The Bank of Japan's exchange traded fund purchases: a help or hindrance to market efficiency?

We examine the impact of the Bank of Japan's exchange traded fund (ETF) purchases on two aspects of market efficiency—long-range dependence and price delay—of the TOPIX and Nikkei 225 indices. An increase in ETF purchases results in lower long-range dependence for both indices while the impact on the price delay varies according to index and measure. A sub-period analysis shows that the impact on market efficiency varies over time, with the dominant pattern being a delayed harmful effect, followed by a positive impact and thereafter a negative effect. The implications of these findings are discussed.

Sukuk and bond dynamics in relation to exchange rate

PurposeThis study aims to contribute by expanding the existing literature on Sukuk return and volatility and exploring the implications of the Sukuk-exchange rate interactions.Design/methodology/approachThis study examines the dynamic interactions of Sukuk with exchange rate in 15 countries, employing the Wavelet approach that considers both time and investment horizons.FindingsThe results reveal significant evolving coherence of Sukuk return and volatility with the underlying exchange rate. The relationship is more potent than what this study witnesses in their counterpart bond market. For Sukuk returns, the coherence is negative, whereas it is positive for volatility. Notably, the coherence is strong in the medium to long term and intensifies during extreme economic episodes, especially during the COVID-19 pandemic. These findings are further validated by comparing firm-level matched data for Sukuk and conventional bond.Originality/valueTo the best of the authors' knowledge, this is the first study that reports the dynamic relationship of Sukuk return and volatility with the underlying exchange rate in 15 countries. Collectively, this study unites valuable insights for faith-based active Islamic investors and cross-border portfolio managers.

(COVID-19)-Induced Flight to Quality

During crises, investment re-allocation from risky to safe assets, constitutes a flight to quality market environment. This study investigates the flight to quality in Thailand from risky stocks to safe government bonds. It describes returns using the modified, conditional regression model, and extracts the unobserved abnormal returns using the Kalman filtering technique. Estimates of abnormal returns were used in tests for the Granger causality of stocks to bonds, and for investigating the significance of the contributions of abnormal returns to a decreasing correlation. Flight to quality implies these test hypotheses. The data are returns representative of stocks listed on the Stock Exchange of Thailand and of bonds registered on the Thai Bond Market Association. The full period runs from August 28, 2018 to June 30, 2020, whereas the COVID-19 period covers November 18, 2019, to June 30, 2020. The return correlation in the COVID-19 period is more negative than that in the pre-(COVID-19) period. Stocks Granger cause bonds. The contribution share of COVID-19 to the falling correlation is 89.2080%. While the joint Wald-test for the non-significance of COVID-19's contributing correlations yields a p-value of 0.1144, the impulse response analyses suggest that they are all significant. Thailand has experienced flight to quality during the COVID-19 crisis.

Information and volatility linkages between real estate, equity, bond and money markets in Australia

PurposeThe purpose of this paper is to examine information and volatility linkages among real estate, equity, bond and money markets in Australia.Design/methodology/approachA novel rational expectations framework of financial contagion (Kodres and Pritsker, 2002), along with a combination of robust statistical methods including simple and dynamic correlations and generalized impulse response (Fereidouni et al., 2014) have been employed using data covering three dynamic pre-pandemic economic cycles, namely, global financial crisis (GFC) period, pre-pandemic housing boom and pre-pandemic housing downturn from 2008 (February) to 2019 (December).FindingsResults reveal information linkages across real estate, equity, bond and money markets through correlations in return and volatilities of these series. Finding indicates that the three financial markets (equity, bond and money markets) are interdependent and integrated through information and volatility linkages during the GFC period and pre-pandemic housing downturn period. Financial markets have stronger associations with real estate market during pre-pandemic housing boom. The findings contribute to the general notion that the performances of three financial markets are closely related to the "boom” phase of the real estate cycle.Originality/valueThis research provides an extension of existing literature regarding the information and volatility contagion of the expanded set of core investment markets in Australia. The findings could assist household buyers and investors in designing strategic investment portfolios/hedging strategies and minimizing asset specific risks through diversification over short-term and long-term. In addition, results could support the maintenance, growth and development of a combination of competitive balanced investment markets including real estate, equity, bond and money markets in post-pandemic economy.

Are government bonds still safe havens in the context of COVID-19?

