nep-fmk New Economics Papers
on Financial Markets
Issue of 2005‒11‒09
thirty papers chosen by
Carolina Valiente
London South Bank University

  1. Modelling International Bond Markets with Affine Term Structure Models By Georg Mosburger; Paul Schneider
  2. On Risk Premia and Volatility Transmission Across the Stock and Bond Markets By Francis Vitek
  3. Central counterparty clearing: constructing a framework for evaluation of risks and benefits By Kirsi Ripatti
  4. Should Central Banks Burst Bubbles? By John Conlon
  5. Persistence Characteristics of the Chinese Stock Markets By Cornelis A. Los; Bing Yu
  6. China’s banking reform: An assessment of its evolution and possible impact By Alicia Garcia-Herrero; Sergio Gavila; Daniel Santabarbara
  7. Relationship lending and competition: Higher switching cost does not necessarily imply greater relationship benefits By Timo Vesala
  8. Decentralised Portfolio Management: Analysis of Australian Accumulation Funds By Hazel Bateman; Susan Thorp
  9. Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data By Karlo Kauko
  10. SMEs, the engine of local entrepreneurship, in the framework of New Basel Capital Accord: Perspectives-opportunities and obstacles for their reinforcement by the Banking System By Chryssanthi Balomenou
  11. ARDL Modelling Approach to Testing the Financial Liberalisation Hypothesis By Shrestha, Min B.; Chowdhury, Khorshed
  12. Can fear beat hope? A story of GARCH-in-Mean-Level effects for Emerging Market Country Risks By Maurício Yoshinori Une; Marcelo Savino Portugal
  13. Fear of disruption: a model of Markov-switching regimes for the Brazilian country risk conditional volatility By Maurício Yoshinori Une; Marcelo Savino Portugal
  14. INNOVATION TECHNOLOGIQUE DANS LES RESEAUX MOBILES ET CREATION DE LA VALEUR: CAS DE LA BANQUE MOBILE By Achraf AYADI; Chantal AMMI
  15. Equilibrium Arbitrage in the Presence of Noise-Trader Risk: Evidence from Closed-end Funds By Flynn, Sean M.
  16. The Number of Bank Relationships of SMEs: A Disaggregated Analysis for the Swiss Loan Market By Doris Neuberger; Christoph Schacht
  17. The Empire Effect: Country Risk in the First Age of Globalization, 1880-1913 By Niall Ferguson; Moritz Schularick
  18. From Fault Tree to Credit Risk Assessment: A Case Study By Hayette GATFAOUI
  19. Asset prices and capital accumulation in a monetary economy with incomplete markets By sunanda roy
  20. A Double Auction Market with Signals of Varying Precision By Carl Plat
  21. The Neural Basis of Financial Risk Taking By Camelia Kuhnen; Brian Knutson
  22. La Banque à distance en Tunisie : Comment rattraper le retard ? By Achraf AYADI
  23. IL SISTEMA DEL MICROCREDITO: una cura della povertà. La prospettiva secondo YUNUS. By Tommaso Reggiani
  24. A Dynamic Analysis of Bid-Ask Spreads with Multiple Trade Sizes By Shino Takayama; Han Ozsoylev
  25. Transferring Rhineland Capitalism to the Polish-German Border: Perceptions of Bank Governance and Practice in Zgorzelec-Görlitz By Bernardo Batiz-Lazo; Robert Locke; Kristine Müller
  26. A TALE OF TWO “GLOBALIZATIONS”: CAPITAL FLOWS FROM RICH TO POOR IN TWO ERAS OF GLOBAL FINANCE By Moritz Schularick
  27. Rural Credit Delivery System in Maharashtra: A Step Towards Rejuvenation By Deepak Shah
  28. Why Funds of Funds? By Richard Kum-yew Lai
  29. Value creation in mobile banking By Achraf AYADI
  30. The Clustering of Financial Services in London* By Gary A. S. Cook; Naresh R. Pandit; Jonathan V. Beaverstock; Peter J. Taylor; Kathy Pain

  1. By: Georg Mosburger (University of Vienna); Paul Schneider (Vienna University of Economics & Business Administration)
    Abstract: This paper investigates the performance of international affine term structure models (ATSMs) that are driven by a mutual set of global state variables. We discuss which mixture of Gaussian and square root processes is best suited for modelling international bond markets. We derive necessary conditions for the correlation and volatility structure of mixture models to accommodate various empirical stylized facts such as the forward premium puzzle and differently shaped yield curves. Using UK-US data we estimate international ATSMs taking into account the joint transition density of yields and exchange rates without assuming normality. We find strong empirical evidence for negatively correlated global factors in international bond markets. Further, the empirical results do not support the existence of local factors in the UK-US setting, suggesting that diversification benefits from holding currency- hedged bond portfolios in these markets are likely to be small. Altogether, we find that mixture models greatly enhance the performance of ATSMs.
