|
on Financial Markets |
| By: | Evan Gatev; Til Schuermann; Philip E. Strahan |
| Abstract: | Liquidity risk in banking has been attributed to transactions deposits and their potential to spark runs or panics. We show instead that transactions deposits help banks hedge liquidity risk from unused loan commitments. Bank stock-return volatility increases with unused commitments, but the increase is smaller for banks with high levels of transactions deposits. This deposit-lending risk management synergy becomes more powerful during periods of tight liquidity, when nervous investors move funds into their banks. Our results reverse the standard notion of liquidity risk at banks, where runs from depositors had been seen as the cause of trouble. |
| JEL: | G18 G21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12234&r=fmk |
| By: | D. Johannes Juttner (Department of Economics, Macquarie University); David Chung (Department of Economics, Macquarie University); Wayne Leung (Department of Economics, Macquarie University) |
| Abstract: | The last twenty five years provided international investors in sovereign bonds of emerging market countries with a colourful experience consisting of several defaults that resulted in protracted, frustrating and – most importantly – costly salvage operations. It therefore appears natural to ask how investors have priced sovereign bonds under these challenging conditions. The novel feature of this study consists in applying a conventional multifactor global market model to emerging market sovereign bond index rates of return that are denominated in US dollars and subsequently relating the unexplained residual from the market model’s estimates of each country’s total bond index return to country specific factors. They include political and financial risks as well as other presumed determinants of bond index rates of return. The estimation approach allows us to separate out the common influences of global bond market movements from the country-specific influences that drive rates of return on the outstanding bonds of 19 emerging market countries from Latin America, Transition Economies, Asian and African countries. The results of our study confirm that sovereign countries’ bond index rates of return that include interest payments and capital gains/losses may be explained in terms of conventional bond pricing models by combining global market factors with local risk and other country-specific influences. Unsurprisingly, emerging market bonds appear to be dancing to different tunes than those in developed economies. |
| Keywords: | Emerging bond markets, International investments, Sovereign bonds |
| JEL: | F21 F30 G15 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:mac:wpaper:0406&r=fmk |
| By: | Edwin M. Truman (Institute for International Economics); Anna Wong (Institute for International Economics) |
| Abstract: | Rumors about the actual or potential currency diversification of countries’ foreign exchange holdings out of dollars are not a new phenomenon. This working paper argues that such concerns about reserve diversification are exaggerated. We present evidence that the extent of actual diversification has been modest to date. Nevertheless, the potential for reserve diversification adds volatility to foreign exchange markets and can catalyze abrupt exchange rate movements. We argue that policymakers acting in their own national interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange reserve diversification. We propose the voluntary adoption by major foreign exchange reserve holders in particular of an International Reserve Diversification Standard consisting of two elements: (1) routine disclosure of the currency composition of official foreign exchange holdings and (2) a commitment by each adherent to adjust gradually the actual currency composition of its reserves to any new benchmark for those holdings. |
| Keywords: | Foreign Exchange Reserves, Central Banks, International Investment and Long-Term Capital Movements, International Monetary Arrangements and Institutions |
| JEL: | F31 E58 F21 F33 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp06-2&r=fmk |
| By: | Martha A. Starr (Department of Economics, American University); Rasim Yilmaz (Dumlupinar University) |
| Abstract: | Recent banking crises in emerging-market countries have renewed debates about deposit insurance. Because insurance erodes banks’ incentives to manage risks prudently, some argue that its elimination would improve bank stability. Yet eliminating insurance could be destabilizing if it recreates risks of self-fulfilling runs. This paper examines dynamics of depositor behavior during a set of runs on Turkey’s Special Finance Houses, an uninsured sub-sector of Islamic banks. Detailed data on withdrawals are analyzed in a vector-autoregressive framework that enables us to distinguish between informational and self-fulfilling elements of runs. We find that both types of dynamics were at work during the runs, suggesting a role for deposit insurance, judiciously used, in ruling out expectational problems that fuel tendencies to run. |
| Keywords: | bank runs, deposit insurance, Islamic banks, financial development |
| JEL: | G21 G28 O16 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0806&r=fmk |
| By: | Schmeling, Maik |
