Papers by Guglielmo Maria Caporale
Empirica, Mar 29, 2024
This paper examines the effects of the COVID-19 pandemic on CDS, stock returns, and economic acti... more This paper examines the effects of the COVID-19 pandemic on CDS, stock returns, and economic activity in the US and the five European countries that have been most affected: the UK, Germany, France, Italy, and Spain. The sample period covers the period from 11 March 2020 to 19 February 2021. In the empirical analysis, first, we estimate benchmark linear VAR models and then, given the evidence of parameter instability, TVP-VAR models with stochastic volatility, which are ideally suited to capturing the changing dynamics in both financial markets and the real economy. The linear VAR responses of CDS to the number of COVID-19 cases are positive and statistically significant, whilst those of electricity consumption are insignificant and those of stock returns vary across countries in terms of their sign and significance. The results from the TVP-VAR analysis indicate that the effects of shocks on the system variables was more pronounced during the initial stages of the pandemic and then decreased in the following months. Specifically, there was a positive impact of the number of COVID-19 cases on CDS and a negative one on stock returns and economic activity, the latter two being interlinked.
This paper analyses co-movement between Bitcoin exchanges in 34 major countries around the world ... more This paper analyses co-movement between Bitcoin exchanges in 34 major countries around the world and the US (the global benchmark) over the period January 24, 2011 - January 7, 2019. More specifically, we run IV regressions to investigate the importance of cultural factors (such as tightness, individualism, trust and risk-taking) following an earlier study by Eun et al. (2015) which had shed light on their importance to explain stock co-movement within individual countries. The results suggest that markets in tighter, more individualistic, trustful and risk-taking societies are more tightly linked to the US one. Further, it appears that culturally looser, collectivistic, trustful and risk-taking countries are more likely to shut down their Bitcoin exchanges compared to other countries. These findings confirm our priors.
SSRN Electronic Journal, 2020
This paper analyses the cultural drivers (tightness−looseness and individualism−collectivism) of ... more This paper analyses the cultural drivers (tightness−looseness and individualism−collectivism) of Bitcoin prices co-movements and exchange shutdowns in 34 major countries around the world over the period 20 July 2010-5 February 2020. Under the assumption that investors prefer to use local or international Bitcoin exchanges accepting the local currency to trade, we find that Bitcoin prices co-move more in countries with tighter and more collectivistic cultures. However, greater connectivity between international Bitcoin exchanges in the form of financial openness reduces the impact of the cultural variables on the behaviour of investors and on Bitcoin price co-movements. Further, the probability of Bitcoin exchanges shutdowns is higher in tighter and more collectivistic cultures where investors are more risk-averse and thus more likely to exhibit herding behaviour. JEL-Codes: G150, C360.
SSRN Electronic Journal, 2021
This paper examines the effects of the COVID-19 pandemic on stock returns, CDS and economic activ... more This paper examines the effects of the COVID-19 pandemic on stock returns, CDS and economic activity in the US and the five European countries (the UK, Germany, France, Italy, and Spain) which have been most affected. The sample period covers the dates from the first confirmed COVID-19 cases in these countries to February 19, 2021. Specifically, we estimate first benchmark linear VAR models and then, given the evidence of parameter instability, TVP-VAR models with stochastic volatility which are ideally suited to capturing the changing dynamics in both financial markets and the real economy. The empirical findings can be summarised as follows. The linear VAR responses of electricity consumption (a proxy for real economic activity) to a one-standard-deviation shock to the number of COVID-19 cases are statistically insignificant, except for France, whilst the CDS ones are positive and significant only in a few periods, and there are very mixed results for those of stock returns. As for the TVP-VAR results, these indicate that COVID-19 cases had a negative and significant effect on economic activity in all countries in the early stages of the pandemic (especially in Italy), and a positive one on CDS at the same time (with crosscountry differences). Finally, the negative impact on stock markets was felt only initially and it had tapered off by mid-April 2020.
