Pub Date : 2022-08-09DOI: 10.1108/sef-03-2022-0133
Garrison Hongyu Song, Ajeet K. Jain
Purpose Academia and financial practitioners have mixed opinions about whether artificial intelligence (AI) can beat the stock market. The purpose of this paper is to investigate theoretically what would happen if AI has further evolved into a superior ability to predict the future more accurately than average investors. Design/methodology/approach A theoretical model in an endowment economy with two types of representative investors (traditional investors and AI investors) is proposed, and based on the model, a long-run survival analysis for both types of investors is implemented. Findings The model presented in this paper indicates that being equipped with a superior ability to predict the future more accurately than traditional investors cannot guarantee AI investors to always beat the stock market in the long run. Those investors may be extinct, all depending on the structure/parameters of the stock market. Originality/value To the best of the author’s knowledge, they are the first to set up a representative agent equilibrium model to explore the above question seriously.
{"title":"Can artificial intelligence beat the stock market?","authors":"Garrison Hongyu Song, Ajeet K. Jain","doi":"10.1108/sef-03-2022-0133","DOIUrl":"https://doi.org/10.1108/sef-03-2022-0133","url":null,"abstract":"\u0000Purpose\u0000Academia and financial practitioners have mixed opinions about whether artificial intelligence (AI) can beat the stock market. The purpose of this paper is to investigate theoretically what would happen if AI has further evolved into a superior ability to predict the future more accurately than average investors.\u0000\u0000\u0000Design/methodology/approach\u0000A theoretical model in an endowment economy with two types of representative investors (traditional investors and AI investors) is proposed, and based on the model, a long-run survival analysis for both types of investors is implemented.\u0000\u0000\u0000Findings\u0000The model presented in this paper indicates that being equipped with a superior ability to predict the future more accurately than traditional investors cannot guarantee AI investors to always beat the stock market in the long run. Those investors may be extinct, all depending on the structure/parameters of the stock market.\u0000\u0000\u0000Originality/value\u0000To the best of the author’s knowledge, they are the first to set up a representative agent equilibrium model to explore the above question seriously.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42599759","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}
Pub Date : 2022-08-04DOI: 10.1108/sef-02-2022-0122
D. Nguyen, Tu D. Q. Le
Purpose The purpose of this study is to examine whether a bidirectional relationship between bank risk and market discipline may exist in Southeast Asia. Design/methodology/approach A simultaneous equations model with a three-stage least squares estimator is used to examine the interrelationships between bank risk and market discipline using a sample of 79 listed banks in five countries in Southeast Asia (ASEAN-5) from 2006 to 2019. Findings The findings show a two-way relationship between bank risk and market discipline. In particular, market discipline has a negative impact on bank risk, while there is a positive relationship between bank risk and market discipline. A bidirectional relationship between them still holds when using an alternative measure of bank risk in subsamples, controlling for the global financial crisis and governance indicators. Practical implications The findings indicate that market discipline can reduce bank risk. Meanwhile, a positive impact of bank risk on market discipline reemphasizes that market discipline is a powerful tool to ensure banks do not have excessive risk-taking. Nonetheless, the findings suggest that further implementation of market discipline as the third pillar of the Basel framework is necessary for the banking systems in ASEAN-5. Originality/value To the best of the authors’ knowledge, this study is the first attempt to investigate the interrelationship between bank risk and market discipline in Southeast Asia.
