Research articles for the 2021-04-15

A Survey of Investors Preference on Stock Market: A Case of Nepal Stock Exchange
Pokharel, Post Raj
This paper shows investors preference on stock market of Nepal Stock Exchange (NEPSE). The study is based on survey method using structured questionnaire. The results demonstrated that investors were found to have investment interest in secondary market. The reasons for selecting shares are mostly liquidity and high rate of earning. The investors' perception regarding the influencing factors for the investment decision in secondary market of NEPSE is the advice of brokers and then movement of indices. The news in daily newspaper and market sentiments are viewed as least influencing factors for investment decision. Most motivating factors prioritized by respondents were capital gains, then liquidity and then dividend, safety and bonus shares. The motivating factors like tax benefits and rights shares were under least preference by the respondents.

A System of Time-Varying Models for Predictive Regressions
Yu, Deshui,Yan, Yayi
This paper proposes a system of semiparametric time-varying models for predictive regressions, where a locally stationary process in the form of time-varying autoregression is introduced to model varying-persistent predictors, and parameter instability and embedded endogeneity have also been taken into account simultaneously. We employ a semiparametric profile likelihood approach toestimate both constant parameters and time-varying functional coefficients, and we further establish the asymptotic theory of the estimators in the system. Monte Carlo simulations show that the proposed estimation method works very well in finite samples. Empirically, we find that the popular predictors considered in the literature are well approximated by a time-varying first-order autoregressive process, those predictors generally contain significant and time-varying predictive content of future equity premium, and taking embedded endogeneity into account helps to identify the existence of return predictability.

A comparative study of Different Machine Learning Regressors For Stock Market Prediction
Nazish Ashfaq,Zubair Nawaz,Muhammad Ilyas

For the development of successful share trading strategies, forecasting the course of action of the stock market index is important. Effective prediction of closing stock prices could guarantee investors attractive benefits. Machine learning algorithms have the ability to process and forecast almost reliable closing prices for historical stock patterns. In this article, we intensively studied NASDAQ stock market and targeted to choose the portfolio of ten different companies belongs to different sectors. The objective is to compute opening price of next day stock using historical data. To fulfill this task nine different Machine Learning regressor applied on this data and evaluated using MSE and R2 as performance metric.

A new spin on optimal portfolios and ecological equilibria
Jerome Garnier-Brun,Michael Benzaquen,Stefano Ciliberti,Jean-Philippe Bouchaud

We consider the classical problem of optimal portfolio construction with the constraint that no short position is allowed, or equivalently the valid equilibria of multispecies Lotka-Volterra equations with self-regulation in the special case where the interaction matrix is of unit rank, corresponding to species competing for a common resource. We compute the average number of solutions and show that its logarithm grows as $N^\alpha$, where $N$ is the number of assets or species and $\alpha \leq 2/3$ depends on the interaction matrix distribution. We conjecture that the most likely number of solutions is much smaller and related to the typical sparsity $m(N)$ of the solutions, which we compute explicitly. We also find that the solution landscape is similar to that of spin-glasses, i.e. very different configurations are quasi-degenerate. Correspondingly, "disorder chaos" is also present in our problem. We discuss the consequence of such a property for portfolio construction and ecologies, and question the meaning of rational decisions when there is a very large number "satisficing" solutions.

Abnormal Volatility in Seasoned Equity Offerings During Economic Disruptions
Prasad, Mason,Bakry, Walid,Varua, Maria Estela
Australia has become one of most prolific issuers of seasoned equity offerings (SEOs) globally. Due to its convenience, firms issue SEOs as their primary capital raising mechanism particularly during economic disruptions i.e., the early 2000s dot-com bubble, 2008 Global Financial Crisis and COVID-19. Using an event study for ASX 200 firms from 1998 to 2020, we show that there is an increased intensity of SEO abnormal return volatility and volume during economic disruptions. We find evidence of abnormal return volatility and volume in standalone and restricted SEOs being higher relative to combined SEOs. We also identify that higher performing sectors experience larger abnormal return volatility and volume. Finally, using an improved measure of abnormal return volatility, we capture the time varying nature of volatility using GARCH and GJR-GARCH estimations. We highlight that the traditional abnormal return volatilitymeasure tends to be overstated for some SEO types and understated for others.

