Finance

Can social media sentiment affect stock market performance?

The boom of social media in the past decade has transformed the way investors forecast the stock market. As social media provides large volumes of real-time user opinion, investors can potentially exploit that information by leveraging machine learning and natural language processing techniques. In recent years, popular news channels have repeatedly reported that predicting the market using “alternative data”, […]

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    Understanding the international arbitration of investment disputes in Europe

Understanding the international arbitration of investment disputes in Europe

Until Donald Trump’s election campaign in 2016, it appeared as if the United States was dragging the increasingly resistant European Union into the Transatlantic Trade and Investment Partnership (TTIP). The settlement of investment disputes figured prominently among the reasons for the anti-TTIP mood in Europe. For instance, an article in the Independent in 2015 commented that “TTIP’s biggest threat […]

September 8th, 2018|Finance|0 Comments|
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    Ten years from the crash: time to row back on financial regulation and compliance?

Ten years from the crash: time to row back on financial regulation and compliance?

The collapse of Lehman Brothers on 15 September 2008 was the most significant single event of the ‘Great Financial Crisis’ (GFC). In his new book, Crashed, Adam Tooze writes that, “After September 15, 2008, avoiding another Lehman became an idee fixe of crisis managers around the world.” And since then one of the fastest-growing activities in the US and the […]

September 3rd, 2018|Economics, Finance|0 Comments|
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    Climate change poses risks to the financial system. How can central banks deal with them?

Climate change poses risks to the financial system. How can central banks deal with them?

Climate change poses risks to the financial system. Yet our understanding of these risks is still limited. As we explain in a recent paper, central banks and financial regulators could contribute to the development of methodologies and modelling tools for assessing climate-related financial risks. If it becomes clear that these risks are substantial, central banks should consider taking them […]

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    How the media influence investors’ reactions to corporate misconduct

How the media influence investors’ reactions to corporate misconduct

What happens to corporations that misbehave? Are they all punished? Are they all punished in the same way? Despite the cases that attract significant media attention and the potential legal consequences of misconduct, there is no guarantee that all corporations that misbehave will face the same punishment (or even any punishment).

One of the more visible types of punishment, and […]

August 9th, 2018|Finance|0 Comments|
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    Don’t dismiss the possibility of a cut in the Bank of England’s policy rate

Don’t dismiss the possibility of a cut in the Bank of England’s policy rate

Bank of England’s policymakers have unanimously voted to raise the policy rate from 0.5 per cent to 0.75 per cent. The hike, which was widely anticipated by the financial markets, made critics of Bank of England Governor Mark Carney rethink their accusations that the Governor behaves like an “unreliable boyfriend” in the sense that he keeps hinting an interest rate […]

August 4th, 2018|Finance|0 Comments|
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    The 1971 UK banking deregulation had a positive effect on firms

The 1971 UK banking deregulation had a positive effect on firms

Starting in the 1970s, various countries deregulated their banking systems and abandoned the strict rules that governed financial institutions since the Great Depression. Deregulation was intended to increase competition in the credit market, improve consumers’ welfare but it has been indicated by many observers to be at the roots of the 2008 financial crisis. Despite the large interest in […]

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    How Norway’s sovereign wealth fund protected UK jobs after the 2008 crisis

How Norway’s sovereign wealth fund protected UK jobs after the 2008 crisis

Sovereign Wealth Funds (SWFs) are investment funds set up by national governments as a means of saving – potentially across generations – a proportion of foreign exchange inflows, typically as a result of windfalls from natural resources, but also, in some circumstances, from manufactured goods export booms and/or even agricultural surpluses. They may also serve as a stabilisation device […]

June 27th, 2018|Finance|0 Comments|
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    Two corporate governance mechanisms: activism and hostile takeovers

Two corporate governance mechanisms: activism and hostile takeovers

Hostile takeovers have long been considered the quintessential disciplinary governance mechanism. A similarly confrontational strategy has lately come to prominence by way of activist hedge funds that buy into poorly run firms and use the threat of hostile tactics to pressure management into accepting specific proposals to improve shareholder value.

