We study the effect of head of states' health on markets. We collect data on unexpected exits from office to determine whether these exits affect stock market returns across countries between 1923 and 2015. Health problems precede almost all unexpected exits. Unexpected exits lead to about 1% abnormal return, due mainly to extreme positive jumps following exits of autocrats and non-college leaders. To identify citizens' awareness of a leader's health problems, we collect data on rumors about health issues emerging prior to the leader's exit. The start of rumors generates about 1% negative abnormal returns. The health of leaders matters.
{"title":"In Sickness and in Wealth: The Impact of Leaders' Health on Markets","authors":"Manuel R Manuel, Pablo Hernández-Lagos, T. Reyes","doi":"10.2139/ssrn.3704092","DOIUrl":"https://doi.org/10.2139/ssrn.3704092","url":null,"abstract":"We study the effect of head of states' health on markets. We collect data on unexpected exits from office to determine whether these exits affect stock market returns across countries between 1923 and 2015. Health problems precede almost all unexpected exits. Unexpected exits lead to about 1% abnormal return, due mainly to extreme positive jumps following exits of autocrats and non-college leaders. To identify citizens' awareness of a leader's health problems, we collect data on rumors about health issues emerging prior to the leader's exit. The start of rumors generates about 1% negative abnormal returns. The health of leaders matters.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"141 1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80974364","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior research documents that managers respond to an exogenous decrease in analyst coverage by increasing the quantity of a specific form of guidance (earnings forecasts), presumably to fill the information void left by a reduction in coverage. I extend this line of research by also considering the change in management forecast quality and an alternative form of guidance, managers’ forward-looking textual disclosures. First, although forecast quantity increases subsequent to loss of coverage and liquidity partially improves, I find forecast quality decreases (i.e., forecasts have larger signed and unsigned errors) and the decrease in quality attenuates the improvement in liquidity. These results suggest analysts not only play an informational role, but also a monitoring role with respect to managers’ forward-looking disclosures. These findings are more pronounced when (1) other monitors are not present to step in (i.e., dedicated intuitional owners and auditors) and (2) managers have incentives to engage in this disclosure behavior (i.e., engage in insider selling). Second, with respect to forward-looking textual disclosures, I find the quantity and net positivity of forward-looking textual disclosures in earnings announcements increase following loss of coverage. These results do not vary with other monitors’ presence, suggesting other parties do not monitor textual disclosures to the same extent as forecasting. However, the increase in net positivity of statements is concentrated in managers who engage in insider selling. Finally, I do not detect an improvement in liquidity from more textual disclosure or an association between net positivity and liquidity. Overall, my study provides a more nuanced view of analysts’ role in influencing firms’ disclosure of forward-looking information.
{"title":"Analyst Coverage and Managers’ Disclosure of Forward-Looking Information","authors":"James Warren","doi":"10.2139/ssrn.3702576","DOIUrl":"https://doi.org/10.2139/ssrn.3702576","url":null,"abstract":"Prior research documents that managers respond to an exogenous decrease in analyst coverage by increasing the quantity of a specific form of guidance (earnings forecasts), presumably to fill the information void left by a reduction in coverage. I extend this line of research by also considering the change in management forecast quality and an alternative form of guidance, managers’ forward-looking textual disclosures. First, although forecast quantity increases subsequent to loss of coverage and liquidity partially improves, I find forecast quality decreases (i.e., forecasts have larger signed and unsigned errors) and the decrease in quality attenuates the improvement in liquidity. These results suggest analysts not only play an informational role, but also a monitoring role with respect to managers’ forward-looking disclosures. These findings are more pronounced when (1) other monitors are not present to step in (i.e., dedicated intuitional owners and auditors) and (2) managers have incentives to engage in this disclosure behavior (i.e., engage in insider selling). Second, with respect to forward-looking textual disclosures, I find the quantity and net positivity of forward-looking textual disclosures in earnings announcements increase following loss of coverage. These results do not vary with other monitors’ presence, suggesting other parties do not monitor textual disclosures to the same extent as forecasting. However, the increase in net positivity of statements is concentrated in managers who engage in insider selling. Finally, I do not detect an improvement in liquidity from more textual disclosure or an association between net positivity and liquidity. Overall, my study provides a more nuanced view of analysts’ role in influencing firms’ disclosure of forward-looking information.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"8 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87918964","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
G. Sermpinis, Arman Hassanniakalager, C. Stasinakis, I. Psaradellis
We investigate the performance of more than 21,000 technical trading rules on 12 categorical and country-specific markets over the 2004-2015 study period. For this purpose, we apply a discrete false discovery rate approach in more than 240,000 hypotheses and examine the profitability, persistence and robustness of technical analysis. In terms of our results, technical analysis has short-term value. A novel cross-validation exercise highlights the importance of frequent rebalancing and supports our findings. Financial stress seems to have a strong negative effect in technical analysis profitability for US markets and a strong positive effect for emerging and other advanced markets.