| Abstract: | Using a new data set on investor sentiment we show that institutional and individual sentiment proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we document that institutional sentiment forecasts stock market returns at intermediate horizons correctly, whereas individuals consistently get the direction wrong. Second, VEC models show that institutional sentiment forecasts mean-reversion whereas individuals forecast trend continuation. Finally, institutional investors take into account expected individual sentiment when forming their expectations in a way that higher (lower) expected sentiment of individuals lowers (increases) institutional return forecasts. Individuals neglect the information contained in institutional sentiment. |
| Keywords: | investor sentiment, predictive regressions, noise trader, smart money |
| JEL: | G11 G12 G14 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-337&r=fmk |
| By: | Menkhoff, Lukas; Schmeling, Maik |
| Abstract: | The puzzling evidence of seemingly high momentum returns is related to an understanding of risk as a simple covariance. If we consider, however, risk in higher-order statistical moments, momentum returns appear less advantageous. Thus, a prospect-theoretical assessment of US stock momentum returns provides a possible direction for explaining this puzzle. |
| Keywords: | momentum trading, market efficiency, prospect theory |
| JEL: | G11 G12 G14 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-335&r=fmk |
| By: | Kuper, Gerard H.; Lestano (Groningen University) |
| Abstract: | This paper examines the dynamic linkages among financial markets in Thailand and Indonesia. In particular, we focus on the cross-border relationship in individual markets and on the relationship between finan- cial markets within each country. We find that while tight monetary policy pursued by Thailand authorities helped to defend the exchange rate at the outbreak of the financial crisis, it had little consequences for Indonesia at the end of 1998. The correlations between countries within each of the financial market reveals a certain degree of interde- pendence among countries, which is lower during crises. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:2006/02&r=fmk |
| By: | Hans Dewachter (Catholic University of Leuven, Center for Economic Studies; Erasmus University Rotterdam, Rotterdam School of Management); Marco Lyrio (University of Warwick, Warwick Business School, Finance Group); Konstantijn Maes (National Bank of Belgium, Financial Stability Department) |
| Abstract: | How should we value and manage deposit accounts where deposits have a zero contractual maturity, but which, in practice, remain stable through time and are remunerated below market rates? Does the economic value of the deposit account differ from the face value and can we reliably measure it? To what extent is the economic value sensitive to yield curve changes? In this paper, we try to answer the above questions. The valuation is performed on yield curve, deposit rate and deposit balance data between December 1994 and June 2005 for a sample of Belgian bank retail savings deposits accounts. We find that the deposits premium component of Belgian savings deposits is economically and statistically significant, though sensitive to assumptions about servicing costs and outstanding balances average decay rates. We also find that deposit liability values depreciate significantly when market rates increase, thereby offsetting some of the value losses on the asset side. The hedging characteristics of deposit accounts depend primarily on the nature of the underlying interest rate shock (yield curve level versus slope shock) and on the average decay rate. We assess the reliability of the reported point estimates and also report corresponding duration estimates that results from a dynamic replicating portfolio model approach more commonly used by large international banks. |
| Keywords: | Demand deposits, ALM, risk management, arbitrage free pricing, flexible-affine term structure model, interest rate risk, IFRS 39, fair value accounting |
| JEL: | G12 G21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200605-2&r=fmk |
| By: | Stefano Schiavo (University of Trento) |
| Abstract: | The paper analyzes the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well). |
| Keywords: | business cycle; EMU; endogeneity; integration; optimum currency areas; |
| JEL: | E32 E44 F36 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:25&r=fmk |
| By: | Nora Lado; Anna Torres; Oscar Licandro |
| Abstract: | How the customers react during and before an economic and financial crisis is an important yet scantily researched issue (Zurawicki and Braidot, 2005; Lado et al, 2006). We evaluate the variations in the perceived importance of the bank quality attributes as determinated by a severe shock in the situational context. The particular episode considered here is the collapse of the financial system in Uruguay in June 2002. It was a short but profound crisis; the Uruguayan banking system became insolvent with banking holidays resulting in a significant financial system confidence crisis. The specific goals of this research are two-fold (1) to explore how a shock in the external context can affect the weight perceptions of different service quality attributes, and (2) to measure the persistence of this changes over the time. Data for this study were generated utilising a two-stage, two-period approach and analysed by mixed methodology. The results of the Correspondence analysis of square asymmetric matrices performed suggest that the financial crisis provokes changes in the relative importance of the main attributes. |
