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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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Over nearly a quarter of a century, ETFs have become one of the most popular passive investment vehicles among retail and professional investors due to their low transaction costs and high liquidity. By the end of 2016, the market share of ETFs topped over 10% of the total market capitalization traded on US exchanges, while representing more than 30% of the overall trading volume. ETFs revolutionized the asset management industry by taking market share from traditional investment vehicles such as mutual funds and index futures. Because ETFs rely on arbitrage activity to synchronize their prices with the prices of the underlying portfolio, trading activity at the ETF level translates to trading of the underlying securities. Researchers found that while ETFs enhance price discovery, they also inject non-fundamental volatility to market prices and affect the correlation structure of returns. Furthermore, ETFs impact the liquidity of the underlying portfolios, especially during events of market stress.
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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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This paper surveys the debate on arms-length and relationship-based financial systems with a special focus on the Eastern Europe and Central Asia region. The paper argues that while the initial dominance of relationship-based systems in the region is consistent with the implications of the theoretical literature, the subsequent improvements in supporting institutions coupled with structural changes suggests a greater scope for arms-length elements going forward.
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This paper surveys the debate on arms-length and relationship-based financial systems with a special focus on the Eastern Europe and Central Asia region. The paper argues that while the initial dominance of relationship-based systems in the region is consistent with the implications of the theoretical literature, the subsequent improvements in supporting institutions coupled with structural changes suggests a greater scope for arms-length elements going forward.
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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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