SSRN Electronic Journal
This paper applies fractional integration and cointegration methods to examine respectively the u... more This paper applies fractional integration and cointegration methods to examine respectively the univariate properties of the four main cryptocurrencies in terms of market capitalization (BTC, ETH, USDT, BNB) and of four US stock market indices (S&P500, NASDAQ, Dow Jones and MSCI for emerging markets) as well as the possible existence of long-run linkages between them. Daily data from 9 November 2017 to 28 June 2022 are used for the analysis. The results provide evidence of market efficiency in the case of the cryptocurrencies but not of the stock market indices considered. The results also indicate that in most cases there are no long-run equilibrium relationships linking the assets in question, which implies that cryptocurrencies can be a useful tool for investors to diversify and hedge when required in the case of the US markets.
SSRN Electronic Journal, 2019
This paper estimates a bivariate HEAVY system including daily and intra-daily volatility equation... more This paper estimates a bivariate HEAVY system including daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. It focuses on economic factors that exacerbate stock market volatility and represent major threats to financial stability. In particular, it extends the HEAVY framework with powers, leverage, and macro effects that improve its forecasting accuracy significantly. Higher uncertainty is found to increase the leverage and macro effects from credit and commodity markets on stock market realized volatility. Specifically, Economic Policy Uncertainty is shown to be one of the main drivers of US and UK financial volatility alongside global credit and commodity factors.
Engineering Economics, 2018
techniques are used. It is shown that changes in monetary policy regimes or volatility in the pri... more techniques are used. It is shown that changes in monetary policy regimes or volatility in the price of gold by themselves cannot account for the behaviour of government bond yields and prices over the last 200 years. However, the inclusion of changes in the real rate of return on capital, M1, primary credit rate, expected inflation, and money purchasing power enables a nonlinear model to account for a sizeable percentage of the total variance of Dutch bond yields. This is a novel study of the Gibson's paradox using a non-linear approach unravelling the multidimensional nature of the paradox. The results should assist policy makers in setting monetary policy and help to better understand the behaviour of financial institutions on the markets. Central banks, should however evaluate the implication of this study in setting inflation targeting goals. Results of this study are also expected to stimulate further research on the bank credit policies by managing interest rates.
African J. of Economic and Sustainable Development, 2015
This paper examines the statistical properties of the NSE-20 index in the Kenyan stock market ove... more This paper examines the statistical properties of the NSE-20 index in the Kenyan stock market over the period 2001-2009. The analysis applies both unit root tests and long-range dependence techniques based on the concept of fractional integration. The results indicate that the order of integration of stock prices is significantly above 1, which implies the presence of long memory. This is also detected in the absolute and squared returns. The lowest degrees of integration (very close to zero) are found for Mondays and Fridays, and therefore a day-ofthe-week-effect appears to be present.
SSRN Electronic Journal, 2012
Non-technical summary 1 Introduction 2 Modelling loans to non-fi nancial corporations 3 Data 4 Em... more Non-technical summary 1 Introduction 2 Modelling loans to non-fi nancial corporations 3 Data 4 Empirical analysis 4.1 General VAR model 4.2 Cointegration analysis 4.3 Estimating the VECM 5 Overhang of loans to non-fi nancial corporations 6 Impulse response functions 7 Forecasting 8 Conclusions Tables and fi gures References European Central Bank Working Paper Series CONTENTS 4 ECB Working Paper Series No 989
Social Science Research Network, 2017
This paper tests for the presence of the Friday effect in various financial markets (stock market... more This paper tests for the presence of the Friday effect in various financial markets (stock markets, FOREX, and commodity markets) by using a number of statistical techniques (average analysis, parametric tests such as Student's t-test and ANOVA analysis, non-parametric ones such as the Kruskal-Wallis test, regression analysis with dummy variables). The evidence suggests that stock markets are immune to Friday effects, whilst in the FOREX Fridays exhibit higher volatility, and in the Gold market returns are higher on this day of the week. Using a trading robot approach we show that the latter anomaly can be exploited to make abnormal profits.
International Advances in Economic Research
This paper uses fractional integration methods to examine persistence, trends and structural brea... more This paper uses fractional integration methods to examine persistence, trends and structural breaks in United States house prices, more specifically the monthly Federal Housing Finance Agency House Price Index for census divisions, and the United States as a whole over the period from January 1991 to August 2022. The full sample estimates imply that the order of integration of the series is above one in all cases, and is particularly high for the aggregate series, implying high levels of persistence. However, when the possibility of structural breaks is taken into account, segmented trends are detected. The subsample estimates of the fractional differencing parameter tend to be lower, with mean reversion occurring in a number of cases. This means that shocks in the series are expected to be transitory in these subsamples, disappearing in the long run by themselves. In addition, the time trend coefficient is at its highest in the last subsample, which in most cases starts around May ...
