The ‘fear factor’: Personal experience and risk aversion in times of crisis

Peter Koudijs, Hans-Joachim Voth, 12 April 2014

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To paraphrase Larry Summers, some people are scared – just look around. The crisis of 2007–08 took a toll on a lot of people, investors included. What seemed to be a new age of steady, moderately high growth and stable equity returns suddenly turned into the biggest economic crisis since the 1930s:

Topics: Economic history, Financial markets
Tags: behaviour, crisis, financial markets, lending, risk aversion

The price of political uncertainty

Bryan T. Kelly, Lubos Pastor, Pietro Veronesi, 31 March 2014

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Amid the 2008 financial crisis, political uncertainty around the world reached record levels and has remained elevated ever since (Baker et al. 2013). While uncertainty is a natural feature of even the healthiest political processes, its recent surges have been in large part self-inflicted, for example, by the stubbornly dysfunctional discourse in the US Congress.

Topics: Politics and economics
Tags: financial markets, political uncertainty

Asset pricing in the frequency domain: Theory and empirics

Ian Dew-Becker, Stefano Giglio, 20 October 2013

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Economic fluctuations act at frequencies that range from the hourly or even minute-by-minute level – such as shifts in electricity demand due to temperature fluctuations – to shocks that last for decades or longer – such as large-scale technological changes.

Topics: Financial markets, Macroeconomic policy, Monetary policy
Tags: asset pricing, business cycles, financial markets, fluctuations, habit formation, Stabilisation policy

The Fractal Market Hypothesis and its implications for the stability of financial markets

Nicola Anderson, Joseph Noss, 3 September 2013

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Financial prices appear to exhibit ‘fractal’ properties over time. A defining property of fractals is the tendency of an object to be similar to parts of itself.1  To fix ideas before turning to financial markets, consider a well-known natural example – an oak tree (Figure 1).

Figure 1. A fractal tree

Topics: Financial markets
Tags: financial markets, Fractal market hypothesis, self-similarity

Stock market turnover and corporate governance

Alex Edmans, Vivian W Fang, Emanuel Zur, 16 February 2013

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The stock market is a powerful tool for controlling corporation’s behaviour. But what is best:

Topics: Financial markets
Tags: corporate governance, financial markets, firms, liquidity, stocks

Limits to currency momentum trading

Lukas Menkhoff, Lucio Sarno, Maik Schmeling, Andreas Schrimpf, 31 March 2012

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Momentum trading, ie buying past winners and selling past losers, is a very popular trading strategy in many assets. In foreign exchange high returns to momentum trading have been documented since the 1970s and have fuelled concerns about destabilising speculation.

Topics: International finance, International trade
Tags: currency trading, financial markets, momentum trading, speculation

Innovations in the real economy thrive on modern financial markets

Thomas Meyer, 19 August 2011

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There is by now a fairly large literature arguing that modern financial markets are very important drivers of innovations in the real economy. Efficient financial markets should allocate capital towards up-and-coming sectors, promising companies, and exciting business ideas but away from declining industries.

Topics: Financial markets, Productivity and Innovation
Tags: financial markets, innovation

Contingent capital and risk taking: Evidence from Britain’ banks 1878-1912

Richard S. Grossman, Masami Imai, 7 September 2010

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From the enactment of the first commercial banking codes in the nineteenth century through the adoption of the Basel and Basel II accords in recent years to the anticipated adoption of Basel III, policymakers have argued that holding increased amounts of capital promotes bank “soundness and stability” (Basel Committee on Banking Supervision 1988, 2004).

Topics: Economic history, Financial markets, Global crisis
Tags: financial markets, financial regulation, global crisis

The US financial reform bill: Hit or flop?

Thorsten Beck, 16 June 2010

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A few weeks ago, the US Senate passed its version of the Financial Reform Bill. While it still has to be reconciled with the House version, the outline of the regulatory reform in the US is slowly becoming clear. A thorough assessment of the Bill, however, is made difficult by the sheer size of the Bill with over 1,000 pages, compared to 53 pages of the Glass-Steagall Act.

Topics: Financial markets, Global crisis, Microeconomic regulation
Tags: financial markets, global crisis, microeconomic regulation

Financial markets regulation: The tipping point

Venkatachalam Shunmugam, 18 May 2010

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While over-the-counter markets for collateralised debt obligations and credit default swaps are blamed for the financial crisis of 2007-2009, what has been overlooked is the menace of rising opacity in the exchange-traded market. This raises questions about the fundamentals of this market’s very existence, i.e.

Topics: Financial markets, Global crisis
Tags: dark pools, derivatives, financial markets, financial regulation

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