{"title":"The interrelationships between bank risk and market discipline in Southeast Asia","authors":"D. Nguyen, Tu D. Q. Le","doi":"10.1108/sef-02-2022-0122","DOIUrl":"https://doi.org/10.1108/sef-02-2022-0122","url":null,"abstract":"\u0000Purpose\u0000The purpose of this study is to examine whether a bidirectional relationship between bank risk and market discipline may exist in Southeast Asia.\u0000\u0000\u0000Design/methodology/approach\u0000A simultaneous equations model with a three-stage least squares estimator is used to examine the interrelationships between bank risk and market discipline using a sample of 79 listed banks in five countries in Southeast Asia (ASEAN-5) from 2006 to 2019.\u0000\u0000\u0000Findings\u0000The findings show a two-way relationship between bank risk and market discipline. In particular, market discipline has a negative impact on bank risk, while there is a positive relationship between bank risk and market discipline. A bidirectional relationship between them still holds when using an alternative measure of bank risk in subsamples, controlling for the global financial crisis and governance indicators.\u0000\u0000\u0000Practical implications\u0000The findings indicate that market discipline can reduce bank risk. Meanwhile, a positive impact of bank risk on market discipline reemphasizes that market discipline is a powerful tool to ensure banks do not have excessive risk-taking. Nonetheless, the findings suggest that further implementation of market discipline as the third pillar of the Basel framework is necessary for the banking systems in ASEAN-5.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this study is the first attempt to investigate the interrelationship between bank risk and market discipline in Southeast Asia.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49042380","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}
Pub Date : 2022-08-02DOI: 10.1108/sef-04-2022-0211
Garrison Hongyu Song
Purpose The size effect that there exist return differences between small market-cap firms and large market-cap counterparts in the stock market has become one of the most controversial capital market anomalies. This paper aims to interpret this effect, including both the size premium and the size discount. Design/methodology/approach A dynamic capital mobility model (DCMM) is proposed, and the model’s explanatory ability is validated via simulation. Findings This study’s simulation results indicate that the observed size effect can be originated from the combination of the pure size effect and the investors’ herding behavior. Although the size premium, that average returns of small firms are higher than those of large firms, is more prevalent in the stock market, this study’s model implies that the size discount is also possible, which is largely an empirical issue. The pure size effect per se cannot reproduce the size premium. Only if the herding effect dominates the pure size effect would there exist the size premium. Originality/value Although the literature provides miscellaneous explanations for the size effect, they are still inconclusive. So far there has been no theory to directly investigate the size effect and to explicitly explore the impact of investors’ trading behavior on the size effect. To the best of the author’s knowledge, this paper fills in this gap and proposes a DCMM to interpret the size effect for the first time. In addition, while the literature focuses on the size premium only, this study covers not only the size premium but also the size discount.
{"title":"Size premium or size discount? – A dynamic capital mobility based interpretation","authors":"Garrison Hongyu Song","doi":"10.1108/sef-04-2022-0211","DOIUrl":"https://doi.org/10.1108/sef-04-2022-0211","url":null,"abstract":"\u0000Purpose\u0000The size effect that there exist return differences between small market-cap firms and large market-cap counterparts in the stock market has become one of the most controversial capital market anomalies. This paper aims to interpret this effect, including both the size premium and the size discount.\u0000\u0000\u0000Design/methodology/approach\u0000A dynamic capital mobility model (DCMM) is proposed, and the model’s explanatory ability is validated via simulation.\u0000\u0000\u0000Findings\u0000This study’s simulation results indicate that the observed size effect can be originated from the combination of the pure size effect and the investors’ herding behavior. Although the size premium, that average returns of small firms are higher than those of large firms, is more prevalent in the stock market, this study’s model implies that the size discount is also possible, which is largely an empirical issue. The pure size effect per se cannot reproduce the size premium. Only if the herding effect dominates the pure size effect would there exist the size premium.\u0000\u0000\u0000Originality/value\u0000Although the literature provides miscellaneous explanations for the size effect, they are still inconclusive. So far there has been no theory to directly investigate the size effect and to explicitly explore the impact of investors’ trading behavior on the size effect. To the best of the author’s knowledge, this paper fills in this gap and proposes a DCMM to interpret the size effect for the first time. In addition, while the literature focuses on the size premium only, this study covers not only the size premium but also the size discount.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49604370","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}
Pub Date : 2022-07-27DOI: 10.1108/sef-01-2022-0045
Zaghum Umar, Francisco Jareño, Ana Escribano
Purpose This paper aims to examine the dynamic return and volatility connectedness for six major industrial metals (tin, lead, nickel, zinc, copper and aluminium) and the coronavirus media coverage index (MCI). Design/methodology/approach To that purpose, this study applies the fresh time-varying parameter vector autoregression methodology (TVP–VAR model) during the sample period between 2 January, 2020, and 16 April, 2021, that is, covering the three waves of the COVID-19 pandemic crisis. Findings This study’s results show interesting findings. First, dynamic total return and volatility connectedness changes over time, highlighting a significant increase during the third wave of the pandemic. Second, the MCI index is a leading net transmitter in terms of return and volatility at the introduction of the SARS-CoV-2 coronavirus crisis. Third, this study clearly distinguishes two profiles among industrial metals: copper and tin/zinc as net transmitters and lead and aluminium as net receivers. Finally, the most relevant differences between them are concentrated not only at the beginning of the COVID-19 pandemic (first wave) but also during the second and third waves of the coronavirus outbreak. Originality/value To the best of the authors’ knowledge, this is the first research that explores the dynamic return and volatility connectedness in the industrial metal market, applying the TVP–VAR methodology during the first waves of the COVID-19 pandemic crisis.
