Level Of Market Uncertainty Research Articles

Analysis of beef cattle marketing channels under transaction costs in rural Ethiopia

The study was designed to analyze beef cattle marketing channel choice under transaction costs. Multistage sampling technique was used to acquire primary data. Data were analyzed using descriptive statistics and the Multinomial Logit Model. The findings verified that most of the respondents (49%) were selling at the village markets, followed by farm gate and secondary market with 28% and 23%, respectively. The model results revealed that the probability of selling at farm gate and village market versus selling at secondary market increased with season sales, indicating level of market uncertainty. The results affirmed the probability of selling at village market versus selling at secondary market outlet increased with knowledge of buyer and decreased with trust in buyers. Other significant predictors were volume of beef cattle supplied, farmers' experience, and education level. Thus, policies aimed at improving the smallholder farmers’ access to cattle marketing channels should be informed by these factors.
 Int. J. Agril. Res. Innov. Tech. 11(1): 37-48, June 2021

Forecasting long term exchange rate volatility with stochastic mean-reverting unconditional volatility

In this paper, an attempt is made to induce stochastic mean-reversion in the unconditional volatility forecasts from GARCH models by augmenting the models with proxies for levels of market uncertainty and exogenous break variables. Evidence from the results indicates that the augmentation leads to a reduction in information leakage, lower persistence of volatility shocks and improved predictive powers. In addition, it relaxed the restrictive mean-reversion property of GARCH forecasts so that the conditional forecasts revert toward the long-run variance along a non-stochastic path. Furthermore, there are general improvements in forecast accuracies as well as the explanatory powers of the forecasts but where the models are outperformed, the accuracy trade-offs are statistically insignificant in most cases. The approach is recommended as a stand-alone or as a supplementary tool for forecasting medium to long term volatility of exchange rates and other speculative assets.

Investor Herding Behavior and Stock Volatility (투자자의 군집행동과 주식의 변동성)

English Abstract: This study explores the herding behavior of different types of investors (individual investors and both domestic and foreign institutional investors) and its impact on the volatility of individual stock returns. Intraday volatility and daily herding intensity of each investor type are measured using high-frequency transaction data containing detailed information on all executed orders in the Korea Exchange. This study regresses realized volatility on the herding intensity of each investor type and other control variables and finds that herding of domestic and foreign institutions decreases realized volatility, whereas herding of individual investors increases it. This study also finds that the destabilizing effect of individual investors’ herding behavior is exacerbated on days of high market uncertainty, and the stabilizing effect of domestic institutions’ herding is weakened on those days, whereas the stabilizing effect of foreign institutions’ herding is not affected by the level of market uncertainty. Korean Abstract: 본 연구는 다양한 유형의 투자자의 군집행동이 주식의 변동성에 미치는 영향을 분석하 는 것을 목적으로 한다. 이를 위해 본 연구는 국내 주식시장의 고빈도 거래 데이터를 이 용하여 주식의 일중 변동성과 개인투자자, 국내 기관투자자, 외국인 투자자의 군집행위를 측정하고 군집행위와 변동성 간의 관계에 대한 회귀분석을 시행한다. 분석 결과 개인투 자자의 군집행동은 주식의 변동성과 양의 관계가 있는 반면 국내 기관투자자와 외국인 투자자의 군집행동은 변동성과 음의 관계가 있는 것으로 나타난다. 이러한 결과는 개인 투자자의 경우 정보에 기반을 두지 않은 매매를 함으로써 주식 가격의 변동성을 증가시 키는 것으로 해석된다. 반면 국내 기관이나 외국인 투자자의 군집행위는 정보에 의해 유 발되며 영구적인 가격 발견 효과를 일으켜 변동성을 줄이는 것으로 해석할 수 있다. 추 가적인 분석에서는 개인투자자 군집행동과 변동성 간의 양의 관계는 시장의 불확실성이 큰 날에 더욱 현저해지며 국내 기관투자자의 군집행동과 변동성 간의 음의 관계는 시장 의 불확실성이 커질수록 약화되는 것으로 나타난다. 반면 외국인 투자자의 군집행동과 변동성 간의 음의 관계는 시장 불확실성으로부터 영향을 받지 않는 것으로 나타난다. 즉 개인투자자 및 국내 기관투자자는 시장의 불확실성이 커질수록 비합리적인 군집행동이 증가하는 것으로 추론된다.

