Speculative Behavior Research Articles

Measures to reinforce the legal liability of the environmental interest subject —Based on the perspective of law and economics

Local government should be regarded as the main subject to be stipulated by environmental law, thus to avoid local government’s alignment with commercial interests. Such a shift would, furthermore, discourage collusion against environment law or speculative behaviors motivated by maximizing production at the expense of environment pollution. Moreover, whether companies make proactive decisions to prevent pollution or not depends on the severity of appropriate environment legal system’s sanctions for their action. It would encourage enterprises to undertake their own environmental responsibility if environmental law could further enhance their environmental liability. In addition, public environmental rights should be embedded into environmental law. In this way, the public may become more aware of their environmental rights as well as the positivity of total environmental interests.

Modelling Leaning Against the Windd of Asset Price Bubbles

This paper investigates the effects of different monetary policy regimes on asset prices. A model which incorporates speculative behaviour, central bank reactions and expectations of those reactions, is exposed to a series of shocks under two different regimes. The results of these simulations suggest that a policymaker who reacts (in a context of imperfect information) to possible bubble developments can deliver better economic outcomes, in terms of the level and volatility of the bubble, output and inflation, than a policymaker who does not react to asset prices. This area is of particular importance to policymakers since Goodhart and Hofmann (2008) argue that shocks to house prices, credit and money can have significant effects on the economy and overall price inflation. They find in particular that shocks to money and credit have a stronger effect on house prices when they are booming than at other times. As a result, they suggest that there may be a role for the central bank to play in responding indirectly to asset-price bubbles.

Implied Volatility and Stock Market Speculation

The stability of an economy is directly linked to the stability of the capital markets in which it operates and vice versa. The capital market stability is in turn linked to the asset price dynamics; most of these asset prices are modelled based on expected rate of return. The expected rate of return and direction of markets is determined from the implied market volatility (VIX index). The implied volatility is a forward looking variable which tells about the realised market volatility based of market participant’s expectations. Most of the times this implied volatility is over estimated compared to the realised volatility due to the speculative behaviour of the market participants. This speculative behaviour causes virtual dynamics in the implied variables which in turn caused virtual dynamics in the individual asset prices. The virtual dynamics in the asset prices causes the divergence in the realised or fundamental value of the market; which can be attributed to the irrational behavioural of the financial market participants. The present paper aims at understanding the source and level of the speculation, and also an attempt has been made to develop a novel quantitative behavioral framework to understand and rectify this speculative behaviour. An empirical analysis has been carried out on the S&P 500 Index and CBOE VIX Index to validate the proposed model. Some interesting results have been obtained from the present study which clearly shows the quantitative behavioural model has the capability to convergence the expected volatility with the realised market volatility, this helps the market participants, regulators and policy makers to make necessary corrections based on the predicted speculation.

Volume Shocks around Announcements in the Chinese Stock Market: An Ex-Post Earnings-Information-Based Study of Speculative Behavior

The Second Board Market is typical stock market for high tech companies in China. This paper discusses the relationship between trading volume and price changes in the case of high-tech listed companies in the Chinese Second-Board Stock Market. By using the basic concepts proposed by Kim and Verrecchia, and Kandel and Pearson, and contrasting them with ex-post information from earnings releases, the paper provides findings on the speculative behavior of informed traders with a volume shock premium. The paper suggests that these methods may be further applied to investigating investors’ behavior in speculation, especially for the high-tech-company-based Second-Board Stock Market during announcement periods.

