Juan C. Reboredo

Nonlinear effects of oil shocks on stock returns: a Markov-switching approach

Using Markov-switching models, we investigate whether oil price shocks have nonlinear effects on stock returns. Empirical evidence from a set of international stock indexes suggests that an increase in oil prices has a negative and significant impact on stock prices in one state of the economy, whereas this effect is significantly dampened in another state of the economy. Furthermore, it is shown that changes in oil prices or in oil price volatility do not lead to a higher probability of switching between regimes.

Boosting GARCH and neural networks for the prediction of heteroskedastic time series

This work develops and evaluates new algorithms based on GARCH models, neural networks and boosting techniques, designed to model and predict heteroskedastic time series. The main novel elements of these new algorithms are as follows: (a) in regard to neural networks, the simultaneous estimation of the conditional mean and volatility through the maximization of likelihood; (b) in regard to boosting, its simultaneous application to mean and variance components of the likelihood, and the use of likelihood-based models (e.g., GARCH) as the base hypothesis rather than gradient fitting techniques using least squares. The behavior of the proposed algorithms is evaluated over simulated data and over the Standard & Poors 500 Index returns series, resulting in frequent and significant improvements in relation to the ARMA-GARCH models.

How is the market reaction to stock splits

This paper examines the market effect of stock splits on stock price, return, volatility, and trading volume around the split ex-dates for a sample of stock splits undertaken in the Spanish stock market during 1998–1999. The empirical evidence confirms a negative effect on price and return of stock splits, and the presence of a positive effect on volatility and trading volume. These results suggest that stock splits have induced the market to revise its optimistic valuation about future firm performance, rejecting signalling hypothesis according to which splits convey positive information to markets. Therefore, stock splits have reduced the wealth of shareholders.

Do Islamic Bond (Sukuk) Prices Reflect Financial and Policy Uncertainty? A Quantile Regression Approach

ABSTRACT We studied the relationship between Islamic bond (sukuk) prices and financial and policy uncertainty conditions using a quantile regression approach. Our empirical results for the period 2010–2014 show that US bond prices had a negative impact and causality effects on sukuk prices, whereas European Monetary Union bond prices only co-moved with sukuk prices. We also show that financial uncertainty had a negative effect that was limited to intermediate sukuk quantiles; moreover, sukuk prices were not affected by economic policy uncertainty or stock market returns. Therefore, although Islamic bonds are distinctive assets, their price dynamics are dependent on other bond-related asset prices and so incorporate financial market uncertainty.

Global financial crisis and dependence risk analysis of sector portfolios: a vine copula approach

ABSTRACT We use regular vine (r-vine), canonical vine (c-vine) and drawable vine (d-vine) copulas to examine the dependence risk characteristics of three 20-stock portfolios from the retail, manufacturing and gold-mining equity sectors of the Australian market in periods before, during and after the 2008–2009 global financial crisis (GFC). Our results indicate that the retail portfolio is less risky than the manufacturing counterpart in the crisis period, while the gold-mining portfolio is less risky than both the retail and manufacturing sector portfolios. Both the retail and gold stocks display a higher propensity to yield positively skewed returns in the crisis periods, contrary to the manufacturing stocks. The r-vine is found to best capture the multivariate dependence structure of the stocks in the retail and gold-mining portfolios, while the d-vine does it for the manufacturing stock portfolio. These findings could be used to develop dependence risk- and investment risk-adjusted strategies for investment, rebalancing and hedging which more adequately account for the downside risk in various market conditions.

The switch from continuous to call auction trading in response to a large intraday price movement

Some European exchanges (e.g. Euronext, Frankfurt and Madrid) make use of a mechanism to moderate price volatility that was proposed by Madhavan (1992) as preferable to a trading halt in times of market stress. It consists of a temporary switch from continuous to call auction trading in an individual security whenever its price moves beyond predetermined limits. This article studies whether this mechanism sharpens the information content of prices, dampens volatility and normalizes trading volume and intensity. Taking intraday data for the Madrid order driven continuous market, I find post switch improvements in the information content of prices and reductions in volatility, especially for thinly traded stocks. Trading volume and intensity peaked around auctions, but soon returned to preevent levels.

