G14 - Information and Market Efficiency; Event Studies; Insider TradingReturn

This study investigates the impact of terrorism on financial markets, focusing specifically on Turkey's sovereign Credit Default Swap (CDS) premiums from 2011 to 2017 - period characterized by frequent and diverse terrorist activities. Employing an EGARCH model with dummy variables for various terrorist groups, we analyze immediate and short-term market reactions across different event windows. Our findings reveal significant volatility in CDS premiums following terrorist incidents, with market responses varying depending on the terrorist group perpetrating the incident. This study enhances the understanding of capital market reactions on terrorist events through CDS instruments, highlighting their role in assessing sovereign credit and country risk.

Non-fungible tokens are transferable rights to digital assets such as artwork, videos, in-game items, collectibles or music. Non-fungible tokens relate only to a specific unique item and carry information about the owner. The non-fungible token market has received widespread attention and has grown enormously since the beginning of 2021. Despite significant growth in the market, there needs to be more surveys, especially in the context of the Czech Republic. This article, therefore, aims to evaluate the level of awareness of non-fungible tokens in the Czech Republic. The paper presents the basics of the non-fungible token market, its potential and uncertainty, and the interdisciplinary nature of non-fungible token research. First, the characteristics of non-fungible tokens are described based on a literature review. The methodological part outlines an empirical analysis based on a quantitative survey in which 103 respondents in the Czech Republic took part. Based on the research results, it was found out that in the Czech Republic, there is low level of awareness of non-fungible tokens and also low level of trust in digital assets in general. In conclusion, it is possible to say that this article provides an overall understanding of the phenomenon of non-fungible tokens in the Czech Republic.

This paper examines the validity of the risk-return trade-off for a sample of Czech banks over the period 2002-2022 by analysing the relationship between the bank risk and risk-adjusted returns. I find evidence of a significant negative association between the regulatory risk measure and risk-adjusted returns, indicating that the risk-return trade-off does not hold. Specifically, a 100 bps increase in the risk is associated with about a 7 bps decrease in the return on risk-adjusted assets (RORWA) and an 11 bps decrease in the risk-adjusted net interest margin (rNIM) in the short run. The long-run effect is about double for RORWA and almost triple for rNIM. I also find evidence that during the period of low interest rates, the effect for RORWA was about a half smaller, albeit still negative. On the contrary, when non-regulatory measures of risk or risk-adjusted profitability are used, the risk-return trade-off seems to hold.

Profitability of a trading system based on the momentum-like effects of asset price jumps was tested on four currency markets (EUR/USD, GBP/USD, USD/CHF and USD/JPY) and three futures markets (Light Crude Oil, E-Mini S&P 500 and VIX), on 7 frequencies (1-minute to 1-day), over a period of more than 20 years. The proposed trading system entered long and short trades in the direction of asset price jumps and held the positions for a fixed horizon, optimized on the in-sample period. The system achieved statistically significant out-sample profits for the USD/CHF, EUR/USD and GBP/USD exchange rates, especially on the 15-minute, 30-minute and 1-hour frequencies, with expected returns of up to 20-30% p.a., including transaction costs. On the 1-day frequency, on the USD/JPY and on the three analysed futures markets, only insignificant profits or losses were achieved. On the 1-minute frequency, the system ended with a loss for all of the assets.

The second order stochastic dominance (SSD) has become exceedingly popular in recent years,
due to its ability to determine the dominance of one asset over another for all risk-averse investors
without a strict requirement in asset distribution. In this study, 33 OECD country indexes and their
enriched set of assets, which consists of some combinations of these indexes, are investigated
and compared between 2007 and 2015 by utilizing pairwise SSD comparisons, with different data
frequencies, such as daily, weekly, monthly and quarterly. This paper contributes to the literature
in three points: Firstly, a serious portion of the best performing OECD countries has the lowest GDP
(PPP) per capita level. Secondly, the SSD efficient set depends on data frequency. Thirdly, when
the data frequency is lowered, the difference between two SSD pairwise efficiency tests decreases.

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.

This paper attempts to develop a theoretical framework that builds on heterogeneous beliefs to explain the financial anomalies related to IPO stocks. In particular, we develop a dynamic analysis framework to study the valuation of IPO price and the short-term probability of falling below IPO price based on perspectives of investors' heterogeneous priors and gradual information flow. Our study shows that the valuation of IPO price increases as the degree of heterogeneity due to investors' heterogeneous priors increases. Moreover, the short-term probability of falling below IPO price increases as the degree of investors' cognitive biases caused by gradual information flow increases.