    Keywords: International affine term structure models, Estimation, Exchange rate, Model Selection
    JEL: C33 E43 F31 G12
    Date: 2005–09–04
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0509003&r=fmk
  2. By: Francis Vitek (University of British Columbia)
    Abstract: This paper analyzes risk premia and volatility transmission across the stock and bond markets within an expected return beta representation of the conditional capital asset pricing model. Time variation in the market price of risk is characterized by a two state Markov regime switching process, while time variation in conditional betas is characterized by an asymmetric general dynamic covariance process. On the basis of estimated state dependent generalized impulse response functions, we find evidence of a flight to quality phenomenon, whereby investors shift funds from the stock market to the bond market in response to high stock market volatility. Our impulse response analysis also suggests that the degree of risk diversification achieved by cross market hedging is lowest when it is most desirable.
    Keywords: Risk premia and volatility transmission; Stock and bond markets; Conditional capital asset pricing model
    JEL: G11 G12
    Date: 2005–08–30
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508014&r=fmk
  3. By: Kirsi Ripatti
    Abstract: A Central Counterparty (CCP) is an entity that interposes itself between transacting counterparties – a seller vis-à-vis the original buyer and a buyer vis-àvis the original seller – to quarantee execution of the transaction. Thus, the original transacting parties substitute their contractual relationships with each other with contracts with the CCP. Central Counterparty Clearing has become increasingly popular in Europe, not just in derivatives markets, where, due to the high risk involved, it has been common for decades, but also in equities markets. Within the European Union, the main factor motivating the increased sophistication in clearing arrangements is the ongoing process of European economic integration, ie the euro’s introduction, the ongoing organisation of an internal market for financial services and the corresponding objective of creating a pan-European financial infrastructure for payments and securities clearing and settlement. Central counterparty clearing houses exert a broad influence on the functioning of financial markets. They can increase the efficiency and stability of financial markets to the extent that their smooth functioning results in a more efficient use of collateral, lower operating costs and greater liquidity. As market players actively try to achieve economies of scale and scope with mergers and through harmonising their technical processes, they inevitably have had to focus on one of the most fragmented areas in Europe’s securities market infrastructure – clearing and settlement. Because of the importance of its role, a CCP must have sound risk management. The CCP assumes responsibility in the aggregate and reallocates risk among participants. Moreover, if the CCP fails to perform risk management well, it can increase risk in the markets. While the big market players dominate the current CCP market in Europe, it is not only the big players who can benefit from a functioning CCP. With the right structure, a CCP enables small players to stay in the market and makes it possible for issuers in a regional marketplace to achieve market funding. Indeed, this is the 4 tendency currently seen in the newest EU member states – and one of the main arguments against the single European CCP model. Although, the purpose has been to leave CCP questions to market participants, regulatory, oversight and supervisory issues can drive the actions of market participants. Indeed, authorities must sometimes be actively involved in boosting a CCP project to keep their home markets competitive. This may well be the situation faced by the Nordic/Baltic market in the near future. Thus, this paper attempts to give a neutral evaluation of the risks and benefits related to the functionality of CCPs in integrating markets and construct a framework for possible future risk-benefit analysis in a Finnish/Nordic-Baltic clearing and settlement infrastructure that incorporates a CCP solution. This is an updated version of a Bank of Finland working paper (Financial Markets Department 01/04).1
    Keywords: central counterparty clearing, clearing, settlement, securities markets, infrastructure, integration
    JEL: G15 G20 G28 G33 G34
    Date: 2005–08–31
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508021&r=fmk
  4. By: John Conlon (University of Mississippi)
    Abstract: Policy towards speculative bubbles is examined in a model of a finite horizon 'greater fool' bubble, with rational agents, asymmetric information and short-sales constraints. This model permits the use of standard tools of comparative dynamics and welfare economics to analyze bubble policies. Government policy is modeled as deflating overpriced assets by revealing information about whether or not the asset is overpriced. It is shown that such a policy tends to improve welfare if it protects less-informed buyers from 'bad' sellers, who know the asset is overpriced. However, if policy deflates prices only in 'strong bubbles,', where all private agents know the asset is overpriced, this tends to reduce welfare. This is because, in those states where the central bank turns out not to deflate prices, bad sellers become more confident of selling the asset. That is, bubble bursting protects bad sellers from each other, which, in turn, can exacerbate the lemons problem in states where the asset is valuable.
