Impact of capital market volatility on economic growth - An analysis based on stochastic volatility model.

This paper delves into the relationship between the volatility of the capital market and economic growth within the broader framework of the macro capital market. By employing the Heston stochastic volatility model in tandem with macroeconomic theory, we aim to analyze the stochastic control problem between the allocation trajectory of macro-capital and economic fluctuations. Our mathematical analysis reveals that the influence of capital shifts on economic growth's volatility varies across different capital markets due to diverse risk levels inherent within the macro-capital market. To validate these mathematical findings, we embark on an empirical econometric analysis tailored to the nuances of China's capital market and its macroeconomic operations. This econometric exploration yields two primary insights: 1. Distinct components of China's capital market have varying influences on macroeconomic growth. 2. The structure of China's capital market, especially in its impact on macroeconomic development, exhibits imbalances and lacks optimal configuration.

COVID-19 pandemic and capital markets: the role of government responses.

This paper analyzes the moderation effect of government responses on the impact of the COVID-19 pandemic, proxied by the daily growth in COVID-19 cases and deaths, on the capital market, i.e., the S&P 500 firm's daily returns. Using the Oxford COVID-19 Government Response Tracker, we monitor 16 daily indicators for government actions across the fields of containment and closure, economic support, and health for 180 countries in the period from January 1, 2020 to March 15, 2021. We find that government responses mitigate the negative stock market impact and that investors' sentiment is sensitive to a firm's country-specific revenue exposure to COVID-19. Our findings indicate that the mitigation effect is stronger for firms that are highly exposed to COVID-19 on the sales side. In more detail, containment and closure policies and economic support mitigate negative stock market impacts, while health system policies support further declines. For firms with high revenue exposure to COVID-19, the mitigation effect is stronger for government economic support and health system initiatives. Containment and closure policies do not mitigate stock price declines due to growing COVID-19 case numbers. Our results hold even after estimating the spread of the pandemic with an epidemiological standard model, namely, the susceptible-infectious-recovered model.

Does investors' site visits improve the capital market pricing efficiency?

This article empirically tested the impact of investors' site visits on capital market pricing efficiency. Leveraging the data from 2009 to 2022 of Shenzhen Stock Exchange's listed companies, we found that: (1) Investors' site visits could reduce stock price synchronicity, indicating improved pricing efficiency of the capital market. (2) The mechanisms tests showed that: investors could obtain private incremental information through site visits. (3) The conclusions remained intact after robust tests, including alternative key variables, samples and specifications, and various endogenous treatments. (4) Investors added arbitrage trading behavior after the site visit without significantly impounding industry-level information into the stock price. This paper enriched the knowledge of how site visits of different investment entities affect capital market pricing efficiency.

Economic policy uncertainty and directors and officers liability insurance: a perspective on capital market pressures.

This study investigates the effects of economic policy uncertainty (EPU) on corporate purchases of directors and officers liability insurance from the perspective of capital market pressures. Using data on A-share Chinese listed firms from 2010 to 2021, our theoretical analysis and empirical tests reveal that higher levels of EPU increase purchases. The theoretical analysis and mediating tests reveal that capital market pressures play a mediating role in the relationship between EPU and purchases. This study also finds that the indirect ways in which EPU increases purchases consider the need for firms to mitigate litigation risks and take advantage of insurance governance. The heterogeneous analysis and tests reveal that EPU increases purchases more significantly in firms that have higher managerial agency costs, have lower corporate transparency, and are in industries with higher competition. The findings are significant for improving the risk management system in China's capital markets.

The effects of environmental information disclosure on stock price synchronicity in China.

Environmental information disclosure has attracted the attention of the capital market because it can convey corporate characteristic information. But there needs to be direct evidence that environmental information disclosure can improve the market's overall efficiency. This study examines whether corporate environmental information disclosure can improve the information efficiency of the capital market. This study takes Chinese listed companies from 2008 to 2021 as samples, constructs a panel fixed effect model, and adopts multiple linear, instrumental variable method and Heckman sample selection model. We find that the disclosure of environmental information in the Chinese market reduces the information efficiency of the capital market represented by the synchronicity of stock prices. The reason is that the information after greenwashing by enterprises needs to be of better quality and more obscure, which disrupts market information. Environmental information disclosure by enterprises prone to greenwashing significantly affects stock price synchronicity, such as low institutional ownership, non-state-owned, growth, and manufacturing firms. Finally, this paper discusses the impact mechanism and confirms that stock liquidity and analyst coverage are the two paths through which environmental information disclosure impacts stock price synchronicity. This study is significant in encouraging the government to strengthen market supervision, promoting enterprises to disclose high-quality environmental information, and improving the pricing efficiency of the capital market.