| Keywords: | Marketing, consumer behavior, perceived service quality, attribute importance |
| JEL: | M31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/4&r=fmk |
| By: | Rachel Reeves; Michael Sawicki |
| Abstract: | The effectiveness of a central bank's monetary policymaking is determined by the merit of its policy actions and their perceived credibility. Since the 1990s central banks have placed more emphasis on clear communications and transparency as additional levers to help achieve their goals. In this paper we examine how UK financial markets react to Bank of England communication. We might expect interest rate expectations, and potentially other asset prices, to react to official communication if such communication helps inform market participants. We find evidence that the publication of the Minutes of the Monetary Policy Committee meetings and the Inflation Report significantly affect near-term interest rate expectations, an effect particularly visible in intraday data. Speeches and parliamentary committee hearings appear to have less of an impact. Our results for the UK are arguably less strong than Kohn and Sack's (2003) findings for US Federal Reserve communication. Although differences in institutional frameworks between the UK and US mean communications are not directly comparable, our results might also reflect the different mandates of the FOMC and the MPC, with the Federal Reserve having greater freedom to interpret its objectives. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mpc:wpaper:15&r=fmk |
| By: | D. Johannes Juttner (Department of Economics, Macquarie University); Wayne Leung (Department of Economics, Macquarie University) |
| Abstract: | This study contributes, on the basis of economic theory, to an explanation of exchange rate volatilities for a large number of currencies. We relate daily changes in GARCH(1,1) volatilities of exchange rates to the volatility changes of several of their presumed fundamental economic determinants. The use of highfrequency data limits the choice of the explanatory economic variables that can be included. The first differences of GARCH(1,1) volatilities of share and bond price indices proxy for wealth uncertainty and the latter, in addition, for interest rate variability. Likewise, first differences of the gold price volatility, as an additional determinant, are related to exchange rate volatilities of two commodity currencies in the sample. The estimates produce coefficients with the expected signs and statistical significance. |
| Keywords: | Exchange rate volatilities, volatility relationships, GARCH modelling |
| JEL: | F31 C22 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:mac:wpaper:0405&r=fmk |
| By: | Michael B. Devereux; Charles Engel |
| Abstract: | Both empirical evidence and theoretical discussion have long emphasized the impact of “news” on exchange rates. In most exchange rate models, the exchange rate acts as an asset price, and as such responds to news about future returns on assets. But the exchange rate also plays a role in determining the relative price of non-durable goods when nominal goods prices are sticky. In this paper we argue that these two roles may conflict with one another. If news about future asset returns causes movements in current exchange rates, then when nominal prices are slow to adjust, this may cause changes in current relative goods prices that have no efficiency rationale. In this sense, anticipations of future shocks to fundamentals can cause current exchange rate misalignments. Friedman’s (1953) case for unfettered flexible exchange rates is overturned when exchange rates are asset prices. We outline a series of models in which an optimal policy eliminates the effects of news on exchange rates. |
| JEL: | F3 F4 E5 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12213&r=fmk |
| By: | Huyen Nguyen-Thi-Thanh (LEO - Laboratoire d'économie d'Orleans - [CNRS : UMR6221] - [Université d'Orléans]) |
| Abstract: | Previous studies have documented that Data Envelopment Analysis<br />(DEA) could be a good tool to evaluate fund performance,<br />especially the performance of hedge funds as it can incorporate<br />multiple risk-return attributes characterizing hedge fund's non<br />normal return distribution in an unique performance score. The<br />purpose of this paper is to extend the use of DEA to the context<br />of hedge fund selection when investors must face multi-dimensional<br />constraints, each one associated to a relative importance level.<br />Unlike previous studies which used DEA in an empirical framework,<br />this research puts emphasis on methodological issues. I showed<br />that DEA can be a good tailor-made decision-making tool to assist<br />investors in selecting funds that correspond the most to their<br />financial, risk-aversion, diversification and investment horizon<br />constraints. |
| Keywords: | hedge funds, data envelopment analysis, fund selection, performance measurement, alternative investment |
| Date: | 2006–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00067742_v1&r=fmk |
| By: | D. Johannes Juttner (Department of Economics, Macquarie University); Wayne Leung (Department of Economics, Macquarie University) |
