News sentiment to market impact and its feedback effect

Although market feedback on investor sentiment effect has been conceptually identified in the existing finance literature and investment strategies have been designed to explore this effect, there lacks systematic analysis in a quantified manner on such effect. Digitization of news articles and the advancement of computational intelligence applications have led to a growing influence of news sentiment over financial markets in recent years. News sentiment has often been used as a proxy for gauging investor sentiment and reflecting the aggregate confidence of the society toward future market. Previous studies have primarily focused on elucidating the unidirectional impact of news sentiment on market returns and not vice versa. In this study, we analyze more than 12 millions of news articles and document the presence of a significant feedback effect between news sentiment and market returns across the major indices in the US financial market. More specifically, we find that news sentiment exhibits a lag-5 effect on market returns and conversely market returns elicit consistent lag-1 effects on news sentiment. This aligns well with our intuition that news sentiment drives trading activity and investment decisions. In turn, heightened investment activity further stimulates involuntary responses, which manifest in the form of more news coverage and publications. The evidence presented highlights the strong correlation between news sentiment and market returns and demonstrates the benefits of advancing knowledge in data-driven modeling and its interaction with market movements.     

Forecasting precious metal price movements using trader positions

In the early 2000s, the precious metal markets entered into a new phase where a steady rise of prices had been observed until the October 2008 crash. Given the size and importance of precious metal market, as well as the hedging capacity of precious metals due to their low correlation with equity markets (Draper et al., 2006), the question we want to arise is whether trader positions predict the direction of gold, platinum, and silver spot price movements. The forecasting content of the Commodity Futures Trading Commission’s Commitment of Traders report for platinum, silver and gold prices using trader positions is investigated in a VAR framework. Granger causality tests are conducted to determine whether a relation between trader positions and market prices exists. An examination of the extreme trader positions on price movements is also conducted. The results indicate that market return is a significant parameter in explaining trader’s positions for all trader types in each of the precious metal markets under consideration after the beginning of 2000s where we detect a structural break for each of the market under study. Commercial traders are found to be negative feedback traders, that is, they sell when the prices increase in the market. On the other hand, in line with the previous literature, a positive correlation between returns and positions held by non-commercial and non-reporting traders is found. However, trader’s net positions do not lead market returns in general. There is some evidence on the forecasting ability of extreme trader positions on market returns.     

Chinese resource security policies and the restructuring of the Asia-Pacific iron ore market

This paper reviews the restructuring of the Asia-Pacific iron ore market in the wake of the rise of the Chinese steel industry. Prior to the 2000s, this market was characterised by two key features—high firm-level concentration on both the producer and consumer sides, and price determination through annually negotiated benchmark pricing between Australian mining and Japanese steel firms. However, owing to rapid growth in the Chinese steel industry and its emergence as the region's principal iron ore consumer, the Asia-Pacific iron ore market has been dramatically restructured during the last decade. This process has been accelerated since 2005 by Chinese governmental resource security policies, which have sought to address current record high iron ore prices through the use of foreign investment to sponsor new market entrants and the formation of an import cartel amongst the Chinese steel firms. This paper evaluates how these policies have driven restructuring in the Asia-Pacific iron ore market, through an analysis of the growth of China's steel industry, Chinese resource security policies aimed at lowering iron ore import costs, and their effects upon the regional market's ownership structure and price determination mechanisms. It argues that while Chinese investment and cartelisation policies have catalysed significant changes to the ownership and pricing structures of the Asia-Pacific iron ore market, they have carried only mixed benefits for the Chinese steel industry's resource security.     

Is risk-sharing resource taxation in society's best interests if prices are log-normally distributed?