    Keywords: Bubbles, Asymmetric Information, Policy
    JEL: D82 E52 G14
    Date: 2005–08–12
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpga:0508007&r=fmk
  5. By: Cornelis A. Los (EMEPS Associates, Inc.); Bing Yu (Kent State University, Graduate School of Management)
    Abstract: This paper identifies such fundamental characteristics as the lack of ergodicity, stationarity, and independence, and it identifies the degree of initial persistence of the Chinese stock markets when they were more regulated. The index series are from the Shanghai (SHI) stock market and Shenzhen A-shares (SZI) and B-shares (SZBI) stock markets, before and after the various deregulations and reregulations. Accurate and complete signal processing methods are applied to the complete series and to their sub-periods. The evidence of lack of stationarity and ergodicity can be ascribed to two causes: (1) the initial interventions in these stock markets by the Chinese government by imposing various daily price change limits, and (2) the changing trading styles in the course of the development of these emerging stock markets, after the Chinese government left these equity markets to develop by themselves. By computing the markets' monofractal Hurst exponents (and its accuracy range with a new statistic), using wavelet multiresolution analysis (MRA), we identify the markets' subsequent degrees of persistence. The empirical evidence shows that SHI, SZI, and SZBI are moderately persistent with Hurst exponents slightly greater than the Fickian 0.5 of the Geometric Brownian Motion. It also shows that these stock markets were considerably more persistent before the deregulations, but that they now move much more like geometric Brownian motions, i.e., efficiently. Our results also show that the Chinese stock markets are gradually and properly integrating into one Chinese stock market. Our results are consistent with similar empirical findings from Latin American, European, and other Asian emerging financial markets.
    Keywords: Long-term dependence, degrees of persistence, Hurst exponent, wavelet multiresolution analysis, Chinese equity markets
    JEL: C15 C33 C53 G13 G15 G18
    Date: 2005–08–16
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508008&r=fmk
  6. By: Alicia Garcia-Herrero (Bank of Spain); Sergio Gavila (Bank of Spain); Daniel Santabarbara (Bank of Spain)
    Abstract: The Chinese banking system, characterized by massive government intervention, poor asset quality and low capitalization, has started a reform process based on three main pillars: (i) bank restructuring, through the cleaning-up of non-performing loans and public capital injections, particularly in the four largest state-owned banks; (ii) financial liberalization, with the gradual flexibilization of quantity and price controls, the opening-up to foreign competition and cautious steps toward capital account liberalization; and (iii) strengthened financial regulation and supervision, coupled with efforts to improve corporate governance and transparency. Although the reform is still ongoing, our preliminary assessment indicates that changes are needed for the reform to be fully successful. Asset quality has improved, particularly in the recapitalized banks, but there is a high risk of a new build-up of non performing loans. Capitalization has increased in the largest banks, as a consequence of the government capital injections, but it generally remains low and profitability has fallen even further. China’s huge financing needs, to maintain high economic growth, and its commitment to fully open up its banking system to foreign competition urgently require a more comprehensive and time-bound strategy, with a long-term vision of the desired structure of the Chinese banking system. Bank recapitalization should be completed immediately, not only to ensure bank soundness, but also to increase profitability, which could be affected negatively as competition increases with full financial liberalization. Bank recapitalization, however, needs to be accompanied by a radical improvement in corporate governance, which would clearly be facilitated by a change in the property structure.
    Keywords: Chinese financial system, financial reform, bank restructuring, financial liberalization, bank regulation and supervision.
    JEL: E44 E66 G2 G21
    Date: 2005–08–22
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508010&r=fmk
  7. By: Timo Vesala (Bank of Finland)
    Abstract: This paper studies relationship lending in a framework where the cost of switching banks measures the degree of banking competition. The relationship lender’s (insider bank’s) informational advantage creates a lock-in effect, which is at its height when the switching cost is infinitesimal. This is because a low switching cost gives rise to a potential adverse selection problem, and outsider banks are thus reluctant to make overly aggressive bids. This effect gradually fades as the magnitude of the switching cost increases, which de facto reduces the insider bank’s profits. However, after a certain threshold in the switching cost, the insider bank’s ‘mark-up’ begins to increase again. Hence, relationship benefits are a non-monotonous (V-shaped) function of the switching cost. The ‘dynamic implication’ of this pattern is that relationship formation should be more common under extreme market structures ie when the cost of switching banks is either very low or sufficiently high. Recent empirical evidence lends support to this prediction.
