Bayesian Multi-Factor Model of Instability in Prices and Quantities of Risk in U.S. Financial Markets

AbstractWe employ a two-stage general dynamic factor model to analyze co-movements between returns and between volatilities of stocks from the U.S., European, and Japanese financial markets. We find two common shocks driving the dynamics of volatilities—one global shock and one United States–European shock—and four local shocks driving returns, but no global one. Co-movements in returns and volatilities increased considerably in the period 2007–2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we introduce a new method for structural analysis in general dynamic factor models which is applied to the identification of volatility shocks via natural timing assumptions. The global shock has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and is useful for predicting aggregate realized volatilities.

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Risk Management in Viet Nam Tourism Industry Under the Impact of a Two Factor Model During and After the Global Crisis

International Business & Economics Studies ◽

10.22158/ibes.v1n2p129 ◽

2019 ◽

Vol 1 (2) ◽

pp. p129

Author(s):

Dinh Tran Ngoc Huy ◽

Du Quoc Dao

Keyword(s):

Financial Markets ◽

Global Financial Crisis ◽

Factor Model ◽

Tourism Industry ◽

Viet Nam ◽

Tax Rates ◽

Mean Values ◽

Policy Suggestions ◽

The Global Financial Crisis ◽

The Impact

Over past few years, the global financial crisis shows certain influence on emerging financial markets including Viet nam. Therefore, this study chooses an analytical approach to give some systematic opinions on how much some certain determinants such as income tax and leverage, affect the level of market risk in listed tourism companies.First, it calculates equity and asset beta values in three different scenarios of changing tax rates and changing the level of financial leverage. Second, under 3 different scenarios of changing tax rates (20%, 25% and 28%), we recognized that there is not large disperse in equity beta values, estimated at 0,753 for current leverage situation.Third, by changing tax rates in 3 scenarios (25%, 20% and 28%), we recognized both equity and asset beta mean values have positive relationship with the increasing level of tax rate.Last but not least, this paper covers some ideas and policy suggestions.

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The pricing of systematic liquidity risk in stock markets

Notas Económicas ◽

10.14195/2183-203x_20_8 ◽

2016 ◽

Author(s):

José Luis Miralles Marcelo ◽

Maria del Mar Miralles Quirós ◽

José Luis Miralles Quirós

Keyword(s):

Asset Pricing ◽

Financial Markets ◽

Stock Returns ◽

Factor Model ◽

Liquidity Risk ◽

Asset Returns ◽

Liquidity Shocks ◽

Optimal Behavior ◽

Common Stocks ◽

Fama And French

The question whether liquidity affects asset returns or not remains unresolved thus far. The absence of conclusive results in previous research suggests that asset pricing and liquidity have not been properly addressed in the standard literature. We consider that systematic liquidity shocks affect the optimal behavior of agents in financial markets. Indeed, fluctuations in various measures of liquidity are significantly correlated across common stocks. Accordingly, we propose the construction of a liquidity risk factor based on the ratio of absolute stock returns on euro volume suggested by Amihud (2002) and the approximately orthogonalizing procedure of Fama and French (1993), using it as an augmenting variable in their three-factor model.

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Who Knocks on the Door of Portfolio Performance Heaven: Sinner or Saint Investors?

Mathematics ◽

10.3390/math8111951 ◽

2020 ◽

Vol 8 (11) ◽

pp. 1951

Author(s):

José Luis Miralles-Quirós ◽

María Mar Miralles-Quirós

Keyword(s):

Financial Markets ◽

Transaction Costs ◽

Factor Model ◽

Five Factor Model ◽

Investment Strategy ◽

Portfolio Performance ◽

Socially Responsible ◽

Long Time

To sin, or not to sin: that has been the question for many people for a long time, and nowadays that question has moved to the financial markets. The existence of studies that show that investing in vice sectors such as the alcohol, tobacco, and gambling industries, collectively known as the “triumvirate of Sin”, is profitable has created some uncertainty for investors who wonder whether or not to be socially responsible. We show that by implementing an investment strategy based on the Fama–French five-factor model, “saint” investors obtain better portfolio performance, even when transaction costs are taken into consideration, and therefore they are the ones chosen to knock on the door of portfolio performance heaven.

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Is there persistence among non-professionals? Evidence from the Chicago Mercantile Exchange Group Trading Challenges

Review of Behavioral Finance ◽

10.1108/rbf-09-2019-0122 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Omid Sabbaghi ◽

Min Xu

Keyword(s):

Financial Markets ◽

Factor Model ◽

Five Factor Model ◽

Statistical Significance ◽

Performance Persistence ◽

Excess Returns ◽

Data Set ◽

Content Type ◽

Chicago Mercantile Exchange ◽

Fama And French

PurposeThe study systematically investigates persistence in performance for simulated trading among non-professional traders in the futures market.Design/methodology/approachIn this study, the authors employ a novel data set from the Chicago Mercantile Exchange (CME) Group's Trading Challenges for years 2014 through 2018 and expand upon the empirical methodology of Malkiel (1995) through improved interval estimations in testing for persistence in performance. The authors implement Fama-MacBeth style regressions to understand the degree of persistence in performance and the extent to which non-professionals extrapolate from prior returns. They adjust returns for risk through the Fama and French (2015) five-factor model in understanding whether the sample of non-professionals is able to produce excess returns after expenses and whether there is evidence of excess gross to cover expenses.FindingsThe empirical analysis suggests strong evidence for performance persistence among non-professionals participating in the Preliminary Rounds. In the Championship Rounds, the authors find that the persistence effect becomes stronger in economic and statistical significance after accounting for expenses. The results suggest that competition and transaction costs help to distinguish between winners and losers. When conducting Fama-MacBeth style regressions, the authors present evidence that strongly supports the persistence effect and over-extrapolation. While the results of the multi-factor model analysis suggest that, after adjusting for risk, most teams are experiencing negative excess returns prior to expenses, the authors also uncover evidence of teams earning returns sufficient to cover their expenses.Originality/valueThe authors bridge the gap between the literature on performance persistence and the emerging literature on non-professionals in the financial markets. Data from the CME Group’s Trading Challenge provide a rich source in studying the beliefs of non-professionals, and this study is helpful for understanding how beliefs, operationalized in simulated trades, perform over short time horizons, thereby providing insights into the behavioral dynamics of the financial markets. The results provide new empirical evidence for performance persistence among non-professionals.

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