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How do Central Banks react to wealth composition and asset prices?

Castro, Vítor; Sousa, Ricardo M.
Fonte: Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE) Publicador: Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Tipo: Trabalho em Andamento
Publicado em //2010 Português
Relevância na Pesquisa
46.34%
We assess the response of monetary policy to developments in asset markets in the Euro Area, the US and the UK. We estimate the reaction of monetary policy to wealth composition and asset prices using: (i) a linear framework based on a fully simultaneous system approach in a Bayesian environment; and (ii) a nonlinear specification that relies on a smooth transition regression model. The linear framework suggests that wealth composition is indeed important in the formulation of monetary policy. However, the attempts of central banks to mitigate undesirable fluctuations in say, financial wealth, may disrupt housing wealth. A similar result can be found when we assess the reaction of monetary authority to asset prices, although concerns about "price" effects are smaller. The nonlinear model confirms these findings. However, the concerns over the wealth and its components are stronger once inflation is under control, i.e. below a certain target. Some disruptions between financial and housing wealth effects are still present. They can also be found in reaction to asset prices, despite being less intense.; Fundação para a Ciência e a Tecnologia (FCT) - Programa Operacional Ciência e Inovação 2010 (POCI 2010); Fundo Europeu de Desenvolvimento Regional (FEDER)

Fiscal policy and asset prices

Agnello, Luca; Sousa, Ricardo M.
Fonte: Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE) Publicador: Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Tipo: Trabalho em Andamento
Publicado em //2010 Português
Relevância na Pesquisa
46.42%
We assess the role played by fiscal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive fiscal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the effect of fiscal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of fiscal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) significant fiscal multiplier effects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.; Fundação para a Ciência e a Tecnologia (FCT) - Programa Operacional Ciência e Inovação 2010 (POCI 2010); Fundo Europeu de Desenvolvimento Regional (FEDER)

Fiscal policy and asset prices

Agnello, Luca; Sousa, Ricardo M.
Fonte: Wiley-Blackwell Publicador: Wiley-Blackwell
Tipo: Artigo de Revista Científica
Publicado em //2011 Português
Relevância na Pesquisa
46.42%
We assess the role played by scal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive scal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the e¤ect of scal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of scal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical ndings also point to: (i) a contractionary e¤ect of scal policy on output in line with the existence of crowding-out e¤ects; (ii) a weakening of the e¤ectiveness of scal policy in recent times; (iii) signi cant scal multiplier e¤ects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to scal policy shocks following the process of nancial deregulation and mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public nances.; COMPETE; QREN; UE Fundo Europeu de Desenvolvimento Regional; Fundação para a Ciência e a Tecnologia (FCT)

Leverage, Derivatives, and Asset Markets

Yang, David Cherngchiun
Fonte: Harvard University Publicador: Harvard University
Tipo: Thesis or Dissertation; text Formato: application/pdf
Português
Relevância na Pesquisa
46.36%
This dissertation consists of three independent essays on the relationship between leverage, derivatives (especially, option securities), and asset markets. Chapter 1, "Does the Tail Wag the Dog? How Options Affect Stock Price Dynamics," demonstrates empirically that the existence and trading of financial options affects the price movements of their underlying assets, due to the implicit leverage in options and the hedging behavior of options sellers. These empirical results contrast with classical asset pricing where options instead derive their value from their underlying assets. Chapter 2, "Disagreement and the Option Stock Volume Ratio," examines a variable known as the option stock volume ratio, which prior work has documented to be a negative predictor of stock returns in the cross section. I propose an alternate explanation based on the behavioral finance literature on belief disagreement between investors. I show how my disagreement model makes predictions in line with prior empirical findings and can also better explain other stylized facts, which I document. Chapter 3, "Bond Fire Sales and Government Interventions," analyzes how a government should intervene in response to a fire sale in the bond market. I contrast the policies of the government directly purchasing financial securities vs the government offering leverage to the private sector to purchase securities.; Business Economics

Information Dissemination and Aggregation in Asset Markets with Simple Intelligent Traders

Chan, Nicholas; LeBaron, Blake; Lo, Andrew; Poggio, Tomaso
Fonte: MIT - Massachusetts Institute of Technology Publicador: MIT - Massachusetts Institute of Technology
Formato: 30 p.; 6592261 bytes; 5584146 bytes; application/postscript; application/pdf
Português
Relevância na Pesquisa
56.4%
Various studies of asset markets have shown that traders are capable of learning and transmitting information through prices in many situations. In this paper we replace human traders with intelligent software agents in a series of simulated markets. Using these simple learning agents, we are able to replicate several features of the experiments with human subjects, regarding (1) dissemination of information from informed to uninformed traders, and (2) aggregation of information spread over different traders.