The study analyses expenditures of all municipalities of the Czech Republic over the period 2003-2013. It aims to examine whether changes in municipal spending get affected by the electoral cycle. The analysis has proven that expenditures of municipalities of the Czech Republic are influenced by the political cycle. However, the political business cycle has at the level of municipalities (compared to the macroeconomic level) its peculiarities. These arise mainly from limited options of municipal politicians to use economic instruments to win electoral votes in elections. To receive electoral votes, municipal politicians use mainly public investments and projects that are at the level of municipalities so apparent that they may influence voters in their electoral decision-making. Prior to elections, expenditures on investments significantly increase for all municipal size groups. For municipal size groups of over 50,000 residents, however, they are (per capita) higher compared to smaller municipal size groups. This may be explained by the fact that these municipalities have higher disposable resources (higher per capita own budgetary revenues, higher potential to acquire resources to co-finance municipal projects and broader portfolio of debt financing). Expenditures on transfers do not significantly change prior to municipal elections. We interpret this finding in a way that politicians prefer such investment projects that are ""visible"". Transfers are used to pay for certain current expenses for which municipalities may (in accordance with the established rules) apply through grants.

This paper relates to the initial public offering problem and companies' profitability levels before and after this event. In the presented study, profitability ratios in the year before initial public offering increase over the previous year, and then, after the IPO, fall. This confirms the phenomenon of distorting the level of profit before the IPO and partially equity dilution after the IPO.

This paper extends the debate over the benefits of active management by investigating its impact on price efficiency using data from available ETFs traded on the US market. After accounting for various tests in terms of price efficiency, we find that active management matters to the efficiency improvement. One practical implication of this study is that more active management element might be considered by fund managers in designing and managing their ETFs so as to reflect all available information into fund prices.

We investigate whether the positive relation between accounting accruals and information asymmetry documented for U.S. stock markets also holds for European markets, considered as a whole and at the country level. This research is relevant because this relation is likely to be affected by differences in accounting standards used by companies for financial reporting, in the traditional use of the banking system or capital markets for firm financing, in legal systems and cultural environment. We find that in European stock markets discretionary accruals are positively related with the Corwin and Schultz high-low spread estimator used as a proxy for information asymmetry. Our results suggest that the earnings management component of accruals outweighs the informational component, but the significance of the relation varies across countries. Further, such association tends to be stronger for firms with the highest levels of positive discretionary accruals. Consistent with the evidence provided by the authors, our results also suggest that the high-low spread estimator is more efficient than the closing bid-ask spread when analysing the impact of information quality on information asymmetry.

The study is a contribution to the theoretical/empirical analysis of the problem of outsourcing of policy advice in the public administration. It provides the typologies of expenses for policy advice in the public administration and examines the relationship between internal and external expenses on an example of the ministries of the Czech Republic for the period from 2001 to 2011. It shows that extreme changes in the form of increases in expenses for outsourcing arise when an amendment to the Act on Public Contracts is prepared. We explain the problem on the basis of changes in the behaviour of the clients as a result of expected changes to the contracting conditions. The study shows that several factors influence the amount of expenses for the outsourcing of policy advice. The ""large"" ministries have relatively fewer expenses for the outsourcing of policy advice than ""small"" ministries. Ministries that have their own workplaces available in their structures (i.e. in the form of their own scientific research workplaces) have lower than average expenses for the outsourcing of policy advice. Ministries with higher average wages are ministries with a relatively large number of managers in relation to the number of analysts, and thus they implement a higher degree of external services (measured as a share of the wage expenses).

In this paper, we examine the efficiency of the transmission of information across the stock markets of Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia, as well as the relative importance and influence of advanced equity markets of Germany and France on the abovementioned markets. The analysis is carried out using maximum likelihood regressions, Generalized Autoregressive Conditional Heteroskedastic (GARCH) models, and vector autoregression (VAR) estimations. The empirical results suggest that the Central and Eastern European stock markets react to the arrival of price innovations from Germany and France, but national stock market price innovations account for more error variance compared to those of Germany and France, and generally show an increasing responsiveness over time, which could be interpreted as progress in the European financial integration.

The article deals with the factors which influence efficiency of public procurement in the competitive contracting conducted through e-auctions in 15 Slovak cities. Data cover building and IT contracts awarded in the years 2007-2009. Together 186 observations were used for the analysis. The article starts with a theoretical discussion on the factors influencing efficiency of the procurement including potential impacts of the e-procurement and the e-auction. Than five hypotheses are formulated and the set of data is described. The next part introduces results of the regression analyses. It shows indirect proportion of the relation between the number of the submitted bids and the winning price. Each additional bid brings decrease of the price by approximately 3.4% of the expected price. The use of the e-auctions is connected with an increase of the number of the submitted bids by 0.7, which mean an average decrease of the winning price by approximately 2.4% of the expected price. The article concludes that the application of the e-auctions brings an indirect impact on the winning price. The reason is that it is more transparent than ""standard"" tenders. It probably affects the trust of bidders and increases of their number.

