Finally, the obtained results offer valuable insights into the complexities of stock market responses to global health emergencies while further underscoring the importance of considering external factors in market dynamics.
 Keywords: Stock market; COVID-19; financial market; performance; Tadawul; mortality; Saudi Arabia

Comparing the Performance of Developed and Emerging Market Equities during Economic Downturns

Purpose: This study compares developed and developing market stocks during the Russia-Ukraine crisis, a time of high geopolitical tensions. Economic downturns are complicated by geopolitical, financial, and natural disasters. A relevant case study to analyze equities market divergence under geopolitical uncertainty.
 Design/Methodology/Approach: This research quantifies stock market indexes, daily returns, and volatility indicators using historical financial data. Performance indicators, volatility patterns, and risk-return characteristics are compared across established and developing market stocks. The analysis seeks to determine if geopolitical tensions during the war increased market volatility and to understand market segment reactions. The analysis uses cumulative returns, average returns, standard deviations, volatility indexes, and the Sharpe ratio.
 Findings: It is found that clear geopolitical tensions during the crisis affected market volatility differently in established and new economies. This is because industrialized economies are financially stronger than developing ones. The Sharpe ratio allowed detailed market sector comparisons of risk-adjusted returns. This comparison showed investors' possible trade-offs between rewards and dangers.
 Implications/Originality/Value: These findings affect investors seeking educated strategies, politicians creating effective actions, and market participants managing risks. This research improves decision-making and risk management amid economic volatility by evaluating geopolitical events and stock market behaviors.

Financial stability nexus with oil prices shocks and business cycle uncertainty during COVID-19: empirical trends of ASEAN economies.

This study aims to analyze the correlation between financial stability, oil price shocks, and business cycle uncertainty in the economies of the Association of Southeast Asian Nations (ASEAN) amidst the COVID-19 pandemic. This study examines the interplay and effects of various factors on the economic resilience of the ASEAN region, utilizing data from ten-member countries spanning the years 2002 to 2022. The results underscore the notable impact of oil price shocks on financial systems' stability, suggesting that oil price variations have the potential to disrupt financial markets, particularly in the context of the ongoing pandemic. Moreover, the research illustrates that the presence of business cycle uncertainty amplifies the negative consequences of oil price shocks, thereby heightening their influence on the financial system's stability. The study also uncovers a robust correlation between the COVID-19 pandemic and heightened levels of business cycle uncertainty within the ASEAN economies. The ongoing global pandemic has increased market volatility, a deceleration in economic growth, and disruptions in supply chains, generating a heightened sense of uncertainty within the business landscape. As a result, the heightened level of uncertainty has impeded the efficacy of monetary and fiscal policies in preserving financial stability.

Noise traders in an agent-based artificial stock market

AbstractThis paper investigates whether noise traders can survive in the long run and how they influence financial markets by proposing an agent-based artificial stock market, as one simulation model of computational economics. This market contains noise traders, informed and uninformed traders. Informed and uninformed traders can learn from information by using Genetic Programming, while noise traders cannot. The system is first calibrated to real financial markets by replicating several stylized facts. We find that noise traders cannot survive or they just transform to other kind of traders in the long run, and they increase market volatility, price distortion, noise trader risk, and trading volume in the market. However, regulation intervention, e.g., price limits, transaction tax and longer settlement cycle, can affect noise trader’s surviving period and their influence on markets.

Behavioural Biases in Equity, Futures, and Options Trading: Implications for Market Efficiency

