Contagious speculative bubbles: a note on the Greek sovereign debt crisis

The Greek sovereign debt crisis of 2009/2010 fostered widespread fears of contagion. We analyzed the danger of contagion by studying to which extent news to speculative bubbles in the Greek equity market spread to the equity markets of Portugal, Ireland, Italy, and Spain. To this end, we estimated a version of the present-discounted value model of equity valuation extended to include a rational stochastic speculative bubble. We then studied cross-country causal links between news to speculative bubbles. We found evidence of causality from Greece to the other countries, but no strong evidence of reversed causality. This finding implies that, as far as equity markets are concerned, movements in speculative bubbles in the Greek equity market may in fact have the potential to spread in a contagious way to the other European countries in our sample

Assessing the Relation between Equity Risk Premium and Macroeconomic Volatilities in the UK

This paper uses the exponential generalised heteroscedasticity model-in-mean (EGARCH- M) to analyse the relationship between the equity risk premium and macroeconomic volatility. This premium depends upon conditional volatility, which is significantly affected by the long bond yield, acting as a proxy for the underlying rate of inflation.Asset pricing, Risk premium, Macroeconomic volatility, Stochastic discount factor model, Multivariate EGARCH-M model

Assessing the relation between equity risk premium and macroeconomic volatilities in the UK

This paper uses the exponential GARCH-in-mean model to analyse the relationship between the equity risk premium and macroeconomic volatility. This premium depends upon conditional volatility, which is significantly affected by the long bond yield, acting as a proxy for the underlying rate of inflation

Assessing the Relation between Equity Risk Premia and Macroeconomic Volatilities

In this paper, we used modified multivariate EGARCH-M models to assess the relation between the equity risk premium, macroeconomic risk, and inflationary expectations. To rationalise this link between equity risk premia and macroeconomic volatilities, we built our empirical study on the stochastic discount factor (SDF) model. As an innovative feature of our empirical model, we used long-term government bond yields in order to explain this risk-return relation. Our research suggests that stock market investors should use long-term government bond yield for the UK and term spread for the US in order to instrument their assessment of stock market investment opportunities and riskiness. We also document that the relevance of the short-term interest rates has decreased over the last decade, whereas the relevance of the long-term government bond yields, by contrast, has increased. With regard to the risk-return relation, we found the UK investors tend to significantly price in inflation risk premia. Estimation results strongly suggest that the decline in macroeconomic volatilities might have played an increasingly important role in reducing risk premia in the US and, to some extent, in the UKAsset pricing, Risk premium, Macroeconomic volatility, Stochastic discount factor model, Multivariate EGARCH-M model

The Financial Crisis and the Stock Markets of the CEE Countries

Stock markets in Central and Eastern European (CEE) countries significantly collapsed during the financial crisis of 2008. We studied whether the collapse of stock markets in CEE countries was due to international linkages of deteriorating fundamentals or international spillovers of speculative bubbles. To this end, we estimated a state-space model to decompose the stock market indexes of three large CEE countries (Czech Republic, Hungary, and Poland) into fundamentals and speculative bubbles. We then used the techniques of cointegration analysis to study the long-run linkages of fundamentals and speculative bubbles. Our results suggest that international long-run linkages varied over time. The long-run linkages with the U.S. stock market strengthened in terms of both fundamentals and speculative bubbles during the market jitters caused by the financial crisis of 2008.stock markets, fundamentals, speculative bubbles, cointegration analysis, CEE countries, Kalman filter

