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Risk, Monetary Policy and Asset Prices in a Global World
... Interest rate risk pertains to the possible influence of fluctuations in interest rates on the valuation of financial instruments, such as bonds, loans, and other fixed-income assets (Bats, JGiuliodori & Houben, 2023). Central banks, such as the Federal Reserve in the United States or the European Central Bank, possess direct authority over shortterm interest rates (Bekaert, Hoerova & Xu, 2023;. Policy instruments, such as the federal funds rate or the policy rate, are used to exert control over borrowing costs in the economy. ...
... The yield curve is a visual depiction of the relationship between interest rates and the time it takes for an investment to reach maturity. The measures taken by central banks may result in either a decrease or increase in the slope of the yield curve, depending on whether there is a rise or fall in short-term interest rates (Bekaert, Hoerova & Xu, 2023;. Changes in interest rates have a direct and immediate influence on REITs, making it one of the most significant effects of monetary policy. ...
Purpose: The present study aims to analyse the influence of market risk on Real Estate Trust Funds (REITs) in China, with particular emphasis on the role of monetary policy as an intermediary variable in this correlation. Market risk, which is directly impacted by a multitude of economic factors, affects the performance of real estate investment trusts (REITs) in the industry. Design/methodology/approach: In the Chinese context, however, the role of monetary policy as a mediator between market risk and REITs remains an understudied topic. The research utilises an all-encompassing examination that integrates market risk indicators, including business cycle risk, interest rate risk and inflation risk, to evaluate the influence of these factors on the returns and valuation of China's REITs. The objective of this study is to determine, via econometric modelling, whether monetary policy, specifically interest rate fluctuations and central bank interventions, acts as a mediator between market risk and REIT performance. Findings: The anticipated outcomes of this study are poised to enhance comprehension of the complex intricacies inherent in China's real estate sector. They will provide insights into the manner in which monetary policy moderates the impact of market risk on the conduct of REITs. The study's findings may offer valuable implications for policymakers, investors, and market participants who are interested in gaining a more informed understanding of the intricate Chinese real estate investment environment. Research & Practical implications: The ultimate objective of this research is to make significant contributions to academic literature and facilitate informed decision-making in the field of China real estate investment and finance. Originality/value: As a summary of essential characteristics, this paper provides researchers with a useful reference guide to previous studies. The research utilises an all-encompassing examination that integrates market risk indicators, including business cycle risk, interest rate risk and inflation risk, to evaluate the influence of these factors on the returns and valuation of China's REITs. Based on the results, the potential avenues for future investigation are provided.
... The delta portfolio also outperforms the base portfolio in two out of three downside risk-adjusted return measures (upside potential ratio and modified Sharpe ratio), though it performs slightly worse in terms of the Omega ratio. (Bekaert et al. 2023) plays a crucial role in fluctuations in the network. Equity index is by far the single most influential spillover contributor across time-heightened by crisis periods-as expectations of changes in monetary policies by the regulators motivate traders and portfolio managers to make appropriate strategic as well as tactical asset allocation shifts. ...
This study examines the interconnectedness between the green bond index (GRBI) and major financial indices, focusing on three key periods: Pre-Covid, During-Covid, and Russia-Ukraine war period. Using the spillover index methodology and time-varying parameter vector autoregression (TVP-VAR), the research compares two portfolios: one excluding GRBI (base portfolio) and one including GRBI (delta portfolio). The findings reveal that GRBI consistently acts as a net receiver of shocks, significantly reducing the total connectedness index (TCI) and functioning as a spillover absorber. Notably, the equity index (EQWI) emerges as the largest net transmitter of shocks, while GRBI helps reduce systemic risk, particularly during periods of market volatility. The inclusion of GRBI enhances the delta portfolio’s resilience, improving its downside risk-adjusted returns and hedging effectiveness. During crisis periods, the delta portfolio consistently outperforms the base portfolio in downside risk measures, such as lower drawdowns and improved ratios like the Sortino and modified Sharpe ratios. GRBI also acts as a natural hedge, reducing negative hedging effectiveness (HE) values in other asset classes. These results highlight the crucial role of GRBI in strengthening portfolio diversification and risk management. Investors seeking to optimize portfolio performance and minimize exposure to systemic shocks should consider including GRBI, especially during periods of heightened market uncertainty.
... In contrast, implementing a more restrictive monetary policy might decrease the availability of liquid assets and heighten the tendency to avoid risky investments, which can possibly have an effect on the values of securities (Guo, Ottonello & Perez, 2023;Lukonga, 2023). The correlation between the risk of real estate prices and monetary policy is substantial and complex, since monetary policy plays a pivotal role in influencing the behaviour of real estate markets (Bekaert, Hoerova & Xu, 2023).. The policy interest rate, a key component of monetary policy, has a direct impact on interest rates across the whole economy. ...