    Keywords: relationship lending, switching cost, banking competition
    JEL: G21 G24 D82 D43
    Date: 2005–08–31
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508018&r=fmk
  8. By: Hazel Bateman (School of Economics, University of New South Wales); Susan Thorp (School of Finance and Economics, University of Technology, Sydney)
    Abstract: In Australia, pension fund trustees choose investment managers on behalf of members. We investigate the structure and performance of delegated investment choice in the Australian retirement incomes sector. We ?nd that funds where trustees employ many managers generate higher risk-adjusted returns over the 3 year sample than those with few, but funds with 13 or fewer managers show no improvement over funds with a single diversi?ed manager. All do worse than a benchmark portfolio of asset class indices. Random selection mimics the choices of an uninformed individual selecting from a 401K plan or retail superannuation fund menu. Returns from funds with large numbers of mandates compare favourably with returns from randomly selected equally weighted portfolios, but this improvement falls off quickly for funds with fewer mandates, or when naive portfolios are diversi?ed across asset classes. Results indicate that an uninformed individual following a naive diversi?cation strategy does as well as most funds in this sample.
    Date: 2005–07–01
    URL: http://d.repec.org/n?u=RePEc:uts:rpaper:161&r=fmk
  9. By: Karlo Kauko (Bank of Finland)
    Abstract: This paper presents econometric analyses on the determination of bank deposit and lending rates using longitudinal Finnish data. Interest rate pass-through is very strong, possibly complete, in the case of lending rates; in the case of deposit rates the pass-through is far from complete, even in the long term. The monetary union has benefited customers by decreasing the average rate on new loans. Credit and interest rate risk premiums are clearly observable in banks' lending rates. The impact of money market rates on loan stock rates seems to have been non-linear; no obvious explanation for this phenomenon has been found.
    Keywords: G21, E43, E44
    JEL: G21 E43 E44
    Date: 2005–08–31
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508020&r=fmk
  10. By: Chryssanthi Balomenou
    Abstract: In the first part of my paper I will analyze the important role of SMEs as the most crucial factor for the development of the local entrepreneurship. In addition I will quote the arising difficulties in SMEs’ access to loans. This part will be concluded by the presentation of the Third Consultative Paper of The Basel II Capital Accord, in relation to its impact on SMEs, focussing on the comments of the European Central Bank, World Bank Eurochabres, and of the European Private Equity and Venture Capital Association and more specifically, on those referring to SMEs.. The second part will refer to the Structure of the New Accord Three Pillars, focussing on the Basel II Capital Adequacy framework and specifically on the first pillar (Minimum Capital Requirement). Obviously, the said part will be completed by the consequences of the aforementioned topic for the SMEs. In the third and last part of my paper I will work out a critical analysis of the New Basel Capital Accord, concentrating on its pros and corns for SMEs’ banking finance. Finally, my paper will contain an appendix of tables and graphs and of course the relevant references.
    Date: 2004–08
    URL: http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p336&r=fmk
  11. By: Shrestha, Min B. (University of Wollongong); Chowdhury, Khorshed (University of Wollongong)
    Abstract: It is a stylised fact that financial "repression" retards economic growth. Hence, financial liberalisation is advocated to remove the stranglehold on the economy. Financial liberalisation policy argues that deregulation of interest rate would result into a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This paper examines the financial liberalisation hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.
    Keywords: Financial Liberalisation, Interest Rate Effects, Unit Roots, Cointegration, ARDL Modelling
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:uow:depec1:wp05-15&r=fmk
  12. By: Maurício Yoshinori Une (Banco Itaú S.A.); Marcelo Savino Portugal (PPGE/UFRGS)
    Abstract: Upon winning the 2002 presidential elections, event that considerably increased the Brazilian country risk levels and volatility, Lula celebrated by declaring: “hope has beaten fear”. Extending Une and Portugal (2004), the aim of this paper is twofold: to empirically test the interrelations between country risk conditional mean (“hope”) and conditional variance (“fear”) and cast light on the role of country risk stability in the conduction of macroeconomic policies in developing small open economies. We compare the forecasting performance of various alternative GARCH-in-Mean-Level models for n-step conditional volatility point forecasts of the Brazilian country risk estimated for the period May 1994 - February 2005. The results support the idea that both hope and fear play important roles in the Brazilian case and confirms that hope and fear act in the same direction.