Can capital markets identify heterogeneous environmental investment strategies of firms? Evidence from China.

Using a 2005-2020 sample of A-share listed companies in China's heavily polluting industries, this paper divides environmental investment strategies into "light green," "medium green," and "deep green" dimensions and constructs a panel threshold model to investigate the impact of different environmental strategies on China's stock market. The study found that environmental investment intensity has a double threshold effect on stock returns, "medium green" behavior helps improve stock returns, and "light green" and "deep green" behaviors are not conducive to stock returns. Institutional investors are more accurate than ordinary investors in identifying heterogeneous environmental strategies. The mechanism test shows that different environmental strategies affect stock returns through internal "value enhancement" and external "government subsidy" mechanisms. Moreover, "greenwashing" benefits for companies are short-lived; the market eventually imposes punitive pricing. These findings provide a reference for enterprise- and market-oriented green development systems.

Nexus between financial integration, capital market development and economic performance: Does institutional structure matters?

This study investigates the role of institutional structure on asymmetries dynamic impact of financial integration, capital market development on economic performance in Sub-Saharan Africa (SSA). The study classified economic performance into RGDPC, nominal gdp and human capital development, and employed (PNARDL) modeling framework, and a panel of 16 nations of SSA over the period 1996-2019. The finding of this research output can be summarize as thus: i.) In the long run, a rise in positive shock to the financial integration index leads to a rise in RGDPC, while a negative shock to FI leads to a fall in RGDPC. ii.) Both shocks (positive and negative) to MCAP reduce RGDPC. Institutional quality index (INSQI) is revealed to have a positive and significant impact on RGDPC in the long run and indeed intensify their asymmetries. iii.) Both shocks to FI exert inverse influence on nominal GDPC, while positive and negative shocks to MCAP exert a positive and negative influence on GDPC, respectively. INSQI also affects GDPC negatively and significantly and indeed reduces their asymmetries. iv.) Positive and negative shocks to FI reduce HCD as well as shocks to MCAP. INSQI, on the other hand, adds to HCD and intensifies their asymmetries. However, the lack of consistency in the results across the models suggest that the interplay between these variables are still undeveloped relative to other continents of the world, and the benefits are yet to be adequately harnessed.

Performances of leading Islamic finance markets prior to and during the COVID-19 pandemic.

The recent COVID-19 pandemic or Global Health Crisis (GFH) has distorted the normal functioning of the global economies and financial markets. Previous research has shown that Islamic equities were relatively more stable than conventional ones during the 2008 Global Financial Crisis (GFC). So, this study aims to assess the effect of the COVID-19 pandemic on the performance and co-movement of the leading Islamic finance markets by employing MGARCH-DCC on daily frequency data spanning from January 01, 2017 to October 22, 2021. The findings suggest that, as expected, the pandemic outbreak has increased the volatility across the sample markets, but it faded relatively soon, indicating that Islamic equities carry hedging features and offer portfolio diversification benefits to investors. Moreover, the sample countries are less correlated during the sample period than expected. The findings have important implications for policymakers and diverse investors deciding on portfolio diversification. Global ethical and Islamic investors, including fund managers, could benefit by focusing on more stable markets and building optimal portfolios of Shari'ah-complaint equities during turbulent market conditions, such as the COVID-19 pandemic.

Reducing coal overcapacity in China: a new perspective of optimizing local officials' promotion system.

Reducing coal overcapacity is an important strategy to achieve carbon peak and carbon neutralization in China. Determining the drivers of coal overcapacity is the first step toward this strategy. The existing literature focuses mainly on the macro determinants of coal overcapacity. Micro factors such as local officials' intervention motivation also plays a role, but has received less attention in the literature. Using data from 25 coal-producing provinces in China, we demonstrate that local officials' promotion pressure under the GDP-based promotion system significantly leads to coal overcapacity. Mediation effect analysis suggests that factor market distortion is one important channel through which local officials' promotion pressure affects overcapacity in the coal sector, and the distortion in the capital market plays a more dominant role than distortion in the labor market. To alleviate the negative effect of officials' promotion pressure on capacity utilization rate, we build a diversified promotion system incorporating environmental indicators. Results show that when the environmental pressure index accounts for at least 50% of the weights in the diversified promotion system, the negative effect of promotion pressure disappears. Our results suggest that to reduce coal overcapacity problem, policymakers may wish to weaken the GDP-based political promotion incentive by adding environmental and ecological indicators and reducing interventions on factor allocation. Results from the present paper has implications for resource-dependent countries facing similar overcapacity problems, especially in the context of the open economy and green recovery in the post-COVID-19 period.

