UK Financial Market Research Articles

A new method for measuring financial resilience

This paper proposes a new model to measure financial resilience from the perspective of external risk shocks, which composes of three submodels, namely, the dynamic factor model, the time-varying parameter vector autoregression (TVP-VAR) model, and the resilience characteristic measurement model with two dimensions: absorption intensity and absorption duration. At the theoretical level, we simulate and analyze the changing paths of financial resilience under different scenarios. At the empirical level, we apply the model to study the resilience of the UK financial market. The results indicate that the UK financial resilience fluctuations exhibit phased characteristics and there is a clear inverse relationship between absorption intensity and absorption duration. Notably, periods of low resilience often coincide with specific risk events.

Access to the UK Financial Market After the UK Withdrawal from the EU: Disruption, Design, and Diffusion

This article examines the setting of the legal regime governing third country access to the UK financial market, in light of the political, market, and legal disruption associated with the UK withdrawal from the EU. It considers the UK reform context and the priority being given to securing UK financial market competitiveness, identifies a related and significant liberalization of the third country regime, and examines the implications for the UK, the EU, and for international financial market access.

Market Efficiency in the UK Emerging Financial Markets

The UK financial market system is huge, more clearly divided and more functional. Under the impact of the world financial innovation trend and the increasing competition in the international financial market, the UK financial market has made quite bold financial innovations. The internationalization trend of the UK's emerging financial market, capital market and London foreign exchange market are all strengthening. The efficiency of financial markets has a significant impact on the effective functioning of financial markets and thus on the efficiency of real economic operations. Market efficiency is influenced by a variety of factors. This paper examines market efficiency in detail from the perspectives of resource allocation theory, incomplete information theory, institutional economics theory and behavioral economics theory, and concludes that market efficiency is the result of a combination of factors such as resource allocation, and information, economic behavior. According to the efficient market hypothesis, investment decisions are largely determined by market efficiency. However, even the most developed financial markets in the world today are hardly guaranteed to conform to the perfect competition hypothesis. In summary, the study of market efficiency issues has far-reaching practical implications for the UK emerging financial markets in the transition period.

Removing Bankers’ bonus cap: Will this enhance the competitiveness of the UK financial market?

Removing Bankers’ bonus cap: Will this enhance the competitiveness of the UK financial market?

Analysis of the Influences of Covid-19 on the UK Financial Market from a Time Series Perspective

The outbreak of the Covid-19 began on December 28, 2019 and has continued to this day. The outbreak of the Covid-19 has caused varying degrees of impact on the financial markets of various countries, causing fluctuations in the stock markets of various countries to varying degrees. This article selects FTSE 100, UK daily new and Global daily new (except UK) from January 24, 2020, and uses ARMA-GARCH model and VAR model to model and analyses the data and to study how Covid-19 is affecting the UK stock market. At the same time, this article will also draw the conclusion that Covid-19 will have a greater impact on the UK stock market in the short term, but then as consumers gradually accept the fact that Covid-19 will coexist with the stock market for a long time, Covid-19 will have a greater impact on the UK stock market. The long-term impact on the UK stock market will level off. In addition, this article will also give some suggestions to investors, so that investors can better avoid the risks brought by Covid-19. For example, investors can choose the right time to invest according to our image.

The Impact of Government Policy Responses to the COVID‐19 Pandemic and Brexit on the UK Financial Market: A Behavioural Perspective

AbstractAt the height of the COVID‐19 pandemic in the United Kingdom, the Governor of the Bank of England, while granting an interview, described the pandemic as an unprecedented economic emergency and said that the Bank could go as far as radical money‐printing operations. In reaction, the UK financial market, particularly the FTSE 100 and pound sterling, witnessed record‐breaking losses. Considering this evidence, we hypothesized that the emotions and moods of investors towards the financial market might have been impacted by the information they obtained from frequent government policy announcements. Furthermore, we proposed that the United Kingdom's final exit from the European Union (Brexit), which coincided with the pandemic, could have worsened the outlook of the UK financial market, as investors began to diversify their portfolios. Consequently, we examined the impact of government's policy announcements on investors’ reactions to the concurrence of the COVID‐19 pandemic and Brexit. Our findings reveal that the psychology of investors during the pandemic was significantly shaped by frequent policy announcements, which in turn affected overall market behaviour.

