Net Position Research Articles

Is Regulatory Short Sale Data a Profitable Predictor of UK Stock Returns?

Regulator-required public disclosures of net short positions do not provide a profitable investment signal for UK stocks. While long-short (zero initial outlay) portfolios based on this signal usually make a profit on average, it is rarely statistically significant in either gross or risk-adjusted terms. The issue is that the short sides of the portfolios make substantial losses. This is true even when using information in the trend in disclosures to form portfolios, rather than using the most recent disclosures, which is a more standard procedure. Unit initial outlay portfolios based on the disclosures that are allowed to take short positions do not reliably significantly outperform the market. Certain long-only unit initial outlay portfolios based on the disclosures do reliably significantly outperform the market. However, this out-performance is economically modest: about 1 percentage point a year in gross and risk-adjusted terms.

Evaluating Conformity of Municipality Financial Data to Benford’s Law: An Exploratory Study

Benford’s Law provides an expected distribution of leading digits in a set of occurring numbers. The Law has been used to examine the distribution in many different types of data to identify irregularities or evidence of fraud. This paper provides exploratory evidence about the application of Benford’s Law in the government sector to analyze reported financial data from municipalities. The results suggest there is a significant nonconformity in reported financial information related to business type activities between those municipalities with unrestricted net position deficit balances (i.e. troubled municipalities) and those municipalities with a positive unrestricted net position balance (non-troubled municipalities).

HAWC+ Far-infrared Observations of the Magnetic Field Geometry in M51 and NGC 891

Abstract Stratospheric Observatory for Infrared Astronomy High-resolution Airborne Wideband Camera Plus polarimetry at 154 μm is reported for the face-on galaxy M51 and the edge-on galaxy NGC 891. For M51, the polarization vectors generally follow the spiral pattern defined by the molecular gas distribution, the far-infrared (FIR) intensity contours, and other tracers of star formation. The fractional polarization is much lower in the FIR-bright central regions than in the outer regions, and we rule out loss of grain alignment and variations in magnetic field strength as causes. When compared with existing synchrotron observations, which sample different regions with different weighting, we find the net position angles are strongly correlated, the fractional polarizations are moderately correlated, but the polarized intensities are uncorrelated. We argue that the low fractional polarization in the central regions must be due to significant numbers of highly turbulent segments across the beam and along lines of sight in the beam in the central 3 kpc of M51. For NGC 891, the FIR polarization vectors within an intensity contour of 1500 are oriented very close to the plane of the galaxy. The FIR polarimetry is probably sampling the magnetic field geometry in NGC 891 much deeper into the disk than is possible with NIR polarimetry and radio synchrotron measurements. In some locations in NGC 891, the FIR polarization is very low, suggesting we are preferentially viewing the magnetic field mostly along the line of sight, down the length of embedded spiral arms. There is tentative evidence for a vertical field in the polarized emission off the plane of the disk.

Oil shocks and financial systemic stress: International evidence

Abstract By conducting a structural VAR analysis on the financial systemic stress in 20 countries, this paper provides international evidence that oil structural shocks impact not only stress in individual financial markets but also their connectedness. The oil structural shocks explain a large fraction of the variation in the connectedness among various financial markets. The effect of oil structural shocks on financial systemic stress is largely dependent on the origins of oil price changes and a country's net oil export position. In most oil importing economies, financial systemic stress is negatively impacted by supply and aggregate demand shocks and positively impacted by oil-market specific demand shocks. Opposite patterns are detected in oil exporting economies. The effects of the spillovers are asymmetrically related with market conditions: During normal periods, more risks are spilled over from the oil market to financial systems, but during financial crises, the opposite occurs. In periods of financial crises and oil price collapses, there is noticeable contagion between the oil market and financial systems.

Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms

In the context of the debate on inflation targeting, this paper analyses the impact of the oil shocks on inflation expectations in three Nordic Kingdoms. A NARDL framework is applied to data from Jan 1994 to June 2018 on the Kingdoms of Norway, Sweden and Denmark. Our key findings suggest that there are considerable nonlinearities and asymmetries in the relationship between inflation expectations, oil shocks and economic determinants of inflation expectations. The expectations formulated in the past have a very significant negative impact on future inflation expectations (adaptive expectations) and there is heterogeneity in the adaptiveness pace. A country's net oil trade position seems to reflect on the impact of oil price shocks on the inflation expectations and there is asymmetry and downwards inflation expectations rigidity. There is strong evidence of exchange rate pass-through to inflation expectations. Prevailing regimes of price stability can support to anchor future inflation expectations. Reduction in fiscal deficit and increases in money supply has a positive impact while unemployment has a negative impact on inflation expectations. The cumulative multiplier analysis showed that the impact of oil shock was symmetric in Sweden and Denmark but asymmetric in Norway which is a large net oil exporter. Besides the adoption of explicit inflation targeting regime by Sweden and Norway, the inflation expectations in the underlying economies are prone to the oil price shocks and macroeconomic determinants. These shocks pose a whole set of challenges to monetary authorities in these economies and the findings in the subject treatise provide some guidance on how each shock may transmit.

Real Effects of Governmental Accounting Standards: Evidence from GASB Statement No. 53 - Accounting and Financial Reporting for Derivative Instruments

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, (GASB 53) significantly altered U.S. governmental sector accounting of derivative instruments by mandating the recognition of hitherto off-balance sheet derivative instruments in the government-wide statement of net assets and requiring that ineffective hedges be clearly identified. These requirements have an unfavorable financial statement impact for municipalities with net negative fair value derivative positions and municipalities holding ineffective hedges. Using a hand-collected, comprehensive dataset of municipal derivatives, we examine whether the level of U.S. municipal derivative holdings changed following the adoption of GASB 53. Consistent with GASB 53 affecting municipal officials’ derivative decisions, we find a significant post-GASB 53 reduction in derivative holdings for municipalities with net negative fair value derivative positions and ineffective hedges. Our findings suggest that governmental accounting regulations could affect real decisions of municipal officials and therefore could potentially have public policy implications beyond the provision of information to stakeholders.

Analyisis of the Effect of Restrictions on Net Short Positions on Spanish Shares between March and May 2020

This article analyzes what the cost may have been, in terms of market efficiency, of the ban on creating or increasing net short positions on the most liquid securities traded in the Spanish markets, which partially entered into force on 13 March 2020 and was then applied continuously from 17 March to 18 May. Specifically, the impact on some liquidity measures (such as the bid-ask spread, trading volume or the Amihud measure) is analyzed, as well as the impact on returns and intraday volatility of prices. Another objective is to assess whether the ban could have influenced the credit risk of financial and non-financial issuers whose securities are listed on equity markets. To perform the analysis, a study was made of variables related to the returns, vola¬tilities and liquidity measures of the shares listed on the stock exchanges that made up the Ibex 35 index in Spain and those that form part of the German Dax 30. The German index was chosen for this analysis, firstly, because its financial markets regulator did not adopt the decision to restrict short trades and, secondly, because the trends marked by prices, volatilities and liquidity measures during the period prior to the implementation of the measure in Spain were similar in the financial markets of both countries. From both the descriptive and econometric analyses it can be deduced that the securities included in the ban experienced a larger drop in liquidity (as measured by the bid-ask spread) compared to the unrestricted scenario, an impact which persisted when the ban was lifted, albeit to a lesser degree. However, there is no evidence of other effects derived from the ban on other relevant variables as the trading volumes, the price evolution, volatility, market depth or the issuers´credit spreads.

On Increasing the Market Value of Fixed Capital in Russia

The article compares the market value of Russian and American fixed capital in general and by type of economic activity. The multiple backlog of Russia in specific and especially in gross indicators is shown. The required investment (based on PPP for investment in fixed assets) necessary to bring the capital/labor ratio of the workplace in the Russian Federation up to the level of the United States in the economy as a whole and its sectors, the impact of more active implementation of the investment program on the Russian employment structure is calculated. The potential of reducing the net international investment position of the Russian Federation and restructuring of monetary policy as factors in the activation of the investment process is considered.

The role of stock-flow adjustment during the global financial crisis

While the recent contraction of current account imbalances that followed the Global Financial Crisis is well documented, this paper analyzes the increasing divergence of net international investment positions in the post-crisis period. Decomposing the change in the net international investment position into capital flows and stock-flow adjustment, I find that the increasing stock imbalances are driven by the flows. However, stock-flow adjustments show a stabilizing pattern. Countries with the largest net foreign liabilities experienced the greatest valuation gains. Analyzing this effect by different asset classes shows that this stabilizing pattern was driven by a change in the value of portfolio equity. The pro-cyclical movement of domestic stock markets during the post-crisis period improved international risk sharing through foreign portfolio equity liabilities.