Agricultural price volatility and speculation by commodity index funds: a theoretical analysis

PurposeThe role that speculation in futures markets plays during food price spikes is a subject of lively dispute. This issue is often addressed with empirical analyses. They suffer from data limitations and focus on the short-term impacts. The paper aims to discuss these issues.Design/methodology/approachThe authors develop a theoretical model to explain the behaviour of speculators and producers in futures and cash markets. Compared to the only two theoretical analyses by Vercammen and Doroudian where informational externalities are excluded and by Fishe et al. where production responses are excluded, the authors introduce both informational externalities and lagged production responses.FindingsThe authors find that the expanded net long positions of commodity index funds (CIF) are inconsistent with lower stock levels that typically prevail before the price spikes. These positions stimulate production, hence stocks, before the price spikes. Thus they contribute to soften the price volatility.Practical implicationsThe simulation results indicate that before imposing new regulations on financial markets, such as position limits on index funds, their beneficial medium-term effect as a hedging instrument for commercial participants should not be omitted or underestimated.Originality/valueBecause the authors develop a second-best theoretical framework, the authors find that CIF are not a systematic cause of medium-term market swings.

Measuring the degree of speculation in the residential housing market: A spatial econometric model and its application in China

Since the housing marketization reform, China's real estate industry has rapidly developed and commercial housing prices have risen sharply. The main reason for this is the speculative demand for housing, which breaks the equilibrium of supply and demand, leading to housing prices deviating from their basic value. The housing market in China is not isolated by province, since speculative behavior in one part of the country can affect other regions. This paper analyzes the spatial relevance in housing prices among different provinces in China by calculating Moran's I index and by measuring the speculation degree through spatial autoregressive model (SAR), a spatial economic model combined with a spatial weight matrix. For commercial housing speculation degree measurement and comparison, 31 provinces in China were chosen along with the following variables: housing prices, personal disposable income, one-year personal housing mortgage rates, housing prices growing rates, the rent, amount of residential investment, and the construction areas of houses. The results show that China's housing prices have a clear interaction among the selected cities, and that housing speculation behavior also influences each other in space. Although there are speculation activities in China, from a global perspective the degree of speculation, which varies from region to region, is still just within internationally acceptable limits. Although there are some regions with high degrees of housing speculation, the speculation is not yet China-wide.

Out-migration from the epicenters of the housing bubble burst during and in the aftermath of the Great Recession in the USA

During the Great Recession in the USA, the four Sand States—Arizona, California, Florida and Nevada—suffered from plunging home prices, massive layoffs and much slower population growth. Some metro areas in these states experienced the unprecedented net loss of population with increasing out-migration. Were the devastating labor market conditions in these four Sand States strong enough to force out a massive number of migrants to other states? Using multinomial logit models, this paper finds that the labor market status of an individual (part-time worker, unemployed and not in labor force) serves as an important factor for out-migration decision during a recession. The pushing effects of labor market status among the at-risk population in devastated labor markets are the largest for movers to intrastate destinations beyond metropolitan borders. The effects of labor market status for interstate out-migration are still significant but largely limited, due to higher moving costs and growing uncertainty. For the at-risk population with lower socioeconomic status, depressing labor market status triggers speculative migration; however, the speculative behavior among the overall at-risk population continuously slowed during the Great Recession, as the rather risk-aversive “wait and see” attitude had increased.

Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models

We propose a novel agent-based financial market framework in which speculators usually follow their own individual technical and fundamental trading rules to determine their orders. However, there are also sunspot-initiated periods in which their trading behavior is correlated. We are able to convert our (very) simple large-scale agent-based model into a simple small-scale agent-based model and show that our framework is able to produce bubbles and crashes, excess volatility, fat-tailed return distributions, serially uncorrelated returns and volatility clustering. While lasting volatility outbursts occur if the mass of speculators switches to technical analysis, extreme price changes emerge if sunspots coordinate temporarily the behavior of speculators.

