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on Corporate Finance |
| By: | Muñoz, Mª Pilar; Márquez, María Dolores; Sánchez, Josep A. |
| Abstract: | The main objective of this paper is to detect the existence of financial contagion between the North American and European markets during the recent crises. To accomplish this, the relationships between the US and the Euro zone stock markets are considered, taking the daily equity prices of the Standard and Poor’s 500 as representative of the United States market and for the European market, the five most representative indexes. Time Series Factor Analysis (TSFA) procedure has allowed concentrating the information of the European indexes into a unique factor, which captures the underlying structure of the European return series. The relationship between the European factor and the US stock return series has been analyzed by means of the dynamic conditional correlation model (DCC). Once the DCC is estimated, the contagion between both markets is analyzed. Finally, in order to explain the sudden changes in dynamic US-EU correlation, a Markov switching model is fitted, using as input variables the macroeconomic ones associated with the monetary policies of the US as well as those related to uncertainty in the markets. The results show that there was contagion between the United States and European markets in the Subprime and Global Financial crises. The two-regime Markov switching model has helped to explain the variability of the pair-wise correlation. The first regime contains mostly the financially stable periods, and the dynamic correlations in this regime are explained by macroeconomic variables and other related with monetary policies in Europe and US. The second regime is explained mainly by the Federal Funds rate and the evolution of the Euro/US Exchange rate. |
| Keywords: | Contagion; Dynamic Conditional Correlation; Financial Markets; Markov Switching Model; Time Series Factor Analysis; Macroeconomic variables |
| JEL: | G15 E44 G01 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35993&r=cfn |
| By: | Tsuruta, Daisuke |
| Abstract: | The banking literature concludes that the performance of client firms deteriorates if their distressed main bank reduces the supply of credit. However, these results rely on the assumption that main banks have an information advantage over other banks, such that if a client firm changes its main bank, its access to credit worsens. Using Japanese data from a period including financial shocks, we show that firms change the main banking relationship when their main bank becomes distressed. In addition, the performance of client firms improves after a change in the main bank relationship. This implies that the availability of credit improves for these firms, despite the change in main bank. |
| Keywords: | Bank--firm relationships; Bank distress; Private information |
| JEL: | G32 G21 G20 |
| Date: | 2012–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35895&r=cfn |
| By: | Dutta, Nabamita; Mukherjee, Deepraj |
| Abstract: | The paper investigates the missing link in the literature – whether informal institutions, or what is known as culture, can affect the level of financial development for a country? Our hypothesis stresses that the cultural dimensions of a country can have an impact on its financial set up. We consider multiple dimensions of culture, identified in the literature by Tabellini, to test our hypothesis. As culture evolve in the form of greater trust, control and other traits, individuals’ attitudes towards financial market change, and they engage in greater financial transactions. This, in turn, leads to better financial development. Using quantile estimation technique for a cross-section of 90 countries we find that culture significantly influences the level of financial development. To ensure the robustness of our findings we use Hofstede’s cultural dimension-‘uncertainty avoidance index’ as an alternative measure for culture. Our results hold for multiple measures of financial development. |
| Keywords: | Informal Institutions; Financial Development; Culture; Social capital |
| JEL: | G1 Z1 O17 |
| Date: | 2011–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35867&r=cfn |