Syndicate Structure, Primary Allocations, and Secondary Market Outcomes in Corporate Bond Offerings

We study corporate bond offerings, including underwriting syndicate structure, primary placement transactions, and secondary market outcomes. Although bond offerings rarely include “Greenshoe” options, the syndicate “overallocates” many issues, thereby attaining net short positions. Overallocations are economically substantive, facilitate the syndicate’s price stabilization efforts, and are largely offset within a few days after issuance. Secondary market liquidity is better and retail participation is higher for overallocated issues, and these issues appreciate less in the aftermarket, i.e., are less underpriced, despite syndicate purchases that temporarily support the bond price. The results indicate that the syndicate overallocates issues when uncertainty regarding secondary market order flow is high and that overallocation facilitates redistribution of the offer toward retail traders.

Impact of external currency exposures on macroeconomic policies

Based on cross-country panel regressions, the paper analyzes the impact of external currency exposures on monetary policy, exchange rate regime and capital controls. It is determined that positive net external position (which, e.g., is the case for Russia) is associated with a higher degree of monetary policy autonomy, i.e. the national key interest rate is less responsive to Fed/ECB policy and exchange rate fluctuations. Therefore, the risks of cross-country synchronization of financial cycles are reduced, while central banks are able to place a larger emphasis on their price stability mandates. Significant positive impact of net external currency exposure on exchange rate flexibility and financial account liberalization is only found in the context of static models. This is probably due to the two-way links between incentives for external assets/liabilities accumulation and these macroeconomic policy tools.

The nationalisation of British banks in post-colonial Tanzania: Did the banks’ net capital export position and home government support influence compensation negotiation outcomes?

Using materials from three relevant archives, this article explores the 1967 Nationalisation of the banking industry in Tanzania with particular focus on the three British banks that dominated the sector. Although it is widely agreed that prompt, adequate, and effective compensation should be paid for such nationalisations, studies in this arena have rarely focused on the contestations that impact on the definition and operationalisation of what constitutes fair compensation. This article explores the above dynamics using the Obsolescing Bargaining Power Theory. Evidence in this article suggests that the bargaining position of foreign multinational banks is stronger when they are net exporters of capital from their host countries. Also, the negotiating position of the British banks was further strengthened by the overt and covert support they received from the British Government.

Gender Gaps in Market Participation Among Individual and Joint Decision-Making Farm Households: Evidence from Southern Ethiopia

This paper analyzes market participation gaps among male, female, and joint decision-making households, and the factors influencing that gap, using data collected from 560 maize farm households in the Dawuro zone, southern Ethiopia. The results from the ordered probit analysis reveal that female and joint decision-making households were negatively associated with the probability of being a net seller, while being positively associated with being autarchic and net buyers. The decomposition results indicate clear market participation gaps in the net seller and net buyer positions between male and female decision-makers. The mean quantity gaps between males and females are more apparent in the net seller and net buyer positions. Between male and joint decision-makers, the mean quantity gaps are significant in the net seller and autarchic positions, while between female and joint decision-makers, it is significant in the net seller positions. In each market position, the quantity of gaps is unevenly distributed across the quantities of distribution, but the values increase as we approach higher levels of distribution. The gaps in the net seller and autarchic positions indicate that males are better positioned than females and that females are better positioned than joint decision-makers. Both endowment and return effects account for the quantity gaps. Thus, there is a need for policies to secure more equal access to productive resources for female and joint decision-making households and build their capacity to increase their resource returns.

Real effects of governmental accounting standards: Evidence from GASB statement No. 53 – Accounting and financial reporting for derivative instruments

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, (GASB 53) significantly altered U.S. governmental sector accounting of derivative instruments by mandating the recognition of hitherto off-balance sheet derivative instruments in the government-wide statement of net assets and requiring that ineffective hedges be clearly identified. These requirements have an unfavorable financial statement impact for municipalities with net negative fair value derivative positions and municipalities holding ineffective hedges. Using a hand-collected, comprehensive dataset of municipal derivatives, we examine whether the level of U.S. municipal derivative holdings changed following the adoption of GASB 53. Consistent with GASB 53 affecting municipal officials’ derivative decisions, we find a significant post-GASB 53 reduction in derivative holdings for municipalities with net negative fair value derivative positions and ineffective hedges. Our findings suggest that governmental accounting regulations could affect real decisions of municipal officials and therefore could potentially have public policy implications beyond the provision of information to stakeholders.