{"title":"Is Technical Analysis Still Profitable? Evidence from MSCI Indices, Cross-Validation and Discrete False Discovery Rate","authors":"G. Sermpinis, Arman Hassanniakalager, C. Stasinakis, I. Psaradellis","doi":"10.2139/ssrn.3284621","DOIUrl":"https://doi.org/10.2139/ssrn.3284621","url":null,"abstract":"We investigate the performance of more than 21,000 technical trading rules on 12 categorical and country-specific markets over the 2004-2015 study period. For this purpose, we apply a discrete false discovery rate approach in more than 240,000 hypotheses and examine the profitability, persistence and robustness of technical analysis. In terms of our results, technical analysis has short-term value. A novel cross-validation exercise highlights the importance of frequent rebalancing and supports our findings. Financial stress seems to have a strong negative effect in technical analysis profitability for US markets and a strong positive effect for emerging and other advanced markets.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"54 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79672149","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We collect data of one-shot play for a representative selection of two by two games with unique and completely mixed strategy predictions, to compare the predictive power of theories of one-shot play ``out of treatment:'' competing theories are calibrated with pre-existing data using different games and subjects. We find that all theories, except Nash equilibrium, have predictive power; no theory is uniformly best; and taking into account risk aversion significantly improves predictive power. Finally, Nash equilibrium with risk aversion is among the best predictors of play, except for one player position in games of a matching pennies variety.
{"title":"Comparing Theories of One-Shot Play Out of Treatment","authors":"Philipp Külpmann, Christoph Kuzmics","doi":"10.2139/ssrn.3441675","DOIUrl":"https://doi.org/10.2139/ssrn.3441675","url":null,"abstract":"We collect data of one-shot play for a representative selection of two by two games with unique and completely mixed strategy predictions, to compare the predictive power of theories of one-shot play ``out of treatment:'' competing theories are calibrated with pre-existing data using different games and subjects. We find that all theories, except Nash equilibrium, have predictive power; no theory is uniformly best; and taking into account risk aversion significantly improves predictive power. Finally, Nash equilibrium with risk aversion is among the best predictors of play, except for one player position in games of a matching pennies variety.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"2012 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86385712","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Tian Guo, N. Jamet, Valentin Betrix, Louis-Alexandre Piquet, E. Hauptmann
Incorporating environmental, social, and governance (ESG) considerations into systematic investments has drawn numerous attention recently. In this paper, we focus on the ESG events in financial news flow and exploring the predictive power of ESG related financial news on stock volatility. In particular, we develop a pipeline of ESG news extraction, news representations, and Bayesian inference of deep learning models. Experimental evaluation on real data and different markets demonstrates the superior predicting performance as well as the relation of high volatility prediction to stocks with potential high risk and low return. It also shows the prospect of the proposed pipeline as a flexible predicting framework for various textual data and target variables.
{"title":"ESG2Risk: A Deep Learning Framework from ESG News to Stock Volatility Prediction","authors":"Tian Guo, N. Jamet, Valentin Betrix, Louis-Alexandre Piquet, E. Hauptmann","doi":"10.2139/ssrn.3593885","DOIUrl":"https://doi.org/10.2139/ssrn.3593885","url":null,"abstract":"Incorporating environmental, social, and governance (ESG) considerations into systematic investments has drawn numerous attention recently. In this paper, we focus on the ESG events in financial news flow and exploring the predictive power of ESG related financial news on stock volatility. In particular, we develop a pipeline of ESG news extraction, news representations, and Bayesian inference of deep learning models. Experimental evaluation on real data and different markets demonstrates the superior predicting performance as well as the relation of high volatility prediction to stocks with potential high risk and low return. It also shows the prospect of the proposed pipeline as a flexible predicting framework for various textual data and target variables.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75669720","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears driven by an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19-linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency.
{"title":"COVID-19: Venue Selection Effects and Implications for Market Quality","authors":"Gbenga Ibikunle, Khaladdin Rzayev","doi":"10.2139/ssrn.3586410","DOIUrl":"https://doi.org/10.2139/ssrn.3586410","url":null,"abstract":"We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears driven by an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19-linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"38-39 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89080557","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The COVID-19 pandemic has induced a different and more severe version of the contagion phenomenon. In this study, we examine the influence of the COVID-19 pandemic on six different stock markets. Empirical analyses are conducted for four different time intervals to reveal the effect of the COVID-19 pandemic. The modified ICSS test shows that the pandemic has led to structural breaks in the volatility of stock indexes. While break dates intensify around February 19–21, 2020 in most of the markets, for the Chinese stock market, the break appears approximately three weeks earlier, on January 30, 2020. The DCC-MVGARCH and DCC-MVFIGARCH models illustrate the effect of the COVID-19 pandemic on dynamic conditional correlations. According to the changes in unconditional correlation coefficients, although the relationship of the Chinese and Turkish stock markets weakens across 2005 to 2019, it displays a 20% rise following the pandemic. Some other market pairs also show soaring correlation coefficients, although these increases are lower, at approximately 10%.
