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North American Journal of Economics and Finance
Journal Prestige (SJR): 0.634
Citation Impact (citeScore): 1
Number of Followers: 1  
 
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 1062-9408
Published by Elsevier Homepage  [3168 journals]
  • Probability of Default in Collateralized Credit Operations for Small
           Business
    • Abstract: Publication date: Available online 2 December 2019Source: The North American Journal of Economics and FinanceAuthor(s): Jaimilton Carvalho, Jaime Orrillo, Fernanda Rocha Gomes da SilvaAbstractThe paper examines how the collateral affects the probability of default for small firms. We present a stylized theoretical model to derive the relationship between the level of collateral and subsequent loan default. We find that the probability of default is negatively correlated with the level of collateral, which is intuitive. Subsequently, we test this relationship by using a proprietary database of collateralized loans of small Brazilian enterprises.
       
  • Long-run Dynamics of Exchange Rates: A Multi-frequency Investigation
    • Abstract: Publication date: Available online 30 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Long Hai Vo, Duc Hong VoAbstractThe empirical observation that purchasing power parity (PPP) holds in the long run but not in the short run has enjoyed a near-consensus status in international finance literature. However, a similar degree of agreement has not been reached with respect to the exact horizon of this “long run” aspect. To shed light on this matter, a novel approach is adopted in this paper to combine conventional time series methodology with insights from multi-frequency analyses. In particular, we simultaneously explore price-exchange-rate dynamics not only through time, but also at various horizons via a wavelet decomposition. Unit root tests applied to wavelet-based decomposed real exchange rates indicates that PPP holds at horizons consistent with the literature. With respect to the predictive value of our approach, we show that our decomposed measures provide guidance to future movements of real change rates. Additionally, we find that nominal exchange-rate dynamics are dominated by activities corresponding to low frequencies. Results from this study thus enable researchers and practitioners to establish an exchange-rate modelling framework with increased efficiency.
       
  • Expected currency returns and volatility risk premia
    • Abstract: Publication date: July 2019Source: The North American Journal of Economics and Finance, Volume 49Author(s): José Renato Haas OrnelasAbstractThis paper addresses the predictive ability of currency volatility risk premium – the difference between an implied and a realized volatility – over US dollar exchange rates using a time series perspective. The intuition is that, when risk aversion sentiment increases, the market quickly discounts the currency, and later this discount is accrued, leading to a future currency appreciation. Based on two different samples with a diversified set of 30 currencies, I document a positive relationship between currency volatility risk premium and future currency returns. Results remain robust even after controlling for traditional fundamental predictors like Purchase Power Parity and interest rate differential.
       
  • Stock prices, dividends, and structural changes in the long-term: the case
           of U.S.
    • Abstract: Publication date: Available online 27 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Vicente Esteve, Manuel Navarro-Ibáñez, María A. PratsAbstractAccording to several empirical studies, the Present Value model fails to explain the behaviour of stock prices in the long-run. In this paper we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a better empirical description of the Present Value model of U.S. stock prices. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008),Kejriwal and Perron, 2010 as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). The results obtained are consistent with the existence of linear cointegration between the log stock prices and the log dividends. However, our empirical results also show that the cointegrating relationship has changed over time. In particular, the Kejriwal-Perron tests for testing multiple structural breaks in cointegrated regression models suggest a model of three regimes.
       
  • Measuring the effects of unconventional monetary policy on MBS spreads: A
           comparative study
    • Abstract: Publication date: July 2019Source: The North American Journal of Economics and Finance, Volume 49Author(s): Ling WangAbstractUsing micro-level data of Mortgage-Backed Securities (MBS) deals – a different empirical approach than those employed in the existing literature, this paper examines quantitatively how unconventional monetary policy affect MBS spreads and thus augments the still very limited literature on the link between unconventional monetary policy and mortgage markets. This paper also provides the first comparative study including both the U.S. and Japan in order to offer a broader perspective on this issue. We find that unconventional monetary policies implemented by the U.S. Federal Reserve and the Bank of Japan both have statistically significant effects in lowering MBS spreads. Furthermore, our evidence suggests that in the U.S., the Federal Reserve’s market-based approach to unconventional monetary policy of providing direct financial support to the MBS market is effective in reducing MBS spreads, while in Japan, it is the Bank of Japan’s bank-based approach to unconventional monetary policy of providing direct financial support to commercial banks that is effective in reducing MBS spreads.
       
  • The role of sentiment and stock characteristics in the translation of
           analysts’ forecasts into recommendations
    • Abstract: Publication date: July 2019Source: The North American Journal of Economics and Finance, Volume 49Author(s): Pilar Corredor, Elena Ferrer, Rafael SantamariaAbstractThe purpose of this paper is to further understanding of the determinants of analysts’ translational effectiveness and, specifically, the role of stock characteristics in the impact of sentiment in the translation of analysts’ forecasts into recommendations. We construct a proxy of intrinsic value of a stock based on that of Ohlson (1995), which incorporates all the information contained in the analysts’ earnings forecasts. Our results show that, although analysts do translate their earnings forecast valuations into recommendations, the effectiveness of this process is reduced by investor sentiment only in highly sentiment-sensitive stocks. This suggests the degree of analyst coverage as a potential conditioner of the observable results in a market. While not totally eliminating this observed effect, the Market Abuse Directive regulation does contribute to reduce the skew between analysts’ earnings forecasts and their recommendations. Finally, analysis of this effect reveals that this kind of skew enables investment strategies yielding positive risk-adjusted returns in highly sentiment-sensitive stocks, during periods of high market sentiment.
       
  • Endogenous Network Efficiency, Macroeconomy, and Competition: Evidence
           from the Portuguese Banking Industry
    • Abstract: Publication date: Available online 21 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): André Bernardo Alves, Peter Wanke, Jorge Antunes, Zhongfei ChenAbstractAlthough performance analysis has become a vital part of the banking industry, research on the efficiency of Portuguese banking remains scarce and focused on discussing rankings to the detriment of unveiling its productive structure relative to its competition. This issue is of utmost importance considering the relevant transformations in the Portuguese economy over the last ten years. In this study, we developed a network productive structure comprising two paradigms (the production and intermediation approaches, respectively) to assess how market competition and other macro-economic variables impact bank efficiency and their feedback effects in Portugal. Unlike previous research, an integrated multi-layer perceptron (MLP) / hidden Markov model (HMM) was used for the first time to unveil endogeneity among banking competition, macro-economic variables, and the efficiency levels of the production and intermediation approaches in banking. The findings illustrate the pattern of interaction among these variables and verify that the production efficiency is the cornerstone of endogeneity in Portuguese banks. Policy makers will find the results helpful.
       
  • Holidays, Weekends and Range-Based Volatility
    • Abstract: Publication date: Available online 21 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Ana-Carmen Díaz-Mendoza, Angel PardoAbstractThis study analyses the effect of non-trading periods on the forecasting ability of S&P500 index range-based volatility models. We find that volatility significantly diminishes on the first trading day after holidays and weekends, but not after long weekends. Our findings indicate that models that include autoregressive terms that interact with dummies that allow us to capture changes in volatility levels after interrupting periods provide greater explanatory power than simple autoregressive models. Therefore, the shorter the length of the non-trading periods between two trading days, the higher the overestimation of the volatility if this effect is not considered in volatility forecasting.
       
  • Determinants of foreign and domestic investment bias in global bond
           markets: Some empirical evidence
    • Abstract: Publication date: July 2019Source: The North American Journal of Economics and Finance, Volume 49Author(s): Donghyun Park, Kiyoshi Taniguchi, Shu TianAbstractIn this paper, we define foreign (domestic) bias as the deviation of foreign (domestic) investors’ actual portfolio allocation in a bond market from the same bond market’s weight in global bond market. We investigate the determinants of foreign and domestic investment bias in 41 global bond markets. Our evidence indicates that foreign investors significantly overweigh markets that offer better risk-return profiles. Such return driven behavior of foreign investors is especially pronounced in emerging bond markets. Foreign investors are also found to avoid volatility in highly controlled bond markets. Our evidence sheds some light on the importance of improving investor profile in emerging markets.
       
  • Contagion Effects and Risk Transmission Channels in the Housing, Stock,
           Interest Rate and Currency Markets: An Empirical Study in China and the
           U.S.
    • Abstract: Publication date: Available online 16 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Peiwan Wang, Lu ZongAbstractThis paper aims to investigate the crisis linkage and transmission channels within the housing, stock, interest rate and the currency markets in the U.S. and China in the past decade since the 2008 Subprime Mortgage Crisis. Two hybrid models, namely the SWARCH-EVT-Copula and the Bivariate SWARCH-EVT models, are proposed and applied in order to take into account A) the high/low volatility regimes, B) the interdependence structure inherited from the joint tail behaviours, as well as, C) the risk spillover dynamics among financial sectors during market turmoils. We empirically show that the housing and stock markets share the strongest linkage and play central roles in the spreading of shocks. With a highly integrated system, the American financial sectors are under greater exposure to risk contagion and systemic risk during crises than the Chinese markets. Nevertheless, the exchange rate risk of Renminbi remains at an intensive level since its “crawl-like arrangement” and leads to increasing co-movements in the stock and interest rate markets since 2014.
       