The Impact of Algorithmic Trading in a Simulated Asset Market

In this work we simulate algorithmic trading (AT) in asset markets to clarify its impact. Our markets consist of human and algorithmic counterparts of traders that trade based on technical and fundamental analysis, and statistical arbitrage strategies. Our specific contributions are: (1) directly analyze AT behavior to connect AT trading strategies to specific outcomes in the market; (2) measure the impact of AT on market quality; and (3) test the sensitivity of our findings to variations in market conditions and possible future events of interest. Examples of such variations and future events are the level of market uncertainty and the degree of algorithmic versus human trading. Our results show that liquidity increases initially as AT rises to about 10% share of the market; beyond this point, liquidity increases only marginally. Statistical arbitrage appears to lead to significant deviation from fundamentals. Our results can facilitate market oversight and provide hypotheses for future empirical work charting the path for developing countries where AT is still at a nascent stage.

The Impact of Business and Economics News on Investor Attention

This paper develops a multi-firm equilibrium model of information acquisition based on differences in firms’ characteristics. It is shown that higher market-level uncertainty crowds-in investor attention to firm-level earnings announcements. Increased investor attention magnifies the earnings response coefficients of all announcing firms, but stock prices react differently to the increase in attention (e.g., firms with higher systematic risk attract more investor attention and their prices react more to earnings announcements). The implications of the model for the cross section of firms are tested using data on firm-level attention and return measures around earnings announcements.

Capacity optimization under uncertainty: The impact of operational time lags

Time lags in switching operational modes are typical in the manufacturing and power sectors but are not treated in most real options models. In this paper, we consider a firm that has the opportunity to suspend and to resume production infinitely many times subject to a time lag after each startup decision. We contribute to the literature by allowing the firm to determine its level of installed capacity in conjunction with its optimal investment timing. We find that an increase in the length of the time lag results in an increase in the optimal capacity level. Capacity optimization also interacts with the length of the time lag to affect investment timing and the triggers to suspend and resume production, thereby weakening the result about hysteresis from a standard real options model. Under the assumption of a fixed level of capacity, a longer lag speeds up the decision to resume operations due to a positive upside to the revenue but delays the suspension of operations. By contrast, with capacity optimization, a longer time lag results in a larger capacity choice, which can indirectly delay the investment decision and the timing to resume operations. This indirect effect dominates when the level of market uncertainty is low and the time lag is initially small.

The impact of standards and regulation on innovation in uncertain markets

This study analyses the impact of formal standards and regulation on firms’ innovation efficiency, considering different levels of market uncertainty. We argue that formal standards and regulation have different effects, depending on the extent of market uncertainty derived from theoretical considerations about information asymmetry and regulatory capture. Our empirical analysis is based on the German Community Innovation Survey (CIS). The results show that formal standards lead to lower innovation efficiency in markets with low uncertainty, while regulations have the opposite effect. In cases of high market uncertainty, we observe that regulation leads to lower innovation efficiency, while formal standards have the reverse effect. Our results have important implications for the future application of both instruments, showing that their benefits heavily depend on the market environment.

The impact of uncertainty on payout policy

Purpose The purpose of this paper is to investigate the impact of market-level uncertainty on dividend and repurchase decisions. Design/methodology/approach Using a large data set over a nearly 50-year period, the author examines the choice to pay dividends and repurchase shares using logit and multinomial logit regressions. Findings Market-level uncertainty (measured by a GARCH estimate of volatility, as well as the Chicago Board Options Exchange Volatility Index) is shown to have a statistically significant impact on firms’ payout policy decisions. This impact is different for dividends and repurchases as well as for firms with differing levels of cash flows. As market uncertainty increases, firms with low cash flow levels tighten dividend policy to conserve cash while firms with high cash flow levels become opportunistic through the use of share repurchases. Practical implications The findings allow investors to better understand the connection between shifts in market-level uncertainty and corporate payout policy, specifically through the differing use of dividends and repurchases. Originality/value While prior literature on payout policy has focused on firm-level determinants, this study demonstrates that market-level uncertainty impacts firms’ payout policy decisions uniquely. Furthermore, this is, to the author’s knowledge, the first study to differentiate by relative cash flow level, demonstrating that not all cash flow levels react in the same manner.

Standing Out or Blending In? The Formation of New Firms’ Legitimacy and Reputation under Different Levels of Market Uncertainty

While management scholars acknowledge the importance of legitimacy and reputation for the survival and success of new firms, there is a dearth of studies examining the emergence and development of these perceptions of social approval. This paper brings together social cognition and institutional theory to explain the formation of stakeholders’ perceptions of new firms’ legitimacy and reputation and the relationships among them under different levels of market uncertainty. The theory developed in this paper challenges the assumption of institutional scholars that judgments of legitimacy precede judgments of reputation by proposing that this assumption holds under conditions of low to moderate market uncertainty typical for established market sectors, but not under conditions of high or extreme market uncertainty typical for emerging sectors. In emerging sectors new firms may be able to acquire reputation before, or simultaneously with, establishing their legitimacy, because the (lacking) legitimacy of the entire sector affects the ability of individual firms to establish their own legitimacy. These ideas can guide scholars and practitioners to better understand how to influence the processes of formation of legitimacy and reputation to the benefit of new firms.

