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1 – 10 of 375Taicir Mezghani, Mouna Boujelbène and Mariam Elbayar
The main objective of this paper is to investigate whether the investors' behavior under optimistic (pessimistic) conditions has an impact on risk transmission between the Chinese…
Abstract
Purpose
The main objective of this paper is to investigate whether the investors' behavior under optimistic (pessimistic) conditions has an impact on risk transmission between the Chinese stock and bond markets and the sector indices mainly during the COVID-19 pandemic.
Design/methodology/approach
This study uses a new measure of the investor's sentiment based on Google trend to construct a Chinese investor's sentiment index and a quantile causal approach to examine the causal relationship between googling investor's sentiment and the Chinese stock and bond markets as well as the sector indices. On the other hand, the network connectedness is used to estimate the spillover effect on the investor's sentiment and index returns. To check the robustness of the study results, the authors employed the Chinese VIX, as another measure of the investor's sentiment using daily data from May 2019 to December 2020.
Findings
In fact, the authors found a dual causality between the investor's sentiment and the financial market indices in optimistic or pessimistic situations, which indicates that positive and negative financial market returns may have an effect on the Chinese investor's sentiment. In addition, the results indicated that a pessimistic investor's sentiment has a negative impact on the banking, healthcare and utility sectors. In fact, the study results provide a significant peak of connectivity between the investor's sentiment, the stock market and the sector indices during the 2015–2016 and 2019–2020 turmoil periods that coincide respectively with the 2015 recession of the Chinese economy and the COVID-19 pandemic.
Originality/value
This finding suggests that the Chinese googling investor's sentiment is considered as a prominent channel of shock spillovers during the coronavirus crisis, which confirms the behavioral contagion. This study also identifies the contribution of a particular interest for portfolio managers and investors, which helps them to accordingly design their portfolio strategy.
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This paper investigates the impact of a change in economic policy uncertainty
Abstract
Purpose
This paper investigates the impact of a change in economic policy uncertainty
Design/methodology/approach
The paper uses Engle's (2009) dynamic conditional correlation (DCC) model and Chiang's (1988) rolling correlation model to generate correlations of asset returns over time and analyzes their responses to
Findings
Evidence shows that stock-bond return correlations are negatively correlated to
Research limitations/implications
The findings are based entirely on the data for China's asset markets; further research may expand this analysis to other emerging markets, depending on the availability of GPR indices.
Practical implications
Evidence suggests that the performance of the Chinese market differs from advanced markets. This study shows that gold is a safe haven and can be viewed as an asset to hedge against policy uncertainty and geopolitical risk in Chinese financial markets.
Social implications
This study identify the special role for the gold prices in response to the economic policy uncertainty and the geopolitical risk. Evidence shows that stock and bond return correlation is negatively related to the ΔEPU and support the flight-to-quality hypothesis. However, the stock-gold return correlation is positively related to |ΔGPR|, resulting from the income or wealth effect.
Originality/value
The presence of a dynamic correlations between stock-bond and stock-gold relations in response to
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This study aims to observe the extent of asset diversification benefits in the Association of Southeast Asian Nations (ASEAN)-5 market by examining the effect of financial…
Abstract
Purpose
This study aims to observe the extent of asset diversification benefits in the Association of Southeast Asian Nations (ASEAN)-5 market by examining the effect of financial integration (FI) and financial development (FD) on domestic stock–bond co-movements, SBcorr.
Design/methodology/approach
The dynamic conditional correlation - multivariate generalized autoregressive conditional heteroskedasticity (DCC-MGARCH) technique is adopted to construct FI and stock−bond co-movement variables. Then, the study uses static panel data analysis to examine the effect of FI on stock−bond co-movements.
Findings
FI does not provide asset diversification benefits due to high country risks in ASEAN-5. However, when FI is moderated by FD, FI × FD, the study shows that FI × FD provides higher asset diversification benefits in ASEAN-5.
Originality/value
This study shows the importance of incorporating the level of FD when assessing the effect of FI on stock–bond co-movements in ASEAN-5. In the presence of FI, a well-diversified investor should always consider the state of FD, which will show a better representation of asset diversification strategy in the emerging markets. Additionally, policymakers of ASEAN-5 countries should prioritise enhancing their financial system to attract more investment into the countries.
