Main Stock Market Index Research Articles

Exploring the psychology of price barriers in Baltic stock markets

PurposeThe purpose of this study is to investigate the presence of psychological barriers both in the main stock market indices of the Baltic states and the most actively traded individual stocks. A psychological barrier refers to a specific price point, often at round numbers (i.e. powers of 10), that investors believe is challenging to breach, influencing their behavior and trading decisions.Design/methodology/approachWe conduct uniformity tests and barrier tests, such as barrier proximity tests and barrier hump tests, to evaluate the presence of psychological barriers. Additionally, we explore variations in means and variances near these potential barriers using regression and GARCH analysis.FindingsThe findings reveal that psychological barriers do exist in the Baltic stock markets, particularly within market indices. The Estonian market index stands out with the most pronounced indications of psychological barriers. Individual stocks also display significant changes in means and variances related to potential barriers, albeit with less uniformity.Practical implicationsCollectively, our findings challenge the traditional assumption of random returns within the Baltic stock markets. For practitioners, the finding that psychological barriers exist opens up opportunities for investment strategies that can capitalize on them.Originality/valueThis study is the first to comprehensively investigate psychological barriers in the Baltic stock markets. Our results provide a valuable contribution to understanding the impact of that phenomenon on pricing dynamics, which is particularly pertinent in less-researched frontier markets like the Baltic states.

Environment and Digitalization: The New Paradigms in the European Stock Markets

In a European context in which the objectives of climate neutrality and digitalization appear fundamental, the work analyzes the relationships between the price of the main stock market indices and the most representative variables such as carbon emissions, digitalization, use of renewable energy, research and development expenses, environmental taxes, and all economic and management activities aimed at reducing or eliminating any form of pollution. The analysis was developed through three different regressions involving the long period 1995–2020 and the short period 2017–2020. The results show how increasing carbon emissions and environmental taxes positively impact stock indices. The former is linked to an increase in production and, therefore, economic growth, and the latter encourages sustainability. Taxes on transport and energy in the long term generate higher costs, which damage profitability and negatively impact the performance of stock indices. Finally, in the short term, implementing environmental protection measures or the sustainable management of resources may lead to higher operating costs for the companies involved. These cost increases can negatively impact profit margins and reduce the value of companies. These results, therefore, show us how environmental sustainability has a significant impact on European stock markets; consequently, the relevant regulations and policies should also consider the economic and managerial impacts that companies implement to achieve their objectives of the Green Deal.

Impact of Russia–Ukraine conflict on Russian financial market: Evidence from TVP-VAR and quantile-VAR analysis

This study aims to analyze the repercussions of the Russia–Ukraine conflict on the Russian financial market, focusing on the main stock market and sectorial stock indices. High-frequency hourly data from September 12, 2021, to April 29, 2022, covering the period before and after the outbreak of conflict, is utilized for analysis. The empirical investigation employs the TVP-VAR and Quantile-VAR connectedness approaches. Our findings indicate a significant impact of the conflict on the Russian stock market, leading to increased market risk during the event period. Notably, certain sectors, including oil and gas, utilities, metals & mining, financials, consumer goods, and services exerted more influence on other sectors, while chemicals, transport, and telecoms were influenced by other sectors. These insights are crucial for comprehending the financial implications of the ongoing conflict on the local economy, providing valuable guidance to portfolio managers, investors, and policymakers in devising effective financial strategies.

Anxiety about the pandemic and trust in financial markets

The COVID-19 pandemic has generated a novel context of global financial distress. This paper enters the related scientific debate and focuses on the relationship between the anxiety felt by the population of a wide set of countries during the pandemic and the trust in the future performance of financial markets. Precisely, we move from the idea—grounded on some recent literature contributions—that the volume of Google searches about “coronavirus” can be considered as a proxy of anxiety and, jointly with the stock index prices, can be used to produce indicators of the population mood—in terms of pessimism and optimism—at country level. We analyse the “very high human developed countries” according to the Human Development Index plus China and the main stock market indexes associated with them. Namely, we propose both a time-dependent and a global indicator of pessimism and optimism and classify indexes and countries accordingly. The results show the existence of different clusters of countries and markets in terms of pessimism and optimism. Moreover, specific regimes emerge, with optimism increasing around the middle of June 2020. Furthermore, countries with different government responses to the pandemic have experienced different levels of mood indicators, so countries with less stringent lockdown measures had a higher level of optimism.