This paper contributes to our understanding of the perceived benefits for society of risk-sharing resource taxation. In the particular context of log-normally distributed prices a model is developed which enables comparison of risk-sharing resource taxation with an alternative in determining the overall return to society from auctioning an extraction lease. The main finding of the paper is a potential exception to the general preference for risk-sharing resource taxation if the bidding firms are effectively risk neutral. This exception is illustrated numerically in the context of the impact of increased price uncertainty, but it is shown not to be robust with respect to divergences from risk neutrality in the risk attitudes of firms. Consequently, it is concluded that the choice of risk-sharing resource taxation is likely to be in society's best interests, regardless of the probability distribution of prices.     

Investor demand and spot commodity prices

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume?On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times.On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.     

Fostering sustainable small-scale investments: lessons from experience and ideas for intervention and innovation

This article presents lessons from experience pertinent to implementing small-scale natural resource and related investment projects in developing countries. It outlines ideas for intervention and innovation to foster such investments. Particular emphasis is placed on private-sector participation in these investments. Following a brief presentation of the economic development and other arguments that support intervention and innovation in support of such small-scale natural resource investments, the article discusses many of the lessons learned from experience. These lessons reinforce those touched upon in the investment-specific discussions in the previous articles. The experience and associated lessons that are examined include experiences in both developing and developed countries and encompass not just lessons from natural resource investments, but also small-scale investments in other sectors. Financing and other innovations which facilitate meeting the challenges are drawn from relevant experience where barriers to investment have been surmounted. Options for programme and project interventions to increase market penetration of small-scale investments and achieve the associated development linkages and synergies are suggested. These suggestions are aimed especially at governments and bilateral and multilateral development finance and development assistance entities. It is those players who might support such interventions in collaboration with local financial institutions and other market players.     

Impact of the FTSE4Good Index on firm price: an event study

This paper examines whether corporate financial performance is affected by public endorsement of environmental and social performance. Event study methodology, which relies on the notion of market efficiency, is used to examine the relationship between positive and negative announcements and changes in share prices or daily returns. Inclusion in and deletion from the FTSE4Good UK Index is used as a proxy measure for good (poor) corporate social responsibility. The abnormal or unexpected daily returns associated with an event are calculated and their significance tested. The results show a trend towards positive and negative announcements having the expected effects on daily returns. But these movements are not significant and the data do not suggest that a firm's presence on the index brings it any significant financial return for signalling its corporate social responsibility.     

Mining investment promotion

Attitudes in developing countries with respect to private investment in natural resources have changed substantially in recent years. Countries must now compete for such investment by ensuring that policies pertaining to state participation, financing, marketing and taxation of mining ventures provide the investor with returns that are commensurate with the risks taken. Governments must also be prepared to help the investor compete on world markets through lower capital and operating costs. This entails granting exemptions of customs, excise and value added taxes as well as providing for policies on taxation, government participation, industrial relations, safety and environment, and procurement and personnel that are in line with international mining industry standards. Efforts to promote mining sector investment through the strengthening of technical ministries, preparation of basic geological and project information, investment symposia and an international mining council can be helpful in bringing opportunities to the attention of the investment community. But, these efforts can only succeed if the policy changes now being put into place continue to evolve and contribute to an atmosphere in which entrepreneurship and private investment can flourish.     

Comment: Investor demand and spot commodity prices

Tilton et al. claim in their article “Investor demand and spot commodity prices” to show that “investor demand can be pushing up a commodity's price even when investor stocks are falling.” In the present comment, it is argued that in both the cases described by Tilton et al., investors are supplying the market, putting physical material into it, rather than adding to demand. Thus, the reasoning by Tilton et al. is not concerned with the phenomenon referred to in the traditional theory, where, in the absence of changes in demand and supply fundamentals, prices rise as a result of increased investor demand for futures contracts.     