  • Asymmetric dependence structures for regional stock markets: An
           unconditional quantile regression approach
    • Abstract: Publication date: Available online 16 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xiyong Dong, Changhong Li, Seong-Min YoonAbstractOwing to the asymmetry of stock markets, this study investigates the dependence structures for six regional stock markets according to different market conditions by applying the unconditional quantile regression (UQR) approach. This approach can address the traditional conditional quantile regression (CQR) approach’s limitation that its distributions are defined conditional on specific covariates. Specifically, we not only examine the detailed linkages among these six regional stock markets, but also explore the effect of global economic factors on them, given the strengthening of both international investment and the globalization of financial markets. The results show these dependence structures are often an asymmetric U-shaped or inverted U-shaped structure, which indicates that the impacts of both other geographically and economically close stock markets and economic factors are more pronounced during bear and bull markets than during normal markets, especially so in bear markets. Moreover, the UQR approach provides stronger extreme-value relationships and more significant asymmetric effects than the traditional CQR approach.
       
  • Impact of Volatility Jumps in a Mean-Reverting Model: Derivative Pricing
           and Empirical Evidence
    • Abstract: Publication date: Available online 15 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Hsin-Yu Chiu, Ting-Fu ChenAbstractThis paper investigates the critical role of volatility jumps under mean reversion models. Based on the empirical tests conducted on the historical prices of commodities, we demonstrate that allowing for the presence of jumps in volatility in addition to price jumps is a crucial factor when confronting non-Gaussian return distributions. By employing the particle filtering method, a comparison of results drawn among several mean-reverting models suggests that incorporating volatility jumps ensures an improved fit to the data. We infer further empirical evidence for the existence of volatility jumps from the possible paths of filtered state variables. Our numerical results indicate that volatility jumps significantly affect the level and shape of implied volatility smiles. Finally, we consider the pricing of options under the mean reversion model, where the underlying asset price and its volatility both have jump components.
       
  • Returns, Volatility and Spillover – A Paradigm Shift in India'
    • Abstract: Publication date: Available online 14 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Shubhasis Dey, Aravind SampathAbstractWe investigate spillovers in returns and volatility among five major financial assets in India. Spillovers account for more than 25 percent of the forecast error variance in all the five markets. Banking, real estate and gold matter the most for India. Shocks from US economy to India arrive via Gold and forex markets. Events including the general elections and demonetization were contemporaneous to major episodes of return and volatility spillovers in the analyzed assets. Demonetization policy and President Trump’s election have increased regulatory risk for the Indian IT sector outlining its importance for gold and banking sector volatility shock transmission.
       
  • Predictability in sovereign bond returns using technical trading rules: Do
           developed and emerging markets differ'
    • Abstract: Publication date: Available online 8 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Tom Fong, Gabriel WuAbstractThe study examines the predictability of 48 sovereign bond markets based on a strategy of 27,000 technical trading rules. These rules represent four popular trading rule classes, they are: moving average, filtering, support and resistance, and channel breakout rules, with numerous variants in each class. Empirical results show that (i) investing in sovereign bond markets is predictable, based on the buy-sell signals generated by trading rules, with the predictability of the emerging Asian markets being significantly higher than those of the advanced markets; (ii) the predictability is generally higher when the US tightens its monetary policies or undergoes recession and a financial crisis; (iii) two-thirds of sovereign bond markets have a higher predictability when we use a machine learning algorithm to determine the best trading rule strategy; and (iv) the predictability of a sovereign bond market is higher when the economy has a less effective government, lower regulatory quality, narrower financial openness, higher political risk, lower income and faster real money growth. Our results suggest that shocks originating from US monetary policy or economic conditions could have a considerable spillover effect on sovereign bond markets, particularly the emerging Asian markets.
       
  • Does Going Public in the U.S. Facilitate Corporate Innovation of Foreign
           Firms'
    • Abstract: Publication date: Available online 7 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Kelly Cai, Hui ZhuAbstractWe examine how going public in the U.S. IPO market influences corporate innovation. Using 185 foreign and 2,948 U.S. domestic firms going public in the U.S. over the 1980-2006 period, we find that while exhibiting similar innovativeness in the pre-IPO period, non-U.S. firms tend to generate more innovation than U.S. domestic firms after going public. The findings are robust to adopting subsample tests, various measures of changes in innovation around the year of the IPO, and accounting for truncation problems and potential endogeneity concerns. Further tests show that changes in innovation around the year of the IPO tend to be less prominent for non-U.S. firms that domiciled in countries with more developed equity market and higher level of economic freedom. Our study provides insights into the real effect of going public in the U.S. IPO market on innovative activities.
       
  • Asymmetric determinants of corporate bond credit spreads in China:
           Evidence from a nonlinear ARDL model
    • Abstract: Publication date: Available online 7 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xiao-Lin Li, Lin Li, Deng-Kui SiAbstractThis study utilizes the nonlinear ARDL (NARDL) model proposed by Shin, Yu, and Greenwood-Nimmo (2014) to quantify the potentially asymmetric transmission of positive and negative changes in each of the possible determinants of industry-level corporate bond credit spreads in China. The determinants we consider include the corresponding industry stock price, China’s stock market volatility, the level and slope of the yield curve (i.e., the interest rate), the industrial production growth rate, and the inflation rate. The empirical results suggest substantial asymmetric effects of these determinants on credit spreads, with the positive changes in the determinants showing larger impacts than the negative changes for most industries we consider. Moreover, the corresponding industry stock prices, the interest rate, and the industrial production growth rate negatively drive the industry credit spreads for many industries. In turn, China’s stock market volatility and the inflation rate positively affect the credit spreads at each industry level. These findings may be helpful to investors, bond issuers and policymakers in understanding the dynamics of credit risks and corporate bond rates at the industry level.
       
  • Predictability in International Stock Returns Using Currency Fluctuations
           and Forward Rate Forecasts
    • Abstract: Publication date: Available online 6 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Jiexin Wang, Xue. Han, Emily Huang, Chris Yost-BremmAbstractWe find that currency risk, specifically dollar exchange rate risk, is a determinant in firm stock returns worldwide. Firms exposed to various dollar exchange rate risks worldwide exhibit strong differences in expected returns, and firms with previously high sensitivity to their home country’s exchange rate fluctuation subsequently outperform during the following six to twelve months. This effect is robust across countries, time, exchange rate policies, and macroeconomic environments. We find that information in currency forward rates provides additional, useful information when predicting future returns of these currency-sensitive firms, and dynamic, state-space estimation of currency forward rate term structures complements the predictability.
       
  • Investment decisions and debt financing under information uncertainty
    • Abstract: Publication date: Available online 4 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Hwa-Sung KimAbstractThis study examines how information uncertainty influences investment decisions. In contrast to prior studies, which assume no information uncertainty, our model includes a discrepancy in valuing debt between shareholders and debtholders at the time of debt issuance. We derive the values of corporate securities and the optimal investment threshold and coupon under information uncertainty. We show that compared with the absence of information uncertainty, debtholders value debt less than shareholders do, and hence, shareholders should contribute more investment funds. Debt financing restraints due to information uncertainty lead to delayed investment. We find that information uncertainty plays a mitigating role in shareholder-debtholder conflicts over investment policy. Moreover, the information uncertainty costs that shareholders incur increase sharply with the level of information uncertainty.
       
  • Site visit information content and return predictability: Evidence from
           China
    • Abstract: Publication date: Available online 2 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Dayong Dong, Sishi Yue, Jiawei CaoAbstractIn this paper, we use frequency of related phrases in site visit summary reports to denote the site visit content, and study whether site visit content reflecting institutional investors’ market concerns can predict Chinese stock market return. We find that site visit content has greater forecasting power in Chinese stock market returns than other economic predictors after comparing out-of-sample R2. The predictability is both statistically and economically significant. Additionally, our results also suggest that the particular information content has better forecasting power than general content in site visit summary reports.
       