The art of fitting financial time series for some stock market indexes of some of the main emerging countries and for Mexico with stable Lévy Distributions

This paper presents a statistical analysis of the logarithmic fluctuations of the returns of some of the main stock market indices. Samples were analyzed considering daily data covering a period from 01/03/2000 to 09/30/2022, and adjusted to different distributions. Goodness-of-fit tests were performed to quantitatively assess the quality of the estimate. Particular attention was paid to the impact of sample size on the estimated decay of the tail of the distributions. In this study, a forceful rejection of normality was obtained. On the other hand, the null hypothesis that the logarithmic fluctuations conform to a stable alpha Lévy distribution cannot be rejected considering a significance level of 5%.

Макроэкономические шоки 2022 г. и суверенные фонды

In 2022, instead of getting back to pre-pandemic “new normal” the world entered into another period of severe economic and geopolitical turbulences. In terms of macroeconomics, the most evident and painful was the hike of hydrocarbons’ and food prices. This drove inflation rates to the levels not seen in recent 40 years. In attempts to cool down underlying inflationary pressures the monetary authorities of many countries had to stop the policies of quantitative easing (QE) and started to raise basic interest rates. In this environment the governments, businesses and families are facing massive debt problems. The main stock market indices crushed deeply and simultaneously in 2002 which meant substantial depreciation of assets. All these macroeconomic shocks seriously affected the performance of sovereign wealth funds which currently present a solid and increasingly influential group of global assets’ holders and managers. The steady growth of the value of their assets under management (AUM) was interrupted last year. According to preliminary analysis, the total losses of AUM can reach circa 1 Trillion US$. Just one fund – Norway’s Government Pension Fund Global (GPFG) – reported a depreciation of its assets by as much as 165 Billion US$ as of end‑2022. This is an amount comparable to the GDP of a mid-size country, for instance Ukraine before current military conflict. However, for Norway’s GPFG and similar state-owned investors (SOIs) of other countries such losses were not critical. SWFs are, basically, “tolerant investors” with very long view on value creation and operational planning, so they easily absorb paper losses. Simultaneously, the huge SWFs of oil and gas exporting Gulf countries enjoyed the hike of hydrocarbons’ international prices and hurried up to invest massive influx of unexpected revenues into depreciated assets in troubled economies of the USA and Europe. More countries tended to expand the mandates of their sovereign funds beyond traditional stabilization and saving functions. Strategic development funds became increasingly demanded by the governments and may appear even at the supranational level (the projected European Sovereignty Fund). So far, it may be concluded that in general macroeconomic shocks of 2002 did not undermine the positions of SWFs as strong and resource-rich global investors. On the contrary, it looks like that their role as an efficient tool of governmental policies of offsetting and preventing multiple market failures is getting to be further strengthened in upcoming harsh times.

Socially Responsible Bond ETFs in the US: A Performance Evaluation

This paper seeks to answer whether socially responsible bond Exchange Traded Funds (ETFs) in t he USA can outperform the main local aggregate bond and stock market indices. More specifically, the performance of 62 bond ETFs with Environmental, Social and Governance (ESG) Scores of 7/10 or above is assessed over the period 1/1/2018 - 31/12/2021. The sample has been selected based on data availability over the study period. Standard research methodology is applied including the single-factor market model and the risk -adjusted return metrics of Sharpe and Information ratios. Performance persistence is evaluated too. The findings show that, in raw return terms, the mean bond ETF underperforms the Bloomberg US Aggregate Bond Index and the S&P 500 Index. In addition, the examined ETFs cannot produce any material above-market return. Furthermore, daily returns seem to persist but weekly and monthly returns display a reverting behavior. A similar reverting behavior is observed between the annual return rankings of ETFs. Overall, our resu lts are in line with those findings in the literature that show, on average, ESG portfolios cannot beat the non-ESG peers on a consistent basis.

Stock market index prediction using deep Transformer model

Applications of deep learning in financial market prediction have attracted widespread attention from investors and scholars. From convolutional neural networks to recurrent neural networks, deep learning methods exhibit superior ability to capture the non-linear characteristics of stock markets and, accordingly, achieve a high performance on stock market index prediction. In this paper, we utilize the latest deep learning framework, Transformer, to predict the stock market index. Transformer was initially developed for the natural language processing problem, and has recently been applied to time series forecasting. Through the encoder–decoder architecture and the multi-head attention mechanism, Transformer can better characterize the underlying rules of stock market dynamics. We implement several back-testing experiments on the main stock market indices worldwide, including CSI 300, S&P 500, Hang Seng Index, and Nikkei 225. All the experiments demonstrate that Transformer outperforms other classic methods significantly and can gain excess earnings for investors.

