G12 - Asset Pricing; Trading Volume; Bond Interest RatesReturn

Although it is notoriously difficult to utilize financial ratios to forecast the crude oil market prices, our study challenges this perception and reveals that the second risk premium principal component analysis (RP-PCA) factor may contain statistically significant information for both in-sample and out-of-sample forecasts of future crude oil prices. Our evidence illustrates that the second RP-PCA factor substantially outperforms many other popular predictors (approximately 30 conventional predictors) in forecasting crude oil prices and generating adequate higher values of economic profits. We conduct a range of informative tests, including bootstrap simulation, success ratio tests, alternative out-of-sample evaluation periods, and structure break tests. Furthermore, we illustrate that the forecasting ability of the second RP-PCA factor may stem from its ability to forecast oil market sentiment. Our study presents a novel and indicatable financial instrument for policymakers to predict crude oil prices robustly. The theoretical motivation of this study links to Cochrane's (2005) framework for general candidate factors in asset pricing.

This paper examines the effect of company size on transaction multiples. The existence of the size effect has been investigated by a number of authors who have primarily used data for publicly traded companies for their research. Our research works with data from private transactions with non-traded companies (shares) from the EU. The transaction price concluded in these deals is decomposed into the product of profit and transaction multiple as when using market comparison valuation methods. Transaction multiples are relative types of financial metrics that typically compare various levels of profit such as EBITDA, EBIT or EAT to a value that an investor is willing to pay to acquire a given company. The objective of this paper is to confirm the hypothesis that larger companies are purchased for higher profit multiples than smaller companies. Accordingly, in the context of DCF valuation methods, higher profit multiples correspond to a lower discount rate and vice versa. However, it should be noted that despite the large amount of research conducted, the existence of the size effect is still not confirmed or refuted at present.

The study explores a relationship between divergence in ESG scores (measurements of a company's performance in environmental, social and governance issues) and excess stock returns on the European equity market. The sample consists of 851 European stocks in the period from January 2015 to May 2022. It is concluded that, despite previous findings on the US stock market, a similar effect is not observed for equities in Europe. Even though the stock portfolios with the most and the least divergent ESG scores bear excess returns, the effect disappears when it is adjusted for Fama-French factors. The effect is not relevant for any specific industry, nor does it depend on the level of ESG awareness of the issuer's country. Deeper exploration of the nature of ESG score divergence, specifically by decomposition of the individual elements of ESG scores, could further contribute to the understanding of the relationship between the quality of non-financial disclosures and stock performance.

 The aim of this study is to provide an overview of the principles of IFRS 9 implementation and to analyse its impact on the Czech banking sector. Unlike the previous IAS 39 standard, valid until the end of 2017, the new accounting rules require banks to estimate forward-looking expected credit losses (ECL) while considering relevant exposure level information as well as available macroeconomic predictions. Due to the increased complexity of the ECL models and changing macroeconomic expectations, we hypothesize that the new standard leads to increased volatility of loan loss allowances. This hypothesis is empirically tested and more or less confirmed by an analysis of the quarterly flows of allowances for a sample of large Czech banks from the years 2016-2017 under IAS 39 and from 2018-2019 under IFRS 9.

An ageing European population and, therefore, a rising dependency ratio of retirees to the working population, strongly suggests that a pension funding gap will be a key social issue in future. Yet many older people have significant real estate assets that they could access using equity release products. They could sell their assets in exchange for lifelong or temporary monthly payments. Equity release products are relatively new to Poland, but are not yet offered by commercial banks in Czechia and Slovakia. This paper estimates the potential benefits of marriage reverse annuity, and reverse mortgage contracts, using the Svensson model function, and empirical property data from selected Czech, Slovak and Polish cities. The results are also compared to the average pension of inhabitants in the selected cities. It is shown that there is substantial scope for boosting retirement income in all the cases considered, though the precise size of the increase depends on factors such as contract buyers' age and life expectancy, the value of their assets, the payment consequences of a spouse's death, and contract suppliers' pricing policies.