| Abstract: | The paper analyzes some of the ingredients of currency hedging and portfolio construction against the framework of mean-variance efficient portfolios. The currency hedging analysis is based on a range of exchange rates, consisting of the domestic dollar vis-à-vis the US dollar, the euro, the yen, the pound and Hong Kong dollar mainly from an Australian perspective. Our analysis focuses on the following input factors into the hedging process of foreign assets/liabilities. We explore the implications of the secular downward trend of the real trade-weighted exchange rate index of the domestic dollar for hedging effectiveness. The hedging costs resulting from unexpected cash flows and portfolio adjustments are in part estimated through a simulated forward contract hedging technique. The relevant inputs into the variance-covariance matrix of the optimal portfolio selection process are estimated on the basis of historical data. Comparing the forecast errors of share index and currency volatilities, using historical, implied and GARCH methods, provides mixed results. The paper also investigates a select number of forecasting methods that may be applied to other hedging inputs. |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:mac:wpaper:0411&r=fmk |
| By: | Jose L. B. Fernandes; Augusto Hasman; Juan Ignacio Peña |
| Abstract: | The aim of this paper is twofold: First to test the adequacy of Pareto distributions to describe the tail of financial returns in emerging and developed markets, and second to study the possible correlation between stock market indices observed returns and return’s extreme distributional characteristics measured by Value at Risk and Expected Shortfall. We test the empirical model using daily data from 41 countries, in the period from 1995 to 2005. The findings support the adequacy of Pareto distributions and the use of a log linear regression estimation of their parameters, as an alternative for the usually employed Hill’s estimator. We also report a significant relationship between extreme distributional characteristics and observed returns, especially for developed countries. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb062808&r=fmk |
| By: | Sebastian Edwards |
| Abstract: | During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include, among other: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union has not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks have been amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries. |
| JEL: | F02 F43 O11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12229&r=fmk |
| By: | Francis A. Longstaff; Arvind Rajan |
| Abstract: | We study the pricing of collateralized debt obligations (CDOs) using an extensive new data set for the actively-traded CDX credit index and its tranches. We find that a three-factor portfolio credit model allowing for firm-specific, industry, and economywide default events explains virtually all of the time-series and crosssectional variation in CDX index tranche prices. These tranches are priced as if losses of 0.4, 6, and 35 percent of the portfolio occur with expected frequencies of 1.2, 41.5, and 763 years, respectively. On average, 65 percent of the CDX spread is due to firm-specific default risk, 27 percent to clustered industry or sector default risk, and 8 percent to catastrophic or systemic default risk. Recently, however, firm-specific default risk has begun to play a larger role. |
| JEL: | G1 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12210&r=fmk |
| By: | Vinicius Carrasco (Department of Economics PUC-Rio.); João Manoel Pinho de Mello (Department of Economics PUC-Rio) |
| Abstract: | While the literature has focused on relationships as a technology for solving hidden information problems in credit markets, hidden action has been very little explored as an explanation for the existence of relational lending. In this paper, we propose a theory in which relationships are driven by the problem of contractual incompleteness in instances in which a borrower, by taking ex-ante actions, magnifies the hazards related to ex-post bargaining over returns. A relationship commits the borrower to take actions that minimize the ex-post conflict of interests resulting from contractual incompleteness. We show that a robust feature of an optimally designed lending relationship (i.e., the best Public Perfect Pure Strategy Equilibrium in a repeated lending game) is that a sufficiently patient entrepreneur, upon choosing his actions, ignores his privately observed contingencies. This commitment solves the credit rationing problem that arises in a one-shot (arm’s length) interaction, and reduces, when compared to arm’s length financing, the interest rate that a bank charges for a credit line. Although in a less acute fashion, we also show that the same features just described appear in an optimal lending relationship for the case in which the entrepreneur is impatient. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:520&r=fmk |
| By: | Douglas A. Hershey (Oklahoma State University); Kène Henkens (Netherlands Interdisciplinary Demographic Institute, The Hague); Hendrik P. van Dalen (Erasmus Universiteit Rotterdam) |