The extent of virgin olive-oil prices’ distribution revealing the behavior of market speculators

The major problem facing olive oil producers each winter campaign, contrary to what is expected, is not whether the harvest will be good or not but whether the sale price will allow them to cover production costs and achieve a reasonable margin of profit or not. The aim of this paper is to study the olive oil price formation mechanisms in order to learn about the traders’ behavior in the olive oil market. We econometrically study the price formation by implementing statistical models and we provide an economic explanation for the stylized facts detected in olive oil price series. For prediction purposes, we use the artificial neural network (ANN) approach. Our main findings indicate that the AR(1)-GJR(1,1) model and the Ornstein–Uhlenbeck process with stochastic volatility succeeded to some extent in capturing the series stylized facts. The unstable participants’ behavior creates the volatility clustering, non-linearity dependent and cyclicity phenomena. By imitating each other in some periods of the campaign, different participants contribute to the fat tails observed in the olive oil price distribution. The best prediction model for the olive oil price is based on a back propagation ANN approach with input information based on discrete wavelet decomposition and recent price past history.

Ticket pricing with different inventory information displays

This study considers a ticket seller who can use three different display formats: displaying all, displaying partial, and displaying no information, to reveal the number of remaining seats of the event, and determines the corresponding optimal pricing strategies when facing myopic and strategic customers as well as a speculator. We investigate the effects that the three different display formats have on the customers’ willingness to make a purchase and the speculator’s speculative behavior. The results show that displaying no information enables customers to guess the number of remaining tickets only based on the status of ticket sales when entering the market, and, as a result, they would perceive the highest shortage risk. Displaying partial information hinders customers with regard to accurately predicting the sales, which increases their perception of future shortage risk, and thus more strategic customers would purchase tickets at the presale stage. Additionally, this intensive purchase behavior would also attract more speculators to enter the market, which, would enhance the total sales and reduce the risk of unsalable tickets for the seller. With regard to profitability, the ticket seller earns the most profit when displaying no information, followed by displaying partial information and then displaying all information, since the less the information about remaining seats that is available, the greater the perception of shortage risk, and thus the more ticket sales that are made.

Crude inventory accounting and speculation in the physical oil market

This paper uses inventory data from financial accounts to explore whether companies involved in the physical oil market were speculating in the run-up to 2008. Using quarterly inventory data over the period 1990Q4 to 2012Q1 and a sample of 15 of the largest listed oil companies in the world, we derive an Index of Scaled Physical Inventories (ISPI). We find declining ISPI up to the early 2000s is consistent with firms minimizing inventory for efficiency sake; then ISPI starts to increase, suggesting physical inventories could have contributed to the run-up in oil prices between 2003 and 2008. Highlighting heterogeneity in inventory behaviors amongst the large oil companies, the structural break test on the ratio of inventory to sales and the days to sales for individual companies shows that five companies had positive structural breaks during the speculation period, while the other companies had no or negative structural breaks. Contrary to declining inventory expectations due to a tightening oil market, the positive structural breaks suggest speculative behavior. We also examine the relationship between changes in profitability and changes in oil inventory over the pre-speculation and speculation period. Though some coefficients for inventory do switch from negative to positive over the two periods as hypothesized, they are only significant in a few cases. However, aggregate measures of inventory do switch and are significant, suggesting that, on average, inventory holdings negatively affected profitability in the pre-speculation period and positively affected profitability in the speculation period.

Speculative behavior in a housing market: Boom and bust

We study a housing market with household buyers, speculative investors and property developers in a Walrasian scenario. We show that in addition to the factors that affect the real demand of household buyers and the development cost of property developers, investors' speculative behavior is an important factor explaining housing price evolution and dynamics. In particular, investors' extrapolative expectations may drive the housing price to persistently deviate from its benchmark value and even to explode. In contrast, investors' mean-reverting strategy can balance out the position of trend extrapolators, which may stabilize an otherwise explosive housing market. Moreover, the evolutionary process of housing prices driven by investors' speculative behavior is path-dependent in the sense that different initial market conditions may result in different price paths, which corresponds to the localization property empirically documented in the real housing market. In addition, within the stylized model, we provide some policy implications through analyzing the limitation and effectiveness of policy adjustments via down payment and development cost, and find that the decrease of development cost is a better measure to adjust the housing market when it booms or busts.