This research paper presents a comprehensive analysis of behavioural biases among traders operating in the equity, futures, and options segments of financial markets. The study aims to understand the psychological factors influencing trading decisions, risk perception, and trading strategies. By exploring the impact of behavioural biases on market efficiency and stability, this research contributes to the growing field of behavioural finance. Using a mixed-method approach, the study collected data through surveys, interviews, and behavioural experiments from a diverse group of traders, including retail investors and institutional participants. The analysis focused on identifying common behavioural biases such as overconfidence, loss aversion, herding behaviour, anchoring, and the disposition effect. The findings reveal that behavioural biases are prevalent among traders in all three segments. Overconfidence leads to excessive trading and underestimation of risks, while loss aversion influences risk aversion and reluctance to exit losing positions. Herding behaviour results in the formation of market bubbles and crashes, and anchoring affects traders' reliance on past information to make decisions. The disposition effect influences traders to hold onto losing positions longer than profitable ones. The study also highlights the impact of behavioural biases on trading strategies and risk management practices. Traders tend to exhibit risk-seeking behaviour during periods of market euphoria and become risk-averse during times of uncertainty and volatility. Moreover, behavioural biases can lead to suboptimal portfolio allocation and performance outcomes. The implications of these findings for market efficiency and stability are significant. Behavioural biases can contribute to market inefficiencies, distorted price patterns, and increased market volatility. As a result, market participants and regulators must address these biases to foster more informed decision-making and improve market outcomes. To mitigate the impact of behavioural biases, the study recommends trader education programs focusing on behavioural finance principles and risk management techniques. Additionally, market regulators should implement measures to promote transparency and discourage excessive speculative trading. In conclusion, this research underscores the importance of understanding behavioural biases in equity, futures, and options trading. By shedding light on the psychological drivers of trading behaviour, this study provides valuable insights for traders, financial institutions, and policymakers to enhance market efficiency and stability in the face of behavioural challenges.

Liquidity management by mutual funds

PurposeThe paper examines how equity mutual funds manage their liquidity. Specifically, the authors investigate what strategies fund managers use to meet investor redemption demand, whether these strategies vary over time, whether different type of funds employ different liquidation practices in response to fund outflows, and whether liquidity strategies impact fund performance.Design/methodology/approachThis study uses a sample of U.S. actively managed equity funds over the period 1990–2019. The authors use three different measures to capture funds' liquidity management practices. The authors examine the relationship between fund liquidity measures and net flow by estimating panel regressions over the entire sample period, on 2 sub-sample periods of different market conditions measured by the magnitude of implied market volatility (VIX), and on 2 sub-samples of funds with different liquidity profiles. The authors also examine the relationship between funds liquidity status and near-term performance through both a portfolio approach and regression analysis.FindingsThe authors find that on average, mutual funds reduce their cash position and the most liquid asset holdings to meet investor redemption demand. Furthermore, the authors find that fund managers choose different liquidity strategies under different market conditions. During highly volatile markets, mutual funds use cash and their most liquid assets to meet redemption demand while maintaining their portfolio liquidity. During low volatility markets, mutual funds rely heavily on cash but less on liquidity assets and tend to increase their portfolio illiquidity. Upon further examination of funds across portfolio liquidity profiles, the authors find that liquid funds increase portfolio liquidity when facing outflows, whereas illiquid funds maintain their portfolio liquidity position. The different liquidity strategies have significant impact on funds' near-term performance. Specifically, liquid funds underperform illiquid funds following the increase in their portfolio liquidity.Originality/valueThis paper contributes to the literature on liquidity management by asset managers by taking a holistic approach to examine funds liquidation practice at the portfolio holdings level. Considering the recent increase in market volatility, mutual fund liquidity management has drawn an increasing share of interest and attention from policy makers, investment professionals, and academia. This study covers both uncertain and stable market states during a long sample period and provides empirical evidence on the flow-induced liquidation decisions by equity mutual funds. In addition, this paper also contributes to the literature on mutual fund performance by providing evidence that funds' liquidity strategies significantly impact their near-term performance.

The impact of the covid-19 pandemic on the stock markets of some countries in the MENA region: An assessment with GARCH modeling

This study examines the impact of the COVID-19 pandemic on stock market volatility for stock indices of a few MENA countries. The analysis consists of several elements: first, we assess the impact of this infectious disease on the standard deviations of stock market variables; second, we analyze the influence of the number of new daily cases and the number of new daily deaths on the standard deviations of these returns; and third, we assess the impact of the coronavirus on stock market volatility for these market variables using GARCH models. We find that the minimum value for most indices occurred in March 2020. Additionally, the results of the regression analysis reveal that the COVID-19 dummy variable, the number of daily new cases, and the number of new daily deaths have all had a significant negative impact on stock market volatility. Finally, the GARCH model reveals that the coefficients of COVID-19 pandemic in the conditional variance equation had a significant positive impact on the conditional variance for stock indices, further indicating that the COVID-19 outbreak increased market volatility.

