Market Rallies Research Articles

Asymmetric causality between Bitcoin and tech stocks in the US market using mixed frequency data

PurposeThis study is the first to investigate the causal relationship between Bitcoin and equity price returns by sectors. Previous studies have focused on aggregated indices such as S&P500, Nasdaq and Dow Jones, but this study uses mixed frequency and disaggregated data at the sectoral level. This allows the authors to examine the nature, direction and strength of causality between Bitcoin and equity prices in different sectors in more detail.Design/methodology/approachThis paper utilizes an Unrestricted Asymmetric Mixed Data Sampling (U-AMIDAS) model to investigate the effect of high-frequency Bitcoin returns on a low-frequency series equity returns. This study also examines causality running from equity to Bitcoin returns by sector. The sample period covers United States (US) data from 3 Jan 2011 to 14 April 2023 across nine sectors: materials, energy, financial, industrial, technology, consumer staples, utilities, health and consumer discretionary.FindingsThe study found that there is no causality running from Bitcoin to equity returns in any sector except for the technology sector. In the tech sector, lagged Bitcoin returns Granger cause changes in future equity prices asymmetrically. This means that falling Bitcoin prices significantly influence the tech sector during market pullbacks, but the opposite cannot be said during market rallies. The findings are consistent with those of other studies that have established that during market pullbacks, individual asset prices have a tendency to decline together, whereas during market rallies, they have a tendency to rise independently. In contrast, this study finds evidence of causality running from all sectors of the equity market to Bitcoin.Practical implicationsThe findings have significant implications for investors and fund managers, emphasizing the need to consider the asymmetric causality between Bitcoin and the tech sector. Investors should avoid excessive exposure to both Bitcoin and tech stocks in their portfolio, as this may lead to significant drawdowns during market corrections. Diversification across different asset classes and sectors may be a more prudent strategy to mitigate such risks.Originality/valueThe study's findings underscore the need for investors to pay close attention to the frequency and disaggregation of data by sector in order to fully understand the true extent of the relationship between Bitcoin and the equity market.

The Overnight Drift

Abstract This paper documents that U.S. equity returns are large and positive during the opening hours of European markets. These returns are pervasive and highly economically and statistically significant. Consistent with models of inventory risk, we demonstrate a strong relationship with order imbalances at the close of the preceding U.S. trading day. Rationalizing unconditionally positive “overnight drift” returns, we uncover an asymmetric reaction to demand shocks: market sell-offs generate robust positive overnight reversals, while reversals following market rallies are much more modest. We argue that demand shock asymmetry can arise in inventory management models with time-varying market maker risk-bearing capacity. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Türkiye’de Yolsuzluk Endeksinin Borsa İstanbul-100 Endeksi Üzerine Etkisi

While corruption generally negatively affects growth by reducing predictability in the economy, it can have a positive effect on investments and thus growth by making easier to overcome rigidities in the bureaucratic environment at the micro-firm level. In this context, stock markets, which are the barometer of the economy, may be negatively affected by corruption and it is thought that the positive performance on the basis of the company will improve the stock market. In the study, it has been studied the relationships between stock market and corruption, using interest rate and per capita income as control variables, in the framework of the structural vector auto regressive model for the period from 1995 to 2019, The findings show that corruption enhances the stock market in Turkey. It can be said that the despotic Leviathan structure plays a deepening role in this situation. From this respect, the stock market, in an environment in which it acts with a semi-strong market efficiency motive, has almost the meaning of uncertainty for an investor and so makes it risky for the average investor to go towards the stock market. In sum, it can be said that the presence of such an image that the stock market rallies by virtue of corruption becomes a problem for Turkey which needs capital accumulation over long periods of time.

Conditional Fixed Income Correlations: Skews and Straddles

We apply extreme value and copula theory to estimate conditional correlations of various pairs of US fixed-income assets. This framework is applied to both comovements of fixed-income assets, and cross-movements of fixed-income assets where one, typically flight-to-quality, asset strongly outperforms and the other, typically a risky spread product, strongly underperforms. Our results show that for comovements between risky spread products the correlation structure resembles a straddle where conditional correlations monotonically increase both with increased market stress and with increased market rallies. This finding stands in contrast to the correlation patterns found in international equity markets and hedge fund strategies for which the correlation structure has the shape of a skew with increased correlations under extreme market stress and zero correlations during risk-on episodes. We also find this skew shape in the correlations between US fixed-income assets when we estimate conditional correlations for cross-movements with a flight-to-quality asset performing strongly during periods of stress and risky spread products considerably widen. Under these conditions, conditional correlations are very negative, but monotonically fade with market recoveries to eventually become zero during risk-on episodes. TOPICS:Fixed-income portfolio management, tail risks, statistical methods Key Findings • This study presents the first analysis of extreme value and copula theory applied to correlations estimations of various pairs of fixed-income assets conditioned on market sentiment. This method is immune to small sample biases present in subsampling methods. • Our results show for comovements between risky spread products that the correlation structure resembles a straddle where conditional correlations monotonically increase with increasing market stress and increasing market rallies. This finding is novel and contrasts patterns observed in equity markets. • We find a skew shape in conditional correlations in fixed-income markets between flight-to-quality assets and risky spread products in cross-movements. Conditional correlations are very negative during periods of stress but monotonically fade with market recoveries.