What drives large South African corporations to invest in sub‐Saharan Africa? CEO's perspectives and implications for FDI policies

Foreign direct investment (FDI) flowing into Africa is highly diverse in terms of the origin of the investors, size of the firms, and the sectors of activity. The motivations and factors driving firms' decisions to invest in Africa are equally diverse. A direct survey of senior management in South African firms that are operating in sub-Saharan Africa reveals that the drivers of foreign investment as well as the risks and the strategies to overcome them differ markedly between sectors. A further finding is that there is a limited pool of FDI promotion policies and incentives that governments can institute that are effective in impacting South African corporations' investment decisions. As a consequence, broad-based FDI promotion policies aimed at attracting FDI across all investor groups are likely to have limited impact in attracting FDI from any particular investor group, or in attracting any FDI from multinational companies similar to the South African companies studied here. Such broad based policies probably need to be complemented with policies targeting those specific firms or sectors which countries hope to attract.     

Natural resource industry involvement in collaboration for water governance: influence on processes and outcomes in Canada

Natural resource industries are increasingly significant actors in environmental decision-making. Possessing vast institutional and technical capacity, firms have an important role to play in ‘new’ governance strategies such as collaboration. These strategies are often based upon assumptions of equitable influence. This paper investigates the nature of resource industry participation in collaborative water governance in Canada, and the potential consequences of that participation as investigated using power theory. The study used comparative cases to reveal that resource industries are able to shape collaboration, and the issues collaborated upon, at multiple analytical levels both internal and external to the collaborative process in ways not available to other actors. Analysis also revealed that resource industry participation in collaboration did not reflect a commitment to engage in shared learning and the reexamination of values and interests as presupposed by collaborative theory. Collaboration is thus challenged in producing equitable, representative outcomes when resource industries participate.     

A horizontal merger in the iron ore industry: An event study approach

The purpose of this paper is to analyse the competitive and efficiency impacts of a large merger in the world iron ore industry, using an event study approach. This method builds on an analysis of stock market reactions of the merging firms as well as close rivals at the time of the merger announcement. The event study method allows for the possibility to assess both the motivations behind as well as the welfare effects of the merger. The event study results for the merger announcement of Rio Tinto and North Ltd. show that, according to the market reactions, the main motive behind the merger was either the market power or the efficiency hypothesis. When adjusting the analysis to include several information releases about the merger, the overall result indicates that efficiency improvements were the predominant motives behind the merger. Thus, the event study results suggest that there are positive welfare effects to expect and the European Commission's decision to allow the merger is supported.     

Values and Economics in Environmental Management: A Perspective and Critique

Several categories of non-market value have been identified for forests and other natural environments: use value, option value, altruism, bequest value, existence value and intrinsic value. In this paper, we view these values from a psychological perspective. Non-market values arise because natural resources play important roles in furthering human goals. This goal perspective contrasts with intrinsic value—the idea that natural objects have value as ends in themselves regardless of their relationship to man. Because of the lack of precise definitions, elements of intrinsic value are often mixed with existence value, creating confusion in the literature. These resource values need to be examined on a logical as well as an empirical basis. We argue that careful scrutiny reveals problems with both existence value and intrinsic value so that it is important to question their role in policy formation and analysis.     

Green research and development (R&D) investment and its impact on the market value of firms: evidence from South African mining firms

The importance of global corporate green research and development (R&D) investment is gaining momentum and South Africa is no exception. This paper examines growing economic perceptions that green financial and stock-market systems result in heightened corporate hyperopia and therefore increase long-term and future green investment associated with R&D. It reports on the findings of a survey of 14 South African mining firms listed on the Johannesburg Stock Exchange SRI index. The study found, that, these firms’ market value showed a positive association with Green R&D. It also revealed increased Green R&D activity among large mining firms in the country and that they are highly likely to maintain their level of such investment in the coming years. The study's outcomes thus add to the body of empirical knowledge on firm hyperopia in relation to corporate greening initiatives.     

