Search Results (5)

Water scarcity is increasingly recognized as a macroeconomic challenge, yet its implications for sovereign financing conditions remain insufficiently understood. This study examines whether water scarcity is associated with sovereign borrowing costs and whether this relationship strengthens once hydrological pressure exceeds a critical threshold. Using an international panel of 105 countries over the period 2000–2024, the analysis combines second-generation panel diagnostics with nonlinear threshold estimation to examine long-run relationships and regime-dependent effects. The results indicate that water scarcity is positively associated with sovereign risk premiums, but the relationship is distinctly nonlinear. A critical threshold is identified at 61.37% water stress, beyond which the estimated association becomes substantially larger, with the coefficient increasing from 0.005 below the threshold to 0.024 above it. This pattern suggests that severe hydrological pressure is more strongly associated with higher sovereign borrowing costs than moderate water stress. The analysis further suggests that financial development, renewable energy deployment, and stronger institutional quality are associated with a weaker relationship between water scarcity and sovereign risk premiums, highlighting the potential importance of domestic resilience capacity. These findings remain broadly robust across alternative sovereign risk measures, alternative water scarcity proxies, dynamic specifications, and smooth-transition nonlinear models. This study contributes to the emerging literature on environmental macro-financial linkages by providing evidence that water scarcity may be increasingly relevant for sovereign financing conditions, particularly in economies facing severe and persistent hydrological stress. Full article

Against the backdrop of the expansion of sustainable finance and the growing relevance of ESG-related information, disclosure and regulation, this paper examines the dynamic relationship between sustainability-related uncertainty and ESG equity market volatility in a global framework. Sustainability-related uncertainty is proxied by the Global GDP-Weighted ESG-Based Sustainability Uncertainty Index (ESGUI), while ESG market volatility is measured through a monthly proxy constructed from estimated daily conditional variances obtained from GJR-GARCH(1,1) models with Student-t innovations. The paper explicitly distinguishes sustainability-related uncertainty, understood as ambiguity in the ESG information environment, from ESG market volatility, understood as market-pricing instability in ESG equity benchmarks. Empirically, the study combines bootstrap full-sample Granger-causality tests, parameter-stability diagnostics, and rolling-window bootstrap analysis. Robustness and extended analyses use an EGARCH-based volatility proxy, alternative rolling-window lengths, macro-financial controls, an emerging-market ESG benchmark, impulse-response analysis, forecast-error variance decomposition, and out-of-sample forecasting tests. The full-sample results indicate an asymmetric predictive pattern: ESG market volatility contains Granger-causal predictive information for changes in sustainability-related uncertainty, whereas the reverse direction is not supported on average. However, parameter-stability tests reject constancy, and rolling-window evidence shows that predictive effects arise episodically in both directions, with changes in sign, magnitude and significance. The uncertainty-to-volatility channel becomes statistically relevant and locally stronger during stress episodes, especially around 2019–2021, while macro-control results show that broader market stress absorbs part of the volatility-to-uncertainty linkage. The findings indicate a regime-dependent uncertainty–volatility nexus and support dynamic approaches to ESG risk monitoring, portfolio management and regulatory communication. All results are interpreted as predictive evidence, not structural causality. Full article

We show that financial integration in emerging Asia is state-dependent in the sense that cross-market linkages vary systematically across regimes of global uncertainty and market stress. Focusing on Indonesia, Malaysia, Singapore, Thailand, and Vietnam, this study combines a time-varying parameter VAR (TVP–VAR) with a GARCH–MIDAS volatility model to link short-run transmission to long-run behavioural effects. We construct a regional investor-sentiment (IS) index from Google search data on five macro-financial topics using principal component analysis and analyse it together with global benchmarks (MSCI EM, S&P 500), gold, clean-energy equities, and macro-uncertainty indicators. The TVP–VAR maps dynamic spillovers among the ASEAN-5 and external nodes, while the GARCH–MIDAS relates the slow component of variance to investor attention. The evidence indicates that connectedness tightens in stress regimes, with global benchmarks and policy uncertainty acting as transmitters and ASEAN equities absorbing incoming shocks. In the volatility block, the Google-based IS factor exerts a negative and economically meaningful influence on the long-run component over and above global uncertainty, supporting the view that attention and uncertainty function as complementary channels of risk propagation. The integrated framework is parsimonious and replicable, and it offers actionable insights for regime-aware risk management, policy communication, and the timing of green-finance issuance in emerging markets. Full article

This study investigates the dynamic relationship between key macroeconomic indicators, specifically inflation (CPI), the Federal Funds Rate, GDP growth, unemployment, and money supply, and U.S. stock market returns, represented by the S&P 500 index, over the period January 2015 to June 2025. The objective is to understand how inflation and monetary policy affect market performance in both the short and long run. Using an Autoregressive Distributed Lag (ARDL) modeling framework and Error Correction Model (ECM), the study examines monthly S&P 500 returns alongside macroeconomic variables, accounting for lagged effects and potential cointegration. The model captures both immediate and delayed impacts, employing the Bounds Testing approach to confirm long-run equilibrium relationships. Results show significant mean-reversion in stock returns, a delayed negative impact of inflation and interest rate increases, and a positive contemporaneous response to GDP growth. Unemployment exhibits a counterintuitive positive effect on returns, suggesting forward-looking investor expectations. The money supply also positively influences equity prices, supporting liquidity-based asset pricing theories. This paper provides updated empirical evidence on macro-finance linkages and highlights the complex interplay of monetary policy, inflation, and market expectations in shaping U.S. equity returns. Full article

One of the main characteristics of the (recently proposed) non-arbitrage valuation of equities framework is the reduction in pricing subjectivity. This is evidenced in terms of the dividends discount rate and the outlook of future performance (dividends projection) of the company that is being valued. Under this framework, as in the case of derivatives pricing, the discount rate is the risk-free interest rate (not the cost of equity), and the subjectively-determined drift of the stochastic process that drives the operating profits of the company is eliminated. The challenge that emerges is that the structure of the new drift of the operating profits process is undetermined under the methodology (this is a similar feature that is observed in the case of derivatives related to non-tradable assets). This paper proposes that the structure of this new drift is represented by the (country-specific) GDP nominal growth effect. This proposition is tested through an empirical study that involves several companies of 10 equity indices worldwide, for two different periods (1995–2004 and 2005–2014). The results of the test are reasonably successful, meaning that further research related to the framework could provide useful information for the understanding of financial assets and their links to the macro-economy. Full article