  • Incorporating the RMB Internationalization Effect into Its Exchange Rate
           Volatility Forecasting
    • Abstract: Publication date: Available online 2 November 2019Source: The North American Journal of Economics and FinanceAuthor(s): Shusheng Ding, Tianxiang Cui, Yongmin ZhangRecently, the Chinese government has launched the renminbi (RMB) internationalization policy as an impetus to foster China’s global economic integration. The RMB internationalization effect on China’s economy and the RMB exchange rate has attracted massive attention in recent financial research. In this paper, we adopt a genetic programming (GP) method to generate new RMB exchange rate volatility forecasting models incorporating the RMB internationalization effect. Our models are proved to have significant accuracy improvement in predicting both RMB/US dollar and RMB/euro exchange rate volatilities, compared with standard GARCH volatility models, which are incapable of capturing the RMB internationalization effect. Furthermore, our models display salient practical implications for policy makers to formulate monetary policies and currency traders to design effective trading strategies.Graphical abstractGraphical abstract for this article
       
  • Disagreement with procyclical beliefs and asset pricing
    • Abstract: Publication date: Available online 24 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Hailong Wang, Duni HuAbstractWe consider a pure exchange economy with incomplete information in which the expected growth rate of endowment is unobservable. The economy is populated by two investors, one is rational, but the other irrationally believes that the dynamics of endowment exhibit procyclical feature. Such different opinions about the dynamics of endowment process produce persistent disagreement between the investors. We show that model-implied riskfree rate is procyclical. Further, the procyclical beliefs not only explain the excess volatility puzzle, but also help to explain the mixed results about the relationship between the investors’ belief dispersions and stock return. Moreover, we uncover that the rational investor prefers to short stock positions in good times as the degree of the other investor’s irrationality increasing.
       
  • The Effective of China's Monetary Policy: Quantity Versus Price Rules
    • Abstract: Publication date: Available online 23 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xiangfa Li, Hua WangAbstractThis paper deduces an open economic DSGE model and explores two monetary policy rules for China, the quantity and price rule. The empirical results indicate that (1) monetary policy with money supply as instrument seems increasingly difficult to conduct in China than before, (2) the linkage between money supply and output becomes weaker over time, and (3) the effects of a price rule on the economy seem to have become more significant than those of a quantity rule. The findings seem to favor the government’s intention of liberalizing interest rates and making a more active use of the price instrument as the economy becomes more market-oriented in recent years.
       
  • Asymmetric risk spillovers between Shanghai and Hong Kong stock markets
           under China’s capital account liberalization
    • Abstract: Publication date: Available online 23 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Kun Yang, Yu Wei, Shouwei Li, Jianmin HeAbstractIn this paper, we investigate the asymmetric risk spillovers between Shanghai and Hong Kong stock markets under the backdrop of China’s capital account liberalization by measuring the Conditional Value-at-Risk (CoVaR) based on adjusted realized volatilities and variational mode decomposition based copula model. The empirical results show that, the asymmetric features of risk spillovers between the two markets are significant and manifest different states before and after the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes. More specifically, first, the downside risk spillovers from Hong Kong to Shanghai are significantly larger than its upside risk spillovers, while the risk spillovers from Shanghai to Hong Kong is on the contrary. Second, the short-run risk spillovers are more drastic than the long-run risk spillovers, except the risk spillovers from Shanghai to Hong Kong after the Shenzhen-Hong Kong Stock Connect scheme. Finally, by comparing the risk spillovers from two directions, the importance of Shanghai stock market gradually rises up with the implementations of Stock Connect schemes.
       
  • Measuring extreme risk spillovers across international stock markets: A
           quantile variance decomposition analysis
    • Abstract: Publication date: Available online 22 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xianfang SuAbstractThis paper proposes a quantile variance decomposition framework for measuring extreme risk spillover effects across international stock markets. The framework extends the spillover index approach suggested by Diebold and Yilmaz (2009) using a quantile regression analysis instead of the ordinary least squares estimation. Thus, the framework provides a new tool for further study into the extreme risk spillover effects. The model is applied to G7 and BRICS stock markets, from which new insights emerged as to the extreme risk spillovers across G7 and BRICS stock markets, and revealed how extreme risk spillover across developed and emerging stock markets. These findings have important implications for market regulators.
       
  • Valuation Effects of Capital Inflows: Evidence from Emerging Market
           Economies
    • Abstract: Publication date: Available online 22 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Dieu Thanh Le, Hail ParkAbstractThis paper studies valuation changes of capital inflows in 19 emerging market economies (EMEs). In most of the EMEs, we find that there are significant valuation changes and a positive rate of return on external liabilities by foreigners. Furthermore, the nonlinear effects of exchange rate movements on valuation changes are investigated using panel smooth transition regression models. Empirical results show that the transition is centered at approximately -22.3% of exchange rate change, which implies that when the exchange rate appreciates more than this level, foreign investment value gains increase considerably.
       
  • Institutional investors and firm performance: Evidence from IPOs
    • Abstract: Publication date: Available online 22 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Allen Michel, Jacob Oded, Israel ShakedAbstractWe investigate the post-IPO evolution of institutional investor holdings and the manner in which operating performance is related to these holdings. During the first year after the IPO, average institutional holdings increase from 24% to 36% of shares outstanding and stabilize at about 42% by the end of the second year. We document that post-IPO operating performance is positively related to institutional holdings, but this relation subsides in the third year after the IPO. Overall, our findings indicate that institutional ownership is a valid indicator of the firm's operating performance in its initial years as a public company.
       
  • A New Method to Verify Bitcoin Bubbles: Based on the Production Cost
    • Abstract: Publication date: Available online 21 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Jinwu Xiong, Qing Liu, Lei ZhaoAbstractAs the first kind of digital cryptocurrency, the Bitcoin price cycle provides an opportunity to test bubble theory in the digital currency era. Based on the existing asset bubble theory, we verified the Bitcoin bubble based on the production cost with the application of VAR and LPPL models, and this method achieved good predictive power. The following conclusions are reached: (1) PECR is constructed to depict the deviation degree between the price and production cost, while BC is used to illustrate the bubble size in the price, and both are effective measures; (2) the number of unique addresses is a suitable measure of the use value of Bitcoin, and this result has passed the Granger causality test; (3) PECR and BC are verified via the LPPL model, and the next large bubble is expected in the second half of 2020. Considering that Bitcoin will see 'output halved' in May 2020, this prediction is a high-probability event.
       
  • An Options-Based Approach to Analyze Auction Guarantees in the Art Market
    • Abstract: Publication date: Available online 19 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Ventura Charlin, Arturo CifuentesAbstractAuction-house guarantees are becoming a common feature in the art market. We analyze these guarantees within the framework of financial options. This approach allows us to derive analytical (closed-form) expressions to value these positions, considering both, the case in which the painting is sold, and the case in which the painting goes unsold (“bought in”). In addition, we present several risk metrics that are useful to describe from an intuitive viewpoint the exposure of the auction house, and that of a third party (in case the auction house decides to layoff, fully or partially, the risk associated with offering such guarantees). We demonstrate that the expressions we derive satisfy the put-call parity relationship, and we further validate these formulas with a Monte Carlo simulation applied to a realistic example. We also show that the risk associated with such guarantees is lower than what is commonly believed by market practitioners, and we expose the dangers of relying on the Black-Scholes model to value such guarantees. Finally, having explicit expressions to assess the risk involved in these guarantees helps to bring more transparency to a notoriously opaque segment of the art market.
       
  • The heterogeneous behaviour of the inflation hedging property of cocoa
    • Abstract: Publication date: Available online 18 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Afees A. Salisu, Idris A. Adediran, Tirimisiyu O. Oloko, William OhemengAbstractIn this paper, we examine distinctly the inflation hedging potential of cocoa in net cocoa-exporting and net cocoa-importing countries. The choice of cocoa is motivated by its significance as a key ingredient in the production of chocolate which is largely consumed at every household and therefore serves as a major source of revenue to cocoa investors in exporting and importing countries. Based on our preliminary analyses including panel causality tests, we formulate both panel threshold regression model and panel smooth transition regression model in order to account for any inherent nonlinearity, time-variation and structural breaks in the inflation-cocoa returns nexus. We find that cocoa offers better inflation hedging characteristics in cocoa importing countries than their cocoa exporting counterparts. While the results are robust to alternative frequency and market size, we are able to establish that ignoring the presence of threshold effects may lead to wrong conclusions.
       
  • Vertical Separation of Transmission Control and Market Efficiency in the
           Wholesale Electricity Market
    • Abstract: Publication date: Available online 17 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Yin Chu, Chun-Ping ChangAbstractThis study examines how vertical separation of transmission control affects the wholesale market efficiency in the electric power industry. We analyze a unique regional electricity wholesale market in the U.S. where initially restructuring only occurred in the transmission sector. Following a commonly-used best dispatch model (Wolfram, 1999, Borenstein et al., 2002), we simulate competitive benchmark prices and compare with the best estimates available for actual prices to measure price-cost markups of the wholesale market. Empirical results demonstrate that the vertical separation of transmission control led to a significant increase in market markups in peak-load hours, documenting evidence of enhanced market power. Although we also find a reduction in the price-cost margin in low-demand hours, we reserve caution for this finding.
       