Our paper compares these two governance mechanisms within a unified framework where any outside investor […]

Tackling non-performing loans in the euro area

The European Commission is increasing its pace towards completing the European Banking Union. A European Deposit Insurance Scheme (EDIS) should be the Banking Union’s third pillar. Germans are very sceptical of EDIS, in part because Germany has never had a single deposit insurance scheme. Instead, cooperative banks, savings banks and private banks administer their own deposit insurance systems without […]

May 30th, 2018|Finance|0 Comments|
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    The quality of financial information explains why stocks and bonds co-move

The quality of financial information explains why stocks and bonds co-move

The sensitivity of corporate bond returns to changes in the value of equity is a fundamental input for portfolio asset allocation. Since imperfect correlation of asset returns is a key assumption in portfolio theory, stock-bond return co-movement is important to determine the diversification benefits of bonds, and to hedge common exposures across the two asset markets. Because bonds exhibit […]

Bond prices both reflect and influence the fundamentals

Most economists assume that bond prices merely reflect fundamental factors such as the bond’s interest rate, its face value and the likelihood that the bond issuer defaults. Bond issuers that are more likely to default will have to offer a higher interest to compensate the buyer for the higher risk.

Most economists stop here. However, for real-world bonds, it is […]

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    Private firms as global borrowers: foreign and domestic lenders need equal protection

Private firms as global borrowers: foreign and domestic lenders need equal protection

The period 1990 to 2009 has witnessed private firms being promoted as independent borrowers in the global capital market. For a sample of 85 emerging market economies, in terms of percentage measures, the private sector publicly non-guaranteed share of total external debt on average increased from less than 5 per cent in 1990 to about 17 per cent in […]

January 9th, 2018|Finance, Xiang Gao|0 Comments|

What causes asset price bubbles?

Why do asset price bubbles in real markets happen? Experimental asset markets have pursued the reasons for a long time. Our research clarifies them by distinguishing between two effects, confusion and strategic uncertainty.

The asset price bubbles observed in real markets are often regarded as irrational exuberance, as pointed by Professor Robert Shiller (Nobel laureate in 2013). However, we succeed […]

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    Why are fewer German companies choosing to join the stock market?

Why are fewer German companies choosing to join the stock market?

An article by Kathleen Kahle and René M. Stulz on LSE Business Review analyses the shrinking number of public corporations in the US. We  find this phenomenon also in Germany. In our study, we find a decline in the number of listed companies in Germany driven by a decline in initial public offerings (IPOs) and an increase in delistings:

While […]

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    A minor change in market trading rules could save taxpayers billions of dollars

A minor change in market trading rules could save taxpayers billions of dollars

Society could save billions of dollars every day if trading in commodities, energy and securities was made more competitive and efficient through a minor rule change. That is the topic of my new research paper.

Every day, auctions and exchanges around the world trade bonds, stocks, currencies, electricity, metals, commodities, securities and financial instruments worth trillions of dollars. Thus even […]

November 29th, 2017|Finance, Pär Holmberg|0 Comments|
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    Dark markets: does private information make price formation less efficient?

Dark markets: does private information make price formation less efficient?

Speaking in January 2014, Michel Barnier (then the European Commissioner for Internal Market and Services and now the Commission’s chief negotiator with the UK over Brexit) justified new rules on securities exchange, which will come into full force in January 2018, in the following way:

‘The MiFID II reform means that organised trading of financial instruments must shift to multilateral […]

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    Bubbles and crashes: A vicious cycle of self-fulfilling investor sentiment

Bubbles and crashes: A vicious cycle of self-fulfilling investor sentiment

What causes financial bubbles? Before the 2008 crisis, this question was often neglected, but after the recent meltdown of the global financial market, it has attracted renewed attention among academics and policy-makers.

Before the crisis, the majority of economists assumed that investors trade financial assets at the so-called fundamental price, which reflects the “real” economic value of companies. In fact […]

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    Tech start-ups need a different approach to financial management

Tech start-ups need a different approach to financial management

We find ourselves today at the start of an industrial revolution. There have been others of course. The first revolution happened 250 years ago. Its engine was mechanisation. Another, about a hundred years ago, was all about electrification and mass production. Then 50 years ago, electronics and automation started a third revolution.

Right now, our physical and virtual worlds are […]

Success attracts new players to private equity

Private Equity is a fringe asset class no more; it has evolved, matured and refined its way into the mainstream. Yet, I foresee major changes for the industry and, fully aware that forward-looking statements have a tendency to dramatically stray from future reality, wish to dare a glimpse of what may come.

Success spawns imitators, and businesses have started to […]