Periods Of Market Uncertainty Research Articles

Statistical properties of co-quantiles and their applications to momentum spillovers

This article introduces co-quantiles, a new concept in rank statistics that generalizes quantiles, order statistics, and concomitants. In contrast to conventional order statistics that rank and record the same attribute of a population, or concomitants that consider different attributes observed over the same time period, co-quantiles allow for the ranking and recording of different attributes, and more generally their functions, across different time periods. In the special case of affine co-quantiles (defined formally in the article), we derive explicit expressions for their probability density functions and moments under the assumption that the distribution of the underlying data is multivariate normal. In particular, we establish that the former is a sum of unified skew-normal distributions introduced in Arellano-Valle and Azzalini (2006). The co-quantile results naturally reduce to those for order statistics and concomitants, and generalize those on the distributions of linear combinations and the maxima of vector-valued random variables obtained in Arellano-Valle and Genton (2007, 2008) and on cross-sectional momentum returns obtained in Kwon and Satchell (2018). As an example that has not been analyzed in the financial literature, we consider momentum spill-over returns and establish theoretically that these returns are susceptible to sudden changes in skewness and kurtosis during periods of market uncertainty.

The effect of financial distress on capital structure: The case of Brazilian banks

This study investigates the effect of financial distress on capital structure, considering banking performance variables and the economic environment. The analysis is based on balanced panel data for Brazilian listed banks, using accounting and non-accounting information on a quarterly basis from September 2009 to December 2016. This study uncovers evidence that the effect of financial distress on capital structure is context-dependent. During normal times, the findings support the argument for higher bank capital in times of financial distress. However, in periods of economic recession, the effect of bank distress on capital was found to be negative, indicating that the impact of banks’ risk on capital is especially important during such periods of market uncertainty. The findings are robust to alternative estimation methods and to alternative measures of risk. This study provides insights for the design of prudent regulation and the supervision of banks, especially for emerging markets economies, considering their highly uncertain environment with widely varying rates of growth and inflation.

Foreclosure Sales Under the UCC During the Covid-19 Pandemic

Under the Uniform Commercial Code (UCC), “every aspect” of a foreclosure sale must be commercially reasonable. The traditional commercial reasonableness standard was tested during the first year of the COVID-19 pandemic, as the unprecedented circumstances imposed by state restrictions prompted increased judicial scrutiny of UCC foreclosure sales. This occurred most prominently in the context of commercial property mezzanine loan foreclosures. A mezzanine loan is a property loan secured by a pledge of equity interests in the property-owning entity rather than a security interest in the property itself. As state mortgage foreclosure moratoriums restricted lenders’ abilities to foreclose on commercial property, mezzanine lenders initiated UCC foreclosures to circumvent this barrier and take control of their collateral. 
 This Note argues that courts adopted a more probing and holistic analytical approach to commercial reasonableness analyses during the first year of the pandemic. This approach more closely analyzed the procedures employed by foreclosing lenders and contextualized fair price considerations within wider market and societal concerns. This Note then proposes ways for secured creditors to protect their foreclosure sales during future periods of market uncertainty. Although secured creditors cannot fully insulate their foreclosure sales from fair price challenges in a market downturn, they should employ additional procedural safeguards to deflect commercial reasonableness challenges aimed at the alleged procedural irregularities of such sales.

Dynamics of connectedness across crude oil, precious metals and exchange rate: Evidence from time and frequency domains

The study explores connectedness across crude oil, precious metals (gold, silver, platinum and palladium) and foreign exchange on both time and frequency domains. The time-domain Diebold and Yilmaz (2012) and the frequency-domain Baruník and Křehlík (2018) measures of connectedness use daily data ranging from 28th April 2006 to 31st December 2019 for that purpose. The overall spillover measure indicates that on average and across entire sample, approximately 41% of the return spillovers in all the markets considered is due to interconnectedness. However, the directional spillovers show weak integration of crude oil and foreign exchange with precious metals, suggesting diversification opportunities. We further decompose overall spillovers into various frequencies and find that most of the interconnectedness are driven by very short-time horizons followed by short, very medium, medium and longer-time horizons. Furthermore, the rolling window estimates of connectedness indicate that spillovers are relatively higher during the periods of market uncertainty, such as Global Financial Crisis and European Debt Crisis. These findings are helpful for asset allocation and portfolio management to policymakers and market participants with heterogeneous investment horizons.

