0000000000012958
AUTHOR
Román Ferrer
Does Shariah compliance make interest rate sensitivity of Islamic equities lower? An industry level analysis under different market states
This paper examines the sensitivity of the Dow Jones Islamic market index and its corresponding industry equity indices to changes in the level, slope and curvature of the U.S. term structure of in...
Interactions between financial stress and economic activity for the U.S.: A time- and frequency-varying analysis using wavelets
Abstract This paper examines the interactions between the main U.S. financial stress indices and several measures of economic activity in the time–frequency domain using a number of continuous cross-wavelet tools, including the usual wavelet squared coherence and phase difference as well as two new summary wavelet-based measures. The empirical results show that the relationship between financial stress and the U.S. real economy varies considerably over time and depending on the time horizon considered. A significant adverse effect of financial stress on U.S. economic activity is observed since the onset of the subprime mortgage crisis in the summer of 2007, indicating that the impact of fin…
Financial incentive to prepay in fixed-rate mortgages
The borrower's financial incentive to prepay is a crucial determinant in estimating prepayment in mortgage pools and, consequently, in valuing mortgage-backed securities. In mortgage prepayment literature, this incentive to prepay has been proxied by both the ratio of the loan rate to the refinancing rate and by the arithmetic spread between the two rates; however, the former is considered to be a better proxy of the refinancing incentive than the latter by a section of the literature. In this paper, the authors check the accuracy of that statement and subsequently estimate two prepayment functions using, alternatively, the two proxies. The results indicate that the use of the ratio does no…
Linear and Nonlinear Interest Rate Exposure of Spanish Firms
This paper carries out a comprehensive analysis of the interest rate risk borne by the Spanish firms on a sector basis. The traditional linear interest rate exposure model has been extended to allow for the possibility of a nonlinear exposure component as well as the presence of asymmetric behaviour in the exposure pattern. The obtained results show a significant interest rate exposure for some sectors, especially with regard to changes in the long-term interest rates. Moreover, it is documented that the linear exposure profile prevails over the asymmetric and nonlinear exposure patterns. In particular, the Construction sector is the sector that shows the highest incidence of interest rate …
Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach
This paper examines the degree of interest rate exposure of Spanish industries for the period 1993–2012 using the quantile regression methodology. The empirical results show that the Spanish stock market exhibits a significant level of interest rate sensitivity, although there are notable differences across industries and over time. In addition, the impact of changes in interest rates on industry equity returns tends to be more pronounced in extreme market conditions, i.e. during crises or bubbles in stock markets, than in normal periods. This finding may be related to herding behavior of stock investors during periods of market stress.
Causal flows between oil and forex markets using high-frequency data: Asymmetries from good and bad volatility
The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link. This paper investigates the causal linkages in volatility between crude oil prices and six major bilateral exchange rates against the U.S. dollar in the time-frequency space using high-frequency intraday data. Special attention is paid to the potential asymmetries in the causal effects between oil and forex markets. The wavelet-based Granger causality method proposed by Olayeni (2016) is applied to quantify the causal relations in the time and frequency domains simultaneously. Moreover, the realized semivariance approach of Barndoff-Nielsen et a…
Main driving factors of the interest rate-stock market Granger causality
Abstract This paper investigates the causal relationship between changes in the 10-year Treasury bond yield and the S&P 500 stock return in the United Sates with emphasis on time variation, stress factors and smooth regime transition. First, the time-varying Granger causality test proposed by Lu et al. (2014) is applied. Then a two-regime multifactor smooth transition regression model with a single transition variable representing a wide range of macroeconomic and financial variables is estimated in order to identify the key explanatory factors governing the causal relationship. The results show a significant bidirectional causal relationship over most of the study period, mainly due to the…
Liquidity-adjusted value-at-risk optimization of a multi-asset portfolio using a vine copula approach
Abstract This paper develops a novel approach to assess liquidity-adjusted Value-at-Risk (LVaR) optimization of multi-asset portfolios based on vine copulas and LVaR models. This framework is applied to stock markets of the G-7 countries, gold, commodities and Bitcoin. The results show that our approach is superior to the classical mean–variance Markowitz portfolio technique in terms of the optimal portfolio selection under a number of realistic operational and budget constraints. We find that both Bitcoin and gold improves the risk-return performance of the G-7 stock portfolio. However, Bitcoin (gold) performs better under a scenario of only long-positions (when short-selling is allowed).