Asset Prices and Pandemics: The Effects of Lockdowns
Detemple, Jerome
We examine the impact of pandemics on equilibrium in an integrated epidemic-economy model with production. Two types of technologies are considered: a neoclassical technology and one capturing the notion of time-to-produce. The impact of a shelter-in-place policy with and without layoffs is studied. The paper documents adjustments in interest rate, market price of risk, stock market and real wage as the epidemic propagates. It shows the qualitative effects of a shelter-in-place policy in the model are consistent with the patterns displayed by the stock market and real wage during the COVID-19 outbreak. Puzzles emerging from the analysis are outlined.

Curse of Democracy: Evidence from 2020
Yusuke Narita,Ayumi Sudo

Countries with more democratic political regimes experienced greater GDP loss and more deaths from Covid-19 in 2020. Using five different instrumental variable strategies, we find that democracy is a major cause of the wealth and health losses. This impact is global and is not driven by China and the US alone. A key channel for democracy's negative impact is weaker and narrower containment policies at the beginning of the outbreak, \textit{not} the speed of introducing policies.

Does Bitcoin Cash Have a Mind of its Own, or Will Bitcoin Always Determine its Future?
Johnson, Jackie
Bitcoin Cash is a cryptocurrency which was spun-off from Bitcoin in 2017. It was a result of a disagreement over Bitcoin’s 1mg block size which it was felt hindered transaction times. The Bitcoin Cash block size was initially set at 8mg allowing more transactions to be verified at a time, resulting in faster transaction times and was increased to 32mg in May 2018. Evidence points to a high correlation between Bitcoin and Bitcoin Cash prices but this only provides limited support for determining the direction of Bitcoin Cash price changes, not for the size of the price change. To enhance the understanding of the influence that Bitcoin has over Bitcoin Cash a multiplier is calculated which provides a picture of the difference between Bitcoin and Bitcoin Cash prices. The use of a multiplier provides an alternative point of view. The price of the two coins has moved further and further apart from an initial situation in July 2017, with Bitcoin 6.6 times the Bitcoin Cash price, to March 2021 where the Bitcoin price is now over 100 times the price of Bitcoin Cash. Just viewing them as highly correlated, indicating Bitcoin’s influence over the direction Bitcoin Cash price movements isn’t the whole story. Bitcoin Cash isn’t attached by a tether to Bitcoin but rather an elastic band. How far this will stretch before breaking, leaving Bitcoin Cash to find its own future, remains to be seen.

Exporters' reaction to positive foreign demand shocks
Asier Minondo

I use the quasi-natural experiment of the 2018 African swine fever (ASF) outbreak in China to analyze swine exporters' reaction to a foreign market's positive demand shock. I use the universe of Spanish firms' export transactions to China and other countries, and compare the performance of swine and other exporters before and after the ASF. The ASF increased Spanish swine exporters' sales to China three times. Swine exporters did not increase exported product portfolio or export revenue concentration in their best-performing products in China after the ASF. The increase in exports to China positively impacted export revenue and survival in third markets. This positive impact was especially intense for small swine exporters.

Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter?
Kusi, Baah,Agbloyor, Elikplimi,Asongu, Simplice,Abor, Joshua
This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.

Kelly Betting with Quantum Payoff: a continuous variable approach
Salvatore Tirone,Maddalena Ghio,Giulia Livieri,Vittorio Giovannetti,Stefano Marmi

The main purpose of this study is to introduce a semi-classical model describing betting scenarios in which, at variance with conventional approaches, the payoff of the gambler is encoded into the internal degrees of freedom of a quantum memory element. In our scheme, we assume that the invested capital is explicitly associated with the quantum analog of the free-energy (i.e. ergotropy functional by Allahverdyan, Balian, and Nieuwenhuizen) of a single mode of the electromagnetic radiation which, depending on the outcome of the betting, experiences attenuation or amplification processes which model losses and winning events. The resulting stochastic evolution of the quantum memory resembles the dynamics of random lasing which we characterize within the theoretical setting of Bosonic Gaussian channels. As in the classical Kelly Criterion for optimal betting, we define the asymptotic doubling rate of the model and identify the optimal gambling strategy for fixed odds and probabilities of winning. The performance of the model are hence studied as a function of the input capital state under the assumption that the latter belongs to the set of Gaussian density matrices (i.e. displaced, squeezed thermal Gibbs states) revealing that the best option for the gambler is to devote all her/his initial resources into coherent state amplitude.

