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I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

The paper aims to focus on microwave (2.45 GHz) assisted SHS (MA‐SHS) preparation of NiAl intermetallic coatings on titanium substrates conducted in single mode applicator in order to promote the formation of a complex Ni‐Al‐Ti interface. This enhances the NiAl coating adhesion to the Ti substrate and presents high hardness, high toughness and the capability of stopping the fracture propagation.

Numerical modelling, coupling electromagnetic and heat transfer, allowed to demonstrate that the interface cooling rate can be controlled immediately after SHS using microwave heating, benefiting from the possibility of conveying energy to the newly formed intermetallic compounds, despite an adverse temperature gradient which would negatively affect conventional heating techniques, based exclusively on heat transfer. Experimental validation of the modelling results confirmed that by altering the synthesis conditions (load geometry, microwave power, auxiliary microwave absorbers) the thickness of the Ni‐Al‐Ti layer can be controlled.

The growth of the interface layer can be ascribed to the formation of a liquid phase (ternary eutectic) which progressively consumes NiAl and Ti from the substrate. In case of MA‐SHS, the liquid phase presence can be prolonged during cooling, thus explaining the formation of the thick interface layer.

Microwave selective heating can be used to initiate the SHS without affecting the metallic substrate, which is only heated locally by the reaction products, thus preserving its properties.

Coupling numerical simulation and experimental activity demonstrated that the different microstructures obtained by MA‐SHS are a result of the peculiar temperature profile, favoured by microwave volumetric and selective heating of the reacting powders.

This paper aims to investigate the impact of COVID-19 and the stringency of the government policy response on stock market returns globally and at the regional level.

Pooled-ordinary least squares (OLS) and panel data techniques are used to analyse the daily data set across 88 countries in the Americas, Europe, Asia-Pacific, Middle East and Africa for the period of 1 January 2020 to 10 May 2021.

Using pooled-OLS and panel data techniques, the analyses show that both the daily growth in confirmed cases and deaths caused by COVID-19 have significant negative effects on stock returns across all markets. The effects are non-linear and U-shaped. Stock markets react more to the growth of confirmed cases than to the growth in the number of confirmed deaths. The results, however, vary across regions. More specifically, this study finds that the negative effect of confirmed cases is stronger in the Americas and the Middle East, followed by Europe. The negative direct effect of deaths caused by COVID-19 is stronger in the European region, followed by the Middle East, in relation to the rest of the world. The stock market returns in the African region are not, however, statistically significant. The researcher finds evidence that stringent policy responses lead to a significant increase in the stock market returns, both globally and across regions.

The results suggest that the integrity of the government and its interventions complemented by a stable and reliable monetary policy are crucial in providing confidence to firms and households in uncertain times.

COVID-19 has a significant impact on national economies and stock markets, triggering various governments’ interventions across all geographic regions. The pandemic has significantly affected all aspects of life, especially the stock markets. However, their empirical impact on stock returns is still unclear. This paper is the first of its kind to fill this gap by providing an in-depth quantitative analysis of the impact of both COVID-19 and stringency of the governmental policy responses on stock market returns globally and at the regional level. It is also the first to use an advanced analytical framework in analysing the effects of daily growth in both total and newly confirmed cases, and the daily growth in both total and new deaths caused by COVID-19 on them. The dynamic nature of the data on COVID-19 is taken into account. The non-linearity of the effects is also considered.

The purpose of this paper is to examine how pre-IPO cash flow and earnings volatility influence both post-IPO pricing and valuation. This paper provides an empirical extension of Pástor and Veronesi’s (2003, 2005) argument that uncertainty surrounding a private firm’s expected profitability can impact how the firm is valued in the IPO aftermarket.

This paper includes a sample of 695 IPOs between 1996 and 2011. Pre-IPO financial statement data are hand collected from the EDGAR database. Pre-IPO cash flow and earnings volatility is computed using the standard deviation of the firm’s three years of cash flows and earnings prior to the IPO. Tobin’s Q serves as a measure of post-IPO firm valuation. This paper includes two subsamples to account for the “hot” IPO market of the late 1990s.

Firms with higher pre-IPO cash flow volatility are associated with higher post-IPO aftermarket valuations. This result holds for both the “hot” IPO and the later sub-sample. Pre-IPO earnings volatility does not influence aftermarket valuations, suggesting that only the uncertainty surrounding cash flows serves as a salient measure to IPO investors. Finally, IPO underpricing is associated with pre-IPO cash flow volatility, suggesting another channel in which IPO pricing is influenced.

The hand collection for this paper is laborious and is limited to yearly cash flow and earnings numbers. The paper documents that quarterly and yearly cash flow and earnings volatility measures are highly correlated for the select stocks that allow for such testing. Further, a broader sample that accounts for more international IPO issues might corroborate the findings in this paper.

This study shows that investors both initially price and value IPO firms base on their pre-IPO cash flow volatility.

This is the first paper to examine the direct link between pre-IPO cash flow and earnings volatility on IPO aftermarket valuation and IPO pricing.

This paper aims to study whether noisy public information that investors receive about the expected aggregate dividend growth rate can help better understand the large average equity premium and stock return volatility in the US financial market.

This paper considers a dynamic asset pricing model with a representative agent, who cannot observe the expected growth rate of dividends and must learn its value by using noisy information. In addition, this paper presents a simple model for noisy information calibration.