This paper analyses the effects of the ECB Corporate Sector Purchase Programme (CSPP) on yields of corporate sector bonds and its impact on the corporate sector's debt markets. The CSPP started as a part of an existing asset purchase programme and significantly affected corporate bond markets. Any research undertaken in this area of the ECB's respective actions is fairly limited due to the restrained access to data and its OTC nature. This paper analyses CSPP effects by using two distinct methods - a detailed regression-controlled event study and an impulse-response analysis of constructed VAR models. This study addresses questions regarding time, size and place of effects caused by the CSPP on corporate bond markets and deals in detail with related issues and related economic theory backgrounds. A series of obtained sector, country and company-specific results gives us a picture of the non-negligible impact of the CSPP on purchased bonds and of the size and persistency of stock and flow effects of the ECB's actions.

We present a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one year. The model follows the main principles of the Basel standards LCR and NSFR. Besides, the model takes into account the impact of both bank-specific and market-wide scenarios and includes second- round effects of shocks due to banks' feedback reactions. The presented methodology is then applied to a sample of Czech banks. This allows us to monitor the sensitivity of their liquidity position to the combination of shocks under consideration.

This paper examines contagion in the foreign exchange markets of three Central European countries and the euro area. Contagion is viewed as the occurrence of extreme events taking place in different countries simultaneously and is assessed with a measure of asymptotic tail dependence among the studied distributions. Currency crisis contagion is one strand of this research. However, the main aim of the paper is to examine the potential of bubble contagion. To this end the representative exchange rates are linked to their fundamentals using a cointegration approach. Given the long-time range required by cointegration testing, the variables are first tested for unit roots with structural breaks, whose existence is supported by these tests. In the sequel, the extreme values of the differences between actual daily exchange rates and their monthly equilibrium values determine the episodes associated with large departures from equilibrium. Using tools from Extreme Value Theory, we analyse the transmission of both standard crisis and bubble formation events in the examined currency markets. The results reveal a significant potential for contagion in the currency markets of Central Europe.

The aim of this article is to complement the existing economic and financial strand of the literature by defining three alternative regimes of the clean price volatility of a bond with respect to the level of interest rates in the economy. The suggested method takes into account responses to the changing nature of financial markets and allows for the possibility of observing negative interest rates. Our approach enables to find particular values of switching points between alternative regimes. After showing main theoretical steps, an investigation of the dependence of such points on key parameters of bonds is provided. An empirical illustration follows, accompanied by a discussion of theoretical and practical effects of this bond property. This approach offers both theorists and interested practitioners a way of overcoming difficulties associated with computations because of the complicated theoretical background. The results can be generalised, so that they apply both to the life of a bond and to the behaviour of a portfolio of bonds at a point of time.

The macroeconomic announcements and their effects on stock markets are considered to be a measure of stock market integration. Earlier studies show that integrated stock markets exhibit immediate reaction to international macroeconomic news, whereas partially integrated or segmented markets mostly do not react to such announcements. This paper investigates the effect of surprises disguised in the macroeconomic announcements made by the European Monetary Union on CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) stock markets. Daily stock market data starting from January 1, 2007 to December 31, 2012 is analysed. The impact of macroeconomic announcements is estimated by using EGARCH model. The results show that the returns of four out of six CIVETS stock markets significantly react on the day of macroeconomic announcements, whereas the market volatility of all markets is affected due to the EMU's announcements. The results also show that not all types of announcements have significant impact on returns and volatilities in CIVETS, highlighting the importance of the contents of macroeconomic surprises.

This paper investigates the dynamic conditional correlation (DCC) between stock returns and exchange rate in four East European emerging markets. Due to persistent long memory and the presence of the asymmetric effect in all asset markets we applied DCC-FIAPARCH model. The estimated negative DCC parameters in all scrutinized countries confirmed that portfolio-balanced theory has predominance in the short run in all selected economies. DCC parameters revealed significant time-varying behaviour, especially during the major crisis periods. By embedding dummy variables in the variance equations, we came to the conclusion that global shocks affect the volatility of DCCs. Particularly, it happened during the Global Financial Crisis and European sovereign debt crisis, but the effects were not linearly equal in all countries. Complementary rolling analysis unveils how conditional volatilities of analysed assets influence DCC. The results suggested that exchange rate conditional volatility has higher influence on DCC than stock conditional volatility.

The study attempts to assess the effects of lifting short sale restrictions on the Warsaw Stock Exchange in terms of futures pricing efficiency. The approach implemented in the article involves evaluation and comparison of the mispricing series of the WIG20 index futures listed on the WSE, in a one-year time span before and after the regulatory change introduced in 2010. The results show that lifting short sale constraints has increased the efficiency of the Polish futures market. There was a decline both in the number of mispricing occurrences, and in the mean level and dispersion of deviations from the fair values, especially with regard to underpriced contracts series. The study reveals that, in contrast to the pre-event period, after the regulatory change the arbitrage opportunities were virtually absent for investors bearing the highest transaction costs.