    Keywords: nonlinear GARCH, GARCH-in-Mean-Level effect, country risk, fear of disruption, forecast performance
    JEL: C22 F47 G14
    Date: 2005–09–04
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpem:0509006&r=fmk
  13. By: Maurício Yoshinori Une (Banco Itaú S.A.); Marcelo Savino Portugal (PPGE/UFRGS)
    Abstract: In the literature, little role is attributed to the country risk conditional volatility in the determination of the macroeconomic equilibrium in a developing small open economy (DSOE). This paper posits the prime hypothesis that, in the presence of multiple equilibria and self-fulfilling prophecies, one of the reasons why investors prefer to speculate in a determined country’s sovereign bonds, raising its country risk levels, is the switch of the expected macroeconomic fundamentals’ conditional variance towards a higher regime. Non-linear GARCH models are applied to monitor different switching regimes of the Brazilian country risk conditional volatility, with special emphasis on Markov switching regimes. Results indicate that the high volatility regime periods, better identified by the latter, coincide with all the severe liquidity crisis episodes suffered by Brazil from May 1994 through September 2002. Thus, although not free of limitations, the country risk’s high conditional volatility regime might determine a bad equilibrium and its monitoring might work as a practical tool to assess the duration of liquidity crises in a DSOE highly dependent on foreign capital inflows such as Brazil.
    Keywords: Markov switching, non-linear GARCH, conditional volatility, country risk, multiple equilibria, self-fulfilling prophecies, liquidity crisis.
    JEL: C22 E44 F41 G15
    Date: 2005–09–04
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpem:0509005&r=fmk
  14. By: Achraf AYADI (Institut National des Télécommunications d'Evry); Chantal AMMI (Institut National des Télécommunications d'Evry)
    Abstract: L’explosion du nombre de terminaux mobiles dans le monde, au point de dépasser celui des ordinateurs et des postes de télévision, est un fait économique important. Avec les nouveaux réseaux de télécommunication et l’accroissement des capacités de traitement des terminaux, de nouvelles possibilités d’interagir et de communiquer avec les clients, y compris via le réseau Internet, ont fait leur apparition. Ainsi, l’Internet Mobile apporte des opportunités d’élargissement de la palette des services proposés sur le marché sous de nouvelles formes mais aussi suivant d’autres « modèles économiques ». Le secteur des services, caractérisé par sa forte sensibilité aux innovations dans les technologies de l’information, se trouve au centre de ces changements qui ne seront pas sans impact sur la stratégie des acteurs ou leurs relations avec la clientèle. Partant de la littérature sur l’innovation dans les services, nous étudions les tendances technologiques les plus récentes dans l’Internet Mobile. Ensuite, nous analysons les facteurs de développement des services mobiles dans le secteur bancaire et leur impact sur la chaîne de valeur. Enfin, nous présentons les conclusions en terme de perspectives stratégiques pour la banque mobile et ses évolutions futures. MOTS CLES Création de valeur, réseaux mobiles, Internet Mobile, Innovation, Banque Mobile
    Keywords: Mobile Banking
    JEL: O P
    Date: 2005–08–24
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0508009&r=fmk
  15. By: Flynn, Sean M. (Vassar College Department of Economics)
    Abstract: This paper presents empirical evidence that noise-trader risk exists and that it limits the amount of arbitrage capital invested in closed-end funds. In particular, the risk-adjusted return to arbitrage is zero. This suggests that arbitrageurs increase the capital that they devote to arbitrage positions in closed-end funds only until the risk-adjusted return on the marginal unit of arbitrage capital falls to zero. This limits arbitrage. Because arbitrage is limited, substantial discounts and premia relative to rational valuation levels can arise and then linger for extended periods of time. In particular, while there is mean reversion toward rational levels, on average only one-third of any deviation is eliminated after one year.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:vas:papers:69&r=fmk
  16. By: Doris Neuberger (University of Rostock); Christoph Schacht (IFZ Institute for Financial Services Zug)
    Abstract: The present paper investigates the number of bank relationships of small and medium-sized enterprises in Switzerland using survey data from 1996 and 2002. We differentiate between overall bank relationships and lending relationships and disaggregate the loan market with respect to firm sizes, industries and banking groups. On average, bank lending declined, while the role of housebank relationships increased in 1996- 2002. The development of the number of bank relationships seems to have been demand-driven as well as supply-driven for medium-sized firms, but only supply-driven for very small and small firms. Supply-side reductions resulted from the merger between two big banks and changes in credit risk management at major banks.