Shaping success through creative failure: A historical sensemaking analysis of the computerisation of the UK financial market

This article draws on the concept of sensemaking and sensegiving to examine how the failure of a project, TAURUS, influenced the successful development of an innovative security settlement system, CREST, which has shaped the computerisation of the wholesale UK financial industry. We use a historiographic interpretative approach to analyse publicly available documents, via three theoretical constructs that have emerged from combining business history and organisational studies literature. First, we define historical sensegiving as the ability to shape contextually the way others make sense of complex historical situations. Second, we establish the sensemaking of failure, which is the ability to make sense of failure in a historical context. Finally, we find that historical enactment supports the creation of structures and events by bracketing them in a historical context. We coin the term ‘creative failure’ to characterise how failure can be reimagined as a route to creative success through a sensemaking process.

Sustainable energy consumption and capital formation: Empirical evidence from the developed financial market of the United Kingdom

Financial transaction in the United Kingdom is one of the largest in the world, how sustainable energy consumption influence the sustainability of the UK’s developed financial market transactions vis a vis the country’s economic growth and capital formation is to date not established. To achieve parsimonious results, the study used time series data from 1970 to 2013. The study applied the Zivot-Andrew structural break test, the Bayer-Hanck combined cointegration test; the ARDL bounds testing approach to cointegration and the Johansen cointegration test. The findings from the ARDL estimation was validated using the innovation accounting test and the impulse response function. The results confirmed the existence of cointegration among the variables. The study discovered the relationship between the developed financial market and energy consumption to have an inverted U-shape pattern of exacerbating the model arrangement of energy consumption in the UK. This suggests that energy demand rises with financial market development and start to decline after a threshold level of the markets’ operational peak. Implying that the global financial transaction that flows from other countries to the UK are an indirect form of additional pressure to the country’s electricity predicaments, and this need to be investigated by energy policy makers. In addition to that, the study found economic growth to have a significant influence on sustainable energy consumption, while, capital formation is positively linked with energy demand. The causality analysis, on the other hand, exposed the existence of bidirectional causal relationship pointing out how sustainable energy consumption could lead to the resilience of the UK Financial market and the country’s economic growth prospects. How and in what manner can this happen is clearly discussed in this study. In addition to that, the implications of our findings to the currrent BREXIT debate is also discussed.

International Financial Contagion During the Subprime Crisis: Evidence from UK Financial Markets

In this paper, we investigate the dynamics of contagion from the US low grade asset-backed securities (ABSs) market to UK financial markets during the 2007 subprime mortgage crisis and identify the contagion channels using both a single-state vector autoregressive (VAR) model and a Markov-switching vector autoregressive (MSVAR) model. We show that a shock to the US low grade ABS market results in a significant and persistent effect on the yields of UK financial assets, which demonstrates the existence of contagion. Moreover, contagion episodes mainly occur during periods of financial crisis. We also find that the contagion effects of the US lower grade ABS market are transmitted to UK financial markets through a number of channels, including flight to liquidity, risk premium, flight to quality, and correlated information.

Policy uncertainty and international financial markets: the case of Brexit

ABSTRACTThis study assesses the impact of the Brexit probability on both the UK and on international financial markets, for the first and the second statistical moments. As financial markets are by nature highly interlinked, one might expect that the uncertainty engendered by Brexit also has an impact on financial markets in several other countries. We first estimate the time-varying interactions between UK policy uncertainty, which to a large extent is attributed to uncertainty about Brexit and UK financial market volatilities. Second, we use two other measures of the perceived probability of Brexit before the referendum, namely daily data released by Betfair and results of polls published by Bloomberg. Based on these data sets, and using both panel and single-country SUR estimation methods, we analyse the Brexit effect on levels of stock returns, sovereign CDS, 10-year interest rates in 19 predominantly European countries, and those of the British pound and the euro. We show that Brexit-induced policy uncertainty will continue to cause instability in key financial markets and has the potential to damage the real economy in both the UK and other European countries. The main losers outside the UK are the ‘GIIPS’ economies: Greece, Ireland, Italy, Portugal and Spain.

Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis

The 2008 financial crisis exposed the dark side of the financial sector in the UK. It brought attention to the contaminated culture of the business, which accommodated the systemic malpractices that largely contributed to the financial turmoil of 2008. In the wake of the crisis there seems to be a wide consensus that this contaminated culture can no longer be accepted and needs to change. This article examines the ills of the UK financial market, more specifically the cultural contamination problem, which was uncovered by the 2008 financial crisis, in order to explore its genesis and the suitable solutions for it. In this regard, the article analyses the ethical finance sector from theoretical and practical perspectives in order to assess its role in addressing the cultural contamination problem of the UK financial market.

