The effects of global excess liquidity on emerging stock market returns: Evidence from a panel threshold model

Brana, Sophie; Prat, Stéphanie

doi:10.1016/j.econmod.2015.06.026

Cited by 34 publications

(18 citation statements)

References 40 publications

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“…Because the central bank is the liquidity provider at the end (Garcia‐de‐Andoain, Heider, Hoerova, & Manganelli, 2016), such an empirical exercise allows to unravel liquidity conditions in the system with more precision and to identify whether liquidity matters for the stock market. In that way, our study contributes to the strand of literature that provides a link between liquidity and financial markets (Bernanke & Kuttner, 2005; Brana & Prat, 2016; Nyborg & Östberg, 2014). In addition, our study employs daily data, which help in capturing more information and better return predictability (Bollerslev & Wright, 2001; Narayan, Narayan, & Sharma, 2013; Narayan & Sharma, 2015).…”

Section: Introductionmentioning

confidence: 63%

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Central bank's money market operations and daily stock returns

Chundakkadan

Sasidharan

2019

Int. J Fin Econ

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The objective of this paper is to examine the relationship between the central bank's daily money market operations in the form of Term Repo and Term Reverse Repo operations on stock returns using daily data. Unlike earlier studies, we use two new monetary measures, namely, Repo Spread and Reverse Repo Spread. Controlling for firm‐specific factors and time dummies and addressing endogeneity issue, we show that the central bank's money market operations have a significant effect on daily returns. Further, we also observe that the inclusion of these monetary variables improves the prediction of the stock returns.

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Section: Introductionmentioning

confidence: 63%

“…33Hamburger and Kochin (1972), Chudik and Fratzscher (2011), Florackis, Kontonikas, and Kostakis (2014), and Brana and Prat (2016) are the other studies that argue a positive relationship between liquidity and stock prices in both advanced and emerging economies.…”

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confidence: 99%

Central bank's money market operations and daily stock returns

Chundakkadan

Sasidharan

2019

Int. J Fin Econ

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“…Kiendrebeogo (2016) has also shown that the US Fed has exerted greater effects in terms of net portfolio flows on emerging economies than on developed economies. Furthermore, Brana and Prat (2016) demonstrated that excess capital flows affect stock prices in emerging markets in a positive direction. Fratzscher et al (2017) revealed that non-conventional US monetary practices affected Emerging Market Economies (EMEs) only modestly.…”

Section: Literature Reviewmentioning

confidence: 99%

Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices

Papadamou

Kyriazis

2019

JRFM

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In this paper, we study spillover effects on the stock markets of six African and nine Middle Eastern emerging economies before, during, and after the implementation of unconventional monetary policies by the United States Federal Reserve (US Fed). Weekly data covering the pre-quantitative easing (pre-QE) period, the three phases of QE, and the QE-tapering period were adopted. The methodologies employed here for detecting dual causality were as follows: classical, dynamic, and time-varying Granger causality tests. The results indicate that the Fed’s non-conventional actions weakened the Fed’s monetary policies’ impact on the stock indices of these emerging countries. Interestingly, there is evidence that two African and three Middle Eastern countries—all different according to each of the specifications used in the methodology—were affected by the tapering of unconventional US monetary practices.

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“…These results are consistent with Rey (2015) and Bruno and Shin (2015) who found a negative relationship between the global financial cycle and credit growth. In addition, Brana & Prat (2016) found empirical evidence of the impact of global liquidity excess on equity prices by using threshold panel models for 17 developing countries. The excess global liquidity reflects the global financial cycle and the VIX index is used as a measure of global investor sentiment.…”

Section: Empirical Studiesmentioning

confidence: 99%

“…Meanwhile, global financial factors can also be linked to US monetary policy conditions through risk-taking. Brana & Prat (2016) studied the importance of global risk aversion in transmitting global financial fluctuations in the financial markets of EMEs. Excess liquidity as a result of loose monetary policy will affect the return on equity depending on risk aversion behavior of foreign investors.…”

Section: Empirical Studiesmentioning

confidence: 99%

Asean Credit Growth and Asset Price Response to Global Financial Cycle

Andaiyani¹,

Falianty²

2017

BEMP

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An upsurge and volatility of capital flows to Emerging Asian Economies indicated that there is the potential effect of global financial cycle to emerging market. It provides an overview of investor risk aversion in short term investment after financial crisis 2008. Global financial cycle could have a significant impact not only to credit growth but also asset prices, including equity prices and property prices. Rey (2015) has triggered an interesting discussion about global financial cycle. She found that there was a global financial cycle in capital flows, asset prices and credit growth. This cycle was co-moves with the VIX, a measure of uncertainty and risk aversion of the markets. Therefore, this study attempts to analyze empirically global financial cycle shocks, measured by the VIX, on credit, equity prices and property prices in ASEAN-4, namely Indonesia, Malaysia, Singapore, and Thailand. We estimate quarterly frequency data from Q1 1990 to Q2 2016 with Panel Vector Autoregressive (PVAR) approach. The result of this study showed that the response of asset markets and credit to global financial cycle shocks is negative. This result is consistent with ASEAN-4 as small open economies that remain vulnerable to the global factor. This study contributes to the literature in several ways. First, we identify not only cyclical expansions orcontraction in asset markets but also the impact of global financial cycle to credit growth and asset markets in ASEAN-4 countries. Second, we also identify the pattern of cycle in ASEAN-4 countries. Third, we used PVAR approach that can capture heterogeneity.

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The effects of global excess liquidity on emerging stock market returns: Evidence from a panel threshold model

Cited by 34 publications

References 40 publications

Central bank's money market operations and daily stock returns

Central bank's money market operations and daily stock returns

Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices

Asean Credit Growth and Asset Price Response to Global Financial Cycle

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