{"title":"Analysis of the dynamic return and volatility connectedness for non-ferrous industrial metals during the COVID-19 pandemic crisis","authors":"Zaghum Umar, Francisco Jareño, Ana Escribano","doi":"10.1108/sef-01-2022-0045","DOIUrl":"https://doi.org/10.1108/sef-01-2022-0045","url":null,"abstract":"\u0000Purpose\u0000This paper aims to examine the dynamic return and volatility connectedness for six major industrial metals (tin, lead, nickel, zinc, copper and aluminium) and the coronavirus media coverage index (MCI).\u0000\u0000\u0000Design/methodology/approach\u0000To that purpose, this study applies the fresh time-varying parameter vector autoregression methodology (TVP–VAR model) during the sample period between 2 January, 2020, and 16 April, 2021, that is, covering the three waves of the COVID-19 pandemic crisis.\u0000\u0000\u0000Findings\u0000This study’s results show interesting findings. First, dynamic total return and volatility connectedness changes over time, highlighting a significant increase during the third wave of the pandemic. Second, the MCI index is a leading net transmitter in terms of return and volatility at the introduction of the SARS-CoV-2 coronavirus crisis. Third, this study clearly distinguishes two profiles among industrial metals: copper and tin/zinc as net transmitters and lead and aluminium as net receivers. Finally, the most relevant differences between them are concentrated not only at the beginning of the COVID-19 pandemic (first wave) but also during the second and third waves of the coronavirus outbreak.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this is the first research that explores the dynamic return and volatility connectedness in the industrial metal market, applying the TVP–VAR methodology during the first waves of the COVID-19 pandemic crisis.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48162884","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}
Pub Date : 2022-07-12DOI: 10.1108/sef-01-2022-0005
Kavous Ardalan
Purpose The purpose of this paper is to use some of the contributions of the option pricing theory to solve three outstanding puzzles in finance: the underdiversification puzzle, the volatility puzzle and the equity premium puzzle. Design/methodology/approach To approach the issue, this paper considers the applications of the option pricing theory to both sides of the corporate balance sheet. Applications to the left-hand side of the balance sheet has led to the real options theory that has expressed the value of a capital budgeting project as the sum of the values of its “discounted cash flow (DCF) method” and “real options.” This paper argues that, because the balance sheet must balance, the value of equity, which appears on the right-hand side of the balance sheet, should also be expressed as the sum of the values of its “DCF method” and “equity options.” Findings This proposed model of equity valuation solves the three outstanding puzzles in finance: the underdiversification puzzle, the volatility puzzle and the equity premium puzzle. Research limitations/implications This study may not be able to explain the full extent of the three puzzles. Practical implications The dividend discount model of equity valuation needs to be augmented by an option component. Social implications The community of finance scholars will become more confident of their scholarly work because three puzzles will be solved to a great extent. Originality/value To the best of author’s knowledge, the extant literature does not either solve any single one of the three puzzles through the contributions of option pricing theory or solve all three puzzles at the same time with a single solution. The originality of this paper is that it makes both of these contributions to the extant literature.