  • Credit towards graduation: The impact of US bank deregulation on human
           capital accumulation
    • Abstract: Publication date: Available online 17 October 2019Source: The North American Journal of Economics and FinanceAuthor(s): Patrick A. ReillyAbstractCredit markets affect the real economy. It is important to identify unintended consequences of financial policies. This paper studies the impact of bank branching deregulation on high school graduation. The use of National Longitudinal Survey of Youth 1979 geocoded data focuses the results on three deregulations: Ohio in 1979, Connecticut in 1980, and Alabama in 1981. Discontinuities in treatment assignment at borders between deregulated states and regulated states identify the effect of banking deregulation on high school graduation. Using a regression discontinuity type set up called differences-in-discontinuities, results indicate significant increases in the likelihood of high school graduation for treated individuals. Analysis provides evidence of heterogeneous effects of bank branching deregulation based on skill level and income level.
       
  • Pricing European continuous-installment strangle options
    • Abstract: Publication date: Available online 21 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Junkee Jeon, Geonwoo KimAbstractThis paper investigates the valuation of European continuous-installment strangle options written on dividend-paying underlying assets in the standard Black–Scholes framework. In this pricing problem, the premium of the strangle option is paid continuously instead of up-front. Since the holder of this option has the right to surrender installment payments at any time, the valuation of installment strangle option can be formulated as an optimal stopping problem with two surrender boundaries. Based on the Mellin transform approaches, we derive the integral equation representations for the value function and the two optimal surrender boundaries. By using the recursive integration method, we obtain efficiently the numerical solution for the integral equations and illustrate the optimal surrender boundaries with respect to the significant parameters.
       
  • Does a Firm with Higher Tobin’s q Prefer Foreign Direct Investment to
           Foreign Outsourcing'
    • Abstract: Publication date: Available online 20 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Naoto Jinji, Xingyuan Zhang, Shoji HarunaAbstractIn this study, we investigate whether firms’ choices of offshoring modes vary according to their characteristics that are reflected in the value of Tobin’s q. When a firm chooses its offshoring mode from foreign outsourcing (FO) and foreign direct investment (FDI), a model developed by (Chen, Horstmann, & Markusen (2012), Canadian Journal of Economics) predicts that Tobin’s q is negatively associated with the share of FO in total offshoring activities. Using detailed Japanese firm-level data, we find that Tobin’s q is negatively and significantly correlated with the share of Japanese firms’ engagement in FO in the sum of FO and FDI. With regard to our empirical methodology, we employ fractional regression models, because our dependent variable (i.e., the share of FO) is bounded between zero and one. We also address the issue of endogeneity by using a simple two-step method to control endogenous explanatory variables in the fractional regression models. We show that the above finding is robust.
       
  • Time-varying risk aversion and realized gold volatility
    • Abstract: Publication date: Available online 17 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Riza Demirer, Konstantinos Gkillas, Rangan Gupta, Christian PierdziochAbstractWe study the in- and out-of-sample predictive value of time-varying risk aversion for realized volatility of gold returns via extended heterogeneous autoregressive realized volatility (HAR-RV) models. Our findings suggest that time-varying risk aversion possesses predictive value for gold volatility both in- and out-of-sample. Time-varying risk aversion is found to absorb the in-sample predictive power of n index of economic policy uncertainty at a short forecasting horizon. We also study the out-of-sample predictive power of time-varying risk aversion in the presence of realized higher-moments, jumps, gold returns, a leverage effect as well as an index of economic policy uncertainty in the forecasting model. In addition, we study the role of the shape of the loss function used to evaluate losses from forecast errors for the role of time-varying risk aversion as a predictor of realized volatility. Overall, our findings show that time-varying risk aversion often captures information useful for out-of-sample prediction of realized volatility not already contained in the other predictors.
       
  • ECB’s unconventional monetary policy and cross-financial-market
           correlation dynamics
    • Abstract: Publication date: Available online 9 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Dimitris Kenourgios, Emmanouela Drakonaki, Dimitrios DimitriouAbstractThis paper examines the effects of the unconventional monetary policy (UMP) launched by the European Central Bank on the cross-market correlations between bond, stock and currency forward markets. Using a dynamic conditional correlation analysis and several robustness tests, we investigate possible differences on the correlation dynamics across four UMP periods and across a range of developed countries and emerging market economies. The empirical results indicate a spillover effect on both developed and emerging markets, although this impact is not identical across assets and countries. We also find that the new UMP phase started in 2014 has a more prominent impact, highlighting differences on the impact between the earlier and the new wave of UMPs and across cross-market correlations.
       
  • Can the Skewness of Oil Returns Affect Stock Returns' Evidence from
           China’s A-Share Market
    • Abstract: Publication date: Available online 2 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xuan Mo, Zhi Su, Libo YinAbstractCrude oil is an influential commodity in the real economy and stock markets of the world. However, the literature focuses exclusively on using the first or second moment of oil prices and ignores the information content in higher order moments. Our paper addresses this gap by investigating the relationship between the skewness of oil returns and expected stock returns in China’s A-share market. We find that the relationship between the skewness of oil returns and expected stock returns is significantly negative. This finding is robust even after considering firm characteristics, lagged oil returns, different energy dependencies, and changes in the supply and demand of oil, and is sustained across industries. This negative relationship can be interpreted as investors’ preference for skewness. Investors tend to overweight the tails of positively skewed oil returns to capture lottery-like payoffs, leading to net long positions and overpricing, which in turn lead to negative average returns. We also find that there are structural patterns for the relationship between the skewness of oil returns and expected stock returns. The negative relationship only exists in falling stock markets and changes under extremely low volatility.
       
  • Interpreting TARGET balances in the European Monetary Union: A critical
           review of the literature
    • Abstract: Publication date: Available online 1 August 2019Source: The North American Journal of Economics and FinanceAuthor(s): Beniamino MoroAbstractThis is a review article focusing on the most important studies on the role displayed by TARGET balances in the European Monetary Union (EMU). In the context of the public debt financial crisis, large TARGET balances became crucial, reflecting funding stress in the banking systems of most crisis-hit countries. The increase in TARGET balances in this period was triggered by a replacement in these countries of private sector funding of banks by central bank funding. By contrast, the more recent increases in TARGET balances are largely attributable to the implementation of the expanded asset purchase program (EAPP) by the European Central Bank (ECB), also known as a quantitative easing (Qe) monetary policy. Nevertheless, we argue that the persistency of extremely large TARGET imbalances continues to be understood by financial markets as a signal of macroeconomic distress, which should be addressed to solve the underlying tensions among EMU member States.
       
  • Valuation of New-designed Contracts for Catastrophe Risk
           Management
    • Abstract: Publication date: Available online 31 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Xingchun WangAbstractIn this study, we design and price a new kind of catastrophe equity put options, whose payoff depends on the ratio of accumulated losses and the expected level over the life of the option. We adopt a compound Poisson process to describe accumulated catastrophe losses and assume catastrophe losses affect the prices of the underlying stock. In the proposed framework, we obtain an explicit pricing formula of the new kind of catastrophe equity put options. Finally, numerical results are presented to investigate the values of this new class of options and illustrate the differences between the prices of vanilla catastrophe equity put options and the contracts designed in this paper. Interestingly, the prices of the new-designed contracts with different power exponents change oppositely as the intensity rises.
       
  • Assessing risk contagion among the Brent crude oil market, London gold
           market and stock markets: evidence based on a new wavelet decomposition
           approach
    • Abstract: Publication date: Available online 30 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Ling Lin, Yuanpei Kuang, Yong Jiang, Xianfang SuAbstractIn this paper, we investigate the risk contagion among the Brent crude oil market, London gold market and stock markets (Chinese and European). In the paper, we employ the CEEMDAN method and fine to coarse algorithms to decompose these market returns into different components. Then, we use the Granger causality test to assess the risk contagion between these markets under different time and frequency components. The results show that single direction risk contagion running from the Brent crude oil market and the London gold market to the stock markets (Chinese and European) is found in irregular events. Similarly, irregular events can also cause the single direction risk contagion to run from European stock markets to the Brent crude oil market. However, bidirectional risk contagion among the Brent crude oil market, London gold market and stock markets (Chinese and European) are found in extreme events. Second, bidirectional risk contagion among the Brent crude oil market, London gold market and European stock markets is demonstrated in irregular events. In addition, there exists only unidirectional risk contagion running from stock markets (Chinese and European) to the Brent crude oil market under extreme events. Third, long memory and asymmetry GARCH effects with fat tail distributions are significant in assessing risk contagion between the London gold market and European stock markets under extreme events. Finally, nonlinear Granger causality running from crude oil markets to the stock markets (Chinese and European) is found in bull and bearish markets. In addition, nonlinear Granger causality running from Chinese stock markets to the gold market and from the gold market to the European stock markets is found in extreme bearish markets.
       