Safe and Sound Banking : A Role for Countercyclical Regulatory Requirements?

Caprio, Gerard, Jr.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
46.63%
Most explanations of the crisis of 2007-2009 emphasize the role of the preceding boom in real estate and asset markets in a variety of advanced countries. As a result, an idea that is gaining support among various groups is how to make Basel II or any regulatory regime less pro-cyclical. This paper addresses the rationale for and likely contribution of such policies. Making provisioning (or capital) requirements countercyclical is one way potentially to address pro-cyclicality, and accordingly it looks at the efforts of the authorities in Spain and Colombia, two countries in which countercyclical provisioning has been tried, to see what the track record has been. As explained there, these experiments have been at best too recent and limited to put much weight on them, but they are much less favorable for supporting this practice than is commonly admitted. The paper then addresses concerns and implementation issues with countercyclical capital or provisioning requirements, including why their impact might be expected to be limited...

Uninformative announcements and asset trading behavior

Corgnet, Brice; Kujal, Praveen; Porter, Dave
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: info:eu-repo/semantics/workingPaper; info:eu-repo/semantics/workingPaper Formato: application/pdf
Publicado em /12/2007 Português
Relevância na Pesquisa
56.6%
Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of uninformative communications on asset prices and trading volumes. We deliver uninformative messages in standard experimental asset markets and find that trading volumes and prices are impacted by these messages. In particular, the release of a pre-announced preset message to traders “The price is too high” in predetermined trading periods decreases the amplitude and duration of bubbles. Also, the release of the messages “The price is too high” or “The price is too low” reduces trading volume with inexperienced subjects.

The efficiency of financial markets with high inflation

Neumeyer, Pablo Andrés
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: info:eu-repo/semantics/workingPaper; info:eu-repo/semantics/workingPaper Formato: application/pdf
Publicado em /05/1994 Português
Relevância na Pesquisa
56.4%
In a two period general equilibrium model with incomplete asset markets, it is shown that the contraction of nominal financial markets that occurs during high inflations can result from the variability of the future rate of inflation and from large bankruptcy costs. If the probability that inflation in the future will be high is sufficiently large, then, for a generic set of endowments, an increase in the variability of future prices reduces the utility possibilities set. In economies with only nominal assets more variable future prices lead to a Pareto fall in social welfare.

Aggregation and dissemination of information in experimental asset markets in the presence of a manipulator

Veiga, Helena; Vorsatz, Marc
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /09/2008 Português
Relevância na Pesquisa
46.34%
We study with the help of a laboratory experiment the conditions under which an uninformed manipulator - a robot trader that unconditionally buys several shares of a common value asset in the beginning of a trading period and unwinds this position later on - is able to induce higher asset prices. We find that the average contract price is significantly higher in the presence of the manipulator if, and only if, the asset takes the lowest possible value and insiders have perfect information about the true value of the asset. It is also evidenced that the robot trader makes trading gains; i.e., independently on whether the informed traders have perfect or partial information, it earns always more than the average trader. Finally, not only uninformed subjects suffer from the presence of the robot trader, but also some of the imperfectly informed insiders have lower payoffs once the robot trader is added as a market participant.

The effect of reliability, content and timing of public announcements on asset trading behavior

Corgnet, Brice; Kujal, Praveen; Porter, David
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /03/2010 Português
Relevância na Pesquisa
56.55%
Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.