Topics of contemporary computational mathematics

It is our great pleasure to introduce this Special Issue of the International Journal of Computer Mathematics containing an exciting collection of computational and applied mathematics papers presented at the 10th International Conference of Computational and Mathematical Methods in Science and Engineering (CMMSE-2010), held in Almería (Spain) between 26 and 30 June 2010. This Special Issue continues a well-consolidated tradition of producing special issues for the CMMSE that dates back to 2002. The multi-disciplinary International Conference of Computational and Mathematical Methods in Science and Engineering embraces all the computational science and engineering fields. Since its inception in 2000, the novel mathematical and computational methods and applications for a wide range of disciplines – including physics, chemistry, engineering and economics – have been presented, widely discussed and disseminated within the research community. The CMMSE, which aspires to continue acting as a stimulating point of contact between different disciplines, ultimately aims to encourage new mathematical and computational insights to underpin the progress demanded by our society. The first article of this Special Issue, Multi-authority attribute-based encryption with honestbut-curious central authority, by Božović et al. [2], considers multi-authority attribute-based encryption that is capable of handling disjoint sets of attributes distributed among many authorities. Its threshold scheme based on encryption offers the same security guarantees as Chase’s proposal with the added advantage that it tolerates an honest-but-curious central authority. By assuming that the central authority is honest in the initialization phase, the indistinguishability of the encryption is guaranteed. This proposal improves on Chase’s construction by imposing a weaker assumption on the central authority without paying a high cost in terms of efficiency. The second article, Complete partial metric spaces have partially metrizable computational models, by Romaguera et al. [12], generalizes the Edalat and Heckmann construction for metric spaces by considering a complete partial metric in the domain of formal balls in a complete metric space (X, p) that extends p and induces the Scott topology. It thus introduces the notion of a partially metrizable computational model that characterizes topological spaces by admitting a compatible complete partial metric. The article by Criado et al. [4], motivated by real-life situations in social and communications networks, presents complex systems with some meso-scale structures. The clustering and the metric structures of the multilevel network described and analysed are the analytical relationships

Competition, risk taking, and governance structures in retail banking

This paper investigates the extent to which the linkages between bank performance and governance structure affect deposits market competition and risk taking incentives when commercial banks compete with organizations with objectives different from profit maximization. These organizations include savings banks whose corporate and ownership structure yields an objective function that can incorporate labour expenses. It is found that such objective function enables the savings banks to capture a greater market share of bank deposits and to take on relatively less risk in their portfolio of investments. The empirical evidence from the Spanish retail banking sector documents these conclusions.

A note on efficiency and solvency in banking

Banking competition induces an efficient outcome but may also induce risk-taking behaviour that reduces solvency. This study examines the relationship between efficiency and solvency in banking at the empirical level. The empirical findings support that greater efficiency with respect to a risk–return frontier leads to a greater solvency level, but solvency is not related to efficiency. So, an increase in banking competition generates both more efficiency and solvency.

Systemic risk of Spanish listed banks: a vine copula CoVaR approach

ABSTACT We measured the systemic impact of financial distress in a Spanish listed bank on other listed banks and on the European financial system, using conditional value at risk (CoVaR) as a systemic risk measure. We modelled multivariate dependence between listed banks using a hierarchical tree structure given by a vine copula model and, using bivariate copulas, dependence between listed banks and the European financial system. For the period January 2003 to March 2015, systemic risk dramatically increased around the time of the recent global financial crisis and, to a lesser extent, around the time of the European debt crisis. BBVA played a predominant role as it both transmitted and received systemic risk to and from the remaining listed banks. Santander played a minor role and the smallest banks, Sabadell and Bankinter, did not play any pivotal role, not even between themselves. Finally, the main systemic impact of the Spanish banks on the European financial systems originated in BBVA, Popular and Santander, with the other listed banks playing a minor role in risk transmission. These results have implications for the regulation of capital in financial institutions and for investor risk management decisions.