Showing papers in "International Review of Finance in 2021"
TL;DR: This paper examined the causality and co-movement between economic policy uncertainties and stock market liquidity using monthly data from G7 countries and found that stock market illiquidity varies with the uncertainty but in the same direction while liquidity co-moves in the opposite direction.
Abstract: In the aftermath of the 2007–2008 global financial crisis, there were heightened concerns among the market participants and policymakers on the potential adverse effects of economic policies on stock market liquidity. This paper examines the causality and co‐movement between economic policy uncertainties and stock market liquidity using monthly data from G7 countries. Our empirical analysis considers wavelet coherence and wavelet phase angle tests. Linear and nonlinear causality test results suggest that a causal relationship exists between economic policy uncertainty and stock market liquidity. Moreover, stock market illiquidity varies with the uncertainty but in the same direction while liquidity co‐moves in the opposite direction. In times of economic turmoil or crises, the relationship between policy uncertainty and illiquidity becomes stronger, and illiquidity leads economic policy uncertainty. Overall, our findings indicate that the leading indicator property of (il)liquidity is useful for providing economic information and thereby to manage market conditions and investor expectations.
27 citations
27 citations
TL;DR: In this article, the impact of sovereign credit rating and outlook changes on the shape of the sovereign yield curve was studied. But, the effect of rating downgrades and ratings upgrades on the yield curve of five peripheral European countries was not analyzed.
Abstract: This paper studies the impact of sovereign credit rating and outlook changes on the shape of sovereign yield curve. The data sample consists of five peripheral European countries known as GIIPS (Greece, Ireland, Italy, Portugal and Spain) over the period of 01 January 2001 to 30 June 2016. We use dynamic Nelson-Siegel model to estimate the level, slope and curvature of yield curve and subsequently, Vector Autoregressive model to estimate the effect of sovereign rating and outlook changes on the sovereign yield curve. We find significant effect of rating downgrades and insignificant effect of rating upgrades in all the five countries; however, find mixed results for the effect of changes in outlook status. We find some peculiarity in the behavior of Portuguese yield curve that is explainable under preferred habitat theory. A battery of sensitivity tests also validates the results.
26 citations
26 citations
22 citations
18 citations
TL;DR: In this article, the authors examine the effect of corporate social responsibility (CSR) on shareholders' value and find that firms engaged in more CSR activities outperform other firms.
Abstract: The COVID-19 outbreak and the subsequent lockdown were an unanticipated shock to the global stock market. Managers also had minimal time to counterbalance its effect through corporate policies. Therefore, this health crisis offers a unique opportunity to examine the effect of corporate social responsibility (CSR) on shareholder value. We observe that firms engaged in more CSR activities outperform other firms. This suggests that CSR plays a positive role in determining shareholder value, particularly for an emerging market where minority shareholder rights are weak. Collaborating with our main finding, we further find that governance metrics play a significant role.
16 citations
15 citations
14 citations
TL;DR: This article examined the relation between government economic policy uncertainty and debt contracting of U.S. public firms and found that policy uncertainty is associated with more stringent debt terms, such as shorter debt maturity, higher cost of debt, and more restrictive debt covenants, and these relations are concentrated in financially constrained firms.
Abstract: We examine the relation between government economic policy uncertainty and debt contracting of U.S. public firms. We find that policy uncertainty is associated with more stringent debt terms, such as shorter debt maturity, higher cost of debt, and more restrictive debt covenants, and these relations are concentrated in financially constrained firms. Further analysis indicates that the negative real effects of policy uncertainty documented in the literature is more pronounced for financially constrained firms. Overall, our evidence suggests that policy uncertainty dampens external financing and exacerbates firms’ financial constraints, leading to their investment delays.
12 citations
TL;DR: In this article, a comparative examination of Islamic equity markets and their conventional counterparts during the COVID-19 pandemic via maximum drawdown-based risk measures was conducted. And the results showed that most of the Islamic sectors experience relatively lower drawdown as well as faster recovery than their non-Islamic counterparts.
