The Banking and Finance Review

FOMC Announcements and Market Reactions From 1998 to 2022

Cristiano Manfre — 2024-05-20

This article examines the market reactions to Federal Open Market Committee (FOMC) announcements from 1998 to 2022. The study's key finding is that U.S. capital markets tended to consistently record a worse-than-average performance during the days leading to the announcements and especially following the announcements. Concurrently, volatility tended to be significantly higher during the same periods rather than other periods. The study analyzed the changes in the federal funds rate and the target rate that the FOMC sets and compared them with the changes in the futures market to account for the market's surprises. We found that the negative performance was most accentuated when the market did not fully anticipate FOMC decisions. With respect to volatility, our data indicated that the standard deviation of the daily returns was higher when the FOMC decision represented a surprise and lower when not. We also observed that average volumes tended to increase while the momentum worsened for the periods leading to the announcement date. Overall, our findings suggest that the market may not always fully understand the implications of investing in the days that lead to the FOMC decisions, or some investors might take a speculative approach during those days. Our study also investigated the factors that may have contributed to the market's irrational response, including uncertainty about the future, unexpected economic conditions, and market sentiment. The article concludes that understanding the market's reaction to FOMC announcements is essential for investors and highlights the need for further research on this topic.

The Impact of Global Warming Sentiment on Investor Gain in Stock Market

Chai Liang Huang — 2024-09-21

This study investigates how weather and investor sentiment indicators affect stock market returns. The findings reveal that extreme hot weather caused by global warming strengthens investor sentiment. This implies that investors tend to become more aggressive and risk-taking in hot weather conditions, resulting in overconfident and optimistic behavior, leading to higher returns. Rather than dividend yields or total returns, capital gains can be better explained by the effects of investor sentiment and scorching temperatures. The study concludes that scorching temperatures are a reliable indicator for measuring the impact of extremely hot weather on returns in connection with investor sentiment.

Platformification of the Global Fintech Landscape in the Twenty-first century: Opportunities and Challenges

Ramnath Reghunadhan — 2024-05-20

The era of Fourth Industrial Revolution (4IR) began in the 21^st century, and the world is on the cusp of a wider and broader interconnected form of life and being, which is characterised by the emergence, use, institutionalisation and internationalisation of Fintech. According to the study, the current emergence of Fintech has led to platformisation and platformification of the global technology landscape, especially in the financial sector. The article surveys and analyses these transformations in the Global FinTech landscape, wherein the analysis focuses on mitigating the emerging complexities, challenges and issues related to the Fintech landscape.

Bank Characteristics and the Debt Guarantee Program

Anna-Leigh Stone — 2024-09-13

We investigate characteristics of bank holding companies (BHCs) that issued debt under the 2008 Debt Guarantee Program (DGP), a novel topic in the literature. We find that BHCs with more equity, that were less efficient, and had a larger funding gap were less likely to issue DGP debt. But BHCs with a higher loan growth and higher volatility of assets were more likely to issue DGP debt. Finally, the economy affected the decision; we document that as the economy improved BHCs were less likely to issue DGP debt and issued a smaller proportion of DGP debt in terms of total assets and total debt. Furthermore, we examine if personal and professional characteristics of Chief Executive Officers (CEOs) influenced the decision. Of the CEO characteristics, we document that BHCs with a CEO with a Master of Business Administration issued lower amounts of DGP debt as a percentage of total assets.

CEO General Ability and the Takeover Market

A. Can Inci — 2024-12-08

The purpose of this study is to examine the mechanisms behind the higher performance of generalist CEOs in the takeover market compared to their specialist counterparts as measured by the market reactions to the deal announcement. We study three non-inclusive mechanisms that could enhance the performance in the takeover market for the generalist CEOs: target complexity, deal structure, and the CEO’s past merger and acquisitions (M&A) activity. We proxy target complexity by the size of the target firm, the number of segments, and the level of R&D. For the deal structure, we study the effect of tender offer, horizontal acquisition, and the consideration deal offered. We also study the effect of the CEO’s past experience as an acquirer or as a target. We find that the higher CARs for the generalist CEOs are more pronounced when the CEO acquires small, but complex firms, suggesting target selection as an underlying mechanism. We find no evidence that the effect stems from the structure of the deal or the CEO’s past M&A activity. This study adds to the existing literature by examining the mechanisms behind the acquisition gains for generalist CEOs. The evidence suggests that the increased pay for generalist CEOs is partially justified by their performance in the takeover market.