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Using textual analysis and comparing cybersecurity-risk disclosures of firms that were hacked to others that were not, we propose a novel firm-level measure of cybersecurity risk for all US-listed firms. We then examine whether cybersecurity risk is priced in the cross-section of stock returns. Portfolios of firms with high exposure to cybersecurity risk outperform other firms, on average, by up to 8.3% per year. At the same time, high-exposure firms perform poorly in periods of high cybersecurity risk. Reassuringly, the measure is higher in information-technology industries, correlates with characteristics linked to firms hit by cyberattacks, and predicts future cyberattacks.
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It is shown how the frequency of central bank intervention in financial markets can affect the incentives for economic agents to acquire information, which will be reflected in market prices and thus become available to policy makers. The optimal frequency of intervention, and therefore the optimal interest rate variability, will balance the desirability of attaining given operational targets against the benefits of encouraging informational efficiency. The ability of the central bank to send clear signals of its own intentions will also depend on market informational efficiency.
Banks and Banking --- Finance: General --- Monetary Policy --- Information and Market Efficiency --- Event Studies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Banking --- Finance --- Money markets --- Banks and banking --- Money market
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Using company-level data, this paper examines the relative stock-market performance of firms with different foreign-exchange exposures around the time of the 1994/95 Mexican crisis. Contrary to what one might have expected given the alleged peso overvaluation, exporting firms outperformed the market beginning in late 1993. Although interest rates fail to show a clear confidence loss in the exchange rate regime, the relative performance of net exporters suggests that expectations of devaluation increased continuously. The methodology presented is relevant beyond the Mexican case: sectoral differences in stock market performance may constitute valuable leading indicators of exchange rate changes in emerging markets.
Exports and Imports --- Finance: General --- Foreign Exchange --- Financial Markets and the Macroeconomy --- Open Economy Macroeconomics --- Information and Market Efficiency --- Event Studies --- General Financial Markets: General (includes Measurement and Data) --- Trade: General --- Currency --- Foreign exchange --- Finance --- International economics --- Exchange rates --- Stock markets --- Exchange rate adjustments --- Exchange rate arrangements --- Exports --- Financial markets --- International trade --- Stock exchanges --- United States
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Since the Australian dollar was floated in December 1983, the Australian central bank (Reserve Bank of Australia) has actively intervened in the foreign exchange market. Using daily exchange rate and official intervention data from January 1984 to December 2001, this paper examines what effects, if any, foreign exchange operations by the Reserve Bank of Australia (RBA) have had on the level and volatility of the Australian dollar exchange rate. First, using an event study we evaluate the effectiveness of intervention by examining its direct effect on the level of the exchange rate. We find that over the period 1997-2001, the RBA has had some success in its intervention operations, by moderating the depreciating tendency of the Australian dollar. Second, we investigate the effects of RBA intervention policies on exchange rate volatility over the floating rate period. Our results indicate that intervention operations tend to be associated with an increase in exchange rate volatility, which suggests that official intervention may have added to market uncertainty. Overall, the effects of RBA intervention are quite modest on both the level and the volatility of the Australian dollar exchange rate.
Finance: General --- Foreign Exchange --- Money and Monetary Policy --- Information and Market Efficiency --- Event Studies --- International Financial Markets --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Finance --- Monetary economics --- Exchange rates --- Currency markets --- Exchange rate adjustments --- Currencies --- Foreign exchange intervention --- Financial markets --- Money --- Foreign exchange market --- Australia
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Within a broad framework for analyzing portfolio capital flows to developing countries, the paper undertakes a comparative analysis of equity markets in six Middle Eastern countries. The analysis, based primarily on a range of quantitative indicators, identifies the principal characteristics of these markets, including relative to international comparators, and examines associated structural features. This, along with an analysis of the informational efficiency of selected markets in the region, provides a basis for the subsequent review of policies for enhancing the role of equity markets in the macroeconomy of Middle Eastern countries.
Finance: General --- Investments: Stocks --- Information and Market Efficiency --- Event Studies --- International Financial Markets --- Comparative Studies of Particular Economies --- General Financial Markets: General (includes Measurement and Data) --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Finance --- Investment & securities --- Stock markets --- Emerging and frontier financial markets --- Stocks --- Capital markets --- International capital markets --- Financial markets --- Financial institutions --- Stock exchanges --- Capital market --- Financial services industry --- Jordan
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The relationship of stock returns and trading volume is the focus of much recent interest. I examine an economic model of a rational trader who operates in a market with transactions costs and noise trading. The level of trading affects the rational trader’s marginal cost of transacting; as a result, trading volume is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a simple way to scrutinize this relationship empirically. Empirical evidence supports the implications of the model.