| Abstract: | This study explored the psychological mechanisms that underlie the retirement planning and saving tendencies of Dutch and American workers. Participants were 988 Dutch and 429 Americans, 25-64 years of age. Analyses were designed to: (a) examine the extent to which structural variables were related to planning tendencies, and (b) develop culture-specific path analysis models to identify the mechanisms that underlie perceived financial preparedness for retirement. Findings revealed striking differences across the Netherlands and the United States not only among structural variables predictive of key psychological and retirement planning constructs, but also in the robustness of the path models. These findings suggest that policy analysts should take into account both individual and cultural differences in the psychological predispositions of workers when considering pension reforms that stress individual responsibility for planning and saving. |
| Keywords: | retirement; pensions; financial planning; psychology; saving; uncertainty |
| JEL: | D14 D91 J26 P52 |
| Date: | 2006–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20060038&r=fmk |
| By: | Robert A. Blecker (Department of Economics, American University) |
| Abstract: | This paper analyzes the effects of the real value of the dollar on investment in US domestic manufacturing, using aggregate time-series data for 1973-2004. The econometric estimates reveal robust evidence for a negative effect of the dollar that is much larger than has been found in any previous study (and which is not sensitive to various alternative specifications). The results also suggest that the exchange rate affects investment mainly, although not exclusively, through the channel of financial or liquidity constraints, rather than by affecting the desired stock of capital. Counterfactual simulations show that US manufacturing investment would have been 61% higher and the capital stock would have been 17% higher in 2004 if the dollar had not appreciated after 1995. |
| Keywords: | investment, manufacturing, exchange rate, US dollar, profits, US economy |
| JEL: | E22 F31 L60 E25 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0706&r=fmk |
| By: | Bagnoli, Mark; Watts, Susan G. |
| Abstract: | Using a Verreccia [1983]-type model, we study the optimal voluntary disclosure strategy of a manager with private information that helps the market interpret financial information the firm is required to report. In equilibrium, the manager’s disclosure strategy enhances upward or mitigates downward revisions in the market’s estimate of firm value conditional on the firm’s financial reports. Hence, what the manager discloses (large or small values of her private information) and the probability of disclosure depend on the information in the firm’s financial reports. This leads to testable implications regarding the probability of voluntary disclosure (e.g., firms whose financial reports are more surprising provide more voluntary disclosures), and how earnings and revenue response coefficients depend on the manager’s voluntary disclosure strategy. Finally, we show that changes in mandatory disclosure regulations can reduce the probability of voluntary disclosure even though the manager’s private information is used to interpret the firm’s mandatory disclosures. |
| Keywords: | voluntary disclosure ; financial statements ; earnings surprise ; asymmetric information ; price efficiency ; good news ; bad news |
| JEL: | G1 G14 M41 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1186&r=fmk |
| By: | J. David Cummins; Georges Dionne; Robert Gagné; Abdelhakim Nouira |
| Abstract: | Risk management is now present in many economic sectors. This paper investigates the role of risk management in creating value for financial institutions by analyzing U.S. property-liability insurers. Property-liability insurers are financial intermediaries whose primary roles in the economy are risk pooling and risk bearing. The risk pooling and risk bearing functions performed by insurers are the primary determinants of the need for risk management. The main goal of this paper is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency. Insurer cost efficiency is measured relative to an econometric cost function. Since the prices of risk management and financial intermediation services are not observable, we consider these two activities as intermediate outputs and estimate their shadow prices. The shadow prices isolate the contributions of risk management and financial intermediation to insurer cost efficiency. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry. |
| Keywords: | Risk management, US property-liability insurer, risk pooling, financial intermediation, economic efficiency, intermediate output, shadow price, cost function, translog approximation |
| JEL: | C34 D24 D81 G22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0616&r=fmk |
| By: | Christian Leuz; Karl V. Lins; Francis E. Warnock |
| Abstract: | As domestic sources of outside finance are limited in many countries around the world, it is important to understand the factors that influence whether foreign outside investors provide capital to a country’s firms. This study examines whether and why investor concern about corporate governance results in fewer foreign holdings. We use a comprehensive set of foreign holdings by U.S. investors as a proxy for foreign investment and analyze a sample of 4,411 firms from 29 emerging market and developed economies. We find that foreigners invest significantly less in firms that are poorly governed, i.e., firms that have ownership structures that are more conducive to outside investor expropriation. Interestingly, this finding is not simply a matter of a country’s economic development but appears to be directly related to a country’s information rules and legal institutions. We therefore argue that information problems faced by foreign investors play an important role in this result. Supporting this explanation, we show that foreign investment is lower in firms that appear to engage in more earnings management. |