New leads in speculative behavior

Abstract The Kiyotaki and Wright (1989) (henceforth KW) model of money emergence as a medium of exchange has been studied from various perspectives in recent papers. In the present work we propose a minimalistic model for the behavior of agents in the KW framework, which may either reproduce the theoretical predictions of Kiyotaki and Wright (1989) on the emerging Nash equilibria, or (less closely) the empirical results of Brown (1996), Duffy and Ochs (1999) and our own, introduced in a first part of the present paper. The main import is the systematic computer scanning of speculative monetary equilibria under drastic bounded rationality of agents, based on behavior previously observed in the lab.

Volatility, trading volume and open interest in futures markets

Purpose The purpose of this paper is to examine the effect of trading volume and open interest on volatility of futures markets. The authors capture the size and change in speculative behaviour in futures markets by examining the role of liquidity variables (trading volume and open interest) in the behaviour of futures prices. Design/methodology/approach The sample includes daily data covering the period 1996-2014 from 36 international futures markets (including currencies, commodities, stock indices, interest rates and bonds). The authors employ a two-stage estimation methodology: first, the authors employ a E-GARCH model and consider the asymmetric response of volatility to shocks of different sign. Further, the authors consider a regression framework to examine the contemporaneous relationships between volatility, trading volume and open interest. To quantify the percentage of volatility that is caused by liquidity variables, the authors also regress the estimated volatilities on the measures of open interest and trading volume. Findings The authors find that: market depth has an effect on the volatility of futures markets but the direction of this effect depends on the type of contract, and there is evidence of a positive contemporaneous relationship between trading volume and futures volatility for all futures contracts. Impulse-response functions also show that trading volume has a more relevant role in explaining market volatility than open interest. Practical implications These results are recommended to financial managers and analysts dealing with futures markets. Originality/value To the best of the authors’ knowledge, no study has yet considered a complete database of futures markets to investigate the empirical relation between price changes (volatility), trading volume and open interest in futures markets.

Neighborhood Effects on Speculative Behavior

Speculative behavior plays a key role in financial markets, but little is known about its causes. We test for neighborhood effects on speculative behavior using daily lottery sales data, allowing us to separate investor sentiment effects from information transmission effects. In a sample of 160,000 retailers, lottery sales in a census block increase by $0.26, on average, for each $1 increase in neighboring blocks. We test whether this correlation is attributable to contextual effects, correlated effects, or endogenous effects. Our analysis suggests that social interaction, driven by investor sentiment, is a key cause of speculative behavior.

Two realms in confrontation: consensus or discontinuity? An exploratory study on the convergence of critical assessment and market evaluation in the contemporary art system

ABSTRACTThe article explores the convergence between the market-oriented actions of commercial art galleries and the exhibiting choices in the museum environment. The convergence between museums’ and galleries’ choices not only jeopardizes the traditional hypothesis of independence of the art system but it could also produces a lack of informational balances and speculative behaviors. Specifically, the article studies the convergence between the two realms comparing the diffusion of artists in Art Basel and in a sample of contemporary art museums and centers. Two databases were used: one gathering all the galleries that participated in Art Basel from 2005 to 2012 and the presented artists; a second one collecting information about the exhibitions held in 34 institutions between 2005 and 2013, plus 2 editions of Documenta (2007 and 2012). The main evidences suggest that the curatorial side includes a larger variety of artists (only one-third of the artists exhibited in the selected institutions also participated in Art Basel). Nevertheless, both sides grant higher attention to the same smaller group of artists and orient their preferences in the same direction. Therefore, the contribution reveals, at least in the short term, a set common preferences and expectations, which could engender higher speculative risks.