{"title":"Underdiversification puzzle, volatility puzzle and equity premium puzzle: a common solution","authors":"Kavous Ardalan","doi":"10.1108/sef-01-2022-0005","DOIUrl":"https://doi.org/10.1108/sef-01-2022-0005","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to use some of the contributions of the option pricing theory to solve three outstanding puzzles in finance: the underdiversification puzzle, the volatility puzzle and the equity premium puzzle.\u0000\u0000\u0000Design/methodology/approach\u0000To approach the issue, this paper considers the applications of the option pricing theory to both sides of the corporate balance sheet. Applications to the left-hand side of the balance sheet has led to the real options theory that has expressed the value of a capital budgeting project as the sum of the values of its “discounted cash flow (DCF) method” and “real options.” This paper argues that, because the balance sheet must balance, the value of equity, which appears on the right-hand side of the balance sheet, should also be expressed as the sum of the values of its “DCF method” and “equity options.”\u0000\u0000\u0000Findings\u0000This proposed model of equity valuation solves the three outstanding puzzles in finance: the underdiversification puzzle, the volatility puzzle and the equity premium puzzle.\u0000\u0000\u0000Research limitations/implications\u0000This study may not be able to explain the full extent of the three puzzles.\u0000\u0000\u0000Practical implications\u0000The dividend discount model of equity valuation needs to be augmented by an option component.\u0000\u0000\u0000Social implications\u0000The community of finance scholars will become more confident of their scholarly work because three puzzles will be solved to a great extent.\u0000\u0000\u0000Originality/value\u0000To the best of author’s knowledge, the extant literature does not either solve any single one of the three puzzles through the contributions of option pricing theory or solve all three puzzles at the same time with a single solution. The originality of this paper is that it makes both of these contributions to the extant literature.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42620394","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}
Pub Date : 2022-07-12DOI: 10.1108/sef-03-2022-0149
Q. Nguyen
Purpose This paper aims to study the effects of public human capital spending on growth under the presence of financial frictions and productivity heterogeneity. In addition, this paper derives and discusses growth-maximizing policy. Design/methodology/approach This paper constructs a tractable human capital–based growth model. There a continuum of heterogeneous entrepreneurs who own private firms, accumulate personal wealth and face collateral borrowing constraints. The representative worker accumulates human capital by using his own efforts, the existing human capital stock and human capital–related public services. The government finances public spending by taxing capital income. This paper then focuses its analysis on the balanced growth path equilibrium of the economy model. Findings This paper finds that public human capital spending financed by capital income taxation yields strictly higher growth than when the spending is absent. In addition, it shows that the growth-maximizing capital income tax rate is higher when the idiosyncratic firm productivity distribution is more heavy tailed. Originality/value This paper embraces and then explores the effects of productivity heterogeneity and financial frictions into an otherwise conventional human capital–based endogenous growth model. This paper also differs from the conventional endogenous growth framework by incorporating the productive role of public services in the process of accumulating human capital. Therefore, it can address the effects of public spending on growth.
{"title":"Revisiting Uzawa–Lucas with public human capital spending and productivity heterogeneity","authors":"Q. Nguyen","doi":"10.1108/sef-03-2022-0149","DOIUrl":"https://doi.org/10.1108/sef-03-2022-0149","url":null,"abstract":"\u0000Purpose\u0000This paper aims to study the effects of public human capital spending on growth under the presence of financial frictions and productivity heterogeneity. In addition, this paper derives and discusses growth-maximizing policy.\u0000\u0000\u0000Design/methodology/approach\u0000This paper constructs a tractable human capital–based growth model. There a continuum of heterogeneous entrepreneurs who own private firms, accumulate personal wealth and face collateral borrowing constraints. The representative worker accumulates human capital by using his own efforts, the existing human capital stock and human capital–related public services. The government finances public spending by taxing capital income. This paper then focuses its analysis on the balanced growth path equilibrium of the economy model.\u0000\u0000\u0000Findings\u0000This paper finds that public human capital spending financed by capital income taxation yields strictly higher growth than when the spending is absent. In addition, it shows that the growth-maximizing capital income tax rate is higher when the idiosyncratic firm productivity distribution is more heavy tailed.\u0000\u0000\u0000Originality/value\u0000This paper embraces and then explores the effects of productivity heterogeneity and financial frictions into an otherwise conventional human capital–based endogenous growth model. This paper also differs from the conventional endogenous growth framework by incorporating the productive role of public services in the process of accumulating human capital. Therefore, it can address the effects of public spending on growth.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49370911","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}
