FDI, terrorism and the availability heuristic for U.S. investors before and after 9/11

We record the existence of an availability heuristic that is reflected in disaster myopia of U.S. investors and exists prior to the attacks of 9/11. We argue that this is fueled by an aggregate experience hypothesis effect, resulting in a pronounced increase in the sensitivity of U.S. stock prices to terrorist attacks on foreign soil. After 9/11, stock prices react proportionally to the size of an attack and the share of FDI stock held in the region by the sector in which firms operate. This effect, non-existent prior to 2002, has become increasingly strong in recent years

The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market

This paper considers the impact of insider trading on forecasting in a betting market when prices are set by bookmakers. We base our analysis on Schnytzer, Lamers and Makropoulou (2008) who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of a measure of insider trading for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, Lamers and Makropoulou (2008) or this paper are price data, this is tantamount to a demonstration that the market is weak-form efficient.

Measuring the Extent of Inside Trading in Horse Betting Markets

This paper develops a theoretical model that examines the optimal price setting by on-course bookmakers in the racetrack betting market. The model suggests that opening prices should include a premium that compensates bookmakers for the risk that insiders will account for private information and exploit any mis-pricing made by the bookmakers. The model is an extension of the model developed by Makropoulou and Markellos (2007) for football betting to the racetrack betting market. Using an extensive dataset and performing Monte Carlo simulations to calculate the potential value of new information, we measure insider trading in the Australian racetrack betting market.

The trade-off between monetary policy and bank stability. National Bank of Belgium Working Paper No. 308, October 2016

This paper investigates how monetary policy interventions by the European Central Bank and the Federal Reserve affect the stock market perception of bank systemic risk. In a first step, we identify monetary policy shocks using a structural VAR approach by exploiting the changes of the volatility of these shocks on days on which there are monetary policy announcements. The second step consists of a panel regression analysis, in which we relate monetary policy shocks to market-based measures of bank systemic risk. Our sample includes information on both Euro Area and U.S. listed banks, covering a sample period from October 2008 to December 2015. We condition the impact of the monetary policy shocks on a set of bank-specific variables, thereby allowing for a heterogeneous transmission of monetary policy. We furthermore use the differences between Euro Area core and periphery countries and the additional granularity of U.S. accounting data to assess which channels determine the transmission of monetary policy. Our results indicate that by supporting weaker banks and allowing banks to delay recognizing bad loans, accommodative monetary policy may contribute to the buildup of vulnerabilities in the banking sector and may make an eventual policy tightening more difficult. On the other hand, a continuation of expansionary monetary policy may increase risk-taking incentives by further compressing banks’ net interest margins