{"title":"A New Form of Financial Contagion: COVID-19 and Stock Market Responses","authors":"Samet Gunay","doi":"10.2139/ssrn.3584243","DOIUrl":"https://doi.org/10.2139/ssrn.3584243","url":null,"abstract":"The COVID-19 pandemic has induced a different and more severe version of the contagion phenomenon. In this study, we examine the influence of the COVID-19 pandemic on six different stock markets. Empirical analyses are conducted for four different time intervals to reveal the effect of the COVID-19 pandemic. The modified ICSS test shows that the pandemic has led to structural breaks in the volatility of stock indexes. While break dates intensify around February 19–21, 2020 in most of the markets, for the Chinese stock market, the break appears approximately three weeks earlier, on January 30, 2020. The DCC-MVGARCH and DCC-MVFIGARCH models illustrate the effect of the COVID-19 pandemic on dynamic conditional correlations. According to the changes in unconditional correlation coefficients, although the relationship of the Chinese and Turkish stock markets weakens across 2005 to 2019, it displays a 20% rise following the pandemic. Some other market pairs also show soaring correlation coefficients, although these increases are lower, at approximately 10%.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"8 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84183079","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
S. Baker, N. Bloom, S. Davis, Kyle J Kost, Marco Sammon, Tasaneeya Viratyosin
No previous infectious disease outbreak, including the Spanish Flu, has impacted the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918-19, 1957-58 and 1968.
{"title":"The Unprecedented Stock Market Impact of Covid-19","authors":"S. Baker, N. Bloom, S. Davis, Kyle J Kost, Marco Sammon, Tasaneeya Viratyosin","doi":"10.3386/w26945","DOIUrl":"https://doi.org/10.3386/w26945","url":null,"abstract":"No previous infectious disease outbreak, including the Spanish Flu, has impacted the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918-19, 1957-58 and 1968.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88083447","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We use a new method to estimate ex ante higher order moments of stock market returns from option prices. Even and odd number higher order moments are strongly negatively correlated, creating periods where the return distribution is riskier because it is more left-skewed and fat tailed. The higher-moment risk increases in good times when variance is lower and prices are higher. This time variation is inconsistent with disaster-based models where disaster risk, and thus higher-moment risk, peaks in bad times. The variation in higher-moment risk also has important implications for investors as it causes the probability of a three-sigma loss on the market portfolio to vary from 0.7% to 1.9% percent over the sample, peaking in calm periods such as just before the onset of the financial crisis.
{"title":"Higher-Moment Risk","authors":"N. J. Gormsen, C. Jensen","doi":"10.2139/ssrn.3069617","DOIUrl":"https://doi.org/10.2139/ssrn.3069617","url":null,"abstract":"We use a new method to estimate ex ante higher order moments of stock market returns from option prices. Even and odd number higher order moments are strongly negatively correlated, creating periods where the return distribution is riskier because it is more left-skewed and fat tailed. The higher-moment risk increases in good times when variance is lower and prices are higher. This time variation is inconsistent with disaster-based models where disaster risk, and thus higher-moment risk, peaks in bad times. The variation in higher-moment risk also has important implications for investors as it causes the probability of a three-sigma loss on the market portfolio to vary from 0.7% to 1.9% percent over the sample, peaking in calm periods such as just before the onset of the financial crisis.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82412526","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Secondary buyouts (SBOs) represent more than 50 percent of all buyouts in 2018. Even though general partners argue that SBOs are less attractive investment targets for buyouts and some empirical indication against an outperformance of SBOs exists, the share of SBOs continuously increases. However, SBOs might be a favourable target with regard to its investment risk. Using a unique dataset of 295 PBOs and their consecutive SBOs in the UK, we analyse the risk level of financial distress of the buyout rounds considering the Altman Z-Score. We find that SBOs reduce this risk of portfolio companies more than PBOs during the holding period. Therefore, SBOs, in general, cannot be seen as riskier investments. However, risk of financial distress is driven differently between PBOs and SBOs. The risk development in distressed companies is not different in PBOs and SBOs. However, SBOs perform better at risk management if the portfolio company is not distressed. This risk-adjusted view identifies SBOs as attractive investment targets. It also contributes to rectify investments in SBOs as rational and promising decisions.
{"title":"Risk of Financial Distress in Secondary Buyouts","authors":"Tjark Eschenröder, Thomas Hartmann-Wendels","doi":"10.2139/ssrn.3508613","DOIUrl":"https://doi.org/10.2139/ssrn.3508613","url":null,"abstract":"Secondary buyouts (SBOs) represent more than 50 percent of all buyouts in 2018. Even though general partners argue that SBOs are less attractive investment targets for buyouts and some empirical indication against an outperformance of SBOs exists, the share of SBOs continuously increases. However, SBOs might be a favourable target with regard to its investment risk. Using a unique dataset of 295 PBOs and their consecutive SBOs in the UK, we analyse the risk level of financial distress of the buyout rounds considering the Altman Z-Score. We find that SBOs reduce this risk of portfolio companies more than PBOs during the holding period. Therefore, SBOs, in general, cannot be seen as riskier investments. However, risk of financial distress is driven differently between PBOs and SBOs. The risk development in distressed companies is not different in PBOs and SBOs. However, SBOs perform better at risk management if the portfolio company is not distressed. This risk-adjusted view identifies SBOs as attractive investment targets. It also contributes to rectify investments in SBOs as rational and promising decisions.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84149961","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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