Pub Date : 2022-06-28DOI: 10.1108/sef-08-2021-0315
D. Santos, P. Gama
Purpose This paper aims to study individual managers’ market timing capabilities while trading (either buying or selling) stock from their portfolios, as well as the impact of gender, seniority and trading frequency on their market timing performance. Design/methodology/approach This study uses a relative transaction price approach introduced by Dittmar and Field (2015) on 837 aggregated trades made by managers from their portfolios between 2010 and 2015. These were taken from publicly disclosed information through the Portuguese regulator. Furthermore, this study uses a median regression-based method to infer the authors’ conclusions. Findings The authors find that insiders buy (sell) at a relatively lower (higher) price when compared to other traders. This evidence shows that insiders have market timing capabilities. Moreover, this paper shows that contrarily to gender, both seniority and frequency help explain market timing performance and that insiders’ trades made over-the-counter (OTC) generally overperform the ones made on the open market (OM). Finally, this study finds a significant crisis-related influence on insiders’ market timing performance. Originality/value This study contributes to the literature by studying insider trading at the portfolio level, by analyzing the impact of personal characteristics of insiders (including gender, tenure and eagerness), focusing both on studying the buying and selling behavior across both OMs and OTC and analyzing firsthand the impact of a macroeconomic shift on insider trading performance.
{"title":"Insiders’ characteristics and market timing capabilities: buying and selling evidence","authors":"D. Santos, P. Gama","doi":"10.1108/sef-08-2021-0315","DOIUrl":"https://doi.org/10.1108/sef-08-2021-0315","url":null,"abstract":"\u0000Purpose\u0000This paper aims to study individual managers’ market timing capabilities while trading (either buying or selling) stock from their portfolios, as well as the impact of gender, seniority and trading frequency on their market timing performance.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses a relative transaction price approach introduced by Dittmar and Field (2015) on 837 aggregated trades made by managers from their portfolios between 2010 and 2015. These were taken from publicly disclosed information through the Portuguese regulator. Furthermore, this study uses a median regression-based method to infer the authors’ conclusions.\u0000\u0000\u0000Findings\u0000The authors find that insiders buy (sell) at a relatively lower (higher) price when compared to other traders. This evidence shows that insiders have market timing capabilities. Moreover, this paper shows that contrarily to gender, both seniority and frequency help explain market timing performance and that insiders’ trades made over-the-counter (OTC) generally overperform the ones made on the open market (OM). Finally, this study finds a significant crisis-related influence on insiders’ market timing performance.\u0000\u0000\u0000Originality/value\u0000This study contributes to the literature by studying insider trading at the portfolio level, by analyzing the impact of personal characteristics of insiders (including gender, tenure and eagerness), focusing both on studying the buying and selling behavior across both OMs and OTC and analyzing firsthand the impact of a macroeconomic shift on insider trading performance.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41675754","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}
Pub Date : 2022-06-07DOI: 10.1108/sef-12-2021-0536
Matin Keramiyan, K. Gokmenoglu
Purpose This paper aims to examine the predictive power of the volume of Economic Uncertainty Related Queries and the Macroeconomic Uncertainty Index on the Bitcoin returns. Design/methodology/approach Data consists of 118 monthly observations from September 2010 to June 2020. Due to the departure of series from Gaussian distribution and the existence of outliers, the authors use the quantile analysis framework to investigate the persistency of the shocks, the long-run relationships and Granger causality among the variables. Findings This research provides several important findings. First, the substantial differences between conventional and quantile test results stress the importance of the method selection. Second, throughout the conditional distribution of the series, stochastic properties of the variables, long-run and the causal relationships between the variables might be significantly different. Third, rich information provided by the quantile framework might help the investors design better investment strategies. Originality/value This study differs from the previous research in terms of variable selection and econometric methodology. Therefore, it presents a more comprehensive framework that suggests implications for empirical researchers and Bitcoin investors.
