Gunther Capelle-Blancard

Index Trading and Agricultural Commodity Prices: A Panel Granger Causality Analysis

This paper investigates the causality between prices and index-based trading activity for twelve grain, livestock, and other soft commodity futures markets. We use panel Granger causality estimations based on SUR systems and Wald tests with market-specific bootstrap critical values in order to take into account the possible contemporaneous dependence across markets. Our results confirm that there is no causality between index-based positions and commodity futures prices.

International nonlinear causality between stock markets

In this paper, we test for linear and nonlinear Granger causality between the French, German, Japanese, UK and US daily stock index returns from 1973 to 2003. We find a strong contemporaneous linear dependence between European countries and a directional linear dependence from the US towards the other markets. Besides, linear causality increases after 1987, a finding consistent with the expected effects of financial liberalization of the 1980s and the 1990s. Above all, we document the presence of bidirectional nonlinear causality between daily returns. To check for spurious nonlinear causality, we filter out heteroskedasticity using a FIGARCH model. The dramatic decrease in the number of significant nonlinear causality lags confirms that heteroskedasticity played a major part in the previous findings. We then check if a few structural breaks can explain the remaining nonlinear causality. We find that a large number of nonlinear relationships vanish when we control for structural breaks, whereas linear causality remains.

The Approximate Option Pricing Model: Performances and Dynamic Properties

Using high frequency data from ParisBourse SA, this article examines pricing and hedging performances of the Jarrow and Rudd (Journal of Financial Economics 10 (1982) pp. 347–369) model. We first find that this model improves the pricing of CAC 40 index European call options whether in-sample or out-of-sample, and whatever economic or statistic criterion may be used. Moreover, simple models for implied moments lead—in a dynamic setting—to results very close to those from in-sample optimization. But, we also find that this model does not improve hedging strategy and that the Black and Scholes (Journal of Political Economy (1973) pp. 637–655) model is still difficult to beat.

The Performance of Socially Responsible Funds: Does the Screening Process Matter?

................................................................................................................................... 4 Résumé non technique ............................................................................................................. 5 Résumé court ............................................................................................................................ 6 1. Introduction ..................................................................................................................... 7 2. The impact of screening on SRI fund performance ...................................................... 10 3. The SRI Market in France ............................................................................................ 13 4. The Determinants of SRI Mutual Funds’ Financial Performance ................................ 23 5. Conclusion .................................................................................................................... 31 References .............................................................................................................................. 33 Appendix ................................................................................................................................ 35 List of working papers released by CEPII ............................................................................. 47 CEPII, WP No 2011-12 The performance of socially responsable funds 3 THE PERFORMANCE OF SOCIALLY RESPONIBLE FUNDS: DOES THE SCREENING PROCESS MATTER? NON-TECHNICAL SUMMARY Socially Responsible Investment (SRI) is now quite popular in financial markets. This has prompted a surge of interest in the financial performance of mutual funds that practice SRI: Does the inclusion of environmental, social and governance criteria in the investment decision-making process hurt risk-adjusted returns, or does it lead to a “win-win” strategy, a sort of double dividend? As of 2010, more than fifty academic papers have examined this issue, all of which are very uniform in their methodology. They almost unanimously show that financial performance of SRI funds is not significantly different relative to their conventional peers or relative to a benchmark index. Actually, the absence of an overall effect is not surprising. SRI funds are very heterogeneous and sociallyor environmentally-friendly investments may be a source of competitive advantage in some situations, but not in all. The debate on the economic and financial impact of corporate social responsibility should move away from the question “does it pay to be good?” to “when does it pay to be good?”. In this study, we assess the financial performances within SRI mutual funds. In particular, we examine whether the financial performance of these funds is related to the characteristics of the extra-financial screening process. Our sample is composed with French SRI mutual funds. Modern SRI takes its roots in the US in the 1970s and spread slowly to other Anglo-Saxon countries and to the rest of the world. In Continental Europe, the growth of SRI dates back only to the 1990s. But now, the European market is larger and is expanding faster than the US one. This argument alone could be enough to justify interest in European markets. More importantly, the practices significantly differ on both sides of the Atlantic. In particular, almost all SRI funds in the US use exclusion criteria. This is far from being the case in Europe, particularly in France: in our sample, only one SRI fund out of three applied such criteria. Instead, in Europe, SRI funds select companies from all industries, provided that these companies are the leading ones with respect to ESG criteria (environment, social, and governance). This so-called best-in-class approach is often considered at the cutting-edge of SRI. In this study, we examine the significance of the extra-financial screening process applied by fund managers on their financial performance. To do so, we build three main sets of explanatory variables. First, we use the number of exclusion criteria to measure the extent of the screening intensity. We hypothesize a U-shaped relationship between screening intensity, measured by the number of exclusion criteria, and financial performance. The second variable of interest concerns the nature of the extra-financial screens, that is, whether fund managers focus on specific ESG issues and whether they apply sectoral or transversal screens. In particular, we hypothesize that the only damaging exclusion criteria for SRI investors are those which target specific sectors. Third, we examine the potential impact of the quality of the extra-financial screening process, which is measured in two different ways. On one hand, we use SRI ratings computed by Novethic (the leading information center in France on SRI) CEPII, WP No 2011-12 The performance of socially responsable funds 4 to gauge the social responsibility of the French SRI funds. On the other hand, we evaluate the “Strategy Distinctiveness Index” proposed by Sun, Wang and Zheng (2011), which captures managerial skill by assessing the extent to which a fund’s returns differ from those of its peers. Our study provides some salient results. First, as expected, we show that SRI mutual funds do not outperform the market, whatever the performance measure considered. Then, we confirm empirically that the SRI screening process may have a cost: the financial performance of SRI funds is hurt by the exclusion of non-socially responsible stocks. Like Barnett and Salomon (2006), we also find that this initial negative effect is partly offset as the number of screens increases. Further, we show that only sectoral screens (such as avoiding sin stocks) pull down financial performance, while transversal screens (commitment to UN Global Compact Principles, ILO/Rights at Work, etc.) do not have any impact. Moreover, it is not clear whether one of the ESG factors influences the financial performance of SRI funds more than the others, but these issues need further analysis. Lastly, when the quality of the SRI selection process is proxied by the rating provided by Novethic, its impact is not significant, while a higher strategy distinctiveness amongst SRI funds, which also gives information on the quality of the selection process, is associated with better financial performance.

