G12 - Asset Pricing; Trading Volume; Bond Interest RatesReturn

In this article I have analysed the long-term relationship between US M2 money supply and the price of gold per troy ounce using Engle-Granger cointegration. The analysis shows the existence of long-term price dependency of gold in relation to US M2 money supply. M2 was used in two variants, seasonally adjusted and not seasonally adjusted. No relevant difference was observed between them. A period spanning 53 years, from 1970 to 2023, was analysed. An EC model using monthly observations indicates very weak correlation between the change of M2 and the subsequent change of the gold price, so semiannual observations were used instead which proved fully conclusive. This, together with results from the long-term model, confirms long price cycles and fluctuation around its equilibrium price lasting for years, which allows the use of gold as a hedge against increasing M2. This article may prove beneficial in filling the gap as it confirms gold price to be dependent on US M2 on longer time span analysed than previous studies and is fully able to explain gold price analysing dependency of two variables only.

Although the link between risk aversion and diminishing marginal utility of wealth is academically well established, theoretical discussions concerning its empirical validity remain. The presented, review-type paper aims to briefly examine theoretical roots responsible for the different views on this association in order to provide a broader perspective to alternative explanations. This latter task is assisted by comparative analysis of two recent pieces of research by Rick Falkenstein and Matthew Rabin; a duo of papers, handpicked at the author’s discretion to demonstrate the convergence of alternative ideas from different authors (and backgrounds). In support of its argumentation, the paper also presents a critical overview of the equity premium puzzle as seen through the prism of behavioural finance. The main contributions of the paper include evidence-based support for the concept of relative utility and reconfirmation of the meaningful role of behavioural finance in economics and finance.

It is generally acknowledged that one of the risks faced by any company is FX risk, especially when the business operates internationally. For individual companies, exposure to FX risk results in different financial implications, stressing such parameters as the industry affiliation and the company’s size with respect to the level of FX risk exposure. In this paper we analyse how FX exposure of companies of different size and operating in industrial and service sectors affects their stock market returns. Using the panel regression with macroeconomic and companies’ specific factors for 208 European companies analysed over the period 2012–2018, we show that the link between changes in the exchange rate and the stock return is statistically significant and that medium-size companies as well as firms operating in the service sector of economy are more exposed to this impact.

The study tests whether realised moments of stock returns (mean, variance, skewness and kurtosis) computed from daily returns over the last month, quarter and year can predict the 1-month cross-sectional stock returns of 40 US-traded liquid stocks in the period 1986-2019. The performed univariate regression analysis confirmed a statistically significant positive effect between all the realised moments, computed over the last quarter and year, and the future 1-month cross-sectional stock returns, while the 1-month realised moments proved to be mostly insignificant. Multivariate analysis, performed with Elastic Net Regression, has confirmed that investment strategies utilising information from realised moments were able to significantly outperform a random investment in the out-sample period 2004-2019.

Current economic development in global markets promises gradually rising interest rates, which seems to concern many investors of the Real Estate Investment Trusts (REITs). The aim of this article is, based on the data from 1972 through 2017, to describe the sensitivity of REITs' total returns to those of the stock market and to the dynamics of interest rates, and to compare the findings with previous research published during the 1990s in order to identify any shifts in the market behaviour. Our OLS regression models will study the effects of the stock market performance and changes in interest rates on both the equity and mortgage REITs. As we will demonstrate, REITs remain sensitive to the stock market performance, but changes of interest rates have little temporary effect on their performance. Contrarily to popular beliefs, there is little evidence that long-term oriented and diversified REIT investors should be overly concerned about rising interest rates.

Asset pricing in its essence is a very controversial topic. Despite numerous research papers criticising traditional approaches, such as linear factor models, practitioners as well as academics repeatedly return to the milestone models such as the Capital Asset Pricing Model (CAPM), mainly due to their attractive simplicity. This article focuses on the risk-return relationship by comparing the power of traditional and alternative asset pricing models in explaining the cross-section of asset returns. The focus is on unconditional models, commonly used among investors and equity analysts. This paper is based on the research performed by Estrada in 2004 and it extends his approach by introducing the use of GMM. The results suggest that for Emerging markets' investors should give preference to total risk measures over systematic risk measures. Within the category of systematic risk measures, downside beta proved its superiority to traditional CAPM beta. The results can be attributed to delayed integration process, partially justified by the lower FDI and portfolio investments into Emerging markets.