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This paper investigates the influence of three different sentiment indicators on the time-varying stock–bond correlation of 15 countries during the global crisis period of the…
Abstract
Purpose
This paper investigates the influence of three different sentiment indicators on the time-varying stock–bond correlation of 15 countries during the global crisis period of the coronavirus disease 2019 (COVID-19) pandemic.
Design/methodology/approach
The author uses the time-varying correlation estimated using the autoregressive moving average -dynamic conditional correlation - generalised autoregressive conditional heteroskedasticity (ARMA-DCC-GARCH) model to achieve this aim. The impact of investor sentiment on the stock–bond correlation was analysed using the Markov regime-switching regression.
Findings
The study results show that the sentiment indicators of fear, uncertainty and distress have a pronounced negative impact on the stock–bond correlation. They further provide evidence of a strong regime effect on the stock–bond correlation with sentiment indicators.
Practical implications
The paper has a relevant impact on policymakers and fund managers. First, the policymakers now have more insightful evidence of how the stock and bond markets react during crises. Second, the fund managers need to focus on behavioural variables as they may be driving factors in crisis periods that may impair portfolio management.
Originality/value
To the best of my knowledge, the paper is the first to throw light on the behaviour of the stock–bond correlation for 15 countries during the COVID-19 period.
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Taicir Mezghani and Mouna Boujelbène-Abbes
This paper investigates the impact of financial stress on the dynamic connectedness and hedging for oil market and stock-bond markets of the Gulf Cooperation Council (GCC).
Abstract
Purpose
This paper investigates the impact of financial stress on the dynamic connectedness and hedging for oil market and stock-bond markets of the Gulf Cooperation Council (GCC).
Design/methodology/approach
This study uses the wavelet coherence model to examine the interactions between financial stress, oil and GCC stock and bond markets. Second, the authors apply the time–frequency connectedness developed by Barunik and Krehlik (2018) so as to identify the direction and scale connectedness among these markets. Third, the authors examine the optimal weights, hedge ratio and hedging effectiveness for oil and financial markets based on constant conditional correlation (CCC), dynamic conditional correlation (DCC) and Baba-Engle-Kraft-Kroner (BEKK)-GARCH models.
Findings
The authors have found that the correlation between the oil and stock-bond markets tends to be stable in nonshock periods, but it evolves during oil and financial shocks at lower frequencies. Moreover, the authors find that the oil market and financial stress are the main transmitters of risks. The connectedness is mainly driven by the long term, demonstrating that the markets rapidly process the financial stress spillover effect, and the shock is transmitted over the long run. Optimal weights show different patterns for each negative and positive case of the financial stress index. In the negative (positive) financial stress case, investors should have more oil (stocks) than stocks (oil) in their portfolio in order to minimize risk.
Originality/value
This study has gone some way toward enhancing one’s understanding of the time–frequency connectedness between the financial stress, oil and GCC stock-bond markets. Second, it identifies the impact of financial stress into hedging strategies offering important insights for investors aiming at managing and reducing portfolio risk.
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Kai Li and Chenjie Xu
This paper aims to study the asset pricing implications for stock and bond markets in a long-run risks (LRR) model with regime shifts. This general equilibrium framework can not…
Abstract
Purpose
This paper aims to study the asset pricing implications for stock and bond markets in a long-run risks (LRR) model with regime shifts. This general equilibrium framework can not only generate sign-switching stock-bond correlations and bond risk premium, but also quantitatively reproduce various other salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curves, the violation of the expectations hypothesis of bond returns.
Design/methodology/approach
The researchers study the joint determinants of stock and bond returns in a LRR model framework with regime shifts in consumption and inflation dynamics. In particular, the means, volatilities, and the correlation structure between consumption growth and inflation are regime-dependent.
Findings
The model shows that the term structure of interest rates and stock-bond correlation are intimately related to business cycles, while LRR play a more important role in accounting for high equity premium than do business cycle risks.
Originality/value
This paper studies the joint determinants of stock and bond returns in a Bansal and Yaron (2004) type of LRR framework. This rational expectations general equilibrium framework can (1) jointly match the dynamics of consumption, inflation and cash flow; (2) generate time-varying and sign-switching stock and bond correlations, as well as generating sign-switching bond risk premium; and (3) coherently explain another long list of salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curves, the violation of the expectations hypothesis of bond returns.