Public disclosure and private information acquisition: A global game approach

This paper studies public information disclosure in a model of dynamic financial markets with endogenous information acquisition. Due to an information complementarity, multiple equilibria may emerge, complicating comparative statics analysis. By adding noise to agents' information costs, we establish equilibrium uniqueness using global-game techniques. We show that while public information always crowds out private information in all underlying equilibria, it can crowd in private information acquisition in the unique global-game equilibrium. This result is driven by the strategic uncertainty introduced through the global-game refinement. The crowding-in effect is more pronounced when there is a high level of fundamental uncertainty, which supports the case for greater information disclosure during times of increased market volatility.

Investigating price fluctuations in copper futures: Based on EEMD and Markov-switching VAR model

Predictable global copper prices are crucial to the transition to a green economy. This paper examines the nonlinear characteristics between the international copper futures prices and their drivers, using combined Empirical Mode Decomposition (EEMD) and the Markov-switching VAR (MSVAR) models. We decompose the monthly international copper futures prices from January 2015 to October 2021 into its low-frequency and high-frequency components by using the EEMD method. In the next step, we employ the MSVAR to examine the nonlinear fluctuation of the international copper futures prices under different regimes. The results indicate that fluctuations of the international copper futures prices exhibit a dynamic regime switching patterns that is characterized as “expansion”, “plateau” and “contraction”. The long-term stability of the international copper futures prices is determined by factors associated with demand, especially demand for strategic metals. Both the London Metal Exchange (LME) copper stocks and the LME copper stock futures have a significant impact on the international copper futures prices in each regime. In several regimes, the global refined copper consumption has no significant effect on the international copper futures prices. The increase in copper turnover is the primary driver of the international copper futures prices during the contraction regime. Regarding the supply factor, an increase in global refined copper capacity would result in a rise in the international copper futures prices during the expansion regime. While a slump would occur during a plateau or contraction regime. The financial factor, reflected by non-commercial traders affects the international copper futures prices volatility differently under different regimes. The increase in speculation reduces the market volatility during regimes of expansion and contraction. In contrast, in plateau regime, speculation increases market volatility and activates the market. The broad dollar index has little impact on the international copper futures prices during each regime. The above conclusions indicate that we should focus on the fluctuations in the international copper futures prices that are caused by the demand for strategic metals and financial factors.

Stock market risk and suicide

We study the effects of stock market returns and volatility on suicide. Using data from stock market prices and individual-level death records from 2000 to 2019 in South Korea, we document evidence that one standard deviation increase in stock market volatility increases suicide rate by 3.5%. Unlike the findings of previous studies regarding the relationships between stock market returns and other measures of health, we document evidence of the non-linear effects of stock market returns on suicide rates only. This study contributes to the literature by providing novel evidence on the effects of the risk of household investments on investors' health.

Herd behaviors in index futures trading: Driving factors and impact on market volatility

AbstractThis study analyzes market index futures data on the Taiwan Futures Exchange to explore herd trading behaviors and their impact on the market. The study finds that herd behaviors are prevalent in all trading directions and that investor sentiment is a more direct explanation than information chasing. Herding in intraday trading increases market volatility on the same day but decreases it on the following day. Additional tests show that overnight trading has a weaker herding tendency and a less noticeable market correction on the following day, which can be attributed in part to the lower participation of retail traders in overnight sessions. The analysis using overnight trading reinforces the relevance of retail trading in explaining herd trading. Overall, the study offers new evidence and insights into herd behaviors in the derivatives market dominated by retail investors.

COVID-19 and the effect of central bank intervention on exchange rate volatility in developing countries: The case of Uganda

<abstract> <p>The COVID-19 crisis has not only manifested as a tragic public health crisis but also as an unprecedented economic disruption characterized by economic deterioration, the sharp increase in market volatility and the blinding uncertainty about the impact of the pandemic, especially in the context of developing countries. It is therefore not surprising that central banks seeking to maintain macroeconomic and financial stability, which are critical for sustained economic development, have maintained the practice of central bank intervention, especially in developing countries. This paper empirically examines the effect of central bank foreign exchange interventions on the level and volatility of the Uganda shilling / US dollar exchange rate (UGX/USD). Utilizing daily data spanning the period December 30, 2016, to 1 December 2021, we estimate a foreign exchange intervention model within a GARCH theoretical framework. Empirical results indicate that foreign exchange interventions have had mixed impact on the volatility of the exchange rate. In addition, despite generating significant uncertainty, the COVID 19 pandemic adverse shock results in a 0.03 percent appreciation due to Uganda's policy response to the COVID-19 pandemic.</p> </abstract>