    Keywords: relationship lending, housebank, loan market structure, multiple banks
    JEL: G21 G32
    Date: 2005–09–02
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0509001&r=fmk
  17. By: Niall Ferguson (Harvard University); Moritz Schularick (Free University of Berlin)
    Abstract: Would the movement of capital from to poor countries greatly increase, if the commitment to protecting property and allowing capital to move freely were more credible? This paper asks whether the British Empire provided global public goods that supported large-scale development finance before 1914. We reassess the importance of colonial status to investors by means of multivariable regression analysis. We show that British colonies were able to borrow in London at significantly lower rates of interest than non-colonies precisely because of their colonial status, which overruled economic factors. We conclude that these findings have important implications for the current globalization debate: lacking jurisdictional integration is a major impediment to capital flows from rich to poor.
    Keywords: sovereign risk, development finance, economic history, imperialism, globalization, bond spreads, capital market integration
    JEL: E F3 K
    Date: 2005–09–06
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0509002&r=fmk
  18. By: Hayette GATFAOUI (Rouen School of Management)
    Abstract: Reliability has been largely applied to industrial systems in order to study the various possibilities of systems’ failure. The goal is to establish the chain of events leading to any system’s failure, namely the top event. Looking for the minimal paths leading to any system’s fault allows for a better control of systems’ safety. To this end, reliability is composed of a static approach (see Ngom et al. [1999] for example) as well as a dynamic approach (see Reory & Andrews [2003] for example). In this paper, we extend the framework stated by Gatfaoui (2003) allowing for the application of fault tree theory to credit risk assessment. The author explains that fault tree is one alternative approach of reliability, which matches default risk analysis in a simple framework. Our extension includes other distributions of probability to model the lifetimes of French firms while studying the related empirical default probabilities. We use mainly, but not exclusively, continuous distributions for which the exponential law used by Gatfaoui (2003) constitutes a particular case. Our results exhibit both the exponential nature of French .rms. lifetimes as well as strong convex and fast decreasing time varying failure rates. Such a feature has some non- negligible impact insofar as it characterizes corresponding credit spreads’ Term structure.
    Keywords: credit risk, default probability, failure rate, fault tree, reliability, survival probability
    JEL: C1 D8
    Date: 2005–09–02
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpem:0509002&r=fmk
  19. By: sunanda roy (drake university)
    Abstract: The paper studies asset prices and capital accumulation in a monetary economy with non-diversifiable idiosyncratic risks (incomplete markets). A government issued unbacked currency is introduced into agent's preferences in a dynamic GEI (General Equilibrium with Incomplete market) model with CARA preferences and normal disturbances. Closed form expressions for equlibrium allocations and prices are derived under finite and infinite horizons. The paper addresses several monetary issues. In particular, money is shown to be neutral but not superneutral at the steady state. The rate of inflation is shown to adversely affect the steady state capital stock under some situations. Finally the Friedman rule is shown to be non-optimal for some economies.
    JEL: C6 D5 D9
    Date: 2005–08–09
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpge:0508002&r=fmk
  20. By: Carl Plat
    Abstract: A computerized double auction market with human traders is employed to examine the relation of price and volume under conditions of asymmetric information. In this market, the informed traders receive higher precision signals than the uninformed traders. The relation of price and volume has been suggested as an important factor in the process of information revelation whereby information held by informed traders is transferred to uninformed traders. In contrast, the no-trade theorems suggest that trade should not occur at all between informed and uninformed traders. The results show trading volume within the informed group to be positively correlated with signal precision. In situations of asymmetric information, uninformed trading activity as measured by volume/precision correlations declines significantly as the precision of the signals of informed traders increases. However, the presence of asymmetric information does not lead to a zero trade condition for either the informed or the uninformed traders.
    Keywords: Experimental, Double Auction, Information Precision, Trading Volume, Asymmetric Information
    JEL: C92 G12 G14 D8
    Date: 2005–08–26
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpex:0508004&r=fmk
  21. By: Camelia Kuhnen (Stanford Graduate School of Business); Brian Knutson (Stanford University Department of Psychology)
    Abstract: Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making.
    Keywords: neuroeconomics, neurofinance, brain, investing, emotions, affect
    JEL: D81 D83 D84 C91 G11
    Date: 2005–09–06
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpex:0509001&r=fmk
  22. By: Achraf AYADI (Institut National des Télécommunications d'Evry)
    Abstract: Cet article est une tentative d'analyser les difficultés des banques tunisiennes à adopter la banque en ligne et de proposer les principales solutions. Il a été publié dans la revue 'Le Manager' en Juillet 2005. Référence: Ayadi A. (2005), 'La Banque à distance en Tunisie : Comment rattraper le retard ?', Le Manager (Tunisie), n°108, Juillet, pp.34-36.