The Weighting of CSR Dimensions: One Size Does Not Fit All

Although the concept of corporate social responsibility (CSR) is fundamentally multidimensional, most studies use composite scores to assess corporate social performance (CSP). How relevant are such composite scores? How the CSR dimensions are weighted? Should the weighting scheme be the same across sectors? This article proposes an original weighting scheme of CSR strengths and concerns, at the sector level, which is proportional to media and nongovernmental organizations (NGOs) scrutiny. The authors show that previous CSP assessments underweight environmental and corporate governance concerns. Moreover, findings suggest that firms that are exposed to the closest scrutiny are usually criticized on one single dimension: for instance, banks for bad corporate governance, and basic-resource firms for environmental damage. Composite scores based on equal weights hence misrepresent CSP and the difference in CSR between sectors.

Are Derivatives Dangerous? A Literature Survey

In this paper, we propose a survey of the academic literature that has addressed the threats raised by derivatives. An initial issue is the impact of derivatives on the volatility of the underlying assets, but empirical findings do not suggest any significant effect. The recent literature on the dangers of derivatives is more concerned by systemic risks. Several studies suggest that the sophistication of the products and the concentration of risks are potential sources of instability because of the increasing uncertainty, the repeated occurrence of extreme losses, and finally the greater possibility of global crisis. Among the solutions that have been proposed to mitigate risk, beyond strengthening internal control, putting clearinghouses into general use and limiting naked-transactions seem to be the most promising avenues.

Price Clustering in the CAC 40 Index Options Market

We examine in details the pattern and systematic tendencies of clustering in CAC 40 index option transaction prices during the period 1997 to 1999. Similar to extant studies in many financial markets, there is evidence of strong clustering at full index points and option prices are 90% more likely to end with the digit 0 (multiples of 10) than with the digit 5. While the 1999 contract downsizing led to some reduction in clustering at full index point, the basic pattern of clustering remains intact. The pattern of clustering rejects the attraction theory, but is consistent with the notion of cost recovery by market makers. We find important drivers for CAC 40 index option price clustering, namely, the level of option premium, option volume and underlying asset volatility. Higher premium level, higher asset volatility and lower volume are seen to increase option price clustering. We also observe a U-shaped pattern of clustering on an intra-day and intra-year basis. The option premium and volatility effects are consistent with a price level effect. The volatility effect also lends support to the notion of cost recovery by market makers. The volume effect likely represents a liquidity effect and is consistent with the Price Precision Hypothesis.

More Bankers, More Growth? Evidence from OECD Countries

We re-examine empirically the finance–growth relationship. We argue that financial deepening should not only be assessed via the familiar measures of financial activity output—the volume of credit—but also through its inputs—for example, the relative number of employees in the financial industry—or the efficiency of the financial-intermediation process. The latter is measured in this paper by the ratio of credit volume to the number of financial-sector employees. We compare these measures using the econometric approach recommended by Roodman (2009). Overall, we fail to find a positive relationship between financial deepening and economic growth in OECD countries over the last 40 years.

The Buncefield oil depot explosion: where there's smoke, there's (stock market) fire?

This study examines the stock market response to the Buncefield oil depot explosion in 2005. Like previous studies on technological disasters, we find an adverse effect on security prices. However, average abnormal return is only −0.58% for the four oil firms involved in the accident; that is, the explosion did not throw shareholders into panic selling.

Relations intrajournalières entre l'indice CAC 40 et les options sur indice: Quel est le marché préféré des investisseurs informés ?

The aim of this paper is to examine Granger linear and non-linear causality between CAC 40 index and European CAC 40 index options for 1997 and 1998. Our results indicate overall that cash index leads index options by 20 to 30 minutes. Market microstructure differences induce relatively infrequent trading in options market and consequently cause stock to lead. We find also a significant bi-directional causality between the two markets, revealing the activity of arbitrageurs.