Econometrics --- Investments: General --- Investments: Stocks --- Macroeconomics --- Information and Market Efficiency --- Event Studies --- Macroeconomics: Consumption --- Saving --- Wealth --- Price Level --- Inflation --- Deflation --- Estimation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Investment --- Capital --- Intangible Capital --- Capacity --- Econometrics & economic statistics --- Investment & securities --- Consumption --- Asset prices --- Estimation techniques --- Stocks --- Return on investment --- Economics --- Prices --- Econometric models --- Saving and investment
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Several transition countries have experienced strong real exchange rate appreciations. This paper tests the hypothesis that these appreciations reflect underlying productivity gains in the tradable sector. Using panel data over the period 1993-98, the results show clear evidence of productivity-driven exchange rate movements in the central and eastern European and Baltic countries. Transition countries, particularly the EU accession countries that have begun to catch up, can expect to experience further productivity-driven real exchange rate appreciations. Evidence from a large cross-section of non-transition countries indicates that catching up by one percent will be associated with a 0.4 percent real appreciation.
Foreign Exchange --- Production and Operations Management --- International Finance: General --- Information and Market Efficiency --- Event Studies --- International Financial Markets --- Socialist Institutions and Their Transitions: Financial Economics --- Macroeconomics: Production --- Currency --- Foreign exchange --- Macroeconomics --- Real exchange rates --- Productivity --- Real effective exchange rates --- Exchange rates --- Industrial productivity --- Production --- Russian Federation
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The paper documents institutional reforms that have taken place in the government debt markets of many industrial countries since the early 1980s, and investigates the impact of three key changes: (i) the move from relationship financing to market funding; (ii) the introduction of options; and (iii) the introduction of futures. Variance ratio tests on bond data for 14 industrial countries indicate that the move to market funding increased the volatility of bond yields and improved the informational efficiency of the secondary markets. The introduction of options and futures increased the informational efficiency of the underlying market, but did not have a stabilizing effect.
Finance: General --- Investments: Bonds --- Investments: Futures --- Investments: Options --- Debt --- Debt Management --- Sovereign Debt --- General Financial Markets: General (includes Measurement and Data) --- Information and Market Efficiency --- Event Studies --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Finance --- Investment & securities --- Futures --- Sovereign bonds --- Options --- Stock markets --- Bond yields --- Financial institutions --- Financial markets --- Derivative securities --- Bonds --- Stock exchanges --- France
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Is the stock market responsive to macroeconomic news? This paper employs the daily returns of the Dow Jones Industrial Index, the S&P 500 index, the Russell 1000 index, and the Russell 2000 index to examine stock market reactions to a broad list of macroeconomic announcements, including money supply, inflation, employment, housing starts, and trade balances, etc. Several announcements concerning real economic activity that have received little attention in previous research are shown to have a significant impact on stock prices. The paper also presents preliminary evidence for the different reaction to macroeconomic news by small cap stocks and large cap stocks.
Banks and Banking --- Finance: General --- Inflation --- Macroeconomics --- Industries: General --- Price Level --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Financial Markets and the Macroeconomy --- Information and Market Efficiency --- Event Studies --- Finance --- Asset prices --- Stock markets --- Discount rates --- Industrial production --- Prices --- Financial markets --- Financial services --- Production --- Stock exchanges --- Discount --- Industries --- United States
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As a result of the Asian crisis, methods of coping with volatile international capital markets have received considerable attention from observers and policymakers. It has been argued that the imposition by Chile of a nonremunerated reserve requirement on external borrowing played a useful role in the smooth liberalization of its capital account by allowing Chile to deal effectively with short-term capital inflows and thus to reduce its vulnerability to external shocks, and that such measures should be adopted by other countries. In light of this, this paper reviews Chile’s experience in managing capital flows and draws lessons for policymakers.
Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Current Account Adjustment --- Short-term Capital Movements --- Information and Market Efficiency --- Event Studies --- Investment Banking --- Venture Capital --- Brokerage --- Ratings and Ratings Agencies --- International Investment --- Long-term Capital Movements --- Monetary Policy --- International economics --- Monetary economics --- Currency --- Foreign exchange --- Reserve requirements --- Capital controls --- Capital inflows --- Exchange rates --- Capital flows --- Monetary policy --- Balance of payments --- Capital movements --- Chile
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