Abstract: We undertake a comparative examination of Islamic equity markets and their conventional counterparts during the COVID-19 pandemic via maximum drawdown-based risk measures The two-digit drawdown throughout the underlying sectors signifies the indiscriminate impact of the pandemic It appears that most of the Islamic sectors experience relatively lower drawdown as well as faster recovery than their non-Islamic counterparts During the period, Islamic markets outperformed their counterparts Islamic markets also hold healthier Calmar ratios while the emerging markets retain relatively higher metrics
TL;DR: Using the Hubei province in China as the COVID-19 pandemic epicenter and January 23, 2020 as the event date (the date the Chinese government announced the lockdown of Wuhan, the provincial capital), Wang et al. as discussed by the authors found that firms that engaged strongly in corporate social responsibility (CSR) activities in terms of corporate donations prior to the outbreak experienced less of an adverse impact than those with no or weak CSR activities, suggesting that CSR serves an insurance-like function that alleviates the adverse impact on stock returns precipitated by negative investor
Abstract: Using the Hubei province in China as the COVID-19 pandemic epicenter and January 23, 2020 as the event date (the date the Chinese government announced the lockdown of Wuhan, the provincial capital), we document that while Chinese firms generally exhibited negative cumulative abnormal returns (CARs) around the event date, firms located far from the Hubei province experienced relatively less adverse impact by way of negative CARs than firms located close to and in the province Moreover, firms that engaged strongly in corporate social responsibility (CSR) activities in terms of corporate donations prior to the event date experienced less of an adverse impact than those with no or weak CSR activities, suggesting that CSR serves an insurance-like function that alleviates the adverse impact on stock returns precipitated by the negative investor sentiment stemming from COVID-19
TL;DR: In this article, the effects of monetary policy on the bubbles in the real estate investment trust (REITs) sector of the United States were analyzed using a time-varying vector autoregressive model.
Abstract: In this article, we analyze the effects of monetary policy on the bubbles in the Real Estate Investment Trusts (REITs) sector of the United States. We use a time‐varying vector autoregressive model over the quarterly period of 1972:1 to 2018:1. We find protracted periods, starting from the onset of the recent financial crisis to the end of the sample period, where contractionary monetary policy is associated with increases in the bubble component in the REITs of the US economy. This result, which is robust to alternative REITs indexes, is contrary to the “conventional” view, as well as to the predictions of standard models of bubbles.
TL;DR: Li et al. as mentioned in this paper used the volume of Weibo posts by individuals to generate a direct attention proxy for the effect of social media in China, and found that investor attention brought by social media after violations announcements positively affects corporate violations, as reflected in a higher probability and more timely action to redress violations.
Abstract: At the new stage of information technology era, the transmission of information between listed companies and investors may not be dominated by traditional media, but the widely used social media which can provide additional information to listed companies. We utilize the volume of Weibo posts by individuals to generate a direct attention proxy for the effect of social media in China. By applying the latent instrument variables (LIV) approach to control for endogeneity problem, we find that investor attention brought by social media after violations announcements positively affects corporate violations, as reflected in a higher probability and more timely action to redress violations. The positive Weibo‐based attention effects are stronger when executives are more concerned about their reputations and companies have better reputations in the capital markets. This paper shows that building an effective and efficient social media platform can better inspire investors to actively pay their attention to certain information of listed companies. Such investors' active attention may form a monitoring role in listed companies and thereby substitute for some external mechanisms to protect their own rights.
TL;DR: In this article, the authors find that while all firms can overcome information uncertainty about their firm fundamentals and reduce their spreads by having more readable financial disclosures, there is an additional benefit in terms of readability further lowering the cost of debt for innovative firms.
Abstract: Innovative firms confront potential lenders with various risks, including possible innovation failure, uncertain R&D investment payoffs, cash flow volatility, and low collateral value of hard-to-value intangible assets. As a result, these firms might struggle to obtain financing. More readable financial disclosures could mitigate the informational risk around innovative firms' fundamentals, ease their monitoring by lenders, and thus ultimately reduce these firms' cost of debt. In this regard, we find that while all firms can overcome information uncertainty about their firm fundamentals and reduce their spreads by having more readable financial disclosures, there is an additional benefit in terms of readability further lowering the cost of debt for innovative firms. The additional benefit that innovative firms can achieve from having more readable financial disclosures, however, is limited to situations of more pronounced information asymmetry where there is no previous lending relationship.
TL;DR: The authors examined investors' within ESG investment preferences during the COVID-19 pandemic by investigating the return spillover effects across the three different corporate bonds and equities-based investment strategies.
Abstract: I examine investors' within ESG investment preferences during the COVID-19 pandemic by investigating the return spillover effects across the three different corporate bonds and equities-based investment strategies. Investors prefer making investments in ESG leaders in the investment-grade corporate bond market over ESG leaders in the equity and high yield corporate bond markets during times of uncertainty. It suggests that capital flows away from high yield corporate bond and equity markets to the investment-grade corporate bond market. Investors find refuge in firms with relatively higher ESG ratings and creditworthiness in the fixed income market over the equity market during crisis periods.
TL;DR: In this article, the authors proposed a new measure of systemic risk named CSRISK, which identifies a financial institution's capital shortfall under the worst scenario conditional on a substantial market decline.
Abstract: This study proposes a new measure of systemic risk named CSRISK, which identifies a financial institution's capital shortfall under the worst scenario conditional on a substantial market decline. The CSRISK index requires only public financial data, including accounting and market trading information, which is time and cost effective. The empirical sample consists of 238 US banks over the time period 2003–2013. Overall, we find that it is increasing from 2004 to 2009 and then starts to slightly decrease. This systemic risk measure has the potential to be widely applied in the practical aspects of risk management and macroprudential policy making.