This study investigates the exchange rate exposure of Turkish energy firms from 2002 to 2010. We employed a regression model that is constructed by adding exchange rate and oil price factors to Fama-French Three Factor Model. Empirical results suggest that exchange rate risk appears to impact energy firms diversely. Among the 9 energy firms in our sample, only 2 firms seem to be exposed to exchange rate risk. These two energy firms appear to have larger open foreign currency positions and do not use any hedging methods. On the contrary, rest of the energy firms that are not found to be affected by exchange rate risk either seem to have smaller open foreign currency positions or employ hedging methods to manage exchange rate risk. Overall, our results provide evidence that energy firms exposed to exchange rate risk share similar characteristics.

In the last few decades, a valuation of intangible assets is an activity of particular importance, not only because of growing number of transactions with intangibles but for accurate financial reporting as well. In this discipline, a special area is dedicated to the research of different factors that affect the value of intangibles. Royalty rate, a price of the licensed intangible, is a typical measure of an intangible asset's value. This research paper aims at testing empirically selected factors that have been identified by theoretical literature as well as by licensing practice as relevant in determining the level of royalty rates. For this purpose, a multi-factor linear regression model is built using the latest possible sample of licensing transactions from consumer durables industry from 2002 to 2006. The authors make tests of dependent variable (royalty rate) on financial factors as well as on factors coming from different provisions of licensing agreements. Based on a sample of 67 transactions, the financial factors revealed themselves to be statistically negligible, while some license provisions, in particular the extent of rights granted and the license term appeared to be highly significant in determining the royalty rate level.

During different GDP growth regimes, the dynamics of global financial markets impacts the Slovenian stock exchange with varying intensity. We propose a smooth transition regression model to explain Slovene stock exchange index returns employing financial and macroeconomic variables. According to our model, the reaction of the stock market to several of the explanatory variables depends on the magnitude of GDP growth. The weaker relationship between Slovene stock exchange index returns and S&P 500 returns in the period of lower or negative GDP growth could be explained by less developed financial market in Slovenia and therefore not closely linked interchange of securities.

A heterogeneous agents model with the Worst Out Algorithm (WOA) was considered for obtaining more realistic market conditions. The WOA replaces periodically the trading strategies that have the lowest performance level of all strategies presented on the market by the new ones. New strategies that enter on the market have the same stochastic structure as an initial set of strategies. This paper shows, by wavelets applications, strata influences of the trading strategies with the WOA.

The paper deals with the relationship between monetary policy and asset prices. Besides surveying the general discussion, it attempts to extend it to recent developments in the New Member States of the EU (NMS), namely the Czech Republic, Hungary, Poland and Slovakia (the EU4). After a brief description of the current macroeconomic situation in the NMS, the appropriate reaction of monetary policy to asset price bubbles is analysed and the main pros and cons associated with this reaction are summarized. Afterwards, the risks of asset market bubbles in the EU4 countries are evaluated. Since the capital markets are still underdeveloped and the real estate price boom seems to be a natural reaction to the initial undervaluation, the risks are viewed as rather small. The conclusion is thus that it is crucial for central banks in mature economies as well as in the NMS to conduct their monetary policies as well as their supervisory and regulatory roles in a way that does not promote the build-up of asset market bubbles. In exceptional times, central banks of small open economies must be ready to use monetary policy steps as a kind of insurance against the adverse effects of potential asset market bubbles.

The paper studies the compliance of the CZK - EUR exchange rate with the uncovered parity of returns on assets denominated in the two named currencies. A comparison with the same property for the euro-dollar rate is made. An uncovered total return parity (UTRP) formula is derived from the equilibrium in a portfolio optimization model with liquidity constraints. It is shown that the uncovered parity of total returns, and not of short-term money market rates, is a natural outcome of stochastic equilibrium asset pricing models that generalize the International Consumption-based Capital Asset Pricing Model. Accordingly, the traditional uncovered interest rate parity should be replaced by UTRP in empirical analysis. UTRP tests for the CZK/EUR and the USD/EMU currency pairs are conducted using yields of long-term government bond yields. UTRP typically holds, although the time horizons and measures of exchange rate movements, for which it becomes visible, may vary.