This study analyzes whether government bonds can act as safe havens in the context of COVID-19. Using a panel fixed effect model, data were collected for both advanced and emerging market economies from March 11, 2020, to June 30, 2021. Robustness tests were used to add to the credibility of the findings. Our evidence supports that government bonds maintained their safe haven status during the COVID-19 pandemic. Hence, investors can still use government bonds to hedge financial market risks in the uncertain environment associated with this pandemic. Additionally, the negative effects of the COVID-19 pandemic on government bond yields in emerging economies are larger than in advanced economies. Therefore, policymakers' measures should focus on reducing COVID-19 cases to alleviate panic and diminish economic fluctuations, especially for emerging economies. Regulators can also use short-term interest rates to guide market capital flow to avoid a liquidity crisis, reducing financial stress and market uncertainty. © 2021 Informa UK Limited, trading as Taylor & Francis Group.

Causal Relationships of the Stock Market with other Asset Classes: An Indian Perspective

The recent decade has seen a rapid rise in risk assets. Stocks, commodities, and cryptocurrencies have exploded to the upside. Global central banks have maintained interest rates at record low levels following the COVID-19 crisis. This has further acted as tailwinds for risky assets. With asset classes being increasingly interlinked with each other, useful information can be gained by studying these inter-relationships. This paper looks at the interrelationships between the Indian stock market Nifty index and some key asset classes such as Gold, Crude oil, short-term and long-term Indian government bond yields, the USD/INR exchange rate, and the cryptocurrency Bitcoin for the period January 2011 to December 2020. Co-integration analysis suggests the absence of long-run relationships between the Nifty and the asset classes studied. Granger causality analysis reveals bi-directional causality between Nifty and USD/INR and Crude oil returns. Gold returns, Bitcoin returns, and changes in short and long-term government bond yields uni-directionally granger-caused Nifty returns. Impulse response analysis reveals that shocks in each of the independent variables caused a shock in the Nifty that persisted for 1 to 3 weeks. Traders in the Nifty can monitor these shocks and accordingly fine-tune their strategies for possible moves in the Nifty. © 2022 ACM.

FINANCIAL CRISIS AND THE GLOBAL TRANSMISSION OF U.S. MONETARY POLICY SURPRISES

Daily variations in government bond yields and foreign exchange spot rates for 46 countries on FOMC meeting days show that the influence of U.S. monetary policy surprises intensified after the financial crisis. Keywords: financial crisis, monetary policy, interest rates, exchange rate JEL Classification Codes: E43, E52, F31 I. Introduction The COVID-19 pandemic forced the Federal Reserve (Fed) to cut the Fed Funds rate to zero and launch a new round of quantitative easing (QE). Using daily variations in government bond yields and foreign exchange spot rates for 46 sample countries on FOMC meeting days, I find that the global influence of U.S. monetary policy surprises intensified after the financial crisis: When taking into account exchange rate regimes (hard pegs, soft pegs, managed float, and free float), I find that free-floating arrangements lead to the larger responses to U.S. monetary policy surprises.

Impact of Global and Domestic Economic Variables on 10-Year Indian Government Bond Yield: An Empirical Study

Many research studies related to the impact of monetary policy and macroeconomic variables have already been conducted, but studies on combining this with global factors and its shocks are very few. To fill this research gap, the paper tries to find out the combined effect of global factors, macroeconomic variables, and monetary policy on 10-year Indian government bond yield using Structural Vector Autoregression (SVAR) and Autoregressive Distributive Lag (ARDL) model. This paper is designed to analyze the impact of various variables on 10-year Indian government bond yield, in the context of its continuous exposure to global factors like oil price shocks and changes in macroeconomic variables. The empirical findings, based on monthly data relating to the period January 2001 to April 2021, suggest that monetary policy has had a considerable impact on bond yields over a long-term horizon, which appears to be consistent with the prevailing Keynes theory. However, the output has the least impact on bond yield. This may be because the monthly data that is used in the study restricts to use GDP. Hence the Index of Industrial Production (IIP) data is used. Further, inflation shocks increase bond yields and global factors like oil price shocks have detrimental effects on bond yields for a long-time horizon of 24-36 months, whereas an increase in the 10-year US government bond yield results in an increase in 10-year Indian government bond yield.