LOS NUEVOS MÉTODOS DE VALORACIÃ"N DE CRIPTOACTIVOS (The New Methods of Valuation of Cryptoassets)
Santiago, Ismael
Spanish abstract: El mercado de la inversión de criptoactivos necesita todavía tiempo por madurar como demuestra la importante volatilidad de precios que sufren estos, haciendo difícil todavía que criptomonedas como bitcoin se conviertan el verdaderos y generalizados medios de intercambio, capaces de competir en este aspecto con las monedas fíat (yen, euro, dólar, libra, etc.). Lógicamente sin cumplirse plenamente esta funcionalidad del dinero indicada de la propiedad de unidad de cuenta (significa que es la unidad de medida que se utiliza en una economía para fijar los precios, ya que el dinero es un sistema de registro contable) ni hablamos, quizás todo llegue a su tiempo. El creciente interés inversor institucional, además del consolidado individual, hace necesario el contar con instrumentos y metodologías de valoración que permitan evaluar el cambio de valor temporal que sufren los criptomonedas en los criptomercadosCada vez son más las voces reputadas que creen que el bitcoin y otros criptoactivos como StableCoins van a forzar un nuevo patrón monetario, como vemos en las recientes reacciones de los bancos centrales al proyectar la emisión, más pronto ya que tarde, de sus CBDCs o monedas digitales emitidos por bancos centrales de curso legal. El problema que encontramos en los tradicionales métodos de valoración a través del descuento de los flujos de caja no son correctamente aplicables en este caso y debemos recurrir a un nuevo enfoque alternativo en los métodos de valoración de criptoactivos. En este trabajo de investigación realizamos un análisis de las variables fundamentales para determinar el valor de los criptoactivos.English abstract: The crypto-asset investment market still needs time to mature, as shown by the significant price volatility suffered by these, making it difficult for cryptocurrencies such as bitcoin to become the true and widespread means of exchange, capable of competing in this regard with fiat currencies. (yen, euro, dollar, pound, etc.). Logically, this functionality of the indicated money of the unit of account property is not fully fulfilled (it means that it is the unit of measurement that is used in an economy to set prices, since money is an accounting record system) nor do we speak, perhaps everything arrives in its time. The growing institutional investor interest, in addition to the individual consolidated, makes it necessary to have instruments and valuation methodologies that allow evaluating the change in time value suffered by cryptocurrencies in crypto markets. More and more reputable voices believe that bitcoin and other crypto assets such as StableCoins are going to force a new monetary standard, as we see in the recent reactions of central banks when projecting the issuance, sooner rather than later, of their CBDCs or digital currencies issued by legal tender central banks. The problem that we find in traditional valuation methods through discounting of cash flows are not correctly applicable in this case and we must resort to a new alternative approach in crypto asset valuation methods. In this research work we carry out an analysis of the fundamental variables to determine the value of crypto assets.

La dolarización y el sistema financiero (Dollarization and the Financial System)
Zambrano Sequín, Luis
Spanish abstract: En esta nota se abordan las implicaciones sobre el sistema financiero que el proceso acelerado de dolarización está generando en Venezuela. Así mismo, se hacen un conjunto de consideraciones en torno a las condiciones que deben producirse para que se avance en la desdolarización de la economía y del sistema financiero.English abstract: This note addresses the implications on the financial system that the accelerated dollarization process is generating in Venezuela. In addition, the factors that determine the progress in the de-dollarization of the economy and the financial system are considered.

Lessons Learned from Photovoltaic Auctions in Germany
Taimyra Batz Liñeiro,Felix Müsgens

Auctions have become the primary instrument for promoting renewable energy around the world. However, the data published on such auctions are typically limited to aggregated information (e.g., total awarded capacity, average payments). These data constraints hinder the evaluation of realisation rates and other relevant auction dynamics. In this study, we present an algorithm to overcome these data limitations in German renewable energy auction programme by combining publicly available information from four different databases. We apply it to the German solar auction programme and evaluate auctions using quantitative methods. We calculate realisation rates and - using correlation and regression analysis - explore the impact of PV module prices, competition, and project and developer characteristics on project realisation and bid values. Our results confirm that the German auctions were effective. We also found that project realisation took, on average, 1.5 years (with 28% of projects finished late and incurring a financial penalty), nearly half of projects changed location before completion (again, incurring a financial penalty) and small and inexperienced developers could successfully participate in auctions.