Purpose: This study examines the influence of market risk on China's Real Estate Trust Funds (REITs), specifically exploring the role of monetary policy as an intermediate variable in this association. The performance of REITs in the real estate industry is directly affected by market risk, which is impacted by a range of economic variables. Design/methodology/approach: Nevertheless, the impact of monetary policy on the connection between market risk and Real Estate Investment Trusts (REITs) in the Chinese context has not been thoroughly examined. The research utilises a thorough examination that integrates metrics of market risk, such as security price risk and real estate price risk, and evaluates their influence on the returns and value of China's REITs. The study uses econometric modelling to analyse the mediating impact of monetary policy, namely changes in interest rates and interventions by central banks, on the correlation between market risk and the performance of Real Estate Investment Trusts (REITs). Findings: The results of this study are anticipated to enhance our comprehension of the complex dynamics inside China's real estate market, elucidating the impact of market risk on the behaviour of REITs and the function of monetary policy in mitigating these impacts. The findings of this research may provide valuable guidance for investors, policymakers, and market players who are looking for a better understanding of the intricacies of the Chinese real estate investment market. Research & Practical implications: The primary objective of the study is to make significant contributions to academic literature and practical decision-making in the field of real estate financing and investment in China. Originality/value: As a summary of essential characteristics, this paper provides researchers with a useful reference guide to previous studies. The research utilises an all-encompassing examination that integrates market risk indicators, including business cycle risk, interest rate risk and inflation 2273 risk, to evaluate the influence of these factors on the returns and valuation of China's REITs. Based on the results, the potential avenues for future investigation are provided.
... Further, we find no major differences across specifications, indicating that our findings are robust. Finally, the decomposition of Bekaert et al. (2021) in the last column highlights that our effect is driven by uncertainty (UC) rather than risk (RA). ...
... Third, the decomposition of Bekaert et al. (2021) in the last column highlights that our effect is driven by uncertainty (U C) rather than risk (RA). Finally, we find no major differences across specifications, indicating that our findings are robust. ...
In 2022, the ECB introduced a new instrument designed to combat fragmentation in euro area government bond yields. To assess the ECB's effectiveness in addressing fragmentation through existing instruments, particularly communication, we turn to a pivotal historical event-Mario Draghi's famous "whatever it takes" speech. Widely interpreted as a commitment by the ECB to act as a lender of last resort, this speech eased tensions in bond markets. Employing state-of-the-art computational linguistics, we create an index that quantifies the ECB's commitment to act as a lender of last resort based on this historic speech. Our index highlights the ECB's central role in stabilizing financial markets, especially during periods of heightened uncertainty.
... Recent geopolitical events such as the Russian invasion of Ukraine and central bankers' grappling with inflation have underscored the need to disentangle heightened funding costs due to either "pure" global risk or US monetary policy shocks. While previous papers have focused on firms' responses to high-frequency monetary policy shocks 1 , recent evidence suggests that changes to the global risk environment that are unrelated to monetary policy also impact asset prices and hence a↵ect firms' funding conditions (Bekaert, Hoerova, et al., 2021), notably in ways that di↵er both across firms and across sources of funding (debt versus equity). 2 Our shock identification builds on a daily Bayesian Vector Autoregression (BVAR) framework with US financial market variables and a combination of sign and narrative restrictions (Brandt et al., 2021). Using a BVAR at daily frequency allows us to obtain both shocks from the same integrated model. ...
... Kroencke et al. (2019) emphasise that the response of equities on central bank announcement days is to a large extent explained not by changes in interest rates but by changes in risk premia. Bekaert et al. (2021) find that risk-premium changes brought about by monetary policy statements transmit internationally to various asset classes. ...
This paper examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public’s rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically and continues to evolve. This paper outlines how better communication, including greater engagement with the wider public, could help boost people’s understanding of and trust in the Eurosystem.
... ). Simultaneously, there are doubts in the literature that this measure, based on nancial markets, actually measures uncertainty or merely represents the eect of a uctuating business cycle(Carriero et al., 2018; Ludvigson et al., n.d.). To account for this and to check whether the observed results are due to uncertainty, I use the decomposition of the VSTOOX byBekaert, Hoerova, and Lo Duca (2013) andBekaert, Hoerova, and Xu (2021).11 The authors show that the index contains an uncertainty component (UC) as well as a risk aversion component (RA).In order to verify that the observed results are indeed due to uncertainty I integrate both components in equation(4). ...
This paper studies the effect of uncertainty on monetary policy shocks for the euro area. The analysis shows that various forms of forward guidance under high uncertainty produce results similar to those attributed to information shocks in the literature. This effect can be seen in high-frequency variables and VAR models with external instruments. The results suggest that uncertainty is related to information shocks and can potentially explain the timing of these shocks.
