The conditional impact of market conditions, volatility and liquidity shocks on the arbitrage opportunities during pre-COVID and COVID periods

The study examines the effects of market conditions, volatility and liquidity shocks on the arbitrage profits during pre-COVID and COVID periods. The study uses a conditional quantile regression and finds no significant difference in the impact of market conditions on the arbitrage profits during pre-COVID and COVID crisis periods. The increase in volatility combined with low liquidity during the COVID period makes arbitrage non-viable. However, the decline in volatility during the COVID period encourages investors to initiate arbitrage. The results are useful to fund managers and market analysts to develop suitable trading strategies and stock market regulators to take necessary steps to improve price discovery mechanisms and market efficiency. © 2023 John Wiley & Sons Ltd.

Pass-through Effects of Oil Prices on LATAM Emerging Stocks before and during COVID-19: An Evidence from a Wavelet-VAR Analysis

Vector Auto regression model (VAR) a time-varying parameter is applied to study the effect of oil price shocks on the returns of stocks in the LATAM (Latin American) markets. Coherent Wavelet analysis highlights possibilities of connectedness of the oil price and LATAM stock markets through the presence of different patterns in a time series. The structural demand shocks standard deviations during the COVID-19 era remain high and the pass-through effects on stock returns due to oil prices differ for different time frames. The fundamental linkages are demonstrated due to oil market specific demand. The main motive of the research work is to identify the influence of oil price on stocks and identify the fundamental source of contagion.A random effects model is applied to the panel data of LATAM markets with the Global stock market index, MSCI (Morgan Stanley Capital International World Index), domestic money market rates and currency exchange rates during the period of study, 15 March 2019 to 31 July 2021 with 684 observations of controlled non-observed characteristics from individual country. The findings of this research recommend the pass-through effect of the oil prices on the stock market returns are based on time frequency. The contribution of this paper helps the policy makers to restore the confidence amongst the investors in the stock markets and strategies to be adopted by the investors to mitigate the risk by ideal portfolio management. © 2023, Econjournals. All rights reserved.

Whether corporate green bonds act as armour during crises? Evidence from a natural experiment

Purpose The present study examines the rationale behind the increased global presence of corporate green bonds as a green financing tool to facilitate sustainable practices and eco-friendly investing. The authors investigate the intriguing question of whether the companies that issue green bonds are valued more by investors or not, and further extend our analysis by exploring whether the green image of companies helps to minimize the value erosion during a crisis and enhance the resilience of the stocks? Design/methodology/approach To examine the association between environmental commitments and firm value, the authors use the COVID-19 crisis as an exogenous shock and create a perfect natural setting to eliminate the endogeneity bias from our estimations. Moreover, the authors use propensity score matching to choose a one-to-one match of green bond firms with a larger pool of brown bond firms and eliminate the "size effect" arising out of the disproportionate sample size of green and brown bond firms. Findings The results of the study indicate that green bond firms are valued more by investors compared to brown bonds firms. Hence, green bond issuance acts as a strong signal of a firm's environmental commitment and it is well recognized by the investors. One of the possible reasons for a higher value of green bond firms may be due to their ability to arrest value erosion during environmental shocks. The authors could not find any difference in the resilience of green and brown bond firms. Originality/value The study contributes to the growing literature in the area of impact investing, specifically on exponentially growing innovative instrument green bond. Our study integrates two areas of research, i.e. corporate finance and impact investing by examining the impact of green bond issuance on firm value and stock market returns. The results would help environmentally sensitive investors to devise their investment portfolios more efficiently.