Comparative efficiency of green and conventional bonds pre- and during COVID-19: An asymmetric multifractal detrended fluctuation analysis
Abstract Motivated by the lack of research on price efficiency dynamics of green bonds and the impact of the COVID-19 on the pricing of fixed-income securities, this study investigates the comparative efficiency of green and conventional bond markets pre- and during the COVID-19 pandemic applying asymmetric multifractal analysis. Specifically, the multifractal scaling behaviour is examined separately during upward and downward trends in bond markets using the asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) approach. The empirical findings confirm the presence of asymmetric multifractality in the green and traditional bond markets. Not surprisingly, inefficiency in both bon…
Time-varying dependence between stock and government bond returns: International evidence with dynamic copulas
Abstract This paper investigates the dependence pattern between stock and long-term government bond returns for a wide range of developed countries over the last two decades by using a dynamic DCC-GARCH-copula model. This approach allows obtaining a flexible and comprehensive description of the time variation in the linkage between stock and bond markets. The empirical results show that the dependence structure between stock and 10-year government bond returns varies significantly over time for most countries. In particular, a positive stock–bond association is observed during the 1990s, while the relationship becomes negative from the early 2000s, supporting the presence of flight-to-quali…
Interdependence between Green Financial Instruments and Major Conventional Assets: A Wavelet-Based Network Analysis
This paper examines the interdependence between green financial instruments, represented by green bonds and green stocks, and a set of major conventional assets, such as Treasury, investment-grade and high-yield corporate bonds, general stocks, crude oil, and gold. To that end, a novel wavelet-based network approach that allows for assessing the degree of interconnection between green financial products and traditional asset classes across different investment horizons is applied. The empirical results show that green bonds are tightly linked to Treasury and investment-grade corporate bonds, while green stocks are strongly tied to general stocks, regardless of the specific time period and i…
Asymmetric determinants of CDS spreads: U.S. industry-level evidence through the NARDL approach
Abstract This paper investigates the presence of asymmetries in the short- and long-run relationships between the 5-year CDS index spreads at the U.S. industry level and a set of major macroeconomic and financial variables, namely the corresponding industry stock indices, the VIX index, the 5-year Treasury bond yield and the crude oil price, using the NARDL approach. The empirical results provide significant evidence of both short-run and long-run asymmetries in the linkage between ten industry CDS spreads and the potential driving factors common for all industries, confirming the importance of asymmetric nonlinearity in this context. It is also shown that the industry equity prices, the VI…
The windowed scalogram difference: A novel wavelet tool for comparing time series
Abstract We introduce a new wavelet-based tool called windowed scalogram difference (WSD), which has been designed to compare time series. This tool allows quantifying if two time series follow a similar pattern over time, comparing their scalograms and determining if they give the same weight to the different scales. The WSD can be seen as an alternative to another tool widely used in wavelet analysis called wavelet squared coherence (WSC) and, in some cases, it detects features that the WSC is not able to identify. As an application, the WSD is used to examine the dynamics of the integration of government bond markets in the euro area since the inception of the euro as a European single c…
Linear and nonlinear interest rate sensitivity of Spanish banks
Abstract Interest rate risk is one of the major financial risks faced by banks due to the very nature of the banking business. The most common approach in the literature has been to estimate the impact of interest rate risk on banks using a simple linear regression model. However, the relationship between interest rate changes and bank stock returns does not need to be exclusively linear. This article provides a comprehensive analysis of the interest rate exposure of the Spanish banking industry employing both parametric and non-parametric estimation methods. Its main contribution is to use, for the first time in the context of banks’ interest rate risk, a nonparametric regression technique…
Tourism-led growth hypothesis in the top ten tourist destinations: New evidence using the quantile-on-quantile approach
This paper examines the empirical validity of the tourism-led growth hypothesis in the top ten tourist destinations in the world (China, France, Germany, Italy, Mexico, Russia, Spain, Turkey, the United Kingdom, and the United States) using the quantile-on-quantile (QQ) approach and a new index of tourism activity that combines the most commonly used tourism indicators. This methodology, recently introduced by Sim and Zhou (2015), provides an ideal framework with which to capture the overall dependence structure between tourism development and economic growth. The empirical results primarily show a positive relation between tourism and economic growth for the ten countries considered with s…
Time-varying causality between crude oil and stock markets: What can we learn from a multiscale perspective?