{"title":"Bitcoin, uncertainty and internet searches","authors":"Matin Keramiyan, K. Gokmenoglu","doi":"10.1108/sef-12-2021-0536","DOIUrl":"https://doi.org/10.1108/sef-12-2021-0536","url":null,"abstract":"\u0000Purpose\u0000This paper aims to examine the predictive power of the volume of Economic Uncertainty Related Queries and the Macroeconomic Uncertainty Index on the Bitcoin returns.\u0000\u0000\u0000Design/methodology/approach\u0000Data consists of 118 monthly observations from September 2010 to June 2020. Due to the departure of series from Gaussian distribution and the existence of outliers, the authors use the quantile analysis framework to investigate the persistency of the shocks, the long-run relationships and Granger causality among the variables.\u0000\u0000\u0000Findings\u0000This research provides several important findings. First, the substantial differences between conventional and quantile test results stress the importance of the method selection. Second, throughout the conditional distribution of the series, stochastic properties of the variables, long-run and the causal relationships between the variables might be significantly different. Third, rich information provided by the quantile framework might help the investors design better investment strategies.\u0000\u0000\u0000Originality/value\u0000This study differs from the previous research in terms of variable selection and econometric methodology. Therefore, it presents a more comprehensive framework that suggests implications for empirical researchers and Bitcoin investors.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44781051","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}
Pub Date : 2022-05-31DOI: 10.1108/sef-05-2021-0186
Md Hakim Ali, C. Schinckus, Md Akther Uddin, Saeed Pahlevansharif
Purpose Even though Bitcoin has been often labelled as a safe haven asset class in the literature, the influence of economic policy uncertainty (EPU) on the diversifying opportunities offered by Bitcoin in relation to other assets needs to be investigated. This paper aims to investigate how the EPU affects diversification of commodity, conventional, Islamic and sustainable equity returns in relation to its impact on Bitcoin returns. Design/methodology/approach The authors use advanced time-series econometrics, namely, multivariate generalized autoregressive conditional heteroscedastic-dynamic conditional correlation and continuous wavelet transformation, for the analysis of the daily returns for the aforementioned assets between 01 August 2011 and 01 September 2019. Findings First, the authors found a strong evidence of Bitcoin’s mean reverting trend in the long run while its volatility has decreased significantly since 2013. After separating the EPU into two regimes (high and low), diversification opportunities with Bitcoin seems to disappear in a high EPU period, while the hedging opportunity tends to prevail in a low EPU period for all classes of assets. Importantly, the findings indicate that Bitcoin offers short-term diversification for sustainable and Islamic equity as well as energy stocks during a low uncertainty period. Consequently, in relation to the policy uncertainty, Bitcoin provides similar hedging opportunities than commodities like Gold and Silver. Overall, the study shows that EPU is remarkably important in explaining the average portfolio returns of Bitcoin, suggesting that this indicator can be perceived as a decent explanatory factor for portfolio diversification. Originality/value The study significantly extends the empirical literature of Bitcoin’s portfolio diversification by taking EPU into consideration. To the best of authors’ knowledge, this is one of the few studies to investigate the asymmetric effects of US EPU on Bitcoin’s hedging capabilities by taking into account major conventional equity, sustainable equity, Islamic equity, gold, silver and oil.