Guest editorial: Green and energy efficiency finance

Improving energy efficiency through new investments requires focused and aggressive policies that support green innovation through more stringent energy efficiency regulations, fiscal incentives for new technologies, investment incentives for the private sector and pricing greenhouse gas (GHG) emissions. Since 2015, global improvements in energy intensity, a key measure of the economy’s energy efficiency, have been declining. In the fourth paper, Ngo et al. analyze the impact of green finance (i.e. green investment, green security and green credit) along with capital formation and government educational expenditures on the economic development of the Association of Southeast Asian Nations (ASEAN) member countries. In the fifth paper, Tran examines the relationship between green finance, economic growth, renewable energy consumption and CO2 emission in Vietnam using multivariate time series analysis.

Workhorse or Trojan Horse? The Alternative Risk Premium Conundrum in Multi-Asset Portfolios

Diversified alternative risk premium (ARP) portfolios seek to generate absolute returns using a broad range of systematic trading strategies incorporating multiple investment styles covering all the major asset classes. Against a backdrop of low developed market bond yields and fully valued equities, ARP offered a reasonably priced combination of low correlation with traditional asset classes, attractive expected Sharpe ratio, and reasonable liquidity. Following a period of rapid adoption, disappointing performance over the 2018–2020 period has produced considerable soul searching regarding the role of ARP in institutional portfolios. Should these strategies remain a candidate for multi-asset portfolios, or is the experience of the past years a death knell regarding their usefulness? To examine this very topical issue, in this article, the authors use a unique array of benchmarks leveraging a proprietary database of 2,000 tradable bank indexes. They evaluate whether recent returns are consistent with long-term expectations. In the process, they consider the extent to which unique environmental headwinds and a lack of true breadth across ARP strategies contributed to this outcome.

Is quantitative easing good policy?

This paper asks whether the suite of unorthodox monetary policies (including quantitative easing, or QE) really make sense in the presence of a global liquidity trap. It finds that QE-type policies are an expedient remedy for short-term crisis management, but their ongoing and expanded use have distorted global markets and will have significant dynamic efficiency costs over the next decade. The alternative is for discretionary fiscal policy to play a bigger role in stabilisation, with monetary policy left to accommodate. Both policies should be operated by a single agency accountable to the electorate.

Pandemic recession and helicopter money: Venice, 1629–1631

We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629–31, which was equivalent to a ‘net-worth helicopter money’ strategy – a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.

Does economic policy uncertainty matter to explain connectedness within the international sovereign bond yields?

This paper examines the determinants of the dynamic connectedness between sovereign bond yields in a sample of G7 countries. In addition to the common macroeconomic factors, we focus on the impact of Economic Policy Uncertainty (EPU) on the dynamic connectedness patterns between bond yields. To this end, we first examine the full-sample connectedness among the seven bond yields and examine various features of connectedness using a measure recently proposed by Diebold and Yilmaz (Int J Forecast 28(1):57-66, 2012). To examine the determinants of the dynamic connectedness, we use the panel data model to consider the dynamic net connectedness between the considered bond yields as the endogenous variable. Overall, being the transmitter or recipient of spillovers appears to have independent and different influences depending on each of the two types of sovereign bond yields. Also, the findings support the idea that EPU can create an environment likely to exacerbate the transmission of spillover shocks between two-year sovereign bond yields. Conversely, on the whole, EPU does not appear to affect the connectedness of thirty-year sovereign bond yields in various bond markets. The findings also reveal the significant impacts of real output on how shocks across countries manifest in different ways.

Risk Evaluation on China Government Bonds with EWMAVaR and SVM Methods

This research studies the strategy of risk evaluation of China government bonds with the latest data. The angle of evaluation focuses on the interest rate and the stability risk, employing the EWMAVaR and SVM methods. The weights of each risk indicator are determined by the entropy method. Experimental results show that the risk of government bonds is stable in recent years. However, the impact of COVID-19 cannot be ignored because the risk level increased in the year 2020. The issuing of one trillion special antipandemic bonds could explain the fluctuation of the market because the fiscal incomes of Chinese government decreased in 2020 and could not be recovered in a short time. The experimental results show that the method proposed in this paper has a better performance than the existing methods, and it can help well in realizing the risk assessment of government bonds.

Term spreads and the COVID-19 pandemic: Evidence from international sovereign bond markets.

We explore the impact of the COVID-19 pandemic on the term structure of interest rates. Using data from developed and emerging countries, we demonstrate that the expansion of the disease significantly affects sovereign bond markets. The growth of confirmed cases significantly widens the term spreads of government bonds. The effect is independent of government policy and monetary responses to COVID-19 and robust to many considerations.