This paper investigates the presence of time-varying causal linkages in mean and variance between oil price changes and stock returns for six major oil-importing countries (France, Germany, Italy, Spain, the UK and the US) in a multiscale framework that combines wavelet analysis and a modified version of the dynamic causality test of Lu, Hong, Wang, Lai, and Liu (2014). The results show significant bidirectional causal relations between oil and stock markets at the different time horizons for all countries. The causal links tend to be stronger at coarser scales and in periods of financial turmoil, mainly during the recent global financial and European sovereign debt crises. This evidence pr…
A New Wavelet Tool to Quantify Non-Periodicity of Non-Stationary Economic Time Series
We introduce a new wavelet tool, the windowed scale index, to study the degree of non-periodicity of time series. The windowed scale index is based on some recently defined tools, such as the windowed scalogram and the scale index. This novel measure is appropriate for non-stationary time series whose characteristics change over time and, therefore, it can be applied to a wide variety of disciplines. Furthermore, we revise the concept of the scale index and pose a theoretical problem: it is known that if the scale index of a function is not zero then it is non-periodic, but if the scale index of a function is zero, then it is not proved that it has to be periodic. This problem is solved for…
Integration of Mortgage and Capital Markets: Evidence in the Spanish Case
The spectacular development of the Spanish mortgage market during the last decade has increased the concern about its financial integration with other capital markets. This paper examines the degree of integration between the mortgage market and two broader capital markets such as the public debt market and the money market in the Spanish case. With this purpose, different time series techniques in a context of cointegration have been used. The results obtained reveal that there exists an important degree of integration between the mortgage market and the general capital markets in Spain. In particular, the public debt market and, especially, the money market have turned into essential refe…
Industry-level determinants of the linkage between credit and stock markets
ABSTRACTThis paper examines the relationship between US credit default swaps (CDS) and stock returns on an industry-wide basis across a number of investment horizons, with particular focus on the m...
Time and frequency dynamics of connectedness between renewable energy stocks and crude oil prices
Abstract This paper examines the time and frequency dynamics of connectedness among stock prices of U.S. clean energy companies, crude oil prices and a number of key financial variables using the methodology developed by Barunik and Krehlik (2018). This approach allows measuring the dynamics of return and volatility connectedness over time and across frequencies simultaneously. The empirical results show that most of return and volatility connectedness is generated in the very short-term, i.e. movements up to five days, while the long-term plays a minor role. Our analysis further reveals a greater degree of interconnectedness across crude oil and financial markets since the onset of the U.S…
Linear and nonlinear interest rate exposure in Spain
PurposeThis paper aims to carry out a comprehensive analysis of the influence of interest rate risk on Spanish firms at the industry level.Design/methodology/approachThe methodology employed has its origin in the two‐index linear regression model proposed by Stone. This traditional interest rate exposure model has been extended in this paper to allow for a nonlinear exposure component as well as the presence of asymmetric behaviour in the exposure pattern.FindingsInterest rate exposure is not homogeneous for all the Spanish industries. In line with other markets, highly leveraged industries (construction and real estate), regulated industries (electrical and utilities), and banking industry…
Impact of interest rate risk on the Spanish banking sector
This paper examines the exposure of the Spanish banking sector to interest rate risk. With that aim, a univariate GARCH-M model, which takes into account not only the impact of interest rate changes but also the effect of their volatility on the distribution of bank stock returns, is used. The results show that both changes and volatility of interest rates have a negative and significant impact on the stock returns of the Spanish banking industry. Moreover, there seems to be a direct relationship between the size of banking firms and their degree of interest rate sensitivity.