    Keywords: Electronic Banking
    JEL: O P
    Date: 2005–08–24
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0508011&r=fmk
  23. By: Tommaso Reggiani (Università Milano-Bicocca student)
    Abstract: E’ possibile intendere l’accesso al credito come un diritto umano e quindi esercitabile da qualsiasi persona, ricca o povera, istruita o analfabeta che sia? Eventualmente, una pratica ed approccio di questo tipo, è economicamente e socialmente sostenibile? Sono queste le due grandi sfide che in questo scritto cercheremo di ripercorre ed analizzare. L’intera argomentazione è tratta dal volume di Muhammad Yunus* “Il banchiere dei poveri” (1997) nel quale l’autore, nonché ideatore e teorico del sistema del microcredito, riporta le circostanze, esperienze e studi che lo hanno indotto a creare un istituto bancario che andasse oltre la mera logica della garanzia bancaria e le pratiche correnti, così da renderlo veramente accessibile e fonte di utilità per colui che del credito ha realmente bisogno: il povero.
    Keywords: MICROCREDITO, YUNUS, ETICA ED ECONOMIA
    JEL: O P
    Date: 2005–08–09
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0508005&r=fmk
  24. By: Shino Takayama (The University of Sydney); Han Ozsoylev (University of Oxford)
    Abstract: This paper studies how the trade size and the historical sequence of trades affect bid-ask spreads, investors’ trading strategies, and the market maker’s learning process in a multi-period economy. First, we show that there is a nonzero cut-off size below which informed traders never buy or sell, and that larger trade sizes have positive bid-ask spreads, while smaller sizes do not. Then, we prove that the cut-off size decreases stochastically . We also derive the functional relationship between bid-ask spreads and trade sizes and show that bid- ask spreads are monotonically increasing in trade sizes. Moreover, we prove that when additional trade sizes are introduced to the market, the market maker’s learning process can be impaired and the bid-ask spreads for the previously existing trade sizes can vanish under a mild condition. We prove that the smaller trade sizes that do not have a positive bid-ask spread result in zero price change, while for larger trade sizes the rate at which price change increases is a decreasing function of the trade size in all trading periods. Most of our results are broadly consistent with the empirical findings.
    Keywords: Market microstructure; insider trading; Glosten-Milgrom Model; asymmetric information; bid-ask spreads
    JEL: D82 G12
    Date: 2005–09–05
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0509007&r=fmk
  25. By: Bernardo Batiz-Lazo (Bristol Business School); Robert Locke (University of Hawaii Manoa); Kristine Müller (Independent scholar)
    Abstract: This article looks at the past development and potential of the Rhenish capitalist model. We discuss the origins and nature of the model and the model in crisis. Because, we contend, Rhineland capitalism’s future will be decided in East-Central Europe, we focus – using a survey questionnaire – on bank customers perceptions of bank governance and practice in the Polish-German city of Zgorzelec-Görlitz. The experience of Dresdner Bank is stressed as is the fact that the local people not long before lived under Communism. A control group in the UK is used to ascertain the presence of German management traditions as opposed to Anglo-American approaches to management in the context of retail bank markets.
    Keywords: banking, corporate governance, UK, Poland, Germany, cross border services
    JEL: N
    Date: 2005–08–22
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0508003&r=fmk
  26. By: Moritz Schularick (Free University of Berlin)
    Abstract: In this paper we take a comparative look at capital flows to less- developed countries in two eras of financial globalization. The paper extends recent research on the developmental effects of international financial integration, long-term trends in capital mobility and “globalization in historical perspective”. Analyzing the patterns of international financial integration in the three decades of the classical gold standard and after 1990 we show that investment in developing countries was a central element of 19th century financial globalization, but plays only a minor role today. The Lucas paradox of capital failing to flow from rich to poor has grown much stronger. In historical perspective, today’s financial globalization is marked by massive diversification flows between high-income economies and a relative marginalization of less-developed economies.