With a coefficient of relative risk aversion below 10 and the time impatience parameter between 0 and 1, the calibrated model is able to yield an average risk-free interest rate, equity premium and stock return volatility that are close to the stylized facts in the US financial market.

First, this paper presents a different equilibrium model with a simple “catching up with the Joneses” preference and noisy information. Second, this paper develops a simple calibration procedure to calibrate the information process to study whether the calibrated model can help explain the large average equity premium and stock return volatility in the US financial market data.

The purpose of this study is to examine the bi-directional causality between political uncertainty and the market risk premium in the US.

I use a theoretical model to motivate signs and then check signs based on a vector autoregression.

I find that political uncertainty has a small positive, delayed effect on the market risk premium. The market risk premium, on the other hand, has a large permanent, negative effect on political uncertainty.

This is the first research paper to consider the bi-directional effects of political uncertainty on the market risk premium and vice versa. It also finds interesting empirical results.

Unlike other types of corporate disclosure, corporate political disclosure (CPD), which is the disclosure of corporate political contributions and the related governing policies and oversight mechanisms, does not provide completely new information to stakeholders. Some of the information disclosed in CPD is available from other public records (e.g. the Federal Election Committee website or OpenSecrets website). Given this unique feature of CPD, it is interesting to investigate the cost and benefit tradeoff for firms of altering their CPD practice in response to policy and political uncertainty.

This study employs recently developed indexes of aggregate economic policy uncertainty (EPU) and a novel dataset of CPD transparency to examine the impact of EPU on CPD transparency and how the proprietary cost of corporate political activities moderates this association. The sample consists of S&P 500 companies from the 2012 to 2019 period.

The authors document that firms mitigate the heightened information asymmetry associated with higher aggregate EPU by increasing CPD transparency. The positive association between EPU and CPD is less pronounced for firms that are more sensitive to EPU, for firms that more actively manage EPU through corporate political contributions or lobbying activities and for firms that are followed by more analysts. The authors also find that more transparent CPD helps to mitigate the information asymmetry caused by heightened EPU. This study’s results hold when the authors control for other types of voluntary corporate disclosure.

This study contributes to the emerging literature on the determinants of CPD transparency by identifying EPU's positive impact on CPD transparency. This study also provides empirical evidence that the proprietary costs arising from the controversial nature of corporate political activities dampen firms' incentives to provide transparent CPD in response to heightened EPU, and that information on corporate political activities gathered and processed by financial analysts seems to lower the marginal benefit to companies of publicizing CPD on their own website.

Brexit has caused a visible disruption to the established and accepted web of rules governing European markets. Our study, based on a survey of Polish firms operating in the UK market, aims to identify Polish firms’ perceptions of Brexit and select characteristics of groups of firms exhibiting similar perceptions of uncertainty. The perception of uncertainty itself was measured along two separate dimensions – uncertainty about future arrangements between the EU and the UK and uncertainty about institutional agility in the UK. The results are analyzed using the cluster method. The findings identify three types of firms that we have named as alarmist, the concerned, and the oasis of peace, within which the largest group are companies that view Brexit as a non-significant threat (the oasis of peace), unlike the other two groups (alarmist and the concerned). Those perceived differently are mostly firms having larger size, greater involvement into the British market and longer-term experience in that market.

Higher real earnings management (REM) reduces financial reporting quality and increases the uncertainty of future cash flows and profitability among investors. This study asserts that REM-induced noise increases idiosyncratic return volatility (IVOL), aims to examine the association between REM and IVOL and further investigates whether information asymmetry, firm life cycle and economic policy uncertainty (EPU) moderate the association between REM and IVOL.

The authors use 94,445 firm-year observations from the US over 1987 to 2019 and test this study’s hypotheses using ordinary least square regressions with robust standard errors clustered by firm. The authors use change analysis, two-stage models and the impact threshold of the confounding variable analysis to address endogeneity.

The authors find that REM increases IVOL. This positive association is more pronounced for firms with more information asymmetry, for firms in the mature stage of the life cycle, compared with their growth-stage counterparts; and during periods of high EPU.

Extant research suggests that accrual manipulation increases IVOL. However, the shift from accrual manipulation to REM and the managerial preference towards REM suggests that it is important to explore the impact of REM on IVOL. Thus, the authors enhance the understanding of the impact of earnings management on IVOL by documenting that REM-induced noise increases IVOL. The authors further extend the limited research on the consequences of REM and report an adverse consequence.

This paper aims to examine the impact that monetary policy uncertainty (MPU) has on stock market returns by taking into account limits to arbitrage and the economic cycle.

Using four news-based MPU measures, regression models have been applied in this study over a sample period from January 1985 to March 2020. The limits to arbitrage have been considered by taking Russell 1000 Value, Russell 1000 Growth, Russell 2000 Value and Russell 2000 Growth indices, and business cycles were established following the National Bureau of Economic Research.

A negative MPU impact on stock returns has been found. In particular, the most subjective and difficult to arbitrate stocks have been more sensitive to MPU. However, it could not be concluded that MPU has a greater or lesser impact on stock returns depending on the economic cycle.

The findings obtained are particularly useful for monetary policymakers showing the importance and need for greater control over the transparency of their decisions to maintain the stability of financial markets. The findings obtained are also useful for investors when selecting their investment assets at times of the highest MPU.

To the best of the authors’ knowledge, this is one of the few studies investigating the effect of MPU on stock market returns, and the first to analyse this relationship taking into account the economic cycle and limits to arbitrage.