Net external position, financial development, and banking crisis

Does the external position of a country that is conditioned on financial development impact the likelihood of a systemic banking crisis? We address this question using data from 149 developing and advanced countries from 1970 to 2011, as well as a variety of statistical tools. Our findings are twofold. First, we find that the net external position of a country significantly affects its likelihood of a systemic crisis depending on the level of financial development. Conditional on low to moderate financial development, countries can lower the risk of banking crises significantly by maintaining a net foreign creditor status. Second, we find that the level of financial development raises a countryi?½s crisis risk significantly while its impact depends on the net asset position. This indicates a potential amplification effect in which countries with more developed and complex financial systems that are also debtor countries have a higher potential of incurring a systemic banking crisis.

Modelling trade and other economic interactions between countries in baseline projections

This paper examines the way trade and other economic interactions between countries are modelled in the construction of baseline projections with recursive dynamic computable general equilibrium (CGE) models. Simulations are conducted on the size of trade elasticities, the way the trade balance is modelled (macroeconomic closure), trade growth, and energy prices. Other topics scrutinized are the modelling of zeros, modelling of new technologies and new types of trade policies (trade in data and digitalization), phasing in of future trade policies, and migration and remittances. We conclude that there is relative consensus about the use of nested Armington preferences, whereas different scholars model the trade balance very differently. The discrepancy between baseline trade growth and historical trade growth is not considered in most models though highly relevant. Research efforts, both in terms of modelling and data collection, should be allocated to a better coverage of other items on the current account (capital income, remittances) and the inclusion of net foreign debt and asset positions, projecting trade growth based on historical patterns, and better tools to model the rapidly growing digital economy.

Households’ Net Financial Wealth as a Determinant of Tourism Demand Cycles: Evidence from US Travel to Selected Caribbean Destinations

Developments in households’ net financial wealth may be a better determinant of tourism demand flows than income. This study investigates the effect of cycles of US households’ net financial position on US tourism demand flows for three destinations (Aruba, Barbados, and Jamaica). The literature has conventionally considered income as a key driver of tourism demand, despite the imperfections of several applied proxies. However, there could be a disconnect in the relationship between income and tourism demand because of the net financial position of households. The study contributes to the literature by introducing net financial wealth as a determinant of tourism demand, by heterogenizing consumer decisions, and by providing theoretical propositions. The methodology includes data decomposition, unit root testing, and application of logistic regression. The results show that the relationship is household-, cyle-, and country-specific across time and probability dimensions, which could assist policy makers in better managing developments in destinations.

Does sentiment determine investor trading behaviour?

ABSTRACT Sentiment is a determinant of investors’ trading decisions and behaviours. After a sentiment shock, investors’ net positions change differently across investor types. In response to a sentiment change, individual (institutional) investors follow a positive (negative) feedback strategy, reflecting their different trading and investment purposes.

Redistribution in a political union: The case of the EU

AbstractA key function of centralized budgets in federal and political unions is to act as an equalizing mechanism to support economic and social cohesion. This is also the case with the European Union's (EU) budget, which operates as a redistributive mechanism that counteracts the cross‐national and cross‐regional inequalities created by the single market. Despite the limits on cross‐national redistribution imposed by a centrifugal system of representation, the net fiscal position of member states – what they pay to the EU budget minus what they receive from it – is very diverse and has changed quite remarkably over the last decades. In this paper, we investigate how and why the net fiscal position of each member state toward the rest of the EU changes over time. We develop a novel panel dataset (1979–2014) to study how key national and EU‐level political and economic variables affect the EU redistributive dynamics. We find that redistribution via the EU budget primarily targets developments in inequality within EU member states, and that an increase in domestic unemployment may also improve the country's fiscal balance. Moreover, we find that voting power in the Council is unrelated to a more positive fiscal balance. However, we find that governments with a centre‐right profile are in general more successful in improving their redistributive position vis‐à‐vis the other member states. This may create a problem of budgetary ‘rent extraction’.

Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy

We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply-and the real economy-through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero lower bound. For identification, we exploit ECB's NIRP and matched administrative datasets-including the credit register-from Italy, severely hit by the Eurozone crisis. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRP-affected banks rebalance their portfolios from liquid assets to lending, especially to ex-ante riskier and smaller firms-without higher ex-post delinquencies-and cut loan rates (even to the same firm), inducing sizable firm-level real effects. By contrast, there is no evidence of a retail deposits channel associated with NIRP.