Social Science Research Network, 2023
SSRN Electronic Journal
This paper assesses the impact of US policy responses to the Covid-19 pandemic on various cryptoc... more This paper assesses the impact of US policy responses to the Covid-19 pandemic on various cryptocurrencies and also technology stocks using fractional integration techniques. More precisely, it analyses the behaviour of the percentage returns in the case of nine major coins (Bitcoin-BITC, Stella-STEL, Litecoin-LITE, Ethereum-ETHE, XRP (Ripple), Dash, Monero-MONE, NEM, Tether-TETH) and two technology related stock market indices (the KBW NASDAQ Technology Index-KFTX, and the NASDAQ Artificial Intelligence index-AI) over the period 1 January 2020-5 March 2021. The results suggest that fiscal measures such as debt relief and fiscal policy announcements had positive effects on the series examined during the pandemic, when an increased mortality rate tended instead to drive them down; by contrast, monetary measures and announcements appear to have had very little impact and the Covid-19 containment measures none at all.
SSRN Electronic Journal
This paper investigates persistence in high-frequency, intraday data (and also daily and monthly ... more This paper investigates persistence in high-frequency, intraday data (and also daily and monthly ones) in the case of the EuroStoxx 50 futures over the period from 2002 to 2018 (720 million trade records) using R/S analysis and the Hurst exponent as a measure of persistence. The results indicate that persistence is sensitive to the data frequency. More specifically, monthly data are highly persistent, daily ones follow a random walk, and intraday ones are anti-persistent. In addition, persistence varies over time. These findings imply that the Efficient Market Hypothesis (EMH) only holds in the case of daily data, whilst it is possible to make abnormal profits using trading strategies based on reversal strategies at the intraday frequency. JEL-Codes: C220, G120.
Applied Economics
This paper uses fractional integration to assess the impact of US policy responses to the COVID-1... more This paper uses fractional integration to assess the impact of US policy responses to the COVID-19 pandemic on 10 US sectoral stock indices from 1 January 2020 to 11 June 2021. The results provide evidence of mean reversion in most cases and suggest that the Effective Federal Funds Rate and monetary and fiscal announcements are the most effective policy tools.
SSRN Electronic Journal, 2022
This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and i... more This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993-August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger in regime 2, i.e., when markets and consumers expect high inflation rates in the future; this suggests that anchoring inflation expectations helps to reduce the ERPT. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries.
Journal of African Studies, 2015
The aim of this paper is to examine the behaviour of GDP growth in various African countries allo... more The aim of this paper is to examine the behaviour of GDP growth in various African countries allowing for possible non-linearities that are particularly relevant in their case since they have been affected by various conflicts. Specifically, first we carry out standard unit root tests and then follow an approach that combines fractional integration and non-linearities (modelled using Chebyshev polynomials) in a single framework. The results for a sample of 28 countries confirm the existence of non-linearities in most cases, the only exceptions being the Central African Republic, Niger, Sierra Leone and Somalia. Further, there is heterogeneity across countries in terms of the degree of persistence, the GDP series being characterised in different cases by mean reversion, unit root behaviour, and orders of integration significantly higher than 1 respectively. The policy implications of the empirical analysis are also discussed, namely whether or not activist policies are required.
In this paper we take issue with the claim made in some recent empirical studies that real money ... more In this paper we take issue with the claim made in some recent empirical studies that real money balances, real income and interest rates are cointegrated, or, alternatively, that velocity is a stationary variable, which is in contrast with the well known stylised facts about the behaviour of monetary aggregates in theUKand other industrial countries. We show that in fact this surprising result can be explained away in terms of statistical bias. It is only because in these studies inference is based on a mis-specified VAR that the null of no cointegration can be rejected - the standard result that money demand functions exhibit instability and that velocity is a non-stationary variable is confirmed when the analysis is carried out within a correctly specified system.
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Papers by Guglielmo Maria Caporale