Low Growth and Low Inflation Expectations in the Postâ€"COVID-19 World: A Market-Based Perspective
Goel, Rohit,Malik, Sheheryar,Zheng, Xingmi
Recovering from the COVID sell-off, inflation brekaeven increased sharply in the second half of 2020 while real yields declined materially. The analysis decomposes the inflation breakevens to strip out the role of inflation expectations and risk premia. Despite evidence of upward movement in five-year market-implied inflation expectations after the March sell-off, especially in the United States, such recovery appears to represent more of a reversion toward a preexisting downward trend that emerged after the global financial crisis.

Mission Statement Effect on Research and Innovation Performance
Julian D. Cortes,Diego Tellez,Jesus Godoy

The mission statement (MS) is the most used organizational strategic planning tool worldwide. The relationship between an MS and an organizations financial performance has been shown to be significantly positive, albeit small. However, an MSs relationship to the macroeconomic environment and to organizational innovation has not been investigated. We implemented a Structural Equation Modeling using the SCImago Institutional Ranking (SIR) as a global baseline sample and assessment of organizational research and innovation (RandI), an automated MS content analysis, and the Economic Complexity Index (ECI) as a comprehensive macroeconomic environment measure. We found that the median performance of organizations that do not report an MS is significantly higher than that of reporting organizations, and that a path-dependence driven by the State's long-term view and investment is a better explanatory variable for organizational RandI performance than the MS construct or the intermediate-term macroeconomic environment.

Mission Statements in Universities: Readability and performance
Julian D. Cortes,Liliana Rivera,Katerina Bohle Carbonell

The mission statement(s) (MS) is one of the most-used tools for planning and management. Universities worldwide have implemented MS in their knowledge planning and management processes since the 1980s. Research studies have extensively explored the content and readability of MS and its effect on performance in firms, but their effect on public or nonprofit institutions such as universities has not been scrutinized with the same intensity. This study used Gunning's Fog Index score to determine the readability of a sample of worldwide universities' MS and two rankings, i.e., Quacquarelli Symonds World University Ranking and SCImago Institutions Rankings, to determine their effect on performance. No significant readability differences were identified in regions, size, focus, research type, age band, or status. Logistic regression (cumulative link model) results showed that variables, such as universities' age, focus, and size, have more-significant explanatory power on performance than MS readability.

Online Appendix for: 'Obfuscation in Mutual Funds'
deHaan, Ed,Song, Yang,Xie, Chloe,Zhu, Christina
This Online Appendix includes supplementary discussion and analyses. The original paper "Obfuscation in Mutual Funds" is available at the following URL:

Optimal Design of Limited Partnership Agreements
Mohammad Abbas Rezaei

General partners (GP) are sometimes paid on a deal-by-deal basis and other times on a whole-portfolio basis. When is one method of payment better than the other? I show that when assets (projects or firms) are highly correlated or when GPs have low reputation, whole-portfolio contracting is superior to deal-by-deal contracting. In this case, by bundling payouts together, whole-portfolio contracting enhances incentives for GPs to exert effort. Therefore, it is better suited to alleviate the moral hazard problem which is stronger than the adverse selection problem in the case of high correlation of assets or low reputation of GPs. In contrast, for low correlation of assets or high reputation of GPs, information asymmetry concerns dominate and deal-by-deal contracts become optimal, as they can efficiently weed out bad projects one by one. These results shed light on recent empirical findings on the relationship between investors and venture capitalists.

Optimal trade execution in an order book model with stochastic liquidity parameters
Julia Ackermann,Thomas Kruse,Mikhail Urusov

We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both directions and at discrete points in time. We derive an explicit recursion that, under certain structural assumptions, characterizes minimal execution costs. We also discuss several qualitative aspects of optimal strategies, such as existence of profitable round trips or closing the position in one go, and compare our findings with the literature.

Partial Natural Beta: An Argument for a ‘Better’ Beta
Peter, Davies
Beta is the most widely used measure of risk exposure for most investment managers when reporting risk exposure to their investors.We propose a conceptually simple method for estimating Beta, and its associated results, that has the benefit of using exactly the same calculations as traditional Beta but using a brute-force approach comparable to Value-at-Risk methods based on historical simulation. The Beta is calculated for the returns of a user-defined (PARTIAL) sample of the data.The result is a Beta exposure value that is more stable and more representative of the expected risk but using the standard (NATURAL) calculations that have made Beta so familiar and easily available.The Partial Natural Beta is being used successfully by both investment managers and institutional investors.

