This article explores the global cycle hypothesis by testing whether the US stock market serves as an explanatory variable for the evolution of expansions and contractions in the UK stock market from 1922 until 2016. Alternatively, it tests an index that groups the stock markets of advanced economies to identify whether this driving force is international. Second, regarding co-movement with the US, the article explores whether its time-varying nature is contingent on the domestic and international economic policy regimes. I find evidence that there is a strong and contemporaneous co-movement between the US and UK stock markets. Additionally, through a VAR model, I identify that the movements in the UK stock market cause, in the Granger sense, changes in the index for advanced economies up to two years later. Furthermore, in the short-run co-movement between the US and UK stock markets is contingent on the macroeconomic trilemma while, in the long run, both domestic and international policy regimes affect the relationship. A final contribution is the design of a new methodology for describing the evolution of financial time series as risk-adjusted above or below average returns to different time horizons: the Local Bull Bear Indicators (LBBIs).
En décembre 1888, la Compagnie de Panama fait faillite après une année mouvementée. Quelques années plus tard, une enquête officielle permet de découvrir un vaste réseau de corruption impliquant d’éminents hommes politiques et journalistes. En raison de difficultés structurelles de financement, la société avait émis de nouveaux titres le 26 juin 1888, afin d’obtenir des liquidités. Pour s’assurer une participation massive à cette émission de titres, elle a soudoyé plusieurs journaux pour publier de fausses informations valorisantes au sujet de sa santé et de ses perspectives financières. À l’aide de données sur la couverture moyenne et la position des médias concernant la Compagnie, nous nous demanderons si la campagne de presse massive menée pour soutenir l’émission du 26 juin a eu un impact sur le comportement des investisseurs. Nos conclusions indiquent que les investisseurs ont réagi de manière contre-intuitive et ont vendu leurs actifs à mesure que la société bénéficiait d’un traitement médiatique de plus en plus positif. Ces résultats ouvrent un champ à de futures recherches sur les activités de délits d’initié et sur la quantité d’informations entre les mains des investisseurs à la Bourse de Paris.
This paper presents a new non-parametric methodology for the description of the evolution of the asset cycle in the stock market. It uses the empirical distribution of the data; in particular the structures of the tails of return distributions to build BoomBust Indicators (BBI) that describe whether a given market is a bull or a bear. These indicators, for three different time horizons, perform better than the usual binary sequence of financial crises because they measure both direction and intensity, they have stronger variability than a binary variable, they are strongly associated to the original data and keep some of its underlying characteristics such as serial autocorrelation, and they identify at least the same bull and bear markets as other methodologies. There is no evidence that favors one of the BBI specifications above the others.JEL Codes: C14, E32, E44, G01, N2.
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