Atração de investimentos privados para a infraestrutura no Brasil / Atraer inversión privada para infraestructura en Brasil / Attracting private investments for infrastructure in Brazil

Resumo Este estudo busca identificar as principais motivações e barreiras para a atração de investimentos do mercado de capitais para o setor de infraestrutura no Brasil. Entre os resultados da pesquisa, verificou-se que os incentivos variam conforme o tipo de investidor. Pessoas físicas são fortemente atraídas pela isenção fiscal prevista na Lei nº 12.431/2011, para a compra de debêntures incentivadas, e hoje representam um dos principais investidores em infraestrutura no país. Já fundos de pensão domésticos não são incentivados pela isenção da lei - seus investimentos são isentos de Imposto de Renda - e consideram baixo o spread pago pelos emissores das debêntures incentivadas. Investidores estrangeiros avaliam como desfavorável o ambiente de investimentos no país, em função de fatores como a alta volatilidade cambial e a instabilidade política. Conclui-se, portanto, que, para suprir a lacuna de investimentos em infraestrutura, há a necessidade de reformas institucionais mais amplas para atrair investidores de longo prazo. A certificação verde de projetos de infraestrutura representa outra estratégia interessante para a atração de investimentos, sobretudo estrangeiros.

Resumen Este estudio buscó identificar las principales motivaciones y barreras para atraer inversiones del mercado de capitales al sector de infraestructura en Brasil. Entre los resultados de la investigación se encontró que los incentivos varían según el tipo de inversionista. Los inversionistas individuales son fuertemente atraídos por la exención de impuestos prevista en la Ley nº 12.431/2011 para la compra de debentures incentivados y hoy representan uno de los principales inversionistas en infraestructura del país. Los fondos de pensiones nacionales, por su parte, no están incentivados por la exención de la ley (sus inversiones están exentas del Impuesto a la Renta) y consideran bajo el margen pagado por los emisores de debentures incentivados. Los inversionistas extranjeros consideran que el ambiente de inversión en el país es desfavorable, debido a factores como la alta volatilidad del tipo de cambio y la inestabilidad política. Por lo tanto, se concluye que, para llenar el vacío de inversiones en infraestructura, se necesitan reformas institucionales más amplias para atraer inversores a largo plazo. La certificación verde de proyectos de infraestructura representa otra estrategia interesante para atraer inversiones, especialmente extranjeras.

Abstract This study sought to identify the main drivers of and barriers to attracting capital market investments to the infrastructure sector in Brazil. The research findings indicate that the incentives vary according to the type of investor. Individual investors are strongly attracted by the tax exemption provided for in Statute 1,2431/2011 to purchase incentivized debentures, and, today, they represent one of the main investors in infrastructure in the country. On the other hand, domestic pension funds have no incentives based on this piece of legislation (their investments are exempt from income tax). For these pension funds, the spread paid by the issuers of incentivized debentures is low. Foreign investors consider the investment environment in the country to be unfavorable due to factors such as high exchange rate volatility and political instability. Therefore, broader institutional reforms are needed to fill the gap in infrastructure investments and attract long-term investors. Green certification of infrastructure projects represents another interesting strategy for attracting investments, especially foreign investors.

Charting new courses to enter foreign markets: Conceptualization, theoretical framework, and research directions on non-traditional entry modes.

Recent advances in digitalization and increasing integration of international markets are paving the way for a new generation of firms to use non-traditional entry modes that are largely marginalized in previous entry mode studies. While extant research revolves around the level of resource commitment and control in foreign activities, non-traditional modes are encapsulated by the extent of embeddedness required for exploring new and/or exploiting existing resources. In particular, we draw attention to four such categories of non-traditional entry modes the literature has touched on, i.e., capital access, innovation outposts, virtual presence, and the managed ecosystem. We explore the key attributes, antecedents, and strategic implications of these modes. Our paper highlights the need for enriching current entry mode research by considering a broader range of entry mode activities available to firms as well as employing new theoretical perspectives to understand the complex phenomena of internationalization.

Did green debt instruments aid diversification during the COVID-19 pandemic?

Faced with a persistent pandemic, investors are concerned about portfolio diversification. While the literature on COVID-19 has evolved impressively, limited work remains on diversification opportunities. We contribute to the literature by exploring the volatility and co-movement of different sovereign debt instruments, including green sukuk, sukuk, bond and Islamic and conventional equity indices for Indonesia. Our results consistently point towards increased asset co-movement and weak profitability during the pandemic. Interestingly, sukuk and green sukuk have a 14% correlation with stocks, suggesting potential diversification prospects in times of extreme shocks.

