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Analysing causality among oil prices and, in general, among financial and economic variables is of central relevance in applied economics studies. The recent contribution of Lu et al. (2014) proposes a novel test for causality— the DCC-MGARCH Hong test. We show that the critical values of the test statistic must be evaluated through simulations, thereby challenging the evidence in papers adopting the DCC-MGARCH Hong test. We also note that rolling Hong tests represent a more viable solution in the presence of short-lived causality periods.
This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect the expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. In a calibrated macro-finance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.
We analyze the extent to which individual audit partners influence the audited narrative disclosures in their clients’ financial reports. Using a sample of 3,281,423 private and public client firm-pairs, we find that the similarity among audited narrative disclosures is higher when two client firms share the same audit partner. Specifically, we find that the wording similarity of management reports (notes) increases by 30 (48) percent, the content similarity by 29 (49) percent, and the structure similarity by 48 (121) percent. Moreover, we find that audit partners in particular are relevant for their clients’ narrative disclosures because the increase in narrative disclosure similarity when sharing the same audit partner is nine (four) times greater than when sharing the same audit firm (audit office). We show that this influence of audit partners goes beyond adding boilerplate statements and, using novel field evidence, we shed light on the underlying mechanisms. Our findings are economically relevant because a stronger involvement of audit partners with their clients’ narratives is associated with a higher quality of narrative disclosures, which helps users better predict the future profitability of client firms.
Recent advances in natural language processing have contributed to the development of market sentiment measures through text content analysis in news providers and social media. The effectiveness of these sentiment variables depends on the imple- mented techniques and the type of source on which they are based. In this paper, we investigate the impact of the release of public financial news on the S&P 500. Using automatic labeling techniques based on either stock index returns or dictionaries, we apply a classification problem based on long short-term memory neural networks to extract alternative proxies of investor sentiment. Our findings provide evidence that there exists an impact of those sentiments in the market on a 20-minute time frame. We find that dictionary-based sentiment provides meaningful results with respect to those based on stock index returns, which partly fails in the mapping process between news and financial returns.
The “European Green Deal” stipulates that the EU will become climate-neutral by 2050. This transformation requires enormous investments in all major sectors including energy, mobility, industrial manufacturing, real estate and farming. Although the EU Commission has announced that a total of EUR 1 trillion will be invested into the green transformation of the European economy over the next ten years, the majority of the investments must be financed by the private sector. Alongside many factors affecting a successful implementation of the Green Deal, a regulatory framework for the financial industry has to be established to facilitate the financing of sustainable investments. To that end, the European Sustainable Finance Strategy lays the foundation for a complex set of different measures that have been launched in recent years. This article provides a comprehensive overview of key regulatory initiatives such as the taxonomy regulation, the disclosure frameworks for both corporates and financial institutions and other aspects of financial market regulation that have already significantly improved the regulatory framework for sustainable finance. Nevertheless, some additional instruments could be considered, such as a reform of top management remuneration or the provision of tax incentives for green investments in the real economy, and these are briefly discussed.