1. Introduction and Overview. 2. Detecting Influential Observations and Outliers. 3. Detecting and Assessing Collinearity. 4. Applications and Remedies. 5. Research Issues and Directions for Extensions. Bibliography. Author Index. Subject Index.

Regression Diagnostics: Identifying Influential Data and Sources of Collinearity

The main focus of this paper is to study empirically the impact of terrorism on the behavior of stock, bond and commodity markets. We consider terrorist events that took place in 25 countries over an 11 year time period and implement our analysis using different methods: an event-study approach, a non-parametric methodology, and a filtered GARCH-EVT approach. In addition, we compare the effect of terrorist attacks on financial markets with the impact of other extreme events such as financial crashes and natural catastrophes. The results of our analysis show that a non-parametric approach is the most appropriate method among the three for analyzing the impact of terrorism on financial markets. We demonstrate the robustness of this method when interest rates, equity markets integration, spillover and contemporaneous effects are controlled. We show how the results of this approach can be used for investors' portfolio diversification strategies against terrorism risk.

/pdf/the-impact-of-terrorism-on-financial-markets-an-empirical-2xlkhylci9.pdf

The Impact of Terrorism on Financial Markets: An Empirical Study

The main focus of this paper is to previous termstudynext term empirically the previous termimpact of terrorismnext term on the behavior of stock, bond and commodity previous termmarkets.next term We consider terrorist events that took place in 25 countries over an 11-year time period and implement our analysis using different methods: an event-previous termstudynext term approach, a non-parametric methodology, and a filtered GARCH–EVT approach. In addition, we compare the effect of terrorist attacks on previous termfinancial markets with the impactnext term of other extreme events such as previous termfinancialnext term crashes and natural catastrophes. The results of our analysis show that a non-parametric approach is the most appropriate method among the three for analyzing the previous termimpact of terrorism on financial markets.next term We demonstrate the robustness of this method when interest rates, equity previous termmarketnext term integration, spillover and contemporaneous effects are controlled. We show how the results of this approach can be used for investors’ portfolio diversification strategies against previous termterrorismnext term risk.

/pdf/the-impact-of-terrorism-on-financial-markets-an-empirical-4utkdhtxli.pdf

The impact of terrorism on financial markets: An empirical study

https://hal-audencia.archives-ouvertes.fr/hal-01153899/document

Risk and ethical investment: Empirical evidence from Dow Jones Islamic indexes

Does gender diversity on banks' boards matter? Evidence from public bailouts

A number of studies have investigated the causes and effects of stock market crashes. These studies mainly focus on the factors leading to a crash and on the volatility and co-movements of stock market indexes during and after the crash. However, how a stock market crash affects individual stocks and if stocks with different financial characteristics are affected differently in a stock market crash is an issue that has not received sufficient attention. In this paper, we study this issue by using data for eight major stock market crashes that have taken place during the December 31, 1962–December 31, 2007 period with a large sample of US firms. We use the event-study methodology and multivariate regression analysis to study the determinants of stock returns in stock market crashes.

/pdf/stock-market-crashes-firm-characteristics-and-stock-returns-1v35e419p3.pdf

Stock market crashes, firm characteristics, and stock returns

In this paper, we study and compare the determinants of stock returns in the 1987 and 2008 stock market meltdowns with the multivariate regression analysis technique. We find that technical insolvency risk and bankruptcy risk were significant determinants of stock returns in the 2008 market meltdown. Investors were also somewhat concerned with bankruptcy risk in the 1987 market meltdown. However, technical insolvency risk was not a significant determinant of stock returns in the 1987 meltdown. Our findings indicate that stocks with higher betas, larger market cap, and greater return volatility lost more value in both meltdowns. We find the market-to-book ratio to be a significant determinant of stock returns in the 2008 meltdown but not in the 1987 meltdown. We find stock illiquidity to be a significant determinant of stock returns in the 1987 meltdown but not in the 2008 meltdown. With data for two most important stock market meltdowns in U.S. history since the Great Depression, we test several extant theories related to the determinants of stock returns.

A Comparison of the Determinants of Stock Returns in the 1987 and 2008 Stock Market Meltdowns

The bear market of October 9, 2007–March 9, 2009, was the worst in U.S. history since the Great Depression. During this period, U.S. stocks lost about 58% of their value in just 16 months. Because of declining real estate prices, foreclosures, and the large amount of mortgage-backed assets held by banks, the amount of bank credit available to business firms was sharply reduced, creating a serious liquidity shortage. The authors test the hypothesis that technical insolvency and bankruptcy risks were significant determinants of stock returns in the October 9, 2007–March 9, 2009 bear market. They also test several hypotheses related to the effects of beta, firm size, market-to-book ratio, and volatility on stock returns in bear markets and stock market crashes.

The Determinants of Stock Returns in theOctober 9, 2007–March 9, 2009 Bear Market

Thaler and De Bondt [1985] demonstrate that investors may overreact to economic events. Studying investor overreaction to economic events has been a popular research topic in finance. However, investor overreaction to certain firm characteristics during economic events has not received sufficient attention. In this article, we study investor overreaction to firm technical insolvency and bankruptcy risks in the 2008 stock market crash. We demonstrate that firms with high technical insolvency and bankruptcy risks lost more value relative to other firms in the 2008 crash. However, these firms gained more value relative to other firms in the post-crash market reversal, implying that investors overreacted to technical insolvency and bankruptcy risks in the 2008 crash. Although firms with a high bankruptcy risk also lost more value in the 1987 stock market crash, these firms did not gain more value relative to other firms in the post-crash market reversal, implying that there was no investor overreaction to bankruptcy risk in the 1987 crash.

Investor Overreaction to Technical Insolvencyand Bankruptcy Risks in the 2008Stock Market Crash

Motivated by the SEC’s recent discussion on leveraged exchange-traded funds (LETFs) and LETFs’ rapid growth, this study provides an analytical and empirical comparison of the performance of LETFs versus traditional investing on margin. First, we prove that the return distribution of LETFs has higher skewness than that of a market portfolio on margin, which may reduce downside risks for investors. Second, we empirically test the daily-return model used in literature to construct LETF returns, and find that the published expense ratio may underestimate the actual cost of those funds for investors. Third, using historical data, we replicate the returns of LETFs and market portfolios on margin. The empirical results show that across different holding periods, the returns of the LETF strategies are higher (lower) than that of market portfolios on margin during strong (moderate) bull and strong (moderate) bear markets. LETFs also provide lower downside risks, and a simple strategy based on the 3× LETF can generate higher risk-adjusted return. Moreover, we find that the LETFs are less risky during every bear market since 1927.

Jia Wang

Papers

Stock market crashes, firm characteristics, and stock returns

A Comparison of the Determinants of Stock Returns in the 1987 and 2008 Stock Market Meltdowns

The Determinants of Stock Returns in theOctober 9, 2007–March 9, 2009 Bear Market

Investor Overreaction to Technical Insolvencyand Bankruptcy Risks in the 2008Stock Market Crash

Leveraged Exchange-Traded Funds Versus Investing on Margin