{"title":"Asymmetric effects of economic policy uncertainty on Bitcoin’s hedging power","authors":"Md Hakim Ali, C. Schinckus, Md Akther Uddin, Saeed Pahlevansharif","doi":"10.1108/sef-05-2021-0186","DOIUrl":"https://doi.org/10.1108/sef-05-2021-0186","url":null,"abstract":"\u0000Purpose\u0000Even though Bitcoin has been often labelled as a safe haven asset class in the literature, the influence of economic policy uncertainty (EPU) on the diversifying opportunities offered by Bitcoin in relation to other assets needs to be investigated. This paper aims to investigate how the EPU affects diversification of commodity, conventional, Islamic and sustainable equity returns in relation to its impact on Bitcoin returns.\u0000\u0000\u0000Design/methodology/approach\u0000The authors use advanced time-series econometrics, namely, multivariate generalized autoregressive conditional heteroscedastic-dynamic conditional correlation and continuous wavelet transformation, for the analysis of the daily returns for the aforementioned assets between 01 August 2011 and 01 September 2019.\u0000\u0000\u0000Findings\u0000First, the authors found a strong evidence of Bitcoin’s mean reverting trend in the long run while its volatility has decreased significantly since 2013. After separating the EPU into two regimes (high and low), diversification opportunities with Bitcoin seems to disappear in a high EPU period, while the hedging opportunity tends to prevail in a low EPU period for all classes of assets. Importantly, the findings indicate that Bitcoin offers short-term diversification for sustainable and Islamic equity as well as energy stocks during a low uncertainty period. Consequently, in relation to the policy uncertainty, Bitcoin provides similar hedging opportunities than commodities like Gold and Silver. Overall, the study shows that EPU is remarkably important in explaining the average portfolio returns of Bitcoin, suggesting that this indicator can be perceived as a decent explanatory factor for portfolio diversification.\u0000\u0000\u0000Originality/value\u0000The study significantly extends the empirical literature of Bitcoin’s portfolio diversification by taking EPU into consideration. To the best of authors’ knowledge, this is one of the few studies to investigate the asymmetric effects of US EPU on Bitcoin’s hedging capabilities by taking into account major conventional equity, sustainable equity, Islamic equity, gold, silver and oil.\u0000","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46687055","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}
Pub Date : 2022-05-10DOI: 10.1108/sef-12-2021-0529
S. Ziadat, D. McMillan
Purpose This study aims to examine the links between oil price shocks and Gulf Cooperation Council (GCC) stock markets from February 2004 to December 2019. Knowledge of such links is important to both investors and policymakers in understanding the transmission of shocks across markets. Design/methodology/approach The authors use the Ready (2018) oil price decomposition method and the quantile regression approach to conduct the analysis. Findings Initial results show a positive oil price change increases stock returns, while greater volatility decreases returns. The oil shock decomposition results reveal a significant positive impact of supply-side shocks on stocks. This contrasts with the literature that argues demand-side shocks are more important. While factors such as liquidity and the lack of hedging instruments can increase the vulnerability of GCC equities to oil price shocks, the result reflects the unique economic structure of the GCC bloc, notably, marked by dependency on oil revenues. In analysing quantile-based results, oil supply shocks mainly exhibit lower-tail dependence, while the authors do uncover some evidence of demand-side shocks affecting mid and upper-tail dependence. Originality/value Acknowledging the presence of endogeneity in the relation between oil and economic activity, to the best of the authors’ knowledge, this study is the first to combine the oil price decompositions of Ready (2018) with a quantile regression framework in the GCC context. The results reveal notable difference to those previously reported in the literature.
{"title":"Oil-stock nexus: the role of oil shocks for GCC markets","authors":"S. Ziadat, D. McMillan","doi":"10.1108/sef-12-2021-0529","DOIUrl":"https://doi.org/10.1108/sef-12-2021-0529","url":null,"abstract":"Purpose This study aims to examine the links between oil price shocks and Gulf Cooperation Council (GCC) stock markets from February 2004 to December 2019. Knowledge of such links is important to both investors and policymakers in understanding the transmission of shocks across markets. Design/methodology/approach The authors use the Ready (2018) oil price decomposition method and the quantile regression approach to conduct the analysis. Findings Initial results show a positive oil price change increases stock returns, while greater volatility decreases returns. The oil shock decomposition results reveal a significant positive impact of supply-side shocks on stocks. This contrasts with the literature that argues demand-side shocks are more important. While factors such as liquidity and the lack of hedging instruments can increase the vulnerability of GCC equities to oil price shocks, the result reflects the unique economic structure of the GCC bloc, notably, marked by dependency on oil revenues. In analysing quantile-based results, oil supply shocks mainly exhibit lower-tail dependence, while the authors do uncover some evidence of demand-side shocks affecting mid and upper-tail dependence. Originality/value Acknowledging the presence of endogeneity in the relation between oil and economic activity, to the best of the authors’ knowledge, this study is the first to combine the oil price decompositions of Ready (2018) with a quantile regression framework in the GCC context. The results reveal notable difference to those previously reported in the literature.","PeriodicalId":45607,"journal":{"name":"Studies in Economics and Finance","volume":" ","pages":""},"PeriodicalIF":1.9,"publicationDate":"2022-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42953013","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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