The Properties of Co-Quantiles and Their Applications to Momentum Spillovers

This paper introduces a generalization of quantiles, order statistics, and concomitants that we term co-quantiles, and investigates their statistical properties. The probability density functions for the co-quantiles are obtained along with their moments under the assumption that the distribution of the underlying data are multivariate normal. In contrast to the conventional order statistics that rank and record the same attribute of a population, or concomitants that consider different attributes observed over the same time period, co-quantiles allow the ranking and recording of different attributes across different time periods. The co-quantile results naturally reduce to those for order statistics and concomitants, and generalize those on the distributions of linear combinations and the maxima of vector valued random variables obtained in Arellano-Valle and Genton (2007, 2008) and those on cross sectional momentum returns obtained in Kwon and Satchell (2018). By applying the results to momentum spillover returns, we establish theoretically that these returns are susceptible to sudden changes in the skewness and the kurtosis during periods of market uncertainty. Since momentum spillover and cross sectional momentum are structurally very similar, this provides a theoretical explanation for the momentum crashes reported in the empirical literature over such periods.

The Lead–Lag Relationship between Oil Futures and Spot Prices—A Literature Review

Crude oil is the dominant energy resource worldwide. The focus of this paper is on its historical behaviour and subsequent implications for the global economy with an emphasis on the lead–lag relationship between spot and future prices. The paper examines the behaviour of oil spot and future prices and their determinants during periods of market uncertainty, particularly in the context of economic and financial crises. The analysis highlights a key controversy within the extant literature, as to whether spot or futures prices are the main crude oil price indicator. The literature review indicates that the lead–lag relationship is a dynamic one, especially during periods of sustained uncertainty, which leads to significant disagreements and incongruities among researchers regarding the price that plays a dominant role.

Changes of hierarchical network in local and world stock market

We consider the cross-correlation coefficients of the daily returns in the local and global stock markets. We generate the minimal spanning tree (MST) using the correlation matrix. We observe that the MSTs change their structure from chain-like networks to star-like networks during periods of market uncertainty. We quantify the measure of the hierarchical network utilizing the value of the hierarchy measured by the hierarchical path. The hierarchy and betweenness centrality characterize the state of the market regarding the impact of crises. During crises, the non-financial company is established as the central node of the MST. However, before the crisis and during stable periods, the financial company is occupying the central node of the MST in the Korean and the U.S. stock markets. The changes in the network structure and the central node are good indicators of an upcoming crisis.

Decrypting Financial Markets through E-Joint Attention Efforts: On-Line Adaptive Networks of Investors in Periods of Market Uncertainty.

This paper looks at 800,000 messages on the Unicredit stock, exchanged by 7,500 investors in the Finanzaonline.com forum, between 2005 and 2012 and measured collective interpretations of stock market trends. We examined the correlation patterns between market uncertainty, bad news and investors' network structure by measuring the investors' communication patterns. Our results showed that the investors' network reacted to market trends in different ways: While less turbulent market phases implied less communication, higher market volatility generated more complex communication patterns. While the information content of messages was less technical in situations of uncertainty, bad news caused more informative messages only when market volatility was lower. This meant that bad news had a different impact on network behaviour, depending on market uncertainty. By measuring the investors' expertise, we found that their behaviour could help predict changes in daily stock returns. We also found that expert investors were more influential in communication processes during high volatility market phases, whereas they had less influence on the real-time forum's reaction after bad news. Our findings confirm the crucial role of e-communication platforms. However, they also show the need to reconsider the fragility of these collective intelligence systems when under external shocks.

Invested interests? Reflexivity, representation and reporting in financial markets

Communication processes and information flows are an intrinsic dimension of financial markets. The neoclassical notion of information and market efficiency conceives of prices in terms of a more or less accurate representation of objective market conditions. However, this overlooks the reflexive, constitutive dimension of informational processes in financial markets. The massive flows of capital around the globe and the constant shifts in financial values entail intersubjective symbolic processes which complicate any notion of representative accuracy or objectivity in news reporting. Drawing on original research into media usage by New Zealand-based traders and analysts, the article discusses the potential for information flows among analysts and journalists to become self-referential during the periods of market uncertainty and volatility when the accuracy and validity of news would normally be regarded as most important. The findings indicate that the relation between analysts and reporters predisposes financial news to reflect and reinforce market consensus.