EXISTE UMA BOLHA IMOBILIÁRIA NO BRASIL? UMA ANÁLISE TEÓRICA E EMPÍRICA

Tendo como referência o approach teórico pós-keynesiano, o objetivo do presente artigo consiste em verificar se existe uma bolha imobiliária no Brasil. Para tanto, em um primeiro momento, analisa-se o comportamento de alguns indicadores, que, de acordo com a referida teoria, poderiam sugerir a existência de uma bolha especulativa no mercado imobiliário. Posteriormente, realizam-se alguns procedimentos econométricos a fim de se constatar em que medida o aumento do preço dos imóveis no Brasil está relacionado à alteração de algumas variáveis fundamentais ou à possibilidade de comportamento especulativo por parte dos agentes econômicos no mercado imobiliário. Este estudo apresenta duas conclusões: por um lado, os resultados mostram que os custos de produção e outras variáveis fundamentais não são suficientes para explicar o aumento significativo dos preços dos imóveis no Brasil nos últimos anos; e, por outro lado, o comportamento do crédito, a postura financeira das famílias e as condições gerais da economia corroboram a hipótese da existência de uma bolha no mercado imobiliário.

Crude Inventory Accounting and Speculation in the Physical Oil Market

This paper uses inventory data from financial accounts to explore whether companies involved in the physical oil market were speculating in the run-up to 2008. Using quarterly inventory data over the period 1990Q4 to 2012Q1 and a sample of 15 of the largest listed oil companies in the world, we derive an Index of Scaled Physical Inventories (ISPI). We find declining ISPI up to the early 2000s is consistent with firms minimizing inventory for efficiency sake; then ISPI starts to increase, suggesting physical inventories could have contributed to the run-up in oil prices between 2003 and 2008. Highlighting heterogeneity in inventory behaviors amongst the large oil companies, the structural break test on the ratio of inventory to sales and the days to sales for individual companies shows that five companies had positive structural breaks during the speculation period, while the other companies had no or negative structural breaks. Contrary to declining inventory expectations due to a tightening oil market, the positive structural breaks suggest speculative behavior. We also examine the relationship between changes in profitability and changes in oil inventory over the pre-speculation and speculation period. Though some coefficients for inventory do switch from negative to positive over the two periods as hypothesized, they are only significant in a few cases. However, aggregate measures of inventory do switch and are significant, suggesting that, on average, inventory holdings negatively affected profitability in the pre-speculation period and positively affected profitability in the speculation period.

Dating the Timeline of House Price Bubbles in Australian Capital Cities

House prices in some Australian capital cities have recently been on the rise to the extent that some describe this as an emerging bubble, but this claim remains formally untested to date. We apply a recently developed time series procedure to detect, and time‐stamp, bubbles in house price to rent ratios in Australian capital cities. The results show a sustained, yet varying, degree of speculative behaviour in all capital cities in the 2000s before the 2008 global financial crisis (GFC) engulfing different housing markets. The onset of these bubbles was soon after the federal government introduced a major change to the capital gains tax law, and all of these bubbles collapsed with or before the GFC. As of January 2016 only Sydney exhibits significant evidence of an exuberant rise in house prices compared to rents. We believe that the method we apply has the potential to be a general early warning indicator to detect housing bubbles in other countries/markets. We provide the programming files to enable researchers to implement this test in other countries.

Portugal’s bailout and the crisis of the European Union from a capability perspective

The global financial crisis revealed the weaknesses of the EU integration process, in general, and of the Eurozone, in particular. The EU institutions responded to the crisis in an inadequate way, in the belief that government debt stabilisation had to be pursued before the economy recovers. This strategy was based on economic forecasting errors, exposing member-states to the speculative behaviour of financial markets, leading to the bailout of countries such as Portugal, and undermining the confidence in the single currency, in the European economy and in the European project itself. We analyse here the crisis of the European Union (EU) in light of the bailout of Portugal, and propose an alternative strategy for Portugal and the EU, drawing upon Amartya Sen’s capability approach.