Archive for February 17th, 2012

How FIFA world cup leads to lower trading in equity markets…

February 17, 2012

Michael Ehrmann and David-Jan Jansen of ECB look at the 2010 football world cup and assess its impact on trading in equity markets.

They find that during matches the trading (both in number of transactions and total volumes declines).

Every four years, 32 national soccer teams compete in the World Cup. This tournament, which is organised by the world soccer association FIFA, attracts attention from millions of fans across the globe. During the 2010 edition in South Africa, many matches were played during stock market trading hours. This presents us with a natural experiment to analyze possible fluctuations in investor attention.

The paper presents three key findings. First, we find strong evidence of decreased activity in stock markets during soccer matches at the 2010 World Cup. Trading activity dropped markedly, especially if the national team was one of the competitors. Compared to normal market circumstances, the median number of trades dropped by 45% if the national team was playing, while the volume dropped by around 55%. Second, we show how goals scored by either team led to an even stronger decline in the number of trades and offered quotes. Also, we find that market activity was already significantly below the benchmark right before the match started, and continued to be lower during the 45 minutes after the match had ended. Third, we show that also price formation was affected during the soccer matches, as the evolution of returns on national markets decoupled from those on global markets. 

In the light of this, we conclude that markets were following developments on the soccer pitch rather than in the
trading pit, leading to a changed price formation process.

An interesting event study on investor inattention. In India, am sure trading and other activity dropped during recent world cup victory by India. Though going by recent performances of Indian cricket team,  people are likely to work more in order to avoid getting distracted from the pathetic performance of their team.

A primer on shadow banking

February 17, 2012

Bryan Noeth and Rajdeep Sengupta write this nice short primer on shadow banking.

They explain nicely the liabilities and assets of the shadow banks and how they are similar and different from traditional commercial banks.

They sum the note saying  though shadow banks are partly responsible for the crisis, they are still useful for the variety they bring to the financial system.


Prof Bernanke vs Chairman Bernanke: How Bernanke’s views have changed over zero interest rate policy?

February 17, 2012

This is a wow paper from Laurence Ball of John Hopkins Univ.

He says that Bernanke’s views over what central bank can do have changed considerably since Bernanke questioned BoJ policies in 2000 in this much read paper.

Ball says Bernanke was far more aggressive and forthcoming in his initial thoughts but has mellowed down since he joined Fed. What is even more interesting is that his list of policy tools under Zero policy rates has declined since 2000s.


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