  • A Brief Survey on the Choice of Parameters for: “Kernel density
           estimation for time series data”
    • Abstract: Publication date: Available online 26 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Artur Semeyutin, Robert O’NeillAbstractThis paper presents an overview of the empirical performance of some of the common methods for parameter selection in the area of enhanced dynamic kernel density and distribution estimation with exponentially declining weights. It is shown that exponential weighting delivers accurate nonparametric density and quantile evaluations, without common corrections for scale and/or location in most of the financial time series considered, provided that parameters are chosen appropriately with computationally heavy Least-Squares routines. For more time-efficient numerical optimisations and/or simple kernel adaptive estimation strategies, Least-Squares routines may be re-written with exponentially weighted binned kernel estimators. This insures equally effective parameters evaluation under the different choices of kernel functional forms, though binning strategy becomes an important component of estimations. On the other hand, it is also highlighted that if the estimations target is to mine time-varying nonparametric quantiles, kernel functional forms and bandwidths may not be necessary for these evaluations. Combining exponential weights with empirical distribution estimator provides a very similar quantile performance to the kernel enhanced estimator, while parametric specifications may provide a better extreme quantiles outlook.
       
  • Indirect Taxation and Consumer Welfare in an Asymmetric Stackelberg
           Oligopoly
    • Abstract: Publication date: Available online 25 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Leonard F.S. Wang, Chenhang Zeng, Qidi ZhangAbstractThis paper studies undesirable competition in an asymmetric Stackelberg oligopoly under both unit and ad valorem taxation. We find that i) under unit taxation, a rise in the number of inefficient followers hurts consumers, but the harm to consumer welfare is less severe than that under Cournot competition; ii) under ad valorem taxation, in addition to the entry of inefficient followers, a rise in the number of efficient leaders may also hurt consumers. The harm to consumer welfare could be more severe than that under Cournot competition when the cost difference between leaders and followers is large; iii) unit taxation yields higher consumer welfare in comparison to ad valorem taxation. Our result is important for competition policy.
       
  • Relationship between the United States housing and stock markets: some
           evidence from wavelet analysis
    • Abstract: Publication date: Available online 25 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Kim Hiang Liow, Yuting Huang, Jeonseop SongAbstractWe revisit the relationship between the United States housing and stock markets in time-frequency domain. Earlier research does not have satisfactory results on the interactions between the two markets because traditional methods average different relationships in time domain only. Our novel and informative wavelet-based multi-resolution analyzes indicate that the US housing and stock markets are at best moderately integrated and with scale-dependent co-movement, connectivity and causality. The interplay between the US housing and stock markets is stronger in the long run, with the two asset markets being bilaterally causally linked and have stronger return and volatility transmission effects. Finally, we demonstrate that the decomposition of the relationship between the real estate and stock markets over the different scales has important implications in studying the optimal portfolio weight and the hedge ratio in risk management.
       
  • Shadow Cost of Public Funds and Privatization Policies
    • Abstract: Publication date: Available online 17 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Susumu Sato, Toshihiro MatsumuraAbstractWe investigate the impacts of government budget constraints on the optimal privatization policy in mixed oligopolies by introducing the shadow cost of public funds. The government is concerned with both the total social surplus and the revenue obtained by privatization. We find that the relationship between the shadow cost of public funds and the optimal privatization policy is non-monotone. When the cost is moderate, the higher the cost, the lower the optimal degree of privatization. However, when the cost is high, a cost increase may drastically increase the optimal degree of privatization. The average foreign ownership share in private enterprises affects the optimal degree of privatization, whereas the distribution of foreign ownership share among private firms does not. Foreign ownership shares in privatized public enterprises also influence the optimal degree of privatization, and a non-monotone relationship emerges for the smaller shadow cost of public funds when the share is larger.
       
  • Can Gaussian factor models of commodity prices capture the
           financialization phenomenon'
    • Abstract: Publication date: Available online 17 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Fernando Antonio Lucena Aiube, Winicius Botelho FaquieriAbstractIn this paper we investigate whether Gaussian factor models can capture the financialization of commodity markets. The use of convenience yield as a stochastic factor is a common practice in the literature. This variable reflects the behavior of producers and physical traders. On the other hand, the great presence of financial traders during the financialization period could make the convenience yield factor less relevant for modeling the term structure of future prices. We find that the inclusion of the convenience yield as a second factor during the financialization improves the fit to empirical data. Hence, in the class of Gaussian factor models the convenience yield has a prominent role even in the financialization context.
       
  • Towards a financial cycle for the U.S., 1973–2014
    • Abstract: Publication date: Available online 17 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Kristiana Rozite, Dirk J. Bezemer, Jan P.A.M. JacobsAbstractWith this paper, we suggest a new approach to estimating financial cycles in terms of interactions of real-sector and financial-sector sentiments. We will apply this to U.S. financial indicators from 1973 to 2014. Based on Schumpeter’s and Minsky’s financial cycle concepts, we arrive at a selection of six indicators that capture finance and real sector linkages: the slope of the yield curve, a Purchasing Managers’ Index, real-estate price returns, the S&P stock price index, and leverage ratios of households (consumer spending) and non-financial corporations. We estimate lead-lag relations and apply principal component analysis to aligned series in order to construct factors. Our conclusion is that two factors, capturing corporate and consumer sentiments, account for over 60% of the cumulative variance in our data. Corporate optimism peaks before crisis episodes, while household/consumer sentiment is more persistent and follows corporate sentiment with a lag.
       
  • The Nature of Shadow Bank Leverage Shocks on the Macroeconomy
    • Abstract: Publication date: Available online 16 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Khandokar IstiakAbstractRecently a group of non-bank financial institutions, known as the shadow banks, has developed beside the traditional commercial banking sector in the US. Based on the argument of Serletis and Xu (2019) that the traditional banking was overtaken by shadow banks at around the year of 2000, I run two structural VAR models to examine the impact of shadow bank leverage shocks on some key economic indicators in pre-2000 and post-2000 periods. This is a new approach in the literature to examine how the macroeconomy is influenced by the shadow banking sector over time. I find that the traditional contractionary interest rate policy is not helpful to control the leverage of shadow banks. The impulse responses from the VAR models show that shadow bank leverage has become an important economic indicator during the post-2000 period because of its capacity to influence key macroeconomic variables. I suggest the policymakers controlling the leverage of the shadow banks besides the traditional contractionary monetary policy to prevent asset bubbles and maintain financial stability.
       
  • Dynamic credit convergence in CARD: The spreading of common shocks
    • Abstract: Publication date: Available online 16 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Carolina PagliacciAbstractMost papers evaluate the synchronization of variables for specific regions and periods through static measures of convergence. We measure convergence as the time-varying connection of countries’ credit with the regional cycle in Central America and Dominican Republic (the CARD region). Our interpretation is that this dynamic measure can capture the diffusion of common shocks across countries in the region. Through a FAVAR model, we evaluate what types of shocks affect convergence. We find that the spreading of common shocks varies according to their characteristics. US negative shocks -by increasing convergence- disseminate more widely and cause more synchronized credit responses across countries than positive US shocks. Contractionary US monetary policy shocks have had a negligible impact on regional credit, but they can explain an important part of the synchronization of credit responses. Our interpretation is that external shocks induce a wider synchronization of banks’ responses across countries when they represent a threat. This is partly explained by the readily available information on those shocks and a more extended implementation of macroprudential policies.
       
  • An Efficient Portfolio Construction Model Using Stock Price Predicted by
           Support Vector Regression
    • Abstract: Publication date: Available online 15 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Sasmita Mishra, Sudarsan Padhy
       
  • The payout policy of politically connected firms: tunnelling or
           reputation'
    • Abstract: Publication date: Available online 13 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Félix López Iturriaga, Domingo Javier Santana MartínAbstractUsing company directors who have a background in politics as a measure of political connections, we analyze the relationship between political ties and dividend policy in a sample of listed Spanish firms. We find political connections to be positively related with cash dividends. This result is consistent with concern regarding the interests of minority shareholders in politically connected firms or with the lower number of financial constraints in these firms. We also find a positive relationship between political connections and share repurchases, a means of shareholder compensation that is gaining popularity, a result that might be related to the valuation of politically connected firms. Our results are robust to alternative empirical specifications such as the propensity score matching procedure, different metrics of payout policy, and different measures of political connections. Interestingly, the recent financial crisis has not changed connected firms’ preference for shareholder compensation with dividends and share repurchases.
       
