Financial system in steering the economy towards planetary well-being

This chapter discusses the possible roles that financial system may play in steering economic production towards planetary well-being. The costs associated with using natural resources are seldom equal to the actual environmental costs incurred. The present chapter proposes linking Sir Partha Dasgupta’s Impact Equation and the standard asset pricing framework and discusses the roles that financial institutions and central banks as well as debt and equity funding play in supporting production that preserve planetary well-being via the incentives of those in need for and those willing to supply funding. It is proposed that the increasing costs of capital and the financial exclusion of non-env…

Media Tone Goes Viral: Global Evidence from the Currency Market

Using several million news and social media articles related to currencies, we examine the role of media tone in predicting the exchange rate returns of 12 developed and 24 emerging markets from 1998 to 2016. The text-based currency Media tone is a strong positive predictor of currency excess returns beyond fundamentals of one to three months ahead and six months cumulatively, with the average in-sample and out-of-sample R^2s of 4.45% and 9.03% in the US. The one-month predictability is observed in four other developed markets and 18 emerging market currencies, with the latter showing a stronger pattern. This predictability encompasses previous month currency returns, currency factors, macr…

Stock Market Integration and the Global Financial Crisis

We study the dynamics of stock market integration and its consequences during the recent financial crisis for twenty-three developed and sixty emerging markets. We find that integration increased slightly for emerging markets but decreased for developed countries during the crisis. Moreover, we argue that the high degree of integration propagated the crisis across the global financial markets at the beginning of the crisis, but it had little effect during the crisis. We also find that integration is mostly affected by financial openness, the institutional environment, and global financial uncertainty but that these determinants vary slightly between emerging and developed markets.

Bubbles in China

This study examines rational bubbles in Chinese stock markets and China-related share indices in Hong Kong. A duration dependence test is employed for both monthly and weekly abnormal market returns of the Shanghai and Shenzhen A- and B-markets, as well as for the Hong Kong China Enterprises and China Affiliated Corporations indices. The test results are mixed, as weekly data demonstrate bubbles for all of the Mainland Chinese stock markets, but monthly data do not show bubbles for any of the examined markets. Neither of the datasets indicates bubbles in the Hong Kong markets. Results indicate that, in terms of bubbles, segmentation does not play a significant role in bubble existence and t…

Renewable energy growth and the financial performance of electric utilities: A panel data study

Electric utilities are under pressure to increase clean energy production. Although the adoption of renewable energy can improve the utilities' environmental performance, a fundamental question is if it also pays in economic terms. Building on the natural-resource-based view of the firm, we answer this question using two data analysis methods. First, we carry out a regression analysis of panel data from 66 large electric utilities covering the period 2005–2014, applying both a fixed and random effects estimator. Subsequently, we use the Granger causality test to explore possible causality links. Our results show a negative correlation at the firm level between renewable energy increase and …

Talousennustajien näkemykset talouskasvusta vuosina 2019−2039

Democracy, political risks and stock market performance

We study whether the emerging stock markets’ performance is affected by direct and indirect effects of democracy level and political risk. We argue that the relationship between democracy level and the political risk is parabolic instead of a simple linear relation i.e. there exists a limit in democracy after which the political risk begins to decline and this is reflected in stock prices. Using panel data for 38 emerging markets at yearly frequency and controlling for several domestic and international factors, we find a fairly robust evidence that during the period 2000-2010, this relationship is true and after some threshold, the more democratic countries produce higher returns. Similar …

Essays on emerging financial markets, political institutions and development differences

Sentiment Across Asset Markets

In this paper, we study investor sentiment in five major asset markets: stocks, bonds, commodities, currencies, and housing. Based on Thomson Reuter's sentiment measures extracted from 235 news and social media sources, we find that each market is predicted by its own sentiment. Cross-markets, kitchen sink regressions reveal that the stock market is influenced only by bond sentiment, while bond market is affected just by currency market, which is largely unexplained by others; the commodities are related to currencies and housing, and housing can be predicted by stock and bond sentiment. In an efficient information aggregation by the partial least square (PLS), the predictability of each ma…

Timescale-dependent stock market comovement: BRICs vs. developed markets

This paper examines the differences in the asset return comovement of the BRIC countries (Brazil, Russia, India and China), the other developed economies in their regions (Canada, Hong Kong and Australia) and the major industrialized economies (the U.K., Germany and Japan) with respect to the U.S. for different return periods. The novelty of the paper is that the stock return indices are decomposed to several timescales using wavelet analysis and that the results are further used as inputs for the dynamic conditional correlation (DCC) framework, which is used as a measure of comovement. The results propose that the level of stock market comovement depends on regional aspects, the level of d…