Disclosure of Environmental, Social, and Corporate Governance Information by Spanish Companies: A Compliance Analysis

The transposition of Directive 2014/95/EU to Spain through Law 11/2018 of December 28 requires companies to publish information on the impact of their environmental, social, and governance activities (ESG information) in management reports or in a “non-financial statement.” This study aims to assess the readiness of IBEX35 companies to submit ESG reports through their communication and web transparency and to determine whether such ESG information is related to these companies’ financial indicators. The study is pioneering in the analysis of the transparency of non-financial information on the websites of companies listed on the main Spanish stock market index (IBEX 35). It uses exploratory and descriptive analysis to determine whether the companies with the best economic efficiency indicators are also the most transparent in non-financial indicators (ESG) and to what extent these relationships explain the dependency between the two. The findings reveal that IBEX35 companies need to improve their web transparency by presenting solid non-financial reports with ESG sustainability parameters. The results show that companies with economic profitability in Return on Assets that use their debt levels wisely disclose higher levels of ESG information. In other words, financial performance and indebtedness contribute to improving levels of ESG disclosure on the IBEX35. Companies must also improve accessibility to ESG information, update it, and classify it in accordance with current regulations.

Monetary Policy and Asset Price Overshooting: A Rationale for the Wall/Main Street Disconnect

We analyze optimal monetary policy when asset prices influence aggregate demand with a lag (as is well documented). In this context, as long as the central bank's main objective is to minimize the output gap, the central bank optimally induces asset price overshooting in response to the emergence of a negative output gap. In fact, even if there is no output gap in the present but the central bank anticipates a weak recovery dragged down by insufficient demand, the optimal policy is to preemptively support asset prices today. This support is stronger if the acute phase of the recession is expected to be short lived. These dynamic aspects of optimal policy give rise to potentially large temporary gaps between the performance of financial markets and the real economy. One vivid example of this situation is the wide disconnect between the main stock market indices and the state of the real economy in the U.S. following the Fed's powerful response to the Covid-19 shock.

Detecting and Analyzing Politically-Themed Stocks Using Text Mining Techniques and Transfer Entropy-Focus on the Republic of Korea's Case.

Politically-themed stocks mainly refer to stocks that benefit from the policies of politicians. This study gave the empirical analysis of the politically-themed stocks in the Republic of Korea and constructed politically-themed stock networks based on the Republic of Korea’s politically-themed stocks, derived mainly from politicians. To select politically-themed stocks, we calculated the daily politician sentiment index (PSI), which means politicians’ daily reputation using politicians’ search volume data and sentiment analysis results from politician-related text data. Additionally, we selected politically-themed stock candidates from politician-related search volume data. To measure causal relationships, we adopted entropy-based measures. We determined politically-themed stocks based on causal relationships from the rates of change of the PSI to their abnormal returns. To illustrate causal relationships between politically-themed stocks, we constructed politically-themed stock networks based on causal relationships using entropy-based approaches. Moreover, we experimented using politically-themed stocks in real-world situations from the schematized networks, focusing on politically-themed stock networks’ dynamic changes. We verified that the investment strategy using the PSI and politically-themed stocks that we selected could benchmark the main stock market indices such as the KOSPI and KOSDAQ around political events.

The asymmetric impact of interest and exchange rate on the stock market index: evidence from MENA region

PurposeSeveral theoretical and empirical studies have shown the significant effects of economic and environmental factors on a large number of financial indicators. In this paper the authors are going to study whether the main stock market index, is impacted by the variations of the exchange rate and the interest rates.Design/methodology/approachThis paper studies the response of the index market return to fluctuations in the interest rate and the exchange rate in five countries from the MENA region (Tunisia, Morocco, Egypt, Turkey and Jordan). To investigate whether this impact exists, the authors used the non-linear autoregressive distributed lag (NARDL) model with daily data from June 1998 to June 2018.FindingsThe application of the non-linear ARDL model confirms the presence of cointegration between return index, interest rate and exchange rate. The results show that the asymmetry hypothesis is only valid for the short run which suggests that the market index is sensitive to the variation in the interest rate and exchange rate. This means that these macroeconomic factors play an important role in the MENA region stock markets.Originality/valueThe findings confirm that the index returns in the MENA region stock markets are related to macroeconomic fundamentals such as the exchange rate and the real interest rate. The reaction of some indices is sensitive to whether the shocks are positive or negative. This finding may help investors to choose their strategies starting from these changes. Accordingly, policy makers must pay attention to the development progress of stock market.