The Determinants of Mining Company Response to Environmental Approvals Regulation: A Report of Australian Research

Companies react in different ways to environmental regulation. A prevailing view in the literature suggests that external factors, particularly stakeholder groups, exert the most influence on the environmental responses of firms. This paper reports on research that examines the influence of a range of possible determinants, both internal and external, on the way Australian mining companies respond to environmental approvals regulation. External pressures included stakeholder pressure, jurisdictional culture and market characteristics, and internal pressures included organizational culture, organizational learning, the influence of individuals within firms and company size. The study found that the internal pressures of organizational culture, organiza tional learning and the influence of individuals exert the greatest influence on mining company response to environmental approvals regulation. These results suggest that existing explanations of corporate environmental behaviour, which emphasize external factors, should be complemented by a focus on the internal dynamics of firms.     

Market imperfections in recycling markets: conceptual issues and empirical study of price volatility in plastics

The effectiveness of recycling depends upon efficient functioning of secondary material markets. This paper focus on the role that price volatility can play in slowing investment and market development. However, a statistical analysis of the relative volatility of secondary and primary material prices does not confirm the widely-held belief that relative price volatility is higher in secondary than in primary materials, at least at national levels.An econometric estimation of the determinants of plastic recovery volumes in Seattle contributes to the literature in four ways: the use of monthly (as opposed to annual) data; the use of local (as opposed to national) data; the use of an explanatory variable to reflect price volatility; and, the focus on plastics, which have not been examined previously. Some tentative conclusions can be made: the results generally support the principal hypothesis that price volatility has a negative effect on recovery of secondary materials; in addition, and consistent with previous studies, price elasticities are low and insignificant; and finally, policy factors are clearly important. The concluding section treats the economic and policy implications of market inefficiency in secondary material markets.     

Environmental innovation activities and patenting: Germany reconsidered

This paper provides new econometric evidence on the determinants of eco-innovations by using multiple innovation indicators and by combining survey-based information and patent records at the firm level from two different time periods. We hypothesize that firms with a propensity to patent focus on future technological and market opportunities and do not directly or immediately react to incentives created by environmental policies. Based on negative binomial models, we confirm that eco-patents are stimulated by the expectation of creating technological advancement and new market opportunities. By contrast, energy cost savings can better or more easily be achieved when firms refrain from patenting and concentrate on non-patented innovations or adoption. Favorable framework conditions created by environmental policies and patent protection are also important for eco-patenting, but more in the longer term. Testing the validity of using self-reported eco-innovations, instead of patents, as the dependent variable in simple binomial probit models reveals that product eco-innovations as reported in the surveys are a relatively good proxy for eco-patents. Yet, for product eco-innovations, serving and enlarging current markets is another important reason to innovate.     

The hotelling valuation of natural resources: some further results

This paper tests the Hotelling Valuation Principle (HVP) for natural resources using data from oil and gas ‘pure plays’ such as royalty trusts and master limited partnerships. The results support the HVP which specifies that the value of any mineral reserve may be predicted by the market price of the resource, net of extraction costs. Regression results also indicate that a Box-Cox transformation of variables provide a better means of estimating the functional relationship between the value of an exhaustible natural resource and its market price.     

Long memory in energy futures markets: Further evidence

This paper investigates long memory (or long-range dependence) in price returns and volatilities of energy futures contracts with different maturities. Based on a modified rescaled range analysis and three local Whittle methods, the results from rolling sample test suggest that the returns showed little or no long-range dependence over time but the volatilities displayed significant time-varying long-range dependence. Our evidence shows that some extreme events could cause long memory in returns and volatilities, leading to market inefficiency. Employing multiscale analysis, we find that the returns displayed no long-range dependence for any of the chosen time scales. Significant long-range dependence only existed in volatilities for daily time scales but not for monthly or yearly time scales.     

Taxing mineral resource projects : Papua New Guinea, Indonesia and the Philippines

Within the context of a case study of three Asia/Pacific countries' mineral taxation regimes, this article examines the impact of individual fiscal instrucments, and the total fiscal package, on investor risk perceptions, investor returns and government receipts. It shows that under conditions of uncertainty and risk aversion on the part of investors, significant gains in expected government revenues can be achieved without seriously affecting the investors' ex-ante assessments of projects by a judicious selection and mix of fiscal instruments.