| Autor: |
Cem Çakmaklı, Richard Paap, Dick van Dijk |
| Jazyk: |
angličtina |
| Rok vydání: |
2022 |
| Předmět: |
|
| Zdroj: |
Central Bank Review, Vol 22, Iss 4, Pp 129-140 (2022) |
| Druh dokumentu: |
article |
| ISSN: |
1303-0701 |
| DOI: |
10.1016/j.cbrev.2022.11.001 |
| Popis: |
This paper examines the lead/lag relations between size-sorted portfolio returns through the lens of financial cycles governing these returns using a novel econometric methodology. Specifically, we develop a Markov-switching vector autoregressive model that allows for imperfect synchronization of cyclical regimes such as bull and bear market regimes in US large-, mid- and small-cap portfolio returns. This is achieved by characterizing the cycles of the mid- and small-cap portfolio returns in concordance with the cycle of large-cap portfolio returns together with potential phase shifts. We find that a three-regime model with distinct phase shifts across regimes characterizes the joint distribution of returns most adequately. These regimes are closely linked to the business cycle and small-cap portfolio returns are more sensitive to the cyclical phases than the large-cap portfolios. While all portfolios switch contemporaneously into boom and crash regimes, the large-cap portfolio leads the small-cap portfolio for switches to a moderate regime from a boom regime by a month. This suggests that small-cap portfolio adjusts with a delay to the relatively negative news compared to portfolios with larger market capitalization. We document that information diffusion accelerates in response to surprises related to the monetary policy. This reflects a link between financial returns and real economic activity from the viewpoint of ‘financial accelerator theory’ where portfolios with distinct size serve as a proxy for firm characteristics. |
| Databáze: |
Directory of Open Access Journals |
| Externí odkaz: |
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