Dynamic Spillovers between Commodity and Currency Markets

In this study, we examine the dynamic link between returns and volatility of commodities and currency markets. Based on weekly data over the period from January 6, 1987 to July 22, 2014, we find the following empirical regularities. First, our results suggest that the information contents of gold, silver, platinum, and the CHF/USD and GBP/USD exchange rates can help improve forecast accuracy of returns and volatilities of palladium, crude oil and the EUR/CHF and GBP/USD exchange rates. Second, gold (CHF/USD) is the dominant commodity (currency) transmitter of return and volatility spillovers to the remaining assets in our model. Third, the analysis of dynamic spillovers shows time{ and event{specific patterns. For instance, the dynamic spillover effects originating in gold and silver (platinum) returns and volatility intensified (degraded) in the period marked by the global financial crisis. After the global financial crisis, the net transmitting role of gold and silver (platinum) returns shocks weakened (strengthened), while the net transmitting role of gold, silver and platinum volatility shocks remained relatively high. Overall, our findings reveal that, while the static analysis clearly classifies the aforementioned variables into net transmitters and net receivers, the dynamic analysis denotes episodes wherein the role of transmitters and receivers of return (volatility) spillovers can be interrupted or even reversed. Hence, even if certain commonalities prevail in each identified category of commodities, such commonalities are time - and event - dependent. (authors' abstract

Dynamic spillover effects in futures markets:UK and US evidence

Previous studies on spillover effects in future markets have so far confined themselves to static analyses. In this study, we use a newly introduced spillover index to examine dynamic spillovers between spot and futures market volatility, volume of futures trading and open interest in the UK and the US. Based on a dataset over the period February 25, 2008 to March 14, 2013, that encompasses both the global financial crisis and the Eurozone debt crisis, we find that spot and futures volatilities in the UK (US) are net receivers (net transmitters) of shocks to volume of futures trading and open interest. The analysis also sheds light on the dynamic interdependence of spot and futures market volatilities between the US and the UK. Specifically, the spot and futures volatility spillovers between the UK and US markets are of bidirectional nature, however, they are affected by major economic events such as the global financial and Eurozone debt crisis. Several robustness checks endorse our main findings. Overall, these results have important implications for various market participants and financial sector regulators

Did David Win a Battle or the War Against Goliath? Dynamic Return and Volatility Connectedness between the GameStop Stock and the High Short Interest Indices

Can a short-squeeze incident trigger financial contagion over heavily shorted companies? The recent GameStop frenzy provides a unique natural experiment to explore this question. This study examines the static and dynamic return and volatility connectedness among the GameStop stock, the novel market-wide and sectoral short-interest indices, and the U.S. stock market. Contrary to anecdotal evidence, we find that the GameStop stock is not a net transmitter but a net recipient of return and volatility spillovers from other companies shorted in the market. This result agrees with the view that short-interest indices provide price discovery for shorted stocks. Therefore, although David might have won a battle against Goliath, he does not seem to win the war

Analysis of energy efficiency practices of SMEs in rural Ghana: an application of product generational dematerialization method

Energy is a key input in industrial production, education and health and is one of the main drivers of economic growth in developing economies. However, expanding energy access in the rural areas is one of the key challenges faced by policy makers in developing countries such as Ghana. In this regard, small- and medium-sized enterprises (SMEs) in developing countries face the hydra-headed challenges of energy access, power outages, access to finance and access to market. In some cases, whilst energy efficiency appears to be improving at the national level, the story at the rural areas is different due to overdependence on biomass and other traditional forms of energy and relatively low access compared to urban areas. This research is structured in three steps. In the first step, the product generational dematerialization method is applied to examine the energy efficiency consumption of electricity and fossil fuels. In a second step, the energy efficiency practices of small and medium scale enterprises are investigated. In a third step, the general unrestricted model (GUM) is employed to investigate the relationship between energy efficiency, productivity and carbon emissions. The key findings of the study (i) confirm that the consumption of energy has not been efficient, (ii) show that the reduction in energy consumption among SMEs can be attributed mostly to blackouts and not efficiency and (iii) productivity is a major driver of energy efficiency. In a nutshell, the national analysis shows that improved productivity from more energy-efficient technologies is not responsible for energy reduction. Rather, an analysis of the rural energy situation shows that blackouts render energy reductions unintentionally. Moreover, energy-efficient practices are observed to be nearly non-existent within rural SMEs. The study recommends that public education on energy efficiency is increased and that new appliances rather than second-hand one are used to save energy