| JEL: | G3 F3 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12222&r=fmk |
| By: | Luciano Campi (CEREMADE, Université Paris Dauphine); Simon Polbennikov (Econometrics and Operations Research, Tilburg University, The Netherlands,); Sbuelz (Department of Economics (University of Verona)) |
| Abstract: | Unlike in structural and reduced-form models, we use equity as a liquid and observable primitive to analytically value corporate bonds and credit default swaps. Restrictive assumptions on the firm’s capital structure are avoided. Default is parsimoniously represented by equity value hitting the zero barrier. Default can be either predictable, according to a CEV process that yields a positive probability of diffusive default and enables the leverage effect, or unpredictable, according to a Poisson-process jump that implies non-zero credit spreads for short maturities. Easy cross-asset hedging is enabled. By means of a carefully specified pricing kernel, we also enable analytical credit-risk management under possibly systematic jump-to-default risk. |
| Keywords: | Equity, Corporate Bonds, Credit Default Swaps, Constant-Elasticity-of-Variance (CEV) Diffusion, Jump to Default |
| JEL: | G12 G33 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:24&r=fmk |
| By: | Paola Dongili (Dipartimento di Scienze economiche (Università di Verona)) |
| Abstract: | The aim of the paper is to account for the choice of a definition of the banking output suitable for the efficiency analysis of the italian banking system. A short survey of the literature allows to underline that the variety of definitions is linked to the empirical background and or to the analytical choices more than to different models of banking firm. A brief excursus of the evolution of the italian banking system in the last decades help to justify the choice. |
| JEL: | G |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:21&r=fmk |
| By: | Fang Cai; Francis E. Warnock |
| Abstract: | It is an established fact that investors favor the familiar—be it domestic securities or, within a country, the securities of nearby firms—and avoid investments that would provide the greatest diversification benefits. While we do not rule out familiarity as an important driver of portfolio allocations, we provide new evidence of investors’ international diversification motive. In particular, our analysis of the security-level U.S. equity holdings of foreign and domestic institutional investors indicates that institutional investors reveal a preference for domestic multinationals (MNCs), even after controlling for familiarity factors. We attribute this revealed preference to the desire to obtain “safe” international diversification. We then show that holdings of domestic MNCs are substantial and, after accounting for this home-grown foreign exposure, that the share of “foreign” equities in investors’ portfolios roughly doubles, reducing (but not eliminating) the observed home bias. |
| JEL: | G11 G15 G3 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12220&r=fmk |
| By: | Pierpaolo Benigno |
| Abstract: | Recent studies have emphasized the role of valuation effects — exchange rate and price movements— in easing the process of adjustment of the external balance of a country. This paper asks to what extent valuation effects are desirable from a global perspective as a mean to achieve an efficient allocation of resources. In a frictionless world, it is desirable to have large movements in prices and exchange rates. But once a small concern for price stability is introduced not only should prices be stabilized but also the response of the exchange rate should be muted. There is a minor role for valuation effects that depends both on the size and composition of assets and liabilities. |
| JEL: | F32 F41 F42 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12219&r=fmk |
| By: | Bagnoli, Mark; Clement, Michael; Watts, Susan G. |
| Abstract: | We reexamine the descriptive ability of the conventional wisdom that earnings announcements made after trading and on Friday are dominated by bad news in light of the 24/7 media coverage and other technological changes of the 1990’s. We find that the change in media coverage has facilitated a significant change in earnings announcement times: only 27% of earnings announcements are now made during trading as opposed to 67% in prior research. However, our finding of continued dominance of bad news in Friday announcements in particular strongly suggests that the conventional wisdom is not solely the result of managers’ desire to take advantage of limited media coverage. Instead, managers appear to be taking advantage of other aspects of investors’ behavior, such as their anticipating negative Friday announcements earlier in the week, and the relatively quiet (in terms of trading) weekend period to manage stock price responses to their companies’ financial news. |
| Keywords: | strategic planning ; bad news ; earnings announcements ; earnings disclosures |
