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Good vs. Bad Volatility in Major Cryptocurrencies: The Dichotomy and Drivers of Connectedness
Šíla, Jan ; Kočenda, Evžen ; Kukačka, Jiří ; Krištoufek, Ladislav
Cryptocurrencies exhibit unique statistical and dynamic properties compared to those of traditional financial assets, making the study of their volatility crucial for portfolio managers and traders. We investigate the volatility connectedness dynamics of a representative set of eight major crypto assets. Methodologically, we decompose the measured volatility into positive and negative components and employ the time-varying parameters vector autoregression (TVP-VAR) framework to show distinct dynamics associated with market booms and downturns. The results suggest that crypto connectedness reflects important events and exhibits more variable and cyclical dynamics than those of traditional financial markets. Periods of extremely high or low connectedness are clearly linked to specific events in the crypto market and macroeconomic or monetary history. Furthermore, existing asymmetry from good and bad volatility indicates that information about market downturns spills over substantially faster than news about comparable market surges. Overall, the connectedness dynamics are predominantly driven by fundamental crypto factors, while the asymmetry measure also depends on macro factors such as the VIX index and the expected inflation.
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Drivers of Private Equity Activity across Europe: An East-West Comparison
Kočenda, Evžen ; Shivendra, R.
We investigate the key macroeconomic and institutional determinants of fundraising and investment activities and compare them across Europe, covering 13 Central and Eastern European (CEE) and 16 Western European (WE) countries. Five macroeconomic variables and nineteen institutional variables are selected. These variables are studied using panel data analysis with fixed effects and random effects models over an eleven-year observation period (2010–2020). Bayesian Model Averaging (BMA) is applied to select the key variables. Our results suggest that macroeconomic variables have no significant impact on fundraising and investment activity in either region. Investment activity is a significant driver of fundraising across Europe. Similarly, fundraising and divestment activity are significant drivers of investments across Europe. Institutional variables, however, affect fundraising and investment activity differently. While investment freedom has a significant effect on funds raised in the WE and CEE countries, government integrity and trade freedom are both significant determinants of investments in both European regions. In addition, the results demonstrate that, in contrast to the WE region, fundraising in the CEE region is not country specific.
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Determinants of Financial Inclusion in Africa and OECD Countries
Kočenda, Evžen ; Eshun, S. F.
Sub-Saharan Africa (SSA) has been identified as one of the least financially inclusive regions in the world with a huge disparity in comparison to highly financially inclusive regions. Using a dynamic panel data analysis, we explore the factors influencing financial inclusion in Sub-Saharan Africa (SSA) using countries belonging to the Organisation for Economic Co-operation and Development (OECD) as a benchmark. We employ the System Generalized Method of Moments (GMM) estimator and assess 31 SSA and 38 OECD countries from 2000-2021. We show that the differences in trade openness, banks' efficiency, income, and remittances are some macro-level factors that explain the variation in financial inclusion levels. We highlight the importance of quality literacy policies, trade improvement with restrictions on cross-border capital flows, and a more efficient financial system to promote financial inclusion.
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Financial Impact of Trust and Institutional Quality around the World
Kapounek, S. ; Kočenda, Evžen ; Kouba, L.
We investigate the financial impact of social trust, institutional quality, and regulations. As a testing ground we employ a unique, large, and hand-crafted dataset of more than 850 000 lending-based crowdfunding projects from 155 platforms across 55 countries during 2005–2018. We show that the impact of social trust is positive but economically less pronounced than that of institutional trust proxied by legal and property rights protection and regulation. Moreover, the financial impact of social trust is greater at the national level, while impact of institutional quality dominates at the international level. Nevertheless, the financial impact of trust and institutional quality around the world is positive, which is an encouraging implication under increasing anonymity and internationalization of financial environment.
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Bank Survival Around the World: A Meta-Analytic Review
Kočenda, Evžen ; Iwasaki, I.