The Effect of Market Regimes on the Performance of Market Capitalization-Weighted and Smart Beta Shariah-Compliant Equity Portfolios

Shariah-compliant investment guidelines, while explicit on screening criteria for stock selection, are silent on the weighting methods to be used in the construction of Shariah-compliant equity portfolios. The market capitalization-weighted strategy and smart beta strategies (fundamental value-weighted, equal-weighted, and low-risk weighted strategies) exhibit different risk and return characteristics. This paper investigates whether the choice of weighting strategy affects the performance of Shariah-compliant equity portfolios under different market conditions. The sample consists of active constituent data from S&P 500 for the period 1986-2016. By utilizing the Markov-regime switching model, it is possible to categorize market returns into two regimes — high regimes for bullish market conditions and low regimes for bearish market conditions. The empirical results indicate a significant difference between the performances of Shariah-compliant equity portfolios in high and low regimes following different weighting strategies. The evidence suggests that market capitalization and fundamental value-weighted strategies perform better during market rallies. On the other hand, a low-risk strategy can be used as a hedge during periods of maximum drawdown and is associated with relatively lower value-at-risk and expected shortfalls as compared to alternative strategies.

Detecting overreaction in the Bitcoin market: A quantile autoregression approach

We examine the persistence of returns on Bitcoin at different parts on the return distributions through the use of the quantile autoregressive (QAR) models. We find lower quantiles of the daily return distribution and upper quantiles of the weekly return distribution to exhibit positive dependence with past returns. The evidence points to overreaction in the Bitcoin market: investors overreact during days of sharp declines in the Bitcoin price and during weeks of market rallies.

Can Warren Buffett forecast equity market corrections?

ABSTRACTWarren Buffett suggested that the ratio of the market value of all publicly traded stocks to the Gross National Product could identify potential overvaluations and undervaluations in the US equity market when this ratio deviates above 120% or below 80%. We investigate whether this ratio is a statistically significant predictor of equity market corrections and rallies. We find that Buffett's decision rule does not deliver satisfactory forecasts. However, when we adopt a time-varying decision rule, the ratio becomes a statistically significant predictor of equity market corrections. The two time-varying decision rules are: (i) predict an equity market correction when the ratio exceeds a 95% one-tail confidence interval based on a normal distribution, and (ii) predict an equity market correction when the ratio exceeds a threshold computed using Cantelli's inequality. These new decision rules are robust to changes in the two key parameters: the confidence level and the forecasting horizon. This paper also shows that the MV/GNP ratio performs relatively well against the four most popular equity market correction models, but the ratio is not a particularly useful predictor of equity market rallies.

Investigating Gender Differences in Real Estate Trading Sentiments

This study examined whether a person’s gender influences his or her real estate trading sentiments. Previous studies have suggested that risk aversion, loss aversion, and expectations of probabilities can affect trading sentiments. Thus, this study inferred that a person’s gender can inform these three factors and thus lead to differences in real estate trading preferences between genders. More noticeable expectation adjustment behavior was observed in men than in women. However, no significant expectation errors were observed in both genders. Moreover, this study observed that gender differences in risk aversion were affected by the fear index, whereas gender differences in loss aversion were affected by unemployment rates. Stock market rallies affected only men’s perceptions toward real estate value. Overall, a more noticeable optimism was observed in men, who were significantly influenced by house price changes.JEL Classifications: G10, R30

Order imbalance, market returns and macroeconomic news: Evidence from the Australian interest rate futures market

The relationship between order imbalance, market returns and macroeconomic news is examined in the context of the Australian interest rate futures market. Contemporaneous order imbalance exerts a significant impact on market returns in the expected direction i.e. excess buy (sell) orders drive up (down) prices. Order imbalances are related to past market returns with market participants acting in a contrarian manner across all products following market rallies. Nine major macroeconomic announcements are identified with order imbalance, and returns, reacting to such announcements in a manner that correctly reflects the news component. Following a scheduled macroeconomic announcement there is an increase in the level of information asymmetry within the interest rate futures market, demonstrated by an increased sensitivity to order flow. Finally, the pattern of order imbalance immediately prior to scheduled announcements suggests that there is no information leakage.

Components of Bull and Bear Markets: Bull Corrections and Bear Rallies

Existing methods of partitioning the market index into bull and bear regimes do not identify market corrections or bear market rallies. In contrast, our probabilistic model of the return distribution allows for rich and heterogeneous intra-regime dynamics. We focus on the characteristics and dynamics of bear market rallies and bull market corrections, including, for example, the probability of transition from a bear market rally into a bull market versus back to the primary bear state. A Bayesian estimation approach accounts for parameter and regime uncertainty and provides probability statements regarding future regimes and returns. We show how to compute the predictive density of long-horizon returns and discuss the improvements our model provides over benchmarks. This article has online supplementary materials.