The reason for the regulation of contracts for difference and its impact on hedge fund activism

The Financial Service Authority (FSA) introduced a new regime requiring the disclosure of synthetic holdings equally to shares with effect of September 2009. The disclosure of shares assists identifying dominant investors; however, the disclosure of synthetic holdings does not serve the same purpose and therefore logic suggests that the new regime does not satisfy the rationale of shareholder disclosure. The motivation of current research is to analyse the implications of this regime. It generates extensive costs which has inevitably detrimental effects on the UK financial market. The focus of this research will be on hedge funds engaging in the influence of companies, so-called activist hedge funds, for which the negative effect is most evident. The approach is as follows. First existing alternatives under the market abuse regime (MAR) will be analysed which ought to govern misconducts by exploring relevant cases. Second, it will be investigated whether the new regime is market or regulator induced. For this purpose a collection of market responses will be analysed which are representative for the market concern. Second, a literature review on the regulators framework will be conducted to investigate the reliability of FSA's argumentation on the raison d’etre of the regime. In addition, guidance on the disclosure of financial instruments will be scrutinised inter alia in a comparative study. The findings suggest that base for the current regime is faulty and the costs exceed the benefits. It will be recommended that the regime needs revision and should approximate the US regime.

Estimating Risk Aversion in C-CAPM Model: A Comparison between GMM and Multivariate GARCH-M

Risk aversion, a useful indicator in the financial market, is generally modelled as a parameter using general equilibrium models with observable macroeconomic factors such as consumption-based capital asset pricing model (C-CAPM). In the estimation procedure, one way is to estimate the Euler equation directly using Generalised Method of Moments (GMM). The main problem of this method is to identify instruments in the estimation. Another method is to estimate no-arbitrage condition using multivariate generalised autoregressive conditional heteroskedasticity in mean model (GARCH-M). Until now, there is no evidence that which one is best in the performance of estimating the risk aversion. In this paper, we carry out a risk aversion estimating experiment and compare these two econometric methods using UK financial market as a test market. It shows that GMM is relatively superior to multivariate GARCH-M for predicting the risk aversion. In addition, it also reports certain ideal instruments for UK in the application of GMM method.

The Sociology and Geography of Mortgage Markets: Reflections on the Financial Crisis

The article presents a symposium discussion assessing the role the sociological and geographical aspects of the mortgage market played in the 2008 financial crisis. Combinations of interrelated causes of the global financial crisis include deregulation and re-regulation, financialization and globalization, and bubbles and wrong incentives. The various ways the mortgage market is shaped and reshaped by both mortgage lenders and state institutions is examined. It is stressed that mortgage loan securitization is largely an invention of government and government erected institutions such as Fannie Mae and Freddie Mac.

BOOK REVIEW: "International Regulatory Rivalry in Open Economies: The Impact of Deregulation on the US and UK Financial Markets", by Doha M. Abdelhamid

BOOK REVIEW: "International Regulatory Rivalry in Open Economies: The Impact of Deregulation on the US and UK Financial Markets", by Doha M. Abdelhamid

Anticipation of Monetary Policy in UK Financial Markets

This paper examines the question of whether the ability of market interest rates to predict future policy rate changes in the United Kingdom has changed markedly over the period 1975-2003. Such improvements in predictability could arise from greater transparency in the monetary policy process, together with greater credibility of the Bank of England. Empirical tests, using a simple term structure model, show that predictability has indeed improved over the sample period as a whole, and most markedly after the introduction of inflation targeting in 1992. But closer inspection of the data reveals that predictability did not rise smoothly over time, nor is it possible to generalise this result across maturities. Furthermore, attempts to identify structural breakpoints in a formal way were on the whole unsuccessful. Nonetheless, the paper concludes that, over the longer sample period, the data show a clear improvement in the ability of market participants to predict policy rate changes by the Bank of England.

International Regulatory Competition and Deregulation What has Happened to the US and UK Financial Markets?

"Comparative enquiry resembles foreign travel. Both are expensive, time consuming and bewildering. Both are best done in a spirit of parochialism. We learn about abroad by comparing foreigners with ourselves. The most rewarding comparison, like the most rewarding travel, thus consists in a continuous series of surprises—sometimes at the strangeness and sometimes at the familiarity of foreign practices"

The deregulation of the world financial markets: myths, realities, and impact

Preface Evolution of Worldwide Deregulation of Financial Markets: New Concepts, Strategies, and Products Economics and Nature of Financial (De)Regulation Deregulation of the U.S. Financial Markets Deregulation of the Japanese Financial Markets Deregulation of the UK Financial Markets: The Big Bang Deregulation of Other Financial Markets Impact of U.S. Deregulation Future of Deregulation Select Bibliography Index