Financial markets

Jakob de Haan, Dirk Schoenmaker, 06 July 2015

The financial crisis brought with it many challenges, both to prevailing disciplinary tenets, and for research and policy more generally. This column outlines the lessons that can be drawn from the financial crisis – issues like financial market failures, macro-prudential policy, structural changes of the financial system, and the European banking union. It argues for the inclusion of these topics in curricula for the next generation of finance students.

Gert Peersman, Wolf Wagner, 05 July 2015

The events of recent years have made it all too clear that we need to better understand the links between the financial sector and the real economy. This column explores financial sector shocks and real economy shocks and presents new evidence suggesting that financial shocks are a significant source of macroeconomic fluctuations. Policymakers need to better take into account the role of the financial system when predicting the future and when readying remedies.

Sven Langedijk, Gaëtan Nicodème, Andrea Pagano, Alessandro Rossi, 04 July 2015

Strengthening the banking sector through higher equity capital is one of the key elements of policies aiming to reduce the probability of crises. However, the ‘corporate debt bias’ – the tendency of corporate tax systems to favour debt over equity – is at odds with this objective. This column estimates the benefits for financial stability of eliminating the corporate debt bias. Fully removing the debt bias is estimated to reduce potential public finance losses by between 25 and 55% for the six large EU countries sampled. 

Bastian von Beschwitz, Donald B. Keim, Massimo Massa, 02 July 2015

High-frequency news analytics can increase market efficiency by allowing traders to react faster to new information. One concern about such services is that they might provide a competitive advantage to their users with potential distortionary price effects. This column looks at how high frequency news analytics affect the stock market, net of the informational content that they provide. News analytics improve price efficiency, but at the cost of reducing liquidity and with potentially distortionary price effects.

Dan Greenwald, Martin Lettau, Sydney Ludvigson, 30 June 2015

Most theories explain the volatility of the stock market with shocks to macroeconomic fundamentals that have important consequences for growth. This column argues that the most important forces behind the longer term gains in the US stock market have not been drivers of economic growth. Instead, they have been an accumulation of random shocks which resulted in redistribution between workers and shareholders. 

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