This study explores the effect of the gambler's fallacy on stock returns. I hypothesize that if during a number of consecutive trading days, a stock's return is positive (negative), then due to the gambler's fallacy, at least some of the investors may believe that the stock's price "has" to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in negative (positive) abnormal market-adjusted stock returns. Employing a large sample of daily stock price data, I was able to document that following relatively long sequences of positive (negative) stock returns, abnormal stock returns are on average significantly negative (positive), indicating the existence of the price pressure towards the return sign reversal. Moreover, the magnitude of the effect is stronger for longer return sequences. The effect is found to be more pronounced for smaller and more volatile stocks, and is robust to other relevant company - and stock-specific factors.

This study assesses the influence of error distributional assumption on appearance or disappearance of day-of-the-week effects in returns and volatility using the Nigerian stock exchange (NSE-30). The Gaussian, Student-t, and the Generalized error distribution were incorporated in the GARCH (2,1) and EGARCH (2,1) models. Result reveals that day-of-the-week effects are sensitive to error distribution. Our finding also shows that evidence of good or bad news in volatility does not only depend on the asymmetric model but also the choice of the error distribution. Thus, this study will provide adequate knowledge to policy makers, investors and researchers about day-of-the-week effect in stock markets.

This paper examines the time-varying conditional correlations of daily European equity market returns during the Irish sovereign debt crisis. A dynamic conditional correlation (DCC) multivariate GARCH model is used to estimate to what extent the collapse of Irish equity markets and subsequent troika intervention in Ireland spilled over upon European equity markets during this crisis. During the Irish financial crisis from 2007 to 2010, strong contagion effects are uncovered between Irish equity markets and the investigated European equity markets. The contagion effects are found to ease dramatically in the period after troika intervention in Irish finances. This result supports the use of bailouts and external financial intervention as a mechanism to mitigate and absorb contagion associated with state-specific financial crises and if possible, should be considered as a primary response function in future cases of sovereign debt crisis.

The reality of contemporary developments in the capital markets indicates that they do not lend themselves to the deductive theory based on simplified rationality of the physical world. The behaviour of the markets cannot be derived from rather bare postulates of the so called "random walk" process and the "normal distribution" of investments' returns. It in fact relates to a variety of different. even behavioural factors. The riskreturn relationship is not therefore stable over time and investors cannot rely on the comforting message that all you need to do in order to obtain an expected return is only to decide the appropriate level of risk. There are therefore serious doubts about the Efficient Market Hypothesis with e.g. the CAPM. SIM and MIM frameworks. The multifractal view of e.g. Mandelbrot concerning the market behaviour. has inspired the outline of the Volatility Asset Pricing Model (VAPM) based on the market's expected volatility and the serial dependence on the past return's performance. both reflecting the total market risk of an investment. In view of a further research this model has been so far successfully tested as well as presented.

Implementation of monetary policy assumes that monetary policy instruments stabilize O/N interest rates to the proximity of main policy rate to archive monetary targets. The function of stabilizing mechanism is based on simple rule that the volume of liquidity in the banking system is held in line with the demand of banks for reserves. In this paper main factors of banking system liquidity are analyzed in the context of bank's imperfect intertemporal substitution of reserves and with respect to predictibility of O/N interest rates volatility. Analysis of O/N PRIBOR and CZEONIA reference interest rates prove Czech National Bank's ability to stabilise O/N interest rates disregard overall excess liquidity in the banking system. It also identified structural changes acting in the money market like reduced instability of demand for reserve and decreased volatility of O/N interest rates due to introduction of credit facility or increased volatility of the spread between O/N interest rates and repo rate due to reduction of frequency of repo tenders. Rapid increase in the volatility of differences between OMO target and bank's supply of excess reserves is also resulting in the weakening of a direct relationship between O/N PRIBOR dynamics and repo tenders.

Using 4-dimensional panel data (time, industry, country, companies) we examine the differences between European quoted and non-quoted companies at the level financial performance and some financial ratios. We find that quoted companies perform significantly better not only in terms of profit, but also in terms of cash flow generation. We also find some interesting differences in financial structure, liquidity and collection and credit period, not only from the perspective of quotation, but also between European regions (thus different trade habits), e.g. significantly longer credit period and collection period for countries with more relaxed trade habits (Spain, Italy, France). Our findings have some indirect implications for agency theory, for view of different accounting standards conservatism and earnings management, as well as (mainly) for business and stock valuation and financial planning.