Bank survival is essential to economic growth and development because banks mediate the financing of the economy. A bank’s overall condition is often assessed by a supervisory rating system called CAMELS, an acronym for the components Capital adequacy, Asset quality, Management quality, Earnings, Liquidity, and Sensitivity to market risk. Estimates of the impact of CAMELS components on bank survival vary widely. We perform a meta-synthesis and meta-regression analysis (MRA) using 2120 estimates collected from 50 studies. In the MRA, we account for uncertainty in moderator selection by employing Bayesian model averaging. The results of the synthesis indicate an economically negligible impact of CAMELS variables on bank survival; in addition, the effect of bank-specific, (macro)economic, and market factors is virtually absent. The results of the heterogeneity analysis and publication bias analysis are consistent in terms that they do not find an economically significant impact of the CAMELS variables. Moreover, best practice estimates show a small economic impact of CAMELS components and no impact of other factors. The study concludes that caution should be exercised when using CAMELS rating to predict bank survival or failure.
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Media Treatment of Monetary Policy Surprises and Their Impact on Firms’ and Consumers’ Expectations
Pinter, J. ; Kočenda, Evžen
We empirically investigate whether monetary policy announcements affect firms’ and consumers’ expectations by taking into account media treatments of monetary policy announcements. To identify exogenous changes in monetary policy stances, we use the standard financial monetary policy surprise measures in the euro area. We then analyze how a general newspaper and a financial newspaper (Le Monde and The Financial Times) report on announcements. We find that 87 % of monetary policy surprises are either not associated with the general newspaper reporting a change in the monetary policy stance to their readers or have a sign that is inconsistent with the media report of the announcement. When we use the raw monetary policy surprises variable as an independent variable in the link between monetary policy announcements and firms’/consumers’ expectations, we mostly do not find, in line with several previous studies, any statistically significant association. When we take only monetary policy surprises that are consistent with the general newspaper report, in almost all cases we find that monetary policy surprises on the immediate monetary policy stance do affect expectations. Surprises related to future policy inclination and information shocks usually do not appear to matter. The results appear to be in line with rational inattention theories and highlight the need for caution in the use of monetary policy surprise measures for macroeconomic investigations.
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Does the Spillover Index Respond Significantly to Systemic Shocks? A Bootstrap-Based Probabilistic Analysis
Greenwood-Nimmo, M. ; Kočenda, Evžen ; Nguyen, V. H.
The spillover index developed by Diebold and Yilmaz (Economic Journal, 2009, vol. 119, pp. 158-171) is widely used to measure connectedness in economic and financial networks. Abrupt increases in the spillover index are typically thought to result from systemic events, but evidence of the statistical significance of this relationship is largely absent from the literature. We develop a new bootstrap-based technique to evaluate the probability that the value of the spillover index changes over an arbitrary time period following an exogenously defined event. We apply our framework to the original dataset studied by Diebold and Yilmaz and obtain qualified support for the notion that the spillover index increases in a timely and statistically significant manner in the wake of systemic shocks.
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Yield Curve Dynamics and Fiscal Policy Shocks
Kučera, A. ; Kočenda, Evžen ; Maršál, Aleš
We show that government spending does play a role in shaping the yield curve which has important consequences for the cost of private and government financing. We combine government spending shock identification strategies from the fiscal macro literature with recent advancements in no-arbitrage affine term structure modeling, where we account for time-varying macroeconomic trends in inflation and the equilibrium real interest rate. We stress in our empirical macro-finance framework the importance of timing in the response of yields to government spending. We find that the yield curve responds positively but mildly to a surprise in government spending shocks where the rise in risk-neutral yields is compensated by a drop in nominal term premia. The news shock in expectations about future expenditures decreases yields across all maturities. Complementarily, we also analyze the effect of fiscal policy uncertainty where higher fiscal uncertainty lowers yields.
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ECB monetary policy and commodity prices
Aliyev, S. ; Kočenda, Evžen
We analyze the impact of the ECB monetary policies on global aggregate and sectoral commodity prices using monthly data from January 2001 till August 2019. We employ a SVAR model and assess separately period of conventional monetary policy before global financial crisis (GFC) and unconventional monetary policy during post-crisis period. Our key results indicate that contractionary monetary policy shocks have positive effects on the aggregate and sectoral commodity prices during both conventional and unconvetional monetary policy periods. The effect is statistically significant for aggregate commodity prices during post-crisis period. In terms of sectoral impact, the effect is statistically significant for food prices in both periods and for fuel prices during post-crisis period; other commodities display positive but statistically insignificant responses. Further, we demonstrate that the impact of the ECB monetary policy on commodity prices increased remarkably after the GFC. Our results also suggest that the effect of the ECB monetary policy on commodity prices does not transmit directly through market demand and supply expectations channel, but rather through the exchange rate channel that influences the European market demand directly.
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