An interior-point algorithm for computing equilibria in economies with incomplete asset markets

Esteban-Bravo, Mercedes
Fonte: Elsevier Publicador: Elsevier
Tipo: Artigo de Revista Científica Formato: text/plain; application/pdf
Publicado em /03/2008 Português
Relevância na Pesquisa
46.43%
Computing equilibria in general equilibria models with incomplete asset (GEI) markets is technically difficult. The standard numerical methods for computing these equilibria are based on homotopy methods. Despite recent advances in computational economics, much more can be done to enlarge the catalog of techniques for computing GEI equilibria. This paper presents an interior-point algorithm that exploits the special structure of GEI markets. It is proved that, under mild conditions, the algorithm converges globally at a quadratic rate, rendering it particularly effective in solving large-scale GEI economies. To illustrate its performance, relevant examples of GEI markets are solved

The effect of reliability, content and timing of public announcements on asset trading behavior

Corgnet, Brice; Kujal, Praveen; Porter, David
Fonte: Elsevier Publicador: Elsevier
Tipo: info:eu-repo/semantics/acceptedVersion; info:eu-repo/semantics/article Formato: application/pdf
Publicado em /11/2010 Português
Relevância na Pesquisa
56.55%
Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.; The authors acknowledge financial support from Grant ECO2008-00977/ECON from the Spanish Ministry of Education. Kujal acknowledges financial support from the Instituto Universitario de Economía, Consolider-Ingenio 2010 and the Comunidad de Madrid (grant Excelecon). Seminar participants at University of Granada and JEE 2008 conference-Dijon gave helpful comments.

Optimal Monetary Policy in Open Economies

CORSETTI, Giancarlo; DEDOLA, Luca; LEDUC, Sylvain
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: application/pdf
Português
Relevância na Pesquisa
46.5%
This chapter studies optimal monetary stabilization policy in interdependent open economies, by proposing a unified analytical framework systematizing the existing literature. In the model, the combination of complete exchange-rate pass-through ('producer currency pricing') and frictionless asset markets ensuring efficient risk sharing, results in a form of open-economy 'divine coincidence': in line with the prescriptions in the baseline New- Keynesian setting, the optimal monetary policy under cooperation is characterized by exclusively inward-looking targeting rules in domestic output gaps and GDP-deflator inflation. The chapter then examines deviations from this benchmark, when cross-country strategic policy interactions, incomplete exchange-rate pass-through ('local currency pricing') and asset market imperfections are accounted for. Namely, failure to internalize international monetary spillovers results in attempts to manipulate international relative prices to raise national welfare, causing inefficient real exchange rate fluctuations. Local currency pricing and incomplete asset markets (preventing efficient risk sharing) shift the focus of monetary stabilization to redressing domestic as well as external distortions: the targeting rules characterizing the optimal policy are not only in domestic output gaps and in.ation...

How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices

Hong G. Min; Park, Jong-goo
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Working Paper; Publications & Research; Publications & Research :: Policy Research Working Paper
Português
Relevância na Pesquisa
56.65%
The authors explore how Koreas financial structure affects the volatility of asset prices. Documented empirical evidence of the relationship between financial structure and financial crisis, sheds light on the relationship between asset price volatility - extreme variations in price - and financial structure. And the volatility of financial and non-financial asset prices provides an indirect link between an economys financial structure and the likelihood of financial crisis. Using time-series data on a se of indicators measuring financial structure, the authors examine how Koreas financial structure affects the volatility of the real effective exchange rate, the money market rate, government bond yields, and stock prices. They find: 1) There is a stable long-term relationship between financial structure and volatility in the real effective exchange rate, the money market rate, stock prices, and the yield on government housing bonds. 2) Financial structure affects asset price variables asymmetrically. Some variables volatility increases...

Dynamic conditional correlation in Latin-American asset markets

Martinez Ventura, Ana Constanza; Ramírez Gómez, Manuel
Fonte: Facultad de Economía Publicador: Facultad de Economía
Tipo: info:eu-repo/semantics/book; info:eu-repo/semantics/acceptedVersion Formato: application/pdf
Publicado em //2011 Português
Relevância na Pesquisa
46.36%
In this paper we reviewed the models of volatility for a group of five Latin American countries, mainly motivated by the recent periods of financial turbulence. Our results based on high frequency data suggest that Dynamic multivariate models are more powerful to study the volatilities of asset returns than Constant Conditional Correlation models. For the group of countries included, we identified that domestic volatilities of asset markets have been increasing; but the co-volatility of the region is still moderate.