The portfolio theory and the basic ideas of Markowitz can be applied to currency investments as well as to classical asset classes as shares or bonds. The question whether currency investments can be treated as efficient asset classes is not finally answered in theory and practice. This article applies a modified historical simulation approach to shares, bonds and currencies. The questions according to the efficiency of currency investments are answered empirically from a euro-investor's point of view. The empirical analysis leads to the result that currency investments are not efficient in general. Some specific cases exist. The used data lead to the result that the Czech koruna seems to be an efficient asset class and leveraging a euro portfolio by other currencies is useful as well. But it has to be doubted if these effects will remain in the future.

In this paper we extend the original heterogeneous agent model by introducing smart traders and changes in agents' sentiment. The idea of smart traders is based on the endeavor of market agents to estimate future price movements. By adding smart traders and changes in sentiment we try to improve the original heterogeneous agents model so that it provides a closer description of real markets. The main result of the simulations is that the probability distribution functions of the price deviations change significantly when smart traders are added to the model, and they also change significantly when changes in sentiment are introduced. We also use the Hurst exponent to measure the persistence of the price deviations and we find that the Hurst exponent is significantly increasing with the number of smart traders in the simulations. This means that the introduction of the smart traders concept into the model results in significantly higher persistence of the simulated price deviations. On the other hand, the introduction of changing sentiment in the proposed form does not change the persistence of the simulated prices significantly.

EVA is a useful tool for assessing company performance. It combines factors, such as economy, accounting and market information in its assessment. This study employed EVA in an attempt to compare the companies' performances of GLCs (government-linked companies) and non-GLCs. Based on a 4-year pooled panel data of 37 GLCs and 208 non-GLCs, the results show that companies with government as their stakeholders tend to exhibit lower EVA scores than the companies without government stakeholders in Malaysia. Larger size companies were found to have lower EVA values. Companies which have both the characteristics - which are simultaneously large in size and government-owned, tend to be most adversely affected. Thus, any increment in the size of company for GLCs would decrease or destroy the value of the company, and to a greater degree, than companies without government holding.

The article discusses several factors that should be addressed when analysing linear dependences and testing the Efficient Market Hypothesis on the Czech capital market in order to avoid possible interpretation biases. The conclusions are based on the empirical analysis of the stock return behaviour in 1995-2005 and the generalization of the up-to-date local studies outcomes. It also discusses the market's relative efficiency compared to capital markets that are considered the most effective worldwide and on the European territory - the American NYSE and the German and Netherlands stock exchanges. Significant linear dependences of daily returns are typical on the Czech capital market; its relative efficiency still lags behind the efficiency of the developed markets.

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.

This paper investigates dependence structures on selected world stock markets. Firstly, a non-parametric univariate measure of a persistence concerning capital markets efficiency is derived and computed. Secondly, we focus on computing of a non-parametric multivariate measure of the persistence indicating an ability of the price mechanisms to hold capital market efficiency under interaction of shocks.

The efficient market hypothesis (EMH) fails as a valid model of financial markets. The fractal market hypothesis (FMH) is a more general alternative way to the EMH. The FMH is formed on the following parameter space: agents' investment horizons. A financial market is more stable when a fractal character in the structures of agent's investment horizons is adopted. For computer simulations, the classical model is modified. This adjusted model shows that various frequency distributions on agents' investment horizons lead to different returns behaviour. The FMH focuses on matching of demand and supply of agents' investment horizons in the financial market. The FMH asserts that investors have different information based on temporal attributes. Since all investors in the market have different time investment horizons, the market remains stable. Our simulations of probability distributions of agents' investment horizons demonstrate that many investment horizons guarantee stability on the financial market.

The article analyzes efficiency of the Czech treasury T-bill market and the interbank deposit market over period 1993 to 1999. An efficient market-expectation hypothesis and alternative preferred habitat hypothesis were selected to compare both the markets and to determine the extent to which they are affected by macroeconomic fundamentals. The results reveal that the treasury T-bill market is more effective compared to the interbank deposit market. This founding has strong implication in the sence that only the treasury market over the given period is appropriate to be empirically investigated.

The efficient markets hypothesis provides a theoretical basis on which technical trading rules (TTRs) are rejected as a viable trading strategy. TTRs, providing a signal to the user when to buy or sell asset based on such price patterns, should not be useful for generating excess returns. Technical traders tend to put little faith in strict efficient markets hypothesis. This approach relies on heterogeneity in the agent information and subsequent decisions either as fundamentalists or as technical traders. Switching between the technical trader's and fundamentalist's strategy is a basis of the cycle behaviour. This event is analysed by the Brock and Hommes (BH) model. Moreover, the memory case is added to this model because BH model was the memory-less model. This branch consists of a behaviour analysis among fundamentalists and technical traders. Here is a basis for endogenous source of the real business cycle.