The European Journal of Finance | 2021
Economic policies and their effects on financial market
Abstract
This special issue consists of selected papers from the 9th International Conference of the Financial Engineering and Banking Society (FEBS) organized by the Prague University of Economics and Business, Prague, Czech Republic and Audencia Business School, Nantes, France. The conference took place at the Prague University of Economics and Business between the 30th May and 1st June 2019. Its topic was ‘Economic Policies and Their Effects on Financial Market’, with more than 200 participants from 143 universities presenting their work on this theme and various other subjects from the fields of finance, banking, and economics. The conference also featured three keynote speakers. RenéeAdams, Professor of Finance at the Saïd Business School of theUniversity of Oxford, UK, presented a speech ‘Women on Boards: The Superheroes of tomorrow?’. Matti Keloharju, Aalto Distinguished Professor and Eero Kasanen Professor of Finance at Aalto University School of Business, Finland, talked about ‘Top Executive Health’. Haim Levy, theMiles Robinson Professor of Business Administration at the Hebrew University of Jerusalem, Israel, delivered a speech ‘Stocks Versus Bonds and the Investment Horizon: the Optimal Diversification of Saving for Pension’. All the submitted papers went through the standard double-blind review process of the European Journal of Finance. Six high quality papers were accepted for inclusion in this special issue of the European Journal of Finance. These papers, which we discuss briefly below, cover various aspects of monetary policy, stock market, currency markets and banking industry. Four of the papers study how the financial markets are influenced by various factors, with three of them focusing on the association between stock markets and rare disaster risks (Gkillas, Floros, and Suleman 2021), monetary policy shocks (Fullana, Ruiz, and Toscano 2020) and cultural norms (Galariotis and Karagianis 2021). The fourth paper studies the impact of the US Unconventional Monetary Policy on the currency markets (Fassas, Kenourigios, and Papadamou 2021). In ‘Quantile dependencies between discontinuities and time-varying rare disaster risks’, Gkillas, Floros, and Suleman (2021) use a sample of Dow Jones Industrial Average and International Crisis Behavior database between January 1918 and December 2013 to investigate the role of rare disaster risks in discontinuities in the US equity market. The authors find an asymmetric relationship between jumps and rare disaster risk, that is revealed by a heterogenous dependency across different quantiles and lag orders. This finding is robust across various types of jumps, realized skewness and realized kurtosis risks. The paper ‘Stock market bubbles and monetary policy effectiveness’, by Fullana, Ruiz, and Toscano (2020), investigates the role of conventionalmonetary policy in the dynamics of stockmarket bubbles. In particular, they analyze whether the response of stock market returns to monetary policy shocks depends on monetary policy surprises (good news or bad news) and business conditions (contraction or expansion). Themain finding of this article is that in case of positive shocks to monetary policy and expansionary business conditions, the monetary policy does not impact the stock market. In other words, the lower effectiveness of restrictive monetary policy shocks coincides with the phase of the business cycle in which the bubbles arise. In ‘Cultural Dimensions, Economic Policy Uncertainty, and Momentum Investing: International Evidence’, Galariotis and Karagianis (2021) examine whether, and if so how, culture and economic policy uncertainty have an impact on style investing, and more specifically on the popular momentum investing. Firstly, they examine the impact of five different cultural dimension on momentum investing. Secondly, they examine the joint impact of culture and economic policy uncertainty. Thirdly, they perform a comparative study among countries with different characteristics and equitymarket development fromdifferent geographical regions. Their findings support a strong link between cultural dimensions, economic policy uncertainty, and momentum investing in international financial markets.