| JEL: | G12 G14 M41 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1184&r=fmk |
| By: | Michael B. Devereux; Charles Engel |
| Abstract: | This paper develops a view of exchange rate policy as a trade-off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment. We show that optimal nominal exchange rate volatility will reflect these competing objectives. The key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal exchange rate volatility may be non-monotonic. |
| JEL: | F3 F4 E5 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12215&r=fmk |
| By: | Mehtap Kesriyeli (Research Department, Central Bank of the Republic of Turkey, Ankara, Turkey); Erdal Ozmen (Department of Economics, METU); Serkan Yigit (Research Department, Central Bank of the Republic of Turkey, Ankara, Turkey) |
| Abstract: | This paper investigates the causes and balance sheet effect consequences of the liability dollarisation of non-financial sectors in Turkey using the Company Accounts database compiled by the Central Bank of Turkey. The results from the panel EGLS and GMM procedures suggest that both sector-specific (tangibility, leverage ratio, export share) and macroeconomic condition variables (inflation, real exchange rate change, budget deficits and confidence) are significant in explaining the corporate sector liability dollarisation. Firms are found to match only partially the currency composition of their debt with their income streams making them potentially vulnerable to negative balance sheet affects of real exchange rate depreciation shocks. Consistent with this argument, real exchange rate depreciations are found to be contractionary, in terms of investments and profits, for sectors with higher liability dollarisation. Macroeconomic instability, as proxied by budget deficits and inflation, appears to have a significant negative affect on the performance of the firms in the non-financial sectors, in terms of their investments, sales and profits. Our results also stress the importance of strong macroeconomic policy stance and price stability for an endogenous dedollarisation process along with regulatory measures to limit vulnerabilities caused by dollarisation. |
| Keywords: | Balance sheet effects, Capital structure, Corporate sector, Debt composition, Liability dollarisation, Turkey |
| JEL: | E22 F31 G32 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:0507&r=fmk |
| By: | Viviana Fernandez |
| Abstract: | In this article, we formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, we derive an analytical formula for time-scale value at risk and marginal value at risk (VaR) of a portfolio. We apply our methodology to stock indices of seven emerging economies belonging to Latin America and Asia, for the sample period 1990-2004. Our main conclusions are the following. First, the estimation results hinge upon the choice of the world market portfolio. In particular, the stock markets of the sampled countries appear to be more integrated with other emerging countries than with developed ones. Second, value at risk depends on the investor’s time horizon. In the short run, potential losses are greater than in the long run. Third, additional exposure to some specific stock indices will increase value at risk to a greater extent, depending on the investment horizon. Our results go in line with recent research in asset pricing that stresses the importance of heterogeneous investors. |
| JEL: | C22 G15 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12233&r=fmk |
| By: | Norberg , Peter (Dept. of Business Administration, Stockholm School of Economics) |
| Abstract: | This article informs the question of how business interacts with demands from the public. Stakeholders ranging from employees to authorities incite brokerage firms to enter a contest for legitimacy. <p> Financial firms can take a range of efforts as a response to the low public confidence. Corporate codes of ethics are popularly described as a source for morality in the financial market as an antidote to questionable behaviour. Some firms use codes to signal ethical behaviour and an interest in ethics. <p> Financial institutions have always appeared as exclusive, and now re-present their business as serious. As the public has become more deeply financially as well as emotionally involved in the equities market than before, firms also try to reframe the market as normal. Codes effectively serve both these objectives. |
| Keywords: | codes of ethics; financial market; legitimacy; trust; organizational behaviour |
| Date: | 2006–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhb:hastba:2006_004&r=fmk |
| By: | Afonso Gonçalves da Silva; Peter M Robinson |
| Abstract: | Nonlinear functions of multivariate financial time series can exhibit longmemory and fractional cointegration. However, tools for analysingthese phenomena have principally been justified under assumptionsthat are invalid in this setting. Determination of asymptotic theoryunder more plausible assumptions can be complicated and lengthy.We discuss these issues and present a Monte Carlo study, showingthat asymptotic theory should not necessarily be expected to provide agood approximation to finite-sample behaviour. |
| Keywords: | Fractional cointegration, memory estimation,stochastic volatility. |
| JEL: | C32 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stiecm:/2006/501&r=fmk |
| By: | Trond Borgersen, Dag Einar Sommervoll and Tom Wennemo (Statistics Norway) |