Components of Bull and Bear Markets: Bull Corrections and Bear Rallies

Existing methods of partitioning the market index into bull and bear regimes do not identify market corrections or bear market rallies. In contrast, our probabilistic model of the return distribution allows for rich and heterogeneous intraregime dynamics. We focus on the characteristics and dynamics of bear market rallies and bull market corrections, including, for example, the probability of transition from a bear market rally into a bull market versus back to the primary bear state. A Bayesian estimation approach accounts for parameter and regime uncertainty and provides probability statements regarding future regimes and returns. We show how to compute the predictive density of long-horizon returns and discuss the improvements our model provides over benchmarks. This article has online supplementary materials.

Order Imbalance, Market Returns and Macroeconomic News: Evidence from the Australian Interest Rate Futures Market

The relationship between order imbalance, market returns and macroeconomic news is examined in the context of the Australian interest rate futures market. Contemporaneous order imbalance exerts a significant impact on market returns in the expected direction i.e. excess buy (sell) orders drive up (down) prices. Order imbalances are related to past market returns with market participants acting in a contrarian manner across all products following market rallies. Nine major macroeconomic announcements are identified with order imbalance, and returns, reacting to such announcements in a manner that correctly reflects the news component. Following a scheduled macroeconomic announcement there is an increase in the level of information asymmetry within the interest rate futures market, demonstrated by an increased sensitivity to order flow. Finally, the pattern of order imbalance immediately prior to scheduled announcements suggests that there is no information leakage.

Information & Communication Technology and capital market perspectives

Capital markets in the late 1990s were shaped by the US stock market bubble which imploded in 2001. The new economy hype has shown all typical bubble aspects of a new sector taking-off: many new firms entering the market, few newcomers realizing enormous profits and a small number of firms with sustained profits. As the New York stock market dominates international stock markets, there were considerable international spillover effects from the US bubble which implied negative costs of capital for firms in most OECD countries and thus stimulated overinvestment in the late 1990s and a following phase of underinvestment. However, telecommunications services and software have remained dynamic drivers of the digital economy. Part of the overvaluation in the stock market in the late 1990s was caused by fraudulent investment bankers who publicly recommended investment in Information & Communication Technology (ICT) shares while putting the thumb down on New Economy firms in internal meetings. The main motive for such inconsistent public reinforcement of the stock market rallies apparently was the desire of investment bankers to stimulate positive cross-selling effects for the mergers & acquisitions department of the bank. Fraudulent accounting at some New Economy firms further drove the stock market boom and contributed to biased pricing. When prices in capital markets suddenly and strongly fell from their high levels in 2000, this move reflected some normalization of stock market prices in the New Economy segment. Is the New Economy over? An analysis of the perspectives of the digital economy requires a focus on the valid core of Information & Communication Technology. As regards the role of ICT, there is one key indicator for the strategic role of this sector for both productivity and growth. The number of software engineers in the US in 2000 was higher than the number of all conventional engineers which indicates that there is an enormous number of highly skilled people who build the digital economy. Indeed, ICT was the key driver of productivity and income growth in the US and part of Europe in the 1990s. High productivity growth in ICT production and productivity effects from the use of ICT have raised economic growth in most OECD countries and several

The conundrum of stock versus bond prices

In a general way, stock and bond prices do not display any significant correlation. Yet, if we concentrate our attention on the specific episodes marked by a crash followed by a rebound, then we observe that stock prices have a strong connection with interest rates on one hand, and with bond yield spreads on the other hand. That second relationship is particularly stable in the course of time having been observed for over 140 years. Throughout the paper we use a quasi-experimental approach. By observing how markets respond to well-defined exogenous shocks (such as the shock of 11 September 2001) we are able to determine how investors organize their “flight to safety”: which safe haven they select, how long their collective panic lasts, and so on. As rebounds come to an end the correlation of stock and bond prices fades away, a clear sign that the collective behavior of investors loses some of its coherence; this observation can be used as an objective criterion for assessing the end of a market rebound. Based on the behavior of investors, we introduce a distinction between “genuine stock market rallies”, as opposed to spurious rallies such as those brought about by the buyback programs implemented by large companies. The paper ends with a discussion of testable predictions.

Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?

Financial market instability has been the focus of attention of both academic and policy circles. Rating agencies have been under particular scrutiny lately as promoters of financial excesses, upgrading countries in good times and downgrading them in bad times. Using a panel of emerging economies, this paper examines whether sovereign ratings affect financial markets. The authors find that changes in sovereign ratings have an impact on country risk and stock returns. They also find that these changes are transmitted across countries, with neighbor-country effects being more significant. Rating upgrades (downgrades) tend to occur following market rallies (downturns). Countries with more vulnerable economies, as measured by low ratings, are more sensitive to changes in U.S. interest rates.

Job Market Rallies a Bit for June Graduates

Job Market Rallies a Bit for June Graduates