Quantifying firm-level economic systemic risk from nation-wide supply networks
Christian Diem,András Borsos,Tobias Reisch,János Kertész,Stefan Thurner

Crises like COVID-19 or the Japanese earthquake in 2011 exposed the fragility of corporate supply networks. The production of goods and services is a highly interdependent process and can be severely impacted by the default of critical suppliers or customers. While knowing the impact of individual companies on national economies is a prerequisite for efficient risk management, the quantitative assessment of the involved economic systemic risks (ESR) is hitherto practically non-existent, mainly because of a lack of fine-grained data in combination with coherent methods. Based on a unique value added tax dataset we derive the detailed production network of an entire country and present a novel approach for computing the ESR of all individual firms. We demonstrate that a tiny fraction (0.035%) of companies has extraordinarily high systemic risk impacting about 23% of the national economic production should any of them default. Firm size alone cannot explain the ESR of individual companies; their position in the production networks does matter substantially. If companies are ranked according to their economic systemic risk index (ESRI), firms with a rank above a characteristic value have very similar ESRI values, while for the rest the rank distribution of ESRI decays slowly as a power-law; 99.8% of all companies have an impact on less than 1% of the economy. We show that the assessment of ESR is impossible with aggregate data as used in traditional Input-Output Economics. We discuss how simple policies of introducing supply chain redundancies can reduce ESR of some extremely risky companies.

Reprint of: Assessing the Effects of Unconventional Monetary Policy and Low Interest Rates on Pension Fund Risk Incentives
Boubaker, Sabri,Gounopoulos, Dimitrios,Nguyen, Duc Khuong,Paltalidis, Nikos
This study quantifies the effects of persistently low interest rates near to the zero lower bound and un- conventional monetary policy on pension fund risk incentives in the United States. Using two structural vector autoregressive (VAR) models and a counterfactual scenario analysis, the results show that mone- tary policy shocks, as identified by changes in Treasury yields following changes in the central bank’s tar- get interest rates, lead to a substantial increase in pension funds’ allocation to equity assets. Notably, the shift from bonds to equity securities is greater during the period where the US Federal Reserve launched unconventional monetary policy measures. Additional findings show a positive correlation between pen- sion fund risk-taking, low interest rates and the decline in Treasury yields across both well-funded and underfunded public pension plans, which is thus consistent with a structural risk-shifting incentive.

The Adoption of Blockchain-based Decentralized Exchanges
Agostino Capponi,Ruizhe Jia

We analyze the market microstructure of Automated Market Maker (AMM), the most prominent type of blockchain-based decentralized crypto exchange. We show that, even without information asymmetries, liquidity providers lose token value if exchange rates are volatile due to the order execution mechanism of the blockchain-based exchange. AMMs are more likely to be adopted for pairs of coins which are stable or of high personal use for investors. Liquidity providers may not deposit their tokens if the exchange rate volatility is high, leading to a liquidity freeze. The adoption of AMMs leads to a surge of transaction fees on the underlying blockchain if token exchange rates fluctuate wildly. We provide empirical support for our model implications using transaction-level data of AMMs.

The Distribution of Voting Rights to Shareholders
Fos, Vyacheslav,Holderness, Clifford G.
This is the first comprehensive study of the distribution of voting rights to shareholders. Only those owning stock on the record date may vote. Firms, however, reveal that date after the fact 91% of the time. With controversial votes, firms are more likely to do the opposite, and this is associated with a lower passage rate for shareholder-initiated proposals. The NYSE sells non-public record-date information to select investors. When stocks go ex vote, prices decline and trading volume surges, suggesting that investors are buying marginal votes. These trends are most pronounced with controversial votes.

The Struggle with Inequality
Shin-Ichiro Inaba

This is an introductory textbook of the history of economics of inequality for undergraduates and genreral readers. The first and second chapters focus on Adam Smith and Karl Marx, in the broad classical tradition of economics, where it is believed that there is an inseparable relationship between production and distribution, economic growth and inequality. Chapters 3 and 4 argue that despite the fact that the founders of the neoclassical school had shown an active interest in worker poverty, the issues of production and distribution became discussed separately among neoclassicals. Toward the end of the 20th century, however, there was a renewed awareness within economics of the problem of the relationship between production and distribution. The young Piketty's beginnings as an economist are set against this backdrop. Chapters 5 to 8 will explain the circumstances of the restoration of classical concerns within the neoclassical framework. Then, in chapters 9 and 10, I will discuss the fact that Thomas Piketty's seminal work is a new development in this "inequality renaissance," and try to gain a perspective on future trends in the debate. Mathematical appendix presents simple models of growth and distribution.