A Tale of Two Uncertainties

Consistent with the predictions from a stylized Bayesian learning model, this study shows the opposite effects of two types of uncertainty— market uncertainty and firm-specific uncertainty — on investors’ learning from new information. I provide novel evidence that investor learning increases with the level of market uncertainty, and decreases with firm-specific signal uncertainty. The stock price responses to earnings announcements increase when market volatility is high, whereas the price responses decrease when a firm’s cash flow volatility is high. I do not find evidence of alternative explanations such as liquidity effects, increased firm risk, or differences in the information environment under market uncertainty.

Firm-specific risk and IPO market cycles

This article characterizes the role of risk in the initial public offering (IPO) cycle. While most of the previous literature uses the volatility of IPO initial returns to measure risk, we focus on different risk measures, namely firm-level systematic and idiosyncratic volatilities and the market-wide implied volatility index (VIX), to assess their role in the IPO cycle. Our results shed new light on (1) which risk measure is important in the determination of IPO cycles, (2) the temporal pattern of each risk component across issuing firms and (3) the relationship between market-wide uncertainty and IPO risk. Our findings reveal a lead-lag relationship between IPO waves, VIX and the IPO systematic risk measure. We also highlight the fact that market-level uncertainty predicts IPO activity and the level of idiosyncratic risk of the next-period-issuing firms. Issuing firms’ systematic risk can only be predicted by the systematic risk of firms now proceeding to their offering. The main implication resulting from our study is that one can better anticipate ‘hot-issue’ markets, as well as the specific risk components of future new issues. This will help improve upon the regulatory environment, IPO investment decisions and IPO timing given market receptivity.

지급보증이 존재하는 부동산 PF 사업에서 건설사 우발채무의 발생시기 추정

PF scheme has been widely used for its efficiency in dealing with risks and maximizing returns on investment in real estate development. However, since the weight of capital financed by Special Purpose Vehicle to buy land and support early stage of project is relatively low compared to total project cost and most of construction cost is financed from sales income in Korea, success rate of PF is radically low under high level of market uncertainty. For this reason, debt investors in real estate PF have tries to take loan guarantee agreement, which imposes contingent liability on construction firm under uncertain economy condition, from construction firm. In light of this, it seems important to take an effort to estimate occurring time of construction firm's contingent liability in that information taken from this trial can help joining entities in a project including construction firm prepare impending risks but reality is related research just has been focused in understanding and scrutinizing mechanism or quantitative amount of construction firm's contingent liability. Therefore, this paper is to suggest theoretical framework to evaluate occurring time of construction firm's contingent liability based on relevant financial and economic theories in real estate PF with loan guarantee.

Political uncertainty and financial market uncertainty in an Australian context

This paper seeks to investigate the influence of political uncertainty, surrounding the Australian federal election cycle, on financial market uncertainty. Measures of political uncertainty are constructed and their relationship with market uncertainty, as measured by implied volatility, explored. Empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election induce higher (lower) levels of market uncertainty. An increasing likelihood of the incumbent party, whose economic policies are presumably well-known, winning the election, reduces market uncertainty. This relationship is stronger when political uncertainty is highest, when the business cycle contracting, and when the level of economic risk is high. Higher levels of political uncertainty tend to be associated with declining levels of outstanding debt, and lower issuance of long-term Government debt, driven by falling demand and higher yields.

Better the devil you know: The influence of political incumbency on Australian financial market uncertainty

The Australian federal election cycle, which occurs approximately every 3 years, causes much media attention and invokes indecision regarding investment decisions in both the real economy and financial markets. This paper constructs measures of political uncertainty and formally explores their relationship with market uncertainty, as measured by implied volatility. The empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election result induce higher (lower) levels of market uncertainty. In a case of the market preferring the devil it knows, an increasing (decreasing) likelihood of the incumbent party, whose economic policies are well-known, winning the election, reduces market uncertainty. The results remain significant even after controlling for a number of macroeconomic variables, and when an alternative GARCH framework is considered.

Breaking Local Convention: Dependence Relationships and Quarterly Earnings Guidance

The results of this study indicate that dependency relationships, moderated by social influence, are important factors in the abandonment of locally enforced practices. Abandonment does not entirely depend on the level of market uncertainty about a firm’s performance; it also depends on the dependence of a firm on its local audience and the relative power this audience has over the firm in terms of conformity pressure. The results suggest that firms burdened by variation in broadcast performance were likely to want to share more information with analysts to remove this market uncertainty. However, when firms were less prominent, were more financially dependent on constituents, and were burdened by the lack of CEO notoriety, they were less likely to abandon the Quarterly Earnings Guidance analysts demanded. This suggests a period of practice decline in the early 2000’s decade determined in part by the structure of the actors in the field, moderated by the declining credibility of the quarterly earnings gui...