Information Mirages in Experimental Asset Markets

Camerer, Colin; Weigelt, Keith
Fonte: University of Chicago Press Publicador: University of Chicago Press
Tipo: Article; PeerReviewed Formato: application/pdf
Publicado em /10/1991 Português
Relevância na Pesquisa
46.42%
We investigate behavior in laboratory asset markets in which traders are sometimes informed of asset values. We test whether traders overreact to uninformative trades, mistakenly inferring in-formation from them. The existence of price "mirages," caused by such mistakes, might ex-plain why asset prices seem to be excessively volatile.

Speculative Overpricing in Asset Markets With Information Flows

Palfrey, Thomas R.; Wang, Stephanie W.
Fonte: Wiley Publicador: Wiley
Tipo: Article; PeerReviewed Formato: application/pdf
Publicado em /09/2012 Português
Relevância na Pesquisa
46.49%
In this paper, we derive and experimentally test a theoretical model of speculation in multiperiod asset markets with public information flows. The speculation arises from the traders' heterogeneous posteriors as they make different inferences from sequences of public information. This leads to overpricing in the sense that price exceeds the most optimistic belief about the real value of the asset. We find evidence of speculative overpricing in both incomplete and complete markets, where the information flow is a gradually revealed sequence of imperfect public signals about the state of the world. We also find evidence of asymmetric price reaction to good news and bad news, another feature of equilibrium price dynamics under our model. Markets with a relaxed short-sale constraint exhibit less overpricing.

Nonspeculative bubbles in experimental asset markets: Lack of common knowledge of rationality vs. actual irrationality

Lei, Vivian; Noussair, Charles N.; Plott, Charles R.
Fonte: Wiley Publicador: Wiley
Tipo: Article; PeerReviewed Formato: application/pdf
Publicado em /07/2001 Português
Relevância na Pesquisa
46.34%
We report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets. In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of irrationality. Much of the trading activity that accompanies bubble formation, in markets where speculation is possible, is due to the fact that there is no other activity available for participants in the experiment.

Search and endogenous concentration of liquidity in asset markets

Vayanos, Dimitri; Wang, Tan
Fonte: Econometric Society 2004 North American Winter Meetings Publicador: Econometric Society 2004 North American Winter Meetings
Tipo: Monograph; NonPeerReviewed Formato: application/pdf
Publicado em /08/2004 Português
Relevância na Pesquisa
46.58%
We develop a search-based model of asset trading, in which investors of different horizons can invest in two identical assets. The asset markets are partially segmented: buyers can search for only one asset, but can decide which one. We show that there exists a "clientele" equilibrium where one market has more buyers and sellers, lower search times, higher trading volume, higher prices, and short-horizon investors. This equilibrium dominates the ones where the two markets are identical, implying that the concentration of liquidity in one asset is socially desirable. At the same time, too many buyers decide to search for the liquid asset.

Ambiguity, information acquisition and price swings in asset markets

Mele, Antonio; Sangiorgi, Francesco
Fonte: Financial Markets Group, London School of Economics and Political Science Publicador: Financial Markets Group, London School of Economics and Political Science
Tipo: Monograph; NonPeerReviewed Formato: application/pdf
Publicado em 04/05/2009 Português
Relevância na Pesquisa
56.49%
This paper studies asset markets in which ambiguity averse investors face Knightian uncertainty about expected payos. The same investors, however, might wish to resolve their uncertainty, although not risk, by just purchasing information. In these markets, uninformed and, hence, ambiguity averse, agents may coexist with informed agents, as a result of a rational information acquisition process. Moreover, there are complementaries in information acquisition, multiplicity of equilibria, history-dependent prices, and large price swings occurring after small changes in the uncertainty surrounding the asset expected payos. Our model suggests the importance of uncertainty, as a new channel for episodes of extreme price volatility, media frenzies and media glooms.