  • Interactions between Monetary and Macroprudential Policies in the
           Transmission of Discretionary Shocks
    • Abstract: Publication date: Available online 2 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Fernando da Silva Vinhado, Jose Angelo DivinoAbstractAfter the 2008 international financial crisis, monetary authorities worldwide have assigned more importance to financial stability, in addition to price stability. The objective of this paper is to assemble a Dynamic Stochastic General Equilibrium (DSGE) model with financial frictions to investigate how discretionary shocks on monetary and macroprudential policies are transmitted to banks and real sector of the economy and how these policies interact between themselves. We simulated the effects of shocks on interest rate, reserve requirements, and capital requirements on the dynamics of the Brazilian economy. We also performed a sensitivity analysis of the transmission mechanisms to alternative settings of the monetary and macroprudential policies. The major findings indicated that, despite the recessionary effects on credit and output, contractionist shocks that are fully repassed to the cost of credit lead to increase in spread and banking profits, raising capital buffer and favoring financial stability. From a monetary perspective, although the transmission of interest rate shock is effective on inflation, shocks in either reserve requirements or capital requirements also affect output and inflation. Thus, monetary and macroprudential policies might be used as supplement for achieving economic and financial stability.
       
  • A Theory of Gazelle Growth: Competition, Venture Capital Finance and
           Policy
    • Abstract: Publication date: Available online 2 July 2019Source: The North American Journal of Economics and FinanceAuthor(s): Mehmet Caglar Kaya, Lars PerssonAbstractThis paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent’s market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are reduced.
       
  • Generalizing the reflection principle of Brownian motion, and closed-form
           pricing of barrier options and autocallable investments
    • Abstract: Publication date: Available online 20 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Hangsuck Lee, Soohan Ahn, Bangwon KoAbstractIn this paper, we intend to generalize the well-known reflection principle, one of the most interesting properties of the Brownian motion. The essence of our generalization lies in its ability to stochastically eliminate arbitrary number of partial maximums (or minimums) in the joint events associated with the Brownian motion, thereby allowing us to express the joint probabilities in terms of the multivariate normal distribution functions. Due to the simplicity and versatility, our generalized reflection principle can be used to solve many probabilistic problems pertaining to the Brownian motion. To illustrate, we consider evaluating barrier options and autocallable structured product. Using the basic inclusion-exclusion principle, we obtain integrated pricing formulas for various barrier options under the Black-Scholes model, and derive an explicit pricing formula for the autocallable product, which is not known yet despite its popularity. These formulas are explored through numerical examples. The method of Esscher transform demonstrates its time-honored value during the derivation process.
       
  • Inferences of Default Risk and Borrower Characteristics on P2P Lending
    • Abstract: Publication date: Available online 20 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Cathy W.S. Chen, Manh Cuong Dong, Nathan Liu, Songsak SriboonchittaAbstractThis paper employs data from China’s online peer-to-peer (P2P) lending platform to assess the probability of default as well as the significant impact variables. The research provides some key advantages as follows: (i) we use variable selection methods to identify a parsimonious and descriptive model with relatively few parameters that could help predict the default risk of a P2P platform; (ii) employing the logistic quantile regression (LQR) model, we find how those selected variables can affect the default risk in different quantile levels; and (iii) through the predicting evaluation methods, we prove that our selected variables are efficient and bring out the best forecasting performance compared to different variable selection methods. The variables we finally decide to use include periods, loan periods (contract time of the loan), interest due, interest rate, loan type, and regulation change. The LQR estimates show that some variables increase the probability of default and exhibit a significant turnaround on a particular quantile level. The results point out that the new regulation actually brings out more default risk in this dataset than before despite the government’s efforts in tightening market control. Checking for robustness by adopting stratified random sampling suggests an easier analysis technique for investors or platform managers.
       
  • Firm characteristics and jump dynamics in stock prices around earnings
           announcements
    • Abstract: Publication date: Available online 18 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Haigang Zhou, John Qi ZhuAbstractWe examine the contribution of firm characteristics to the cross sectional variations of jump dynamics in stock prices around a short window around earnings announcements. Using a snapshot approach to isolating the confounding effect of idiosyncratic informational shocks on triggering stock price discontinuities at daily frequency, we find firm-size, trading volume, turnover ratio, liquidity measures, and return volatility in both long-run and short-run all to be powerful determinants of jump activities both statistically and economically. For instance, we estimate a 38% to 47% difference in the likelihood of jump occurrences between two otherwise identical firms whose log-sizes are two sample standard deviations apart. The results are robust to alternative model specifications, estimation methods, or sampling frequencies of the time series.
       
  • Information Asymmetry, Market State, and Implementation Risk
    • Abstract: Publication date: Available online 14 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Zhen-Xing Wu, Tsung-Yu ChenAbstractThis study demonstrates that the information risk premium is strongly dependent on the state of the market. Stocks with high information asymmetry, as measured by the probability of informed trading (PIN) or adjusted PIN (ADJPIN), exhibit higher returns than stocks with low information risk when the market is in a good state, but this is not the case when the market is bad. Further analysis reveals that the information risk premium is high when the implementation risk is low, suggesting that uninformed traders require high compensation from informed traders if the informed can easily arbitrage by exploiting the information advantage.
       
  • R&D-Firm Performance Nexus: New Evidence from NASDAQ Listed Firms
    • Abstract: Publication date: Available online 12 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Yiqi Chen, Oyakhilome W. IbhaguiAbstractThis paper examines the relationship between research and development (R&D) and firm performance for a collection of Nasdaq listed firms. We employ threshold models à la Hansen (1999) to test whether there is a nonlinear relationship between R&D and firm performance. We also investigate empirically the impact of the 2008 global financial crisis on the links between R&D and firm performance. Our results confirm the existence of threshold effects, suggesting that R&D and firm performance have a nonlinear relationship. We find that firms with high R&D intensity do not necessarily outperform those with low R&D intensity. Specifically, R&D exerts a positive influence on firm performance when it is below the estimated threshold value, whereas the impact becomes insignificant or even negative when it exceeds the estimated thresholds. Our result also suggest that the estimated threshold has since increased after the global financial crisis, so that the range of R&D that improves firm performance prior to the crisis is no more applicable post-crisis.
       
  • Do Idiosyncratic Skewness and Kurtosis Really Matter'
    • Abstract: Publication date: Available online 8 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Mohamed A. Ayadi, Xu Cao, Skander Lazrak, Yan WangAbstractThis paper empirically examines the relationship between idiosyncratic volatility, skewness, and kurtosis and future stock returns. We find evidence of significant time-series variation in the average idiosyncratic moments. However, the single and double sorted portfolio-based tests show that only the expected idiosyncratic skewness and volatility have some pricing effects reflected in significant differences in the returns of extreme portfolios. Cross-sectional tests using portfolios of stocks sorted on expected idiosyncratic kurtosis, but not individual stocks, reveal that only the expected idiosyncratic skewness is consistently priced with a significant and negative relationship with expected returns. Furthermore, there is strong evidence that the maximum daily return (MAXRET) is highly significant in all tested models suggesting that stocks with extreme positive returns tend to decline in price in subsequent month, leading to negative returns.
       
  • Integrated Measurement of Liquidity Risk and Market Risk of Company Bonds
           Based on the Optimal Copula Model
    • Abstract: Publication date: Available online 8 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Saiyan Lin, Rongda Chen, Zhihong Lv, Tianqing Zhou, Chenglu JinAbstractThe bond market is an important part of the capital market, reflecting the debtor-creditor relationship. Correspondingly, the P2P network lending platform, which plays a vital role in emerging Internet Finance, represents the same relationship. In both markets, the risks in investment and financing channels are complex and diverse, including liquidity risk, market risk, tax risk and so on. All the risks do not exist alone, performed as an integrated risk. This paper establishes an index for measuring corporate bonds’ liquidity, by using a Copula-GARCH approach and generating empirical distribution to integrate the liquidity risk and market risk of corporate bonds. Particularly, according to the Likelihood function test results, t-Copula is the optimum Copula function. The model can also be applied to measure the integrated risk of the P2P network lending platform after improvement.
       
  • Financial stress and asymmetric shocks transmission within the Eurozone.
           How fragile is the common monetary policy'
    • Abstract: Publication date: Available online 7 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Georgios N. Apostolakis, Nikolaos Giannellis, Athanasios P. PapadopoulosAbstractThis study focuses on the financial linkages within the Eurozone as well as on the exposure of Eurozone countries to internal and external shocks. We have found evidence of strong financial interdependence among the Eurozone countries, but there is evidence of stronger interdependence among the countries of the same cluster. That is, the major spillover transmitter for South countries is Italy, while North countries are mostly affected by the Netherlands. No matter the type of the shock (i.e. internal or external), the results imply that shocks are not symmetrically distributed within the Eurozone. South countries receive more stress from internal shocks (i.e. debt crisis), while North countries are more exposed to external shocks, such as a potential financial shock in US. The evidence of asymmetric transmission of financial shocks across the Eurozone countries reveals a complex and fragile monetary policy framework.
       