Is Taiwan a black swan phenomenon for local textile and clothing industry?A robust nonlinear regression-based model for stock exchange prediction

Local apparel and textile manufacturing industry in Taiwan is a sector of great importance for sustainable economicgrowth. A stock market is an effective barometer indicating the economic health of a country and Taiwan is a case evenmore special. However, is Taiwan a black swan phenomenon for local apparel and textile manufacturing industryconsidering its economic growth and financial perspectives? In addition to existing literature, this research articleprovides a new robust nonlinear regression-based model for stock exchange prediction for Taiwan stock market. Thefinancial data series used for the econometric analysis include the period from January 2000 to July 2018 for 13 mainstock markets from countries all around the globe, such as: Taiwan, Spain, Poland, Hungary, Romania, Canada, USA,Japan, Germany, France, UK, India, and China. The final multiple regression equation provides a new prediction modelfor Taiwan’s main stock market index. A sustainable economic growth in Taiwan is necessary to achieve major objectivessuch as social justice, poverty alleviation and natural environment protection. The stock market in Taiwan plays anessential role in order to stimulate economic growth and technological progress by attracting foreign investment andforeign capital. In a globalized economy, the inter-linkages between stock markets are complex and can significantlyinfluence Taiwan’s sustainable development.

Is Taiwan a black swan phenomenon for local textile and clothing industry?A robust nonlinear regression-based model for stock exchange prediction

Local apparel and textile manufacturing industry in Taiwan is a sector of great importance for sustainable economicgrowth. A stock market is an effective barometer indicating the economic health of a country and Taiwan is a case evenmore special. However, is Taiwan a black swan phenomenon for local apparel and textile manufacturing industryconsidering its economic growth and financial perspectives? In addition to existing literature, this research articleprovides a new robust nonlinear regression-based model for stock exchange prediction for Taiwan stock market. Thefinancial data series used for the econometric analysis include the period from January 2000 to July 2018 for 13 mainstock markets from countries all around the globe, such as: Taiwan, Spain, Poland, Hungary, Romania, Canada, USA,Japan, Germany, France, UK, India, and China. The final multiple regression equation provides a new prediction modelfor Taiwan’s main stock market index. A sustainable economic growth in Taiwan is necessary to achieve major objectivessuch as social justice, poverty alleviation and natural environment protection. The stock market in Taiwan plays anessential role in order to stimulate economic growth and technological progress by attracting foreign investment andforeign capital. In a globalized economy, the inter-linkages between stock markets are complex and can significantlyinfluence Taiwan’s sustainable development.

Equally weighted portfolios and “momentum effect”: an interesting combination for unsophisticated investors?

This article proposes investment strategies targeted at unsophisticated investors and structured around persistence in returns, especially in the short and medium term (“momentum effect”). Sixty-four equally weighted portfolios were formed, through the variation of five different parameters: size, revision frequency, asset selection indicator, choice criterion, and formation period. The proposed portfolios’ performances were assessed from January 2009 to December 2018 and compared to the performance of BOVA11 (Exchange Traded Fund which aims to replicate Ibovespa, the main stock market index in Brazil). Transaction costs were considered. The results corroborate the hypothesis of the “momentum effect”. Winner portfolios also were indicated asgood alternatives as investment strategies, since they presented higher median returns and Sharpe ratios than the benchmark, as well as positive alphas. Additional tests showed that transaction costs can significantly impact the portfolios’ performances. The analysis presented in this paper shall be relevant to unsophisticated investors, introducing a competitive though easy-to-implement investment strategy.

Long‐term stock returns in Brazil: Volatile equity returns for U.S.‐like investors

AbstractThis paper tells the history of Brazilian stock market returns since the creation of the Ibovespa (the main Brazilian stock market index). From 1968 to 2019, the arithmetic mean real return of the Brazilian stock market is 21.3% per year. The equity premium is 20.1% per year, with a huge annual standard deviation of 67%. Surprisingly, such numbers are compatible with investors' risk aversions that accommodate the very different U.S. market evidence, exposing that national investors are similar in nature. The equity premium has been higher in Brazil than in the U.S., but the much higher Brazilian volatility discourages heavier investments in stocks.