We propose a confirmatory dynamic factor model for a large number of daily returns across multiple time zones. The model has a global factor and three continental factors. We propose two estimators of the model: a quasi-maximum likelihood estimator (QML-just-identified), and an improved estimator (QML-all-res). Our estimators are consistent and asymptotically normal. In particular, the asymptotic distributions of QML-all-res are the same as those of the infeasible OLS estimators that treat factors as known and utilize all the restrictions of the parameters of the model. We apply the model to MSCI equity indices of 42 developed and emerging markets, and find that the market is more integrated when the US VIX is high.
We propose a confirmatory dynamic factor model for a large number of daily returns across multiple time zones. The model has a global factor and three continental factors. We propose two estimators of the model: a quasi-maximum likelihood estimator (QML-just-identified), and an improved estimator (QML-all-res). Our estimators are consistent and asymptotically normal. In particular, the asymptotic distributions of QML-all-res are the same as those of the infeasible OLS estimators that treat factors as known and utilize all the restrictions of the parameters of the model. We apply the model to MSCI equity indices of 42 developed and emerging markets, and find that the market is more integrated when the US VIX is high.
Artykuł analizuje wpływ nowych informacji, które dotyczą polityki pieniężnej w dużych gospodarkach rozwiniętych, na polskie rynki finansowe. Autorka bada międzynarodowe efekty polityki pieniężnej Systemu Rezerwy Federalnej Stanów Zjednoczonych i Europejskiego Banku Centralnego, dokonując rozróżnienia między efektami polityki pieniężnej a szokami informacyjnymi banku centralnego. Wyniki badania pokazują, że międzynarodowe efekty polityki pieniężnej Stanów Zjednoczonych są silniejsze i znacząco wpływają na stopy zwrotu polskich obligacji rządowych i przedsiębiorstw, ceny akcji i kurs walutowy w tygodniach po publikacji. Jednocześnie szoki informacyjne, do których dochodzi po publikacjach Europejskiego Banku Centralnego, również istotnie wpływają na polskie rynki finansowe. Wyniki te mogą mieć ciekawe konsekwencje w kontekście funkcjonowania i analizy rynków finansowych w małej gospodarce otwartej.
Introduction: Disasters are sudden or frequent events that cause social, economic,
environmental, and physical losses, negatively affect the people and
environment. It can be natural or man-made events that have both negative and
positive effects of a disaster but the negative effects are much higher than the
positive effects. After industrial revolution, the world has seen an increasing
trend in frequency of natural disasters, and an increase in the number of affected
populations with severe losses and damages (IPCC, 2012; Facello, 2013).
Disasters affect are posing additional pressure to combat its impacts.
Therefore, adequate measures/actions are required before (pre-disaster), during
(during disaster) and after (post-disaster) all disaster events.
For making successful combat of a disaster and its impacts, countries must
have an effective Disaster Management (DM) System. Today, Disaster
Management Systems (DMS) have been developed with an idea of establishing
effective and efficient management to reduce disaster damage, prevent loss of
life, property and others caused by the disasters. It could include plans,
programs, policies, and necessary arrangements to engage public and private
organizations in a comprehensive and coordinated way to respond to disasters
(Facello, 2013). Therefore, DMS is a product of an interdisciplinary study and
its strategies and systems can differ from country to country. For instance,
Turkey and Japan often face geological and meteorological disasters;
Bangladesh and the USA often face meteorological disasters; etc. These
countries pose a diverse landscape and are affected by many other types of
disasters. In this chapter, the contexts of the DM system have been discussed;
examples from different DM systems have been provided, challenges have been
defined. The aim is to highlight the contexts of DM System, efficacy of DM
systems and challenges, and to provide an insight for a more effective DM
system.
The Effect of Inflation and Interest Rate on
Borsa Istanbul
Some events impact volatilities of most assets, asset classes, sectors and countries, causing serious damage to investment portfolios. The magnitude of such shocks is defined as global COVOL which is an abbreviation for global common volatility, a broad measure of all types of global financial risk. This paper introduces a statistical formulation of such events as common volatility innovations in both a multivariate volatility and an asset pricing context. Simulations verify the statistical performance of a simple but novel estimator and of a test to detect global COVOL. Two empirical examples show the events that have had the biggest impact on financial markets. The results are useful for portfolio optimization and risk forecasting.
We show that the impact of monetary policy on exchange rates has been growing significantly in recent years. Our results are established by a high-frequency event study of how key fixed income instruments with different maturities respond jointly with exchange rates to monetary policy news from six major central banks. Across countries, news affecting short-term maturity bonds tend to have the strongest impact, highlighting the relevance of communication regarding the path of future monetary policy for exchange rate movements even when policy rates are near their lower bound. We find that the FX impact of monetary policy is state-dependent and is stronger the lower is the level of interest rates, in line with a greater effect through currency risk premia.
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