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Taicir Mezghani, Mouna Boujelbène and Souha Boutouria
This paper investigates the predictive impact of Financial Stress on hedging between the oil market and the GCC stock and bond markets from January 1, 2007, to December 31, 2020…
Abstract
Purpose
This paper investigates the predictive impact of Financial Stress on hedging between the oil market and the GCC stock and bond markets from January 1, 2007, to December 31, 2020. The authors also compare the hedging performance of in-sample and out-of-sample analyses.
Design/methodology/approach
For the modeling purpose, the authors combine the GARCH-BEKK model with the machine learning approach to predict the transmission of shocks between the financial markets and the oil market. The authors also examine the hedging performance in order to obtain well-diversified portfolios under both Financial Stress cases, using a One-Dimensional Convolutional Neural Network (1D-CNN) model.
Findings
According to the results, the in-sample analysis shows that investors can use oil to hedge stock markets under positive Financial Stress. In addition, the authors prove that oil hedging is ineffective in reducing market risks for bond markets. The out-of-sample results demonstrate the ability of hedging effectiveness to minimize portfolio risk during the recent pandemic in both Financial Stress cases. Interestingly, hedgers will have a more efficient hedging performance in the stock and oil market in the case of positive (negative) Financial Stress. The findings seem to be confirmed by the Diebold-Mariano test, suggesting that including the negative (positive) Financial Stress in the hedging strategy displays better out-of-sample performance than the in-sample model.
Originality/value
This study improves the understanding of the whole sample and positive (negative) Financial Stress estimates and forecasts of hedge effectiveness for both the out-of-sample and in-sample estimates. A portfolio strategy based on transmission shock prediction provides diversification benefits.
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Rabia Khatun and Jagadish Prasad Bist
The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period…
Abstract
Purpose
The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period 1990–2012.
Design/methodology/approach
An index for financial development has been constructed using principal component analysis technique by including banking sector development, stock market development, bond market development and insurance sector development. For the robustness of the result, the long-run cointegrating relationship amongst the variables has been analyzed.
Findings
Overall financial development has a positive and significant impact on economic growth. To take the full advantage of openness in financial services trade, countries need to put more emphasis on the development of their stock markets, bond markets and the insurance sector. The result shows that openness in financial services trade has a positive impact on economic growth when the stock market, bond market and insurance sector are included in the system.
Research limitations/implications
The policy implication of the findings is that policymakers should focus more on developing all four areas of finance to get the full benefit of the financial system on the process of economic growth.
Originality/value
The authors have constructed the better indicators of financial development in the case of BRICS economies. Most of the studies in BRICS economies have measured the development of the financial sector as either banking sector development or stock market development. However, the present study includes all four areas of finance (banking sector development, stock market development, insurance sector development and bond market development) into account.
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Kim Hiang Liow and Alastair Adair
The purpose of this paper is to examine the role of Asian real estate companies with regard to their “value‐added” performance and portfolio diversification benefits in Asian…
Abstract
Purpose
The purpose of this paper is to examine the role of Asian real estate companies with regard to their “value‐added” performance and portfolio diversification benefits in Asian mixed‐asset portfolios, as well as in international real estate securities portfolios over 1996‐2005.
Design/methodology/approach
First the risk‐return performance for all 13 Asian as well as the US and UK real estate securities markets is compared. For each country, next the correlation profiles between real estate, common stock, bonds and cash are assessed. The value‐add benefits of Asian real estate securities in an unconstrained and constrained mixed asset portfolio are then assessed in relation to portfolio return, risk and terminal wealth. Finally, the paper explores whether there are benefits derived from international diversification with a universe of Asian real estate securities from the perspectives of the US and UK investors.
Findings
It was found that, whilst there is little evidence of diversification benefits and superior risk‐adjusted performance of Asian real estate companies in Asian mixed‐asset portfolios, diversification into Asian real estate stocks can provide positive portfolio implications for international investors. Thus investing in Asian real estate securities portfolios rather than investing in Asian mixed‐asset portfolios may be seen to be the more effective diversification strategy over this period.
Originality/value
The study has provided some interesting and important insights into the dynamics and performance of Asian real estate securities. With an increased emphasis on international property investment and as the regional upturn becomes more evident, Asian real estate companies potentially provide an important real estate investment opportunity for international property fund mangers.
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