Backtesting expected shortfall for world stock index ETFs with extreme value theory and Gram–Charlier mixtures

AbstractThis paper analyses risk quantification for three main stock market index exchange‐traded funds in world financial markets. We compare the relative performance of a set of parametric and semi‐nonparametric models in terms of both value‐at‐risk and expected shortfall backtesting techniques. To this end, we explore the result of the jointly elicitability of these two risk measures. We provide a new mixture of Gram–Charlier distributions that have been used in this framework for the first time and derive a close formula for directly computing expected shortfall. This model is compared to the Gaussian (benchmark model), Student's t, generalized Pareto (a case of the extreme value theory) and mixtures of Gram–Charlier distributions. The results show that peaks‐over‐threshold (extreme value theory) and flexible Gram–Charlier approximations are suitable to quantify market risk and mitigate concerns about possible financial instabilities generated by misuse of exchange‐traded funds trading.

Long-Term Stock Returns in Brazil: Volatile Equity Returns for U.S.-Like Investors

This paper tells the history of Brazilian stock market returns since the creation of the Ibovespa (the main Brazilian stock market index). From 1968 to 2019, the arithmetic mean real return of the Brazilian stock market is 21.3% per year. The equity premium is 20.1% per year, with a huge annual standard deviation of 67% . Surprisingly, such numbers are compatible with investors’ risk aversions that accommodate the very different U.S. market evidence, exposing that national investors are similar in nature. The equity premium has been higher in Brazil than in the U.S., but the much higher Brazilian volatility discourages heavier investments in stocks.

Volatility transmission between commodities and Ibovespa in the period 2000–2016: Is there a possibility of diversification?

In 2002, a cycle of high commodity prices in the international market began concomitantly with the trend of the main stock market index, especially in emerging stock exchanges. In Brazil, specifically, the main stock index (Ibovespa) presents a history of important composition of companies linked to the commodities sector, which suggests a relationship between the commodity prices and the stock market. Thus, the objective of the study was to evaluate the contagion of volatility between the commodity prices and the Ibovespa, through a multivariate GARCH model, to verify the possibility of diversification of investments. The research hypothesized that there is a strong relationship between the commodity prices and the Ibovespa index, with the presence of the contagion effect according to Forbes and Rigobon (2002), which inhibits the diversification of investments between the stocks that make up the index and the commodities on the international scene. The results partially corroborate the hypothesis formulated, since it was possible to observe a strong increase in conditional covariance between the two variables during the international financial crisis. On the other hand, the conditional correlation between the Ibovespa and the commodity prices showed that the relationship between the variables was relatively small in the periods before and after the 2008 crisis, which suggests that concomitant investments in commodities and the Ibovespa constitute a risk diversification strategy, contrary to what is commonly supposed.

El impacto del veto de Estados Unidos a Huawei en Wall Street

El objetivo del presente artículo fue describir el impacto del veto de los Estados Unidos a la empresa china Huawei y que ha conllevado a la caída de los índices bursátiles en Wall Street. La investigación fue cuantitativa, explicativa causal y tuvo como base la cuantificación y el análisis estadístico de series de tiempo financieras de activos financieros que cotizan en la Bolsa de Valores de Estados Unidos de América, en el periodo del mes de mayo 2019, enfocándonos principalmente en la caída de los índices bursátiles del día lunes 20 de mayo del 2019. La muestra seleccionada estuvo conformada por ocho compañías representativas, comercialmente relacionadas con la compañía Huawei, las cuales forman parte del Índice. Selectivo de la Bolsa de Valores de Estados Unidos de América, mostrando la relación que tienen entre ellas y los efectos que han sufrido como consecuencia del veto. Por otro lado, se seleccionaron los principales índices bursátiles de mercados financieros globalizados para observar, en el periodo en análisis, los efectos del evento y la relación que muestran entre los mercados financieros. Se concluyó que, de las relaciones mostradas entre las empresas americanas, proveedoras de Huawei, se ha observado significativas relaciones entre sí, excepto con la empresa Qualcomm. Y, por otro lado, se ha observado la relación de efecto en la relación que existe en la respuesta que han dado los mercados en el periodo del evento en análisis, apreciándose en la disminución en las cotizaciones respectivas.