Pride as a Double-Edged Sword: Effects of CEO Hubris on Firm Market Exploration and Exploitation

Grounded in upper echelons theory and regulatory focus theory, this empirical study develops a theoretical model aiming to explicate the effect of CEO hubris, a prominent managerial bias, on market exploration and exploitation, as well as its boundary conditions. We predict that CEO hubris is positively related to market exploration while negatively related to market exploitation. Moreover, this study shows that those factors that affect a CEO’s information processing capacity can effectively moderate the hubris bias: the CEO’s industry experience weakens, whereas a high level of market uncertainty strengthens, the hubris effects. We test our hypotheses using a two- wave, multi-respondent original survey data set of Chinese trading companies. As a balance between market exploration and exploitation can enhance firm market performance, this study highlights the double-edged nature of CEO hubris. The results provide important implications for firms: it is possible to achieve superior market performance by b...

Investor Sentiment, Volatility and Stock Return Comovements

We study the stock return comovements from two different perspectives, one being trading behaviour-induced return comovements and the other volatility-induced return comovements. Following Baker and Wurglur (2006), we construct an investor sentiment index and examine whether it has relationship with return comovements induced by investor's trading behaviour and market volatility. We find that a correlated trading behaviour along with investor sentiment significantly determines excess stock returns. Also stocks with high volatility exhibit higher return comovement properties compared to low volatilie stocks. In a cross-sectional framework, we find higher level of market uncertainty characterized by more biased investor sentiment induces highly correlated trading behaviour and thereby generates stronger correlated returns, causing stronger return comovements. The findings from our study imply that irrational and idiosyncratic sentiment of market participants, particularly which of investors, causes significant return comovement.

From Hot Cakes to Cold Feet: A Contingent Perspective on the Relationship between Market Uncertainty and Status Homophily in the Formation of Alliances

AbstractIn this study, we reconsider the classical positive association between the level of market uncertainty and an organization's propensity to form ties with organizations of similar status. Although prior research argues that the greater the uncertainty, the higher the level of status homophily, we suggest that this relationship is contingent upon framing that affects positive or negative valence towards uncertainty. In an up market, organizations tend to frame uncertainty as upside risk, and thus will subsequently favour explorative uncertainty‐mitigation devices; whereas, in a down market, organizations primarily frame uncertainty as downward risk, and thus will rely on more conservative uncertainty‐mitigation mechanisms. We therefore predict that a greater number of status‐heterophilous ties will be formed in an up market than in a down market. We discuss the implications of our results for status theory and more broadly for research on strategic decision making under uncertainty.

Better the Devil You Know: The Role of Political Uncertainty in Determining Financial Market Uncertainty

The Australian federal election cycle, which occurs every 3 years, causes much media attention and invokes much consternation regarding investment decisions in both the real economy and financial markets. This paper constructs measures of political uncertainty and formally explores their relationship with market uncertainty, as measured by implied volatility. The empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election result induce higher (lower) levels of market uncertainty. An increasing (decreasing) likelihood of the incumbent party, whose economic policies are well-known, reduces market uncertainty – particularly if the incumbent is the more conservative L-NP Coalition – in a case of the market preferring the devil it knows. The results remain significant even after controlling for a number of macroeconomic variables.

Information, uncertainty, and behavioral effects: Evidence from abnormal returns around real estate investment trust earnings announcements

In this study, we examine the influence of real estate market sentiment, market-level uncertainty, and REIT-level uncertainty on cumulative abnormal earnings announcement returns over the 1995–2009 time period. We first document the relative coverage of analysts' earnings forecasts on U.S. REITs, as well as REITs from several countries (i.e., Australia, Belgium, Canada, France, Hong Kong, Japan, the Netherlands, and UK). We show that coverage outside of the U.S. is limited, and we consequently focus our analysis on U.S. REITs. We find strong evidence that earnings announcements contain pricing relevant information, with positive (negative) earnings surprises relative to analysts' forecasts resulting in significantly positive (negative) abnormal returns around the announcement date. Consistent with the findings from the broader equity market literature, we find limited evidence of a pre-announcement drift in the cumulative abnormal returns. However, in sharp contrast to the existing equity literature, we find no evidence of a post-earnings announcement drift in our aggregate sample or when the sample is restricted to the largest negative surprises. We find evidence of a post-earnings announcement drift for only the largest positive earnings surprises. These results are consistent with REIT returns more quickly impounding information relative to the broader equity market, in part because of the parallel private real estate market and because of the U.S. REIT structure and information environment. Finally, in our conditional regression analysis of cumulative abnormal returns, we find that real estate investor sentiment, market-wide uncertainty, and firm-level uncertainty significantly affect the magnitude of abnormal announcement returns and also influence the effect of unexpected earnings on abnormal returns.