  • Time-varying Effects of Macroeconomic News on Euro-Dollar Returns
    • Abstract: Publication date: Available online 5 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Walid Ben Omrane, Tanseli Savaser, Robert Welch, Xinyao ZhouAbstractWe investigate the intraday reaction of euro-dollar exchange rate returns to the US and European macroeconomic news during a period that spans the global financial crisis and the Euro-zone debt crisis. First, we assess whether announcements’ impact is stable over time. We then use time-varying parameter path analysis to investigate whether the currency return response to macroeconomic news is sensitive to changes in market risk and interest rates. We find that news impact coefficients vary significantly over time. Our results also show that higher market risk measured by VIX dampens the effect of US news on euro-dollar returns.
       
  • Competition, efficiency and stability: An empirical study of East Asian
           commercial banks
    • Abstract: Publication date: November 2019Source: The North American Journal of Economics and Finance, Volume 50Author(s): Hien Thu Phan, Sajid Anwar, W. Robert J. Alexander, Hanh Thi My PhanAbstractThis paper examines the relationships between competition, efficiency and stability in the banking systems of four East Asian countries (China, Hong Kong, Malaysia and Vietnam) over 2004–2014. The results support the traditional competition–fragility view and suggest that an increase in competition may result in a decrease in stability. Similarly, credit risk, bank size and market concentration may positively affect bank stability. By contrast, banks with higher liquidity risk and revenue diversification may become less stable. Empirical analysis suggests that banking sector stability was adversely affected by the global financial crisis. Listed banks may be less stable than their non-listed peers. The macroeconomic environment (measured in terms of inflation and GDP growth) also affects bank stability. Additionally, some important policy implications with respect to improving bank stability are recommended.
       
  • The Impact of Margin Policies on the Italian Repo Market
    • Abstract: Publication date: Available online 1 June 2019Source: The North American Journal of Economics and FinanceAuthor(s): Arianna Miglietta, Cristina Picillo, Mario PietruntiAbstractIn this paper we investigate the impact of changes in initial margins on the cost of funding in the Italian repo market using a unique data-set that covers the Sovereign debt crisis (between January 2011 and February 2012) and the subsequent phase of abundant central bank liquidity. The analysis shows that in stressed times an increase in the level of initial margins had a positive and significant effect on the cost of short-term funding; on average, for each 1 percentage point variation in the margin, a 10 basis points increase in repo rates followed. We also find that liquidity and credit risk, as well as variables capturing idiosyncratic pressures in funding needs, exerted a significant and upward impact on the cost of short-term funding. On the other hand, in the period between March and December 2012, when liquidity was abundant due to monetary policy easing, the relationship between initial margins and the cost of short-term funding became negative as liquidity takers were less in need of funds.
       
  • Confucianism and stock price crash risk: Evidence from China
    • Abstract: Publication date: Available online 24 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Khalil Jebran, Shihua Chen, Yan Ye, Chengqi WangAbstractIn this study, we conjecture that Confucianism can curb the managerial bad news suppression behavior and consequently stock price crash risk. Using a unique sample of geographical-proximity-based Confucianism variables and Chinese nonfinancial firms over the period 2004-2014, we show that Confucianism is negatively associated with stock price crash risk. Further, we document that analyst coverage and institutional ownership, as formal governance mechanisms, attenuate the effect of Confucianism on stock price crash risk. The results are consistent to a battery of robustness tests and additional analyses. Overall the findings suggest that Confucianism, as an ethical system, mitigates crash risk in Chinese firms.
       
  • Money, Debit Card, Gross-Settlement Risk, and Central Banking
    • Abstract: Publication date: Available online 23 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Hyung Sun ChoiAbstractA monetary model is constructed to explore the effects of a new source of inefficiency of gross settlement with an operational risk on the choice of cash that is risky to hold and a debit card that is costly to use. During inflation, gross settlement would entail the deposit of a larger amount of money as payments and collaterals for the finality of the settlement process, thereby leading to a consumption loss. The endogenous adjustment between gross and net settlement may alleviate this distortion from inflation. Hence, the optimal monetary policy is to decrease the money supply so as to minimize the cost of theft and transaction costs of a debit card usage.
       
  • Impact of CEO Media Appearance on Corporate Performance in Social Media
    • Abstract: Publication date: Available online 23 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Lijuan Bai, Xiangbin Yan, Guang YuAbstractThe impact of CEOs’ media appearance in social media on corporate performance (financial performance) has received little research attention. In this paper, we propose the CEO media appearance indexes, namely CEO media coverage, CEO media transmission, and CEO media sentiment, and CEO searching attention indexes, namely media searching attention and user searching attention, then analyze the influence of CEO media appearance and CEO searching attention on corporate performance. The results show that the media transmission and media searching attention indexes have significant positive effects on corporate performance. The media sentiment and user searching attention indexes have significant negative effects on corporate performance; however, the same effect was not observed for media coverage. The effects of the above indexes were consistent with the interaction analyses. We discuss theoretical implications for research on CEO and corporate performance and management implications for corporate social media marketing.
       
  • Tangible and Intangible Investment in Corporate Finance
    • Abstract: Publication date: Available online 15 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Zhao Shuangling, Cao Guohua, Wu LijuanAbstractResearch and development (R&D) investment has increased dramatically in recent decades but not been explored extensively implications for the firms’ liquidity management. In this paper, we propose a dynamic model of a financially constrained firm about R&D and physical investment, financing and risk management, and then analyze the market-timing decisions about the corporate liquidation, external equity, credit debt and payout. And the comparative static analysis about R&D is also given. We find that the firm value changes sharply with the obsolescence rate of R&D, the volatility of R&D stocks will decrease the firm value-capital ratio, and R&D investment is more impressionable to financing frictions than physical investment. Our model and analysis provide the new insight into the investment and financing of intangible capital.
       
  • Nonlinear Exchange Rate Pass–Through in Timber Products: The Case of
           Oriented Strand Board in Canada and the United States
    • Abstract: Publication date: Available online 14 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Barry K. Goodwin, Matthew T. Holt, Jeffrey P. PrestemonAbstractWe assess exchange rate pass–through (ERPT) for U.S. and Canadian prices for oriented strand board (OSB), a structural wood panel product used extensively in U.S. residential construction. Because of its prominence in construction and international trade, OSB markets are likely sensitive to general economic conditions. In keeping with recent research, we examine regime–specific ERPT effects; we use a smooth transition vector error correction model. We also consider ERPT asymmetries associated with a measure of general macroeconomic activity. Our results indicate that during expansionary periods ERPT is modest, but during downturns, ERPT effects are larger.
       
  • Complex Analytic Wavelets in the Measurement of Macroeconomic Risks
    • Abstract: Publication date: Available online 13 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Joanna BruzdaAbstractWe use wavelet gain and partial gain coefficients to measure exposures to risk factors specified within popular asset pricing models with macroeconomic sources of risk. When applied to the consumption CAPM, the durable consumption model of Yogo (2006) and the model of Chen, Roll, and Ross (1986), this approach substantially influences the significance of sensitivities to macroeconomic risks, points to different frequency channels of risk transmission compared with wavelet beta coefficients and enables discovering scale-specific changes of sensitivities to macroeconomic volatility over time. Thus, taking the perspective of an investor operating at a given time scale and correcting for lead-lag effects has far reaching consequences for the choice of macroeconomic risks that should be accounted for. We find that the variables in the different models for returns can be considered as broadband or short- and long-term risk factors. Furthermore, we uncover certain trends over a long period of time, such as increasing exposure to consumption risk at business cycle frequencies or decreasing exposure to the risk premium factor at the scale corresponding to annual oscillations, which suggests that the examined quantities may not be constant over time.
       
  • Crash risk, Institutional investors and Stock returns
    • Abstract: Publication date: Available online 9 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Lanlan Rao, Liyun ZhouAbstractThis paper focuses on the combined effects of institutional investors and crash risk on stock returns. Specifically, the crash risk effects are stronger for stocks with higher institutional ownership, and the institutional ownership effect plays less of a role on stock returns among stocks with higher crash risk. Furthermore, this paper addresses the moderating effect of stock liquidity on the relation among institutional investors, crash risk and stock returns, and further finds that illiquidity-return relations are stronger in situations with lower crash risk. Overall, this paper does provide evidence that institutional investors and crash risk play important roles on stock prices.
       
