Market Sentiment and Stock Splits: Differential Impacts in High and Low Sentiment Regimes

This study examines the impact of stock split events on abnormal returns, identifying significant effects both short-term and long-term. We find that market sentiment plays a crucial role, with abnormal returns being more pronounced during high sentiment periods. Our research highlights two key contributions: it emphasizes the importance of market sentiment in stock price reactions to corporate events and supports the signaling hypothesis, suggesting that management uses stock splits to convey positive information, especially when sentiment is high. These findings are valuable for investors and corporate managers considering the implications of stock splits

Auditor’s Reporting Change and Insider Trading Behavior: Evidence from Critical Audit Matters as an Exogenous Shock

Mandating the public reporting of Critical Audit Matters (CAMs) found during an audit changes when and how negative firm information is disclosed to market participants. These issues must be reported in the firm’s annual 10-K report starting in 2019. Relative to this regulatory change, we find that insiders at firms reporting CAMs purchase 50 million shares in the 60 days following a 10-K, doubling the amount purchased at these firms prior to the CAMs mandate. Consistent with our multivariate results, this implies that insiders change their trading patterns and purchase shares after the CAMs release date. There are also significant negative abnormal returns for purchases whose 90-day window overlaps with the CAMs release. This suggests that the market reacts negatively to CAMs information, and that insiders are utilizing their private knowledge of the forthcoming audit to shift their purchases to the period after CAMs are released to avoid significant negative returns

CLIMATE RISK AND THE PREDICTABILITY OF JUMPS IN GREEN ASSETS

This paper shows that climate uncertainty can help predict the size and direction of intraday jumps in green assets, both in and out-of-sample. Using tick data to capture the size and intensity of intraday jumps, we find that news that relate to transition climate uncertainty including international summits and climate policy, particularly those that could be interpreted as bad news for brown industries, are the most dominant predictors of jumps in green assets compared to proxies of physical climate risks. Our findings provide a novel perspective to the role of climate uncertainty as a driver of idiosyncratic tail risk and jump innovations in green assets and imply that pricing models that incorporate jump risk as a risk factor can be improved by exploiting the predictive power of climate uncertainty over jump dynamics

Effectiveness of Central Bank Swap Lines in Alleviating the Mispricing of FX Swaps at the Start of the COVID-19 Pandemic

At the start of the COVID-19 pandemic the increased market volatility and risk aversion led to a deterioration of U.S. Dollar funding conditions in the Euro Area. The swap line interventions by the ECB and Federal Reserve on March 15, 2020 aimed to alleviate the mispricing of EUR/USD FX swaps. We find that these swap line interventions were effective since they alleviated part of the mispricing. The announcement effect of the interventions is however limited; the impact of the swap line interventions is larger and more significant closer to the implementation date. This study provides insight into the effectiveness of central bank interventions in the FX swap market during turbulent periods

Impacts of Financial Knowledge and Health on Household Savings Behavior: : Evidence from the U.S. Survey of Consumer Finances

The increasing longevity of individuals, coupled with rising financial uncertainty, underscores the critical need for adequate household savings. Despite the importance of financial preparedness, nearly 50% of U.S. households nearing retirement (ages 55-64) lack sufficient savings (U.S. Federal Reserve, 2023). This study examines the relationship between life cycle variables, including expected longevity, financial knowledge, and health-related factors in shaping household savings. Using data from the 2022 Survey of Consumer Finances, we employ binary logistic regression to examine factors associated with household saving behavior. The Life Cycle Hypothesis (Ando & Modigliani, 1963) provides the theoretical foundation, extended to incorporate expected lifespan, financial knowledge and health related factors as key predictors. Findings reveal that households with high subjective financial knowledge have 71% higher odds of saving, while smokers have 30% lower odds of saving. Additionally, socioeconomic disparities were found to be significant, with single females and Hispanic households exhibiting lower savings rates compared to their counterparts. These findings underscore the need for targeted programs and policies that enhance financial literacy and health, promoting long-term saving habits and healthy lifestyles, particularly among vulnerable demographic groups. The study contributes to personal finance by integrating cognitive, health, and demographic influences into household saving decisions

ETF flows on volatility of NAV returns: Evidence from Chinese markets

The main purpose of this study is to empirically investigate the relationship between ETF flows and the volatility of NAV returns in Chinese ETF markets. Our empirical findings show that there is a positive relationship between ETF flows and the volatility of NAV returns. Additional analysis using flows–interaction terms shows that ETF demand and arbitrage flows are the main drivers of the volatility of NAV returns, compared to unexpected flows. From the analysis of IRFs, demand flow shock emerges as the most influential factor in long-term volatility compared to the other two shocks. Understanding the dynamics of flow-volatility can aid in designing regulatory frameworks that ensure market stability while promoting the advantages of ETF investments to market participants in order to reduce information asymmetry and maintain market efficiency

Term Premium Estimates for Brazil in a Model with Survey Expectations

This paper estimates the term premium and equilibrium rates im- plied in the Brazilian yield curve, using a term structure model that incorporates data from survey expectations. Nominal long-term yields in Brazil are explained mostly by fluctuations in the equilibrium real rate. &nbsp

INFECTIOUS DISEASE AND ASYMMETRIC INDUSTRIAL VOLATILITY

We examine the time-varying effect of stock market volatility due to infectious diseases on industrial sectorsin the US from 2012 to 2021. We extend the current literature by exploring the diverse impact of infectiousdiseases on various industrial sectors and decomposing industrial volatility into good and bad volatility toquantify how good and bad components vary in response to the transmission of shocks due to infectiousdiseases. The results show that the transmission of volatile shocks from the stock market more stronglyenhances the good component of industrial volatility as compared with bad volatility during COVID-19. Weconclude that the relationship between infectious disease equity market volatility and industrial volatilitydepends on the good and bad volatile components and their respective conditions at different quantiles

OIL VOLATILITY-OF-VOLATILITY AND TAIL RISK OF COMMODITIES

We examine the information content of oil volatility-of-volatility (VOV), constructed from the past 1-month OVX (implied volatility in crude oil market), on the expected tail risk of commodities. Specifically, we find oil VOV predicts 1-step-ahead tail risks of Energy, Precious Metals, Agriculture, Livestock sectors and the Aggregate Commodity sector (GSCI) for both in-sample and out-of-sample. Our results indicate the important role of crude oil in overall commodity markets by incorporating forward-looking information of OVX. Our findings are robust and complement the strand of literature about the leading role of crude oil in commodity markets. &nbsp

PERFORMANCE AND TRACKING EFFICIENCY OF COMMODITY ETFS IN THE UK

This paper examines the performance and tracking efficiency of nine iShares ETFs traded on the London Stock Exchange in the UK. The results indicate that, on average, the performance of the examined ETFs has been positive during their entire trading history. However, these ETFs have failed to fully replicate the performance of the underlying commodities and indexes. At the cumulative level, an average underperformance of 172 basis points is found. In addition, at the sample level, about 86% of daily tracking errors are negative (indicating underperformance), and only 14% of tracking errors are positive (reflecting outperformance). Based on our results, the tracking error is induced by the departure from the full replication of the underlying assets.              &nbsp