Is the tourism–economic growth nexus time-varying? Bootstrap rolling-window causality analysis for the top 10 tourist destinations
This article explores the time-varying causal nexus between tourism development and economic growth for the top 10 tourist destinations in the world, namely China, France, Germany, Italy, Mexico, t...
Interest rate changes and stock returns: A European multi-country study with wavelets
Abstract This paper investigates the linkage between changes in 10-year government bond yields and stock returns for the major European countries in the time-frequency domain by using a number of cross-wavelet tools in the framework of the continuous wavelet transform, mainly the wavelet coherence and phase-difference. The results reveal that the degree of connection between 10-year bond rate movements and stock returns differs considerably among countries and also varies over time and depending on the time horizon considered. In particular, the UK shows the greatest interdependence between long-term interest rates and equity returns across time and frequencies, while the relationship is mu…
US stock market sensitivity to interest and inflation rates: a quantile regression approach
ABSTRACTThis article studies the sensitivity of the US stock market to nominal and real interest rates and inflation during the 2003–2013 period using quantile regression (QR). The empirical results show that the stock market has a significant sensitivity to changes in interest rates and inflation and finds differences across sectors and over time. Moreover, the effect of changes in both interest rates and inflation tends to be more pronounced during extreme market conditions, thus distinguishing expansion periods from recession periods.
U.S. stock prices and macroeconomic fundamentals: Fresh evidence using the quantile ARDL approach
This paper explores the long‐run relationship and the associated short‐run dynamics between the U.S. stock market and three major macroeconomic fundamentals, namely the U.S. industrial production index, the U.S. 10‐year Treasury bond yield and the West Texas Intermediate oil price, for the time period covering 1985–2015. The quantile autoregressive distributed lag (QARDL) model presented by Cho et al. (2015) Journal of Econometrics, 188, 281–300, which combines the autoregressive distributed lag model of Pesaran and Shin (1998), Cambridge University Press, and Pesaran et al. (2001) Journal of Applied Econometrics, 16, 289–326, and the quantile regression methodology of Koenker and Bassett (…
Are green bonds a different asset class? Evidence from time-frequency connectedness analysis
Abstract This paper investigates the time-frequency connectedness across the global green bond market and several mainstream financial and energy markets in an attempt to figure out whether green bonds represent a different asset class. The connectedness methodology proposed by Barunik and Křehlik (2018) is employed for that purpose. This approach enables quantifying the dynamics of connectedness in terms of return and volatility over time and across time scales simultaneously. The empirical results indicate that connectedness between the global green bond market and the conventional financial and energy markets mainly occurs at shorter time horizons, suggesting that shocks are rapidly tran…
Impacto del riesgo de interés sobre las acciones del sector bancario español
RESUMENEste trabajo examina la exposicion del sector bancario espanol al riesgo de interes en el ambito de la metodologia GARCH, prestando atencion no solo al impacto de los cambios en el nivel de los tipos de interes sino tambien al efecto de su volatilidad sobre la distribucion de los rendimientos de las acciones bancarias. Los resultados obtenidos muestran que tanto las variaciones como la volatilidad de los tipos de interes tienen un impacto negativo y significativo sobre el rendimiento de las acciones de las entidades financieras, existiendo una relacion directa entre el tamano de las entidades y su grado de sensibilidad ante los movimientos y volatilidad de los tipos de interes.
Risk transmission between Islamic and conventional stock markets: A return and volatility spillover analysis
Abstract This paper contributes to the current debate on the empirical validity of the decoupling hypothesis of the Islamic stock market from its mainstream counterparts by examining return and volatility spillovers across the global Islamic stock market, three main conventional national stock markets (the US, the UK and Japan) and a number of influential macroeconomic and financial variables over the period from July 1996 to June 2016. To that end, the VAR-based spillover index approach based on the generalized VAR framework developed by Diebold and Yilmaz (2012) is applied. The empirical analysis shows strong interactions in return and volatility among the global Islamic stock market, the…