  • The Effects of Trading Suspensions in China
    • Abstract: Publication date: Available online 9 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Qing He, Jingyun Gan, Shuwan Wang, Terence Tai Leung ChongAbstractWe study the effects of both mandatory and voluntary trading suspensions on stock prices, volatility and trading volume in China’s stock market. It is found that both voluntary and mandatory suspensions generate negative abnormal returns. Trading volume and volatility rise significantly in the post-suspension period. Our results suggest that suspensions are not effective in calming down investors in China. Ownership structure and duration of suspension explain the ineffectiveness of suspensions.
       
  • An analytical approximation approach for pricing European options in a
           two-price economy
    • Abstract: Publication date: Available online 9 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Zhe Li, Weiguo Zhang, Yue Zhang, Zhigao YiAbstractClassical option pricing theories are usually built on the law of one price, while ignoring the impact of market liquidity on bid-ask spreads. The theory of conic finance replaces the law of one price by the law of two prices, allowing for market participants sell to the market at the bid price and buy from the market at the higher ask price. In this paper, we present a numerical method to calculate the bid and ask prices for the European options. The numerical method is based on the combination of Fourier cosine approximations and numerical integration, which provides an efficient and fast way to compute the bid and ask prices and calibrate the model parameters in real market. Numerical experiments demonstrate the accuracy of our presented numerical method by comparing with Monte Carlo simulation. To better illustrate the practicability of our presented numerical method, we consider the European options written on SSE 50 ETF traded at the Shanghai Stock Exchange.
       
  • Chasing investor sentiment in stock market
    • Abstract: Publication date: Available online 3 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Chunpeng Yang, Huihui WuAbstractIn this paper, we present a sentiment asset pricing model with the Chasers, who believe investor sentiment has significant impact on asset pricing and tend to chase investor sentiment, optimally inferring investor sentiment from asset price. We find that the impact of investor sentiment on asset price depends not only on the number of the Sentiment investors but also on the number of the Chasers; and the Chasers can amplify the impact of investor sentiment on asset price. If investor sentiment is optimistic, the Chasers would increase stock price; and if investor sentiment is pessimistic, the Chasers would decrease stock price. Moreover, we demonstrate that the Chasers can also increase stock price volatility. The model could offer a partial explanation to the phenomenon of overvaluation, undervaluation and excess volatility.
       
  • Efficient Computation of European Option Prices and their Sensitivities
           with the Complex Fourier Series Method
    • Abstract: Publication date: Available online 3 May 2019Source: The North American Journal of Economics and FinanceAuthor(s): Tat Lung (Ron) ChanAbstractHighly accurate approximation pricing formulae and option Greeks are obtained for European-type options using a complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and affine stochastic volatility models. We provide a succinct error analysis to demonstrate that we can achieve an exponential convergence rate in the pricing method in many cases as long as we choose the correct truncated computational interval. As a novel pricing method, we also numerically demonstrate that the complex Fourier series performs either favourably or comparably with existing techniques in numerical experiments.
       
  • The effects of the Global Financial Crisis on the stock holding decisions
           of Australian households
    • Abstract: Publication date: Available online 27 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Buly A. Cardak, Vance L. Martin, Richard McAllisterAbstractThe effects of financial crises on the stock market participation and portfolio allocation decisions of Australian households are studied, with special emphasis on the 2008 global financial crisis. An important feature of the empirical model is that the stock holding decisions of households are determined by experienced returns, defined as a weighted sum of past stock market returns over the life of a household, with the weights varying between crisis and non-crisis periods. The empirical results provide strong evidence that financial crises cause households to become more myopic, increase their responsiveness to shocks and focus more on past extreme returns. These results also help to explain differences in the estimates reported for the U.S. and Europe using comparable models but which do not allow for time-variation in the parameters. There is also evidence that older households are more responsive than younger households during financial crises, while high wealth households are less affected by crises.
       
  • The Effect of Block Ownership on Future Firm Value and Performance
    • Abstract: Publication date: Available online 25 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Abdelhafid Benamraoui, Surendranath Rakesh Jory, Khelifa Mazouz, Neeta Shah, Orla GoughAbstractThis paper examines the performance of the investment decisions of block owners. The block ownership data is obtained from Dlugosz, Fahlenbrach, Gompers, and Metrick (2006). We find that firm valuation (measured by Tobin's Q), operating performance (measured by changes in return on assets) and stock performance (measured by excess buy and hold returns) are positively and significantly related to the previous years' level of block ownership both in terms of the size of the ownership and the number of blockholders. Our results are robust to endogeneity concerns. Regarding whether a specific blockholder is an “insider” or an “outsider” to the firm, we find that the ownership of “outside” blockholders is a key determinant in explaining future firm performance. Note though that this category makes up about two-thirds of the aggregate amount of blockholding in Dlugosz et al. (2006) database, and also includes all blockholders not classified in other categories. In general, we attribute the superior performance to the presence of more blockholders. We also find an inverse association between the volatility in blockownership and the ex-post firm performance measures.
       
  • Does Shanghai-Hong Kong Stock Connect Drive Market Comovement between
           Shanghai and Hong Kong: A New Evidence
    • Abstract: Publication date: Available online 25 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Rufei Ma, Chengtao Deng, Huan Cai, Pengxiang ZhaiAbstractUsing DCC, ADCC and GO-GARCH models, this paper examines whether the Shanghai-Hong Kong Stock Connect program drives market comovement between Shanghai and Hong Kong. We distinguish financial liberalization induced market comovement from that induced by other factors through comparing time-varying market correlations of Shanghai-Hong Kong with those of Shenzhen-Hong Kong. The results of these three variants of multivariate GARCH models consistently show that, if we ignore the period of market crash, the market correlation between Shanghai and Hong Kong does not significantly increase after the launch of the program. Furthermore, inconsistent with theoretical prediction, we find that the correlation between Hong Kong and financially non-liberalized Shenzhen market increases much more than that between Hong Kong and financially liberalized Shanghai market in the market turbulence. The results implicate the Shanghai-Hong Kong Stock Connect program is not the main fundamental force that drives market comovement between Shanghai and Hong Kong in the short run. This finding is further supported by the results of optimal hedge ratios and downside risk measures, which hold important risk management implications for investors in these markets.
       
  • Debt Maturity, Leverage, and Political Uncertainty
    • Abstract: Publication date: Available online 25 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Wei-Fong Pan, Xinjie Wang, Shanxiang YangAbstractThis study investigates the effects of political uncertainty (PU) on corporate debt maturity and leverage using a novel measure of firm-specific PU. We find that PU is negatively associated with debt maturity and leverage. Furthermore, the negative effects of PU on debt maturity and leverage are more pronounced for firms with greater investment reversibility and a lower credit rating. PU affects debt maturity and leverage at least five quarters into the future. Both domestic PU and global PU have negative effects on debt maturity and leverage, but domestic PU’s effect is greater. Overall, our results suggest that PU deteriorates the external financing environment, leading to firms using more short-term debt and having lower leverage.
       
  • Returns Spillovers between Tourism ETFs
    • Abstract: Publication date: Available online 24 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Chang Shulien, Lee Yun-HuanAbstractThis paper investigates the relationship between tourism-related markets and equity, consumer staples equities and consumer discretionary equities by means of spillovers and volatility transmission. Relying on the recently introduced Exchange Traded Founds (ETFs), this study is the first to analyze return spillovers derived from an E-GARCH model and to take into account frequency dynamics to understand changes in connectedness across periods of time. The results uncover numerous channels of return transmission across the selected ETF markets over the last 13 years and highlight the role of equity ETFs as the most influential market in the sample. Furthermore, the study provides insights into the characteristics of tourism-related markets using a hidden semi-Markov model. Finally, we prove that tourism-related markets (except casino and gaming) have gained importance as investment assets over the last few years.
       
  • Dynamic optimal investment policy under incomplete information
    • Abstract: Publication date: Available online 24 April 2019Source: The North American Journal of Economics and FinanceAuthor(s): Wenli Huang, Bo Liu, Hongli Wang, Jinqiang YangAbstractThis paper extends the classic dynamic corporate finance theory by incorporating incomplete information, where the return on a productivity shock is unobservable but known to be either high or low. An investor could dynamically update his/her belief about the expected return by following the history of realized productivity shocks. This paper predicts that incomplete information has first-order effects on valuation, i.e., the average q and marginal q, in addition to the firm’s decisions, i.e., payout, investment and liquidity management. Specifically, with an optimistic belief about the expected return, involving a higher firm value, the investor prefers delaying payout to hold more cash for future investment. In contrast, a pessimistic belief will induce the investor to adopt a conservative/flat investment decision, which reflects a weaker liquidity management motivation.
       
 
 
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