    Keywords: globalization, capital flows, development finance, capital market integration, economic history
    JEL: F3
    Date: 2005–09–05
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0509001&r=fmk
  27. By: Deepak Shah (Gokhale Institute of Politics & Economics, Deccan Gymkhana, Pune 411 004 Maharashtra , INDIA)
    Abstract: An investigation into rural credit delivery system in Maharashtra shows slower growth in institutional finances through commercial banks, credit cooperatives, RRBs and LDBs, particularly during the decade of 1991- 2000, which is mainly due to adverse environment created by the financial sector reforms. Due to unfavourable policy framework, the entire rural credit delivery system encompassing rural branches of commercial banks, cooperative credit institutions and RRBs is reduced to a moribund state. High transaction costs and poor repayment performance are the twin root causes of the moribund state of rural credit delivery system. With a view to revive the agricultural credit delivery system, there is need to adopt innovative approaches like linking of Self-Help Groups (SHGs) and Non-Government Organizations (NGOs) with mainstream financial institutions. Such linkages are reported to have not only reduced transaction costs but also ensured better repayment performance. One of the recent studies conducted in Maharashtra has shown cent per cent recovery of loans through SHGs despite having excessively high rates of interest (24-36 per cent per annum) on their loan advances. One of the further disquieting features of RFIs in Maharashtra has been the high proportion of NPAs to total assets, particularly of RRBs and SCARDBs, which are estimated to hover around 36-48 per cent during the mid-to late nineties. One of the reasons for such high incidence of NPAs of RFIs has been the familiar practice of debt forgiveness, which eroded repayment and allowed defaulters to scot free with no deterrent reprimand. Political interference in issues of prudent fiscal management has got a lot to do with this unfortunate scenario. In order to rejuvenate rural credit delivery system, the twin problems facing the system, viz., high transaction costs and poor repayment performance, need to be tackled with more fiscal jurisprudence reserving exemplary punishment for willful defaults, especially by large farmers. In fact, insofar as the rural credit delivery system is concerned, the focus should be on strategies that are required for tackling issues such as sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development.
    JEL: G
    Date: 2005–08–31
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0508019&r=fmk
  28. By: Richard Kum-yew Lai (Harvard Business School)
    Abstract: Private equity funds of funds (FOFs) have become big business. Today, FOFs form 14% of new money raised. I test six explanations for the rise of FOFs. First, I find that FOFs do not generally deliver superior returns. They do, however, do well enough for the limited partners (LPs) that hire them. Second, FOFs allow small LPs to scale upward, to invest in more funds. However, I find that they do not contribute to diversification. What they really do is to provide smaller LPs avenues to lower the cost of fund management. Third, FOFs allow large LPs to scale downward, to invest vast amounts over a short duration. However, the mechanism is imperfect because LPs can either use many FOFs and risk coordination problems among them or few FOFs and risk getting held up. Fourth, FOFs are used by LPs with weaker governance structures. Fifth, there is some evidence that LPs use FOFs to learn to invest in new areas, but the support is weak. Last, the use of FOFs is partly due to cyclical booms.
    Keywords: Venture capital, private equity, agency, economies of scale, outsourcing
    JEL: G24
    Date: 2005–09–04
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0509005&r=fmk
  29. By: Achraf AYADI (Institut National des Télécommunications d'Evry)
    Abstract: The convergence of the Internet and mobile networks creates new opportunities and applications. Treating mobile business as simply an extension to the traditional web could result in missing out unique differentiated qualities for new value-added possibilities. Mobile Banking is considered to be one of the most value-added and important mobile service available. The current research examined technological changes in mobile networks and innovative attributes of Mobile Internet. It has advanced the theoretical framework of innovation in service to develop a customer centric analysis of mBanking value proposition. The article goes on to discuss critical factors in the diffusion of mBanking and explores reasons of failure and further prospects of success.
    Keywords: Mobile Banking
    JEL: O P
    Date: 2005–08–24
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0508010&r=fmk
  30. By: Gary A. S. Cook; Naresh R. Pandit; Jonathan V. Beaverstock; Peter J. Taylor; Kathy Pain
    Abstract: This paper reports a one-year study which investigated the clustering of financial services activity in London. A questionnaire asking about the advantages and disadvantages of a London location was sent to a stratified sample of 1,500 firms and institutions. In addition, thirty-nine on-site interviews with firms, professional institutions, government bodies and other related agencies were conducted. The study finds that banking, including investment banking, forms the cluster’s hub with most other companies depending on relationships with this sub-sector. Generally, the cluster confers many advantages to its incumbents including enhanced reputation, the ability to tap into large, specialized labor pool and customer proximity. The localized nature of relationships between skilled labor, customers and suppliers is a critical factor which helps firms achieve innovative solutions, develop new markets and attain more efficient ways to deliver services and products. Particularly important are the personal relationships which are enhanced by the on-going face-to-face contact that is possible in a compact geographical space. Many of the cluster’s advantages are dynamic in that they become stronger as agglomeration increases. The study also finds important disadvantages in the cluster which threaten its future growth and prosperity. These include the poor quality and reliability of transport, particularly the state of the London Underground and links to airports, increasing levels of regulation and government policy that is not co-ordinated with the whole of the cluster in mind. Key words: Industrial clustering, agglomeration, financial services.
    Date: 2004–08
    URL: http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p49&r=fmk

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