Global Political Uncertainty and Asset Prices

2019 ◽  
Vol 33 (4) ◽  
pp. 1737-1780 ◽  
Author(s):  
Jonathan Brogaard ◽  
Lili Dai ◽  
Phong T H Ngo ◽  
Bohui Zhang
Keyword(s):  
Equity Market ◽  
Equity Returns ◽  
Political Uncertainty ◽  
Election Cycle ◽  
Equity Prices ◽  
Sovereign Bond ◽  
Oxford University ◽  
Bond Returns ◽  
Published Paper ◽  
The U.S

Abstract We show that global political uncertainty, measured by the U.S. election cycle, on average, leads to a fall in equity returns in fifty non-U.S. countries. At the same time, market volatilities rise, local currencies depreciate, and sovereign bond returns increase. The effect of global political uncertainty on equity prices increases with the level of uncertainty in U.S. election outcomes and a country’s equity market exposure to foreign investors, but does not vary with the country’s international trade exposure. These findings suggest that global political uncertainty increases investors’ aggregate risk aversion, leading to a flight to safety.(JEL F30, F36, G12, G15, G18) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Volatility Markets Underreacted to the Early Stages of the COVID-19 Pandemic

2020 ◽  
Vol 10 (4) ◽  
pp. 635-668 ◽  
Author(s):  
Ing-Haw Cheng
Keyword(s):  
Equity Market ◽  
Trading Strategies ◽  
Futures Prices ◽  
Pricing Models ◽  
Subsequent Increase ◽  
Oxford University ◽  
Price Premiums ◽  
Asset Pricing Models ◽  
Vix Futures ◽  
Published Paper

Abstract VIX futures prices rose slowly in late February and early March 2020 as the COVID-19 pandemic took hold. Futures price premiums, defined as futures prices minus real-time statistical forecasts of future VIX values, turned sharply negative and remained negative until mid-April. Trading strategies based on estimated premiums profited from the subsequent increase in market volatility and equity market crash. The underreaction of futures prices to growing pandemic risks poses a puzzle for standard asset pricing models. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Short- and Long-Horizon Behavioral Factors

2019 ◽  
Vol 33 (4) ◽  
pp. 1673-1736 ◽  
Author(s):  
Kent Daniel ◽  
David Hirshleifer ◽  
Lin Sun
Keyword(s):  
Cross Section ◽  
Factor Model ◽  
Behavioral Model ◽  
Equity Returns ◽  
Earnings Surprise ◽  
Oxford University ◽  
Investor Inattention ◽  
Two Factors ◽  
Short Horizon ◽  
Published Paper

Abstract We propose a theoretically motivated factor model based on investor psychology and assess its ability to explain the cross-section of U.S. equity returns. Our factor model augments the market factor with two factors that capture long- and short-horizon mispricing. The long-horizon factor exploits the information in managers’ decisions to issue or repurchase equity in response to persistent mispricing. The short-horizon earnings surprise factor, which is motivated by investor inattention and evidence of short-horizon underreaction, captures short-horizon anomalies. This 3-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies. (JEL G12, G14) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Empirical Examination on the Drivers of the U.S. Equity Returns in the During the COVID-19 Crisis

2021 ◽  
Vol 9 ◽  
Author(s):  
Qing Wang ◽  
Mo Bai ◽  
Mai Huang
Keyword(s):  
The United States ◽  
Equity Market ◽  
Ordinary Least Squares ◽  
Equity Returns ◽  
Market Returns ◽  
Empirical Examination ◽  
Stock Market Returns ◽  
United States Dollar ◽  
Least Angle Regression ◽  
The U.S

This study investigates the drivers of the Standard & Poor's (S&P) 500 equity returns during the COVID-19 crisis era. The paper considers various determinants of the equity returns from December 31, 2019, to February 19, 2021. It is observed that the United States Dollar (USD) and the volatility indices (VIX) negatively affect the S&P 500 equity returns. However, the newspaper-based infectious disease “equity market volatility tracker” is positively associated with the stock market returns. These results are robust to consider both the ordinary least squares (OLS) and the least angle regression (LARS) estimators.

Idiosyncratic Jump Risk Matters: Evidence from Equity Returns and Options

2019 ◽  
Vol 33 (1) ◽  
pp. 155-211 ◽  
Author(s):  
Jean-François Bégin ◽  
Christian Dorion ◽  
Geneviève Gauthier
Keyword(s):  
Risk Premium ◽  
Recent Literature ◽  
Equity Premium ◽  
Idiosyncratic Risk ◽  
Equity Returns ◽  
Jump Risk ◽  
Tail Risk ◽  
Oxford University ◽  
Editorial Decision ◽  
Published Paper

Abstract The recent literature provides conflicting empirical evidence about the pricing of idiosyncratic risk. This paper sheds new light on the matter by exploiting the richness of option data. First, we find that idiosyncratic risk explains 28% of the variation in the risk premium on a stock. Second, we show that the contribution of idiosyncratic risk to the equity premium arises exclusively from jump risk. Third, we document that the commonality in idiosyncratic tail risk is much stronger than that in total idiosyncratic risk documented in the literature. Tail risk thus plays a central role in the pricing of idiosyncratic risk. Received May 15, 2017; editorial decision September 12, 2018 by Editor Stijn Van Nieuwerburgh. Authors have furnished code and an Internet Appendix, which are available on the Oxford University PressWeb site next to the link to the final published paper online.

Measuring Sovereign Bond Market Integration

2019 ◽  
Vol 33 (8) ◽  
pp. 3446-3491 ◽  
Author(s):  
Ines Chaieb ◽  
Vihang Errunza ◽  
Rajna Gibson Brandon
Keyword(s):  
Market Integration ◽  
Political Stability ◽  
Bond Market ◽  
Bond Markets ◽  
Risk Premiums ◽  
Sovereign Bond ◽  
Oxford University ◽  
Local Risk ◽  
Sovereign Bond Markets ◽  
Published Paper

Abstract We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign bond markets increases by about 10% on average, when a country moves from the 25th to the 75th percentile as a result of higher political stability and credit quality, lower inflation and inflation risk, and lower illiquidity. The 10% increase in integration leads to, on average, a decrease in the sovereign cost of funding of about 1% per annum. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Do CEOs Affect Employees’ Political Choices?

2019 ◽  
Vol 33 (4) ◽  
pp. 1781-1817 ◽  
Author(s):  
Ilona Babenko ◽  
Viktar Fedaseyeu ◽  
Song Zhang
Keyword(s):  
Web Site ◽  
Equity Returns ◽  
Campaign Contributions ◽  
Political Candidates ◽  
Oxford University ◽  
Political Preferences ◽  
Political Choices ◽  
Published Paper ◽  
Oxford University Press

Abstract We study the relation between CEO and employee campaign contributions and find that CEO-supported political candidates receive 3 times more money from employees than candidates not supported by the CEO. This relation holds around CEO departures, including plausibly exogenous departures due to retirement or death. Equity returns are significantly higher when CEO-supported candidates win elections than when employee-supported candidates win, suggesting that CEOs’ campaign contributions are more aligned with the interests of shareholders than are employee contributions. Finally, employees whose donations are misaligned with their CEOs’ political preferences are more likely to leave their employer. (JEL G30, G38, D72, P48) Authors have furnished an Internet Appendix and Data Supplement, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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