TL;DR: In this article, the authors investigate the relation between media attention and firm value and whether this relation varies across different institutional and information environments and find that media coverage is positively associated with firm value.
Abstract: We investigate the relation between media attention and firm value and whether this relation varies across different institutional and information environments. Using a comprehensive dataset of global media from 41 countries for the period between 2000 and 2010, we find that media coverage is positively associated with firm value. In addition, we find support for two channels through which the value effect of media coverage operates: the information asymmetry reduction channel and the monitoring channel. Importantly, we document that the positive association between media coverage and firm value is stronger for firms in countries with weak institutional characteristics or less transparent information environments. Our findings provide additional insights into the role of the media in international equity markets.
TL;DR: In this paper, the forecasting power of a daily newspaper-based index of uncertainty associated with infectious diseases (EMVID) for real estate investment trusts (REITs) realized market variance of the United States (US) via the heterogeneous autoregressive realized volatility (HAR-RV) model was examined.
Abstract: We examine the forecasting power of a daily newspaper-based index of uncertainty associated with infectious diseases (EMVID) for real estate investment trusts (REITs) realized market variance of the United States (US) via the heterogeneous autoregressive realized volatility (HAR-RV) model. Our results show that the EMVID index improves the forecast accuracy of realized variance of REITs at short-, medium-, and long-run horizons in a statistically significant manner, with the result being robust to the inclusion of additional controls (leverage, realized jumps, skewness, and kurtosis) capturing extreme market movements, and also carries over to 10 sub-sectors of the US REITs market. Our results have important portfolio implications for investors during the current period of unprecedented levels of uncertainty resulting from the outbreak of COVID-19.
TL;DR: In this paper, the authors study how value creation in vertical acquisitions varies in the importance of the target's assets to its acquirer, and find evidence suggesting that acquirers extract greater value as the synergistic gain increases, consistent with an efficient investment incentive underlying the integration decision.
Abstract: We study how value creation in vertical acquisitions varies in the importance of the target’s assets to its acquirer. The synergistic gain increases in the degree of vertical relatedness between the acquirer and target industries. This finding suggests that the importance of the target firm’s assets to its acquirer’s productivity is an important value-creating channel in vertical acquisitions. We also find evidence suggesting that acquirers extract greater value as the synergistic gain increases, consistent with an efficient investment incentive underlying the integration decision.
TL;DR: In this paper, the authors compared the ability of alternative consumption-wealth ratios, based on constant parameter (cay), Markov-switching, and time-varying parameter cointegration estimation of the consumption function, for predicting in and out-of-sample movements of quarterly excess returns of U.S. government bonds over 1953:Q2 to 2015:Q3.
Abstract: This paper compares the ability of alternative consumption-wealth ratios, based on constant parameter (cay), Markov-switching (cayMS ) and time-varying parameter (cayTVP) cointegration estimation of the consumption function, for predicting in- and out-of-sample movements of quarterly excess returns of U.S. government bonds over 1953:Q2 to 2015:Q3. Our findings show that after controlling for standard financial and macroeconomic factors, cay outperforms the cayMS and cayTVP in predicting the path of excess returns on bonds. Implications of our results for academics, investors and policymakers are discussed.
TL;DR: This article used an implied volatility slope measure, which proxies the cost of option protection against and therefore trader's fear of crash risk, using the Shanghai Shenzhen CSI 300 Index options and showed that this measure is positively related to new cases and deaths of the pandemic during the COVID-19 outbreak in China.
Abstract: The COVID-19 pandemic has increased fear of a financial market crash in China. We use an implied volatility slope measure, which proxies the cost of option protection against and therefore trader's fear of crash risk, using the Shanghai Shenzhen CSI 300 Index options. We show that this measure is positively related to new cases and deaths of the pandemic during the COVID-19 outbreak in China. Option traders are willing to pay more for hedging downside tail risk as the pandemic worsens, and are no longer as concerned by news of cases and deaths after the lift of the lockdown.
TL;DR: In this article, the authors investigated the impact of the coronavirus disease 2019 pandemic on investors' trading behaviors around ex-dividend dates in Europe and found that the firms that maintained dividend payments during the pandemic attracted more interest than before.
Abstract: This paper investigates the impact of the coronavirus disease 2019 pandemic on investors' trading behaviors around ex-dividend dates in Europe. The sudden decrease in the number of companies paying dividends reduced the opportunities to capture dividends. Thus, the firms that maintained dividend payments during the pandemic attracted more interest than before. This led to a doubling in the magnitude of stock return patterns usually observed around ex-dividend days. Our evidence indicates that dividend-seeking investors are likely to be the main driver of the price patterns observed around ex-dividend dates.