Does Multiple Capitals Disclosure Affect the Capital Market? An Empirical Analysis in an Integrated Reporting Perspective.

Integrated reporting (IR), as a novel corporate reporting approach, focuses on how six forms of capital promote corporate value. This paper explores whether this kind of multiple capitals disclosure (MCD) framework has an impact on the capital market. Using a sample of Chinese A-share firms from 2012 to 2016, we examine the relationship between MCD quality and firm value. The results indicate that a higher MCD quality leads to a greater firm value. Our results are robust to a variety of sensitivity tests. Further evidence suggests that MCD quality could increase profitability by affecting the decision-making of non-financial stakeholders and enhance the value relevance of financial information by affecting the decision-making of investors. The paper helps understand how the IR approach affects the perception of investors on the value of a firm. The findings of the paper are of interest to academics, corporate management, investors, and governmental officials.

The Impact of COVID-19 on China's Capital Market and Major Industry Sectors.

This paper studied the impact of COVID-19 on China's capital market and major industry sectors via an improved ICSS algorithm, a time series model with the exogenous variable and a non-parametric conditional probability estimation. Through the empirical analysis, it is found that the epidemic has no significant impact on the return of the stock and bond markets, but it has increased the market volatility and the impact on the stock market volatility is gradual and more obvious. There are significant differences in the significance, direction and duration of the epidemic on different sectors. In addition, the impact of COVID-19 has been gradual in some industries and rapid in others. Different industries show different sensitivities in their response to COVID-19. Based on the analysis of the impact, this paper put forward the corresponding suggestions for investment strategies and macro-control decisions.

Assessing the asymmetric effects of capital and money markets on economic growth in China.

This study examines the effects of capital and money market predictors on economic growth in China using non-linear autoregressive distributed lags and dynamic multiplier methods. Applying asymmetric techniques is based on the hypothesized linear effects of finance on growth. Confirming the asymmetric nexus and long-run bounds amid indicators, the results demonstrate that positive (negative) shocks from money market rate decrease (increase) economic growth, while negative (positive) shocks from real interest rate and total liquidity increase (decrease) growth in the short-run. Besides, the results reveal that the shocks (positive and negative) from market capitalization and stock market turnover increase economic growth, while the shocks from total stock traded decrease growth both in the short and long runs. Moreover, the results of error-correction reveal a steady speed of adjustment of the short-run asymmetries to their long-run equilibrium, implying that improved financial systems attract sound financial projects, leading to sustainable and long-run economic growth. In light of the findings, relevant policy recommendations are discussed.

The Impact of COVID-19 on China's Capital Market and Major Industry Sectors.

This paper studies the impact of COVID-19 on China's capital market and major industry sectors via an improved ICSS algorithm, a time series model with exogenous variables and nonparametric conditional probability estimation. Through the empirical analysis of the stock market, the bond market and different industry sectors, it is found that the pandemic has had no significant impact on the return of the stock and bond markets; however, it has increased market volatility. There are significant differences in the significance, direction and duration of the impact of the pandemic in different sectors. In addition, the impacts of COVID-19 have been gradual in some industries but rapid in others. Different industries show different sensitivities in their response to COVID-19. Based on the impact analysis, this paper proposes corresponding suggestions for investment strategies and macrocontrol decisions.

Reliability of Financial Information from the Perspective of Benford's Law.

This study investigates the conformity to Benford's Law of the information disclosed in financial statements. Using the first digit test of Benford's Law, the study analyses the reliability of financial information provided by listed companies on an emerging capital market before and after the implementation of International Financial Reporting Standards (IFRS). The results of the study confirm the increase of reliability on the information disclosed in the financial statements after IFRS implementation. The study contributes to the existing literature by bringing new insights into the types of financial information that do not comply with Benford's Law such as the amounts determined by estimates or by applying professional judgment.

Stock Market Liberalization and Corporate Green Innovation: Evidence from China.

Corporate green innovation is an effective way to achieve energy conservation and emission reduction. Enterprises' willingness to pursue green innovation is increasingly affected by external factors. By using a quasi-natural experiment of China's Stock Connect program, we investigate the impact of stock market liberalization on corporate green innovation. We find that stock market liberalization increases enterprises' green innovation, especially for state-owned enterprises. We also find that stock market liberalization plays a stronger role in promoting the green invention patents of enterprises whose managers have overseas experience and enterprises in areas with a higher degree of openness. Our mechanism analysis suggests that stock market liberalization attracts the attention of securities analysts and increases managers' focus on environmental protection, thereby promoting corporate green innovation. Our findings show that stock market liberalization plays an important role in the governance of firms' non-financial behavior, which has important theoretical and practical implications.