Popular indicators of the crisis in financial markets

The article provides an overview of the factors that ensure the growth of the US stock market despite the fact that a number of popular indicators signal the opposite. The dynamics of indicators (Total Market Cap) / GDP, (Total Market Cap) / (GDP + Total Assets of Fed) and P/E, Shiller P/E ratios are presented. According to Buffett’s Total Market Cap / GDP indicator, the stock market is now “significantly overvalued” and the Shiller P/E ratio has surpassed the “Great Depression” period. At the same time, an increase in the amount of money in circulation as a result of the implementation of Quantitative easing (QE) programs of the FRS, inflation risk and a decrease in the profitability of investments in alternative assets (government and corporate bonds) are forcing investors to stay in stocks and continue to build up positions despite the increase risks and a decrease in potential profitability in the future. The growth of the US stock market is also stimulated by the buyback programs of companies and the inflow of foreign capital. In 2020, there was a V-shaped recovery in the economy, and an absolute record for the amount of funds raised was set in the IPO market. Thanks to financial incentives, the stock market will continue to grow even despite the pandemic and overvalued assets, but the notorious “black swan” may become the “trigger” for the start of the crisis in the financial markets.

A magyar állampénzügyi rendszer rezilienciája a COVID–19 járvány kapcsán

Összefoglaló. A COVID–19 járvány a magyar gazdaság teljesítményeit és pénzügyi egyensúlyát is gyengítette, ám a korábbról stabil államháztartási alapok következtében a negatív hatások csak átmenetinek vélelmezhetők. Magyarország 2010–2019 között egy sikeres állampénzügyi reformot hajtott végre, amely jó alapot ad a válság elleni védekezéshez. Ugyanakkor a járványválság még erősebben ráirányítja a figyelmet a magyar nemzetgazdaság versenyképességének erősebb javítására, az infláció fékezésére, a költségvetési egyensúly megfelelő keretek között tartására, és a kis- és középvállalati szektor mérethatékonyságának növelésére. A tanulmány bemutatja a válság alatti fiskális és jegybanki intézkedések vázát, és egyúttal utal a válság utáni időszak kihívásaira, amelyek a nemzetközi térből, s különösen a jegybanki politika megváltozásából fakadnak. Summary. The COVID-19 epidemic hit the position of the otherwise strong Hungarian economy. We could see an economic downturn and financial imbalance developed in the last one and half years. As in the recovery (post-crisis) period of the 2010 decade, the crisis is being addressed with the active involvement of the state and the central bank. However, in the course of managing the crisis, it arises that on the new growth trajectory to be built after the recovery period, the competitiveness aspects, especially in the small and medium-sized enterprise category, which plays a major role in Hungary, should be more efficient than in the previous decade. It is necessary to improve the size efficiency, liquidity and capital efficiency of the SME sector by means of fiscal regulation, and the allocation of state resources should be more strongly linked to the requirements of export capacity and innovative business conduct. The decade after the 2007–2008 crisis – the previous recovery period – was characterized by the weak enforcement of fiscal policies in regulating and improving competitiveness, especially in Hungary, where change is essential. After 2013, Hungarian monetary policy also caught up with the international practice of quantitative easing, achieving significant results in improving both the financial balance and economic growth. However, the previous quantitative easing of the central bank, as well as the increase of budget expenditures on epidemiological expenditures, investments, normative budget annual subsidies from the European Union and subsidies from the European Reconstruction Fund, and even investment loans from our Eastern economic partners, generates an overheated economy, inflationary pressures, and external and balance of payments deficits. Added to this is the wage dynamics of the population, and the permanent and even increasing disbursement of family benefits during the crisis. All in all, in the 2020s we will face a new financial-debt crisis, unemployment and labor shortage problems, the competitiveness problems of the small business sector, culminating in the reorganization of the world economy, new competitiveness aspects, it will be a rather complex task. Thus, the turn of competitiveness that has essentially failed in the context of an abundance of resources and consolidated macroeconomic conditions (2010-2019) must be implemented “uphill”, it is only the time, will and opportunity to take its first steps. But the main lesson of the crises caused by the epidemics (also) is that the remaining economic entities have become stronger. And perhaps there is a chance to avoid falling into the trap of medium development through a new central bank policy that moderates inflation and truly enforces modernization considerations, as well as improving financial positions and improving economic positions (competitiveness).

Spillovers of US unconventional monetary policy: quantitative easing, spreads, and international financial markets

This study investigates the international spillover effects of US unconventional monetary policy (UMP)—frequently called large-scale asset purchases or quantitative easing (QE)—on advanced and emerging market economies, using structural vector autoregressive models with high-frequency daily data. Blinder (Federal Reserve Bank of St. Louis Rev 92(6): 465–479, 2010) argued that the QE measures primarily aim to reduce US interest rate spreads, such as term and risk premiums. Considering this argument and recent empirical evidence, we use two spreads as indicators of US UMP: the mortgage and term spreads. Based on data from 20 emerging and 20 advanced countries, our empirical findings reveal that US unconventional monetary policies significantly affect financial conditions in emerging and advanced countries by altering the risk-taking behavior of investors. This result suggests that the risk-taking channel plays an important role in transmitting the effects of these policies to the rest of the world. The extent of these effects depends on the type of QE measures. QE measures such as purchases of private sector securities that lower the US mortgage spread exert stronger and more significant spillover effects on international financial markets than those that reduce the US term spread. Furthermore, the estimated financial spillovers vary substantially across countries and between and within the emerging and advanced countries that we examine in this study.

The Effect of Quantitative Easing through Google Metrics on US Stock Indices

The purpose of this study is to investigate the fluctuations that occur in stock returns of US stock indices when there is an increase in the volume of Google internet searches for the phrase “quantitative easing” in the US. The exponential generalized autoregressive conditional heteroscedasticity model (EGARCH) was applied based on weekly data of stock indices using the three-factor model of Fama and French for the period of 1 January 2006 to 30 October 2020. The existence of a statistically significant relationship between searches and financial variables, especially in the stock market, is evident. The result is strong in three of the four stock indices studied. Specifically, the SVI index was statistically significant, with a positive trend for the S&P 500 and Dow Jones indices and a negative trend for the VIX index. Investor focus on quantitative easing (QE), as determined by Google metrics, seems to calm stock market volatility and increase stock returns. Although there is a large body of research using Google Trends as a crowdsourcing method of forecasting stock returns, this paper is the first to examine the relationship between the increase in internet searches of “quantitative easing” and stock market returns.