| Abstract: | Housing markets tend to display both positive serial correlation as well as a considerable volatility over time. We present a stochastic model illustrating the connection between adaptive expectations and market fluctuations. All macro economic and demographic variables stay fixed over time and price movements are driven by expectations only. In the case where agents face unconstrained mortgage financing, the housing market oscillations are regular and depend on mortgage to income ratios. When credit institutions are introduced, which view houses as mortgage collaterals, the dynamics get complex. Periods of mild oscillations are mixed with violent collapses in an unpredictable manner. |
| Keywords: | Heterogeneous agents; adaptive expectation; credit score models; house price cycles |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:458&r=fmk |
| By: | Vinicius Carrasco (Department of Economics PUC-Rio.); Gustavo Manso (Graduate School of Business, Stanford University.) |
| Abstract: | This paper investigates the extent to which syndication in financial markets is related to collusive behavior. A group of financiers who have private information regarding their capability of monitoring an entrepreneur must decide whether to provide a loan individually in a competitive fashion, or provide it collectively. When deciding whether to provide the loan collectively, the lenders bargain over their participation, on who will be monitoring the lender (the leader), and on pricing. It is shown that if the bargaining stage is robust to timing of communication of their private information (Ex-Post Incentive Compatibility), and if the lenders believe it is better to agree on a collective deal than competing, positive participation in the loan is given to all lenders even when side payments are allowed. Hence, we show that syndication is the optimal response of colluding lenders to the communication costs resulting from the negotiations between them for a given loan. Syndication improves on pricing but introduces a distortion by leaving the most effective monitor with less than full participation in the loan. Necessary conditions for syndication prevailing over competition are provided. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:522&r=fmk |
| By: | Markku Lanne |
| Abstract: | A multiplicative error model with time-varying parameters and an error term following a mixture of gamma distributions is introduced. The model is fitted to the daily realized volatility series of Deutschemark/Dollar and Yen/Dollar returns and is shown to capture the conditional distribution of these variables better than the commonly used ARFIMA model. The forecasting performance of the new model is found to be, in general, superior to that of the set of volatility models recently considered by Andersen et al. (2003) for the same data. |
| Keywords: | Mixture model, Realized volatility, Gamma distribution |
| JEL: | C22 C52 C53 G15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/3&r=fmk |
| By: | Emilie Laffiteau (CATT - UPPA); Jean-Marc Montaud (CATT – UPPA et CED / IFReDE-GRES, Université Montesquieu Bordeaux IV) |
| Abstract: | Cette analyse montre l’impact du choix du régime de Currency Board sur la pauvreté des ménages en Argentine. Un tel régime monétaire introduisant des contraintes majeures sur l’économie, notamment sur le marché du travail, nous partons d’une désagrégation des ménages argentins identifiant leurs différentes modalités d’insertion sur ce marché et dégageant leur vulnérabilité respective en termes de pauvreté. Dans un second temps, nous construisons un modèle EGC financier incorporant les mécanismes du Currency Board, les principales caractéristiques de l’économie argentine, ainsi que les indicateurs de pauvreté et d’inégalités des différents groupes de ménages. Trois types de simulations sont effectuées pour retracer les différentes conditions économiques qu’a pu connaître l’Argentine à la fin des années quatre-vingt dix : renforcement des politiques d’austérité, instabilité financière et ouverture commerciale. Elles montrent comment réagit cette économie contrainte par le Currency Board et quelles sont les répercussions en termes de pauvreté et d’inégalités. This study shows the impact of the choice of a Currency Board regime on household’s poverty in Argentina. Such monetary system introducing strong constraints on the economy, in particular on its labour market, we make an argentines households stratification witch identify their different occupational integration conditions on its market and show their respective vulnerability on poverty. Secondly, we build a financial general equilibrium model which includes Currency Board mechanisms, the main features of the argentine economy and inequality and poverty indicators. Three types of simulations illustrate the economic conditions that go through Argentina in the end of the nineties: austerity politics strengthening, financial instability and commercial liberalisation. Each simulation explains how the argentine economy, constraint by the Currency Board, react and show the consequences on poverty and inequality. (Full text in french) |
| JEL: | D58 E42 I32 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mon:ceddtr:128&r=fmk |
| By: | Alberto Humala (Central Bank of Peru) |
| Abstract: | Este documento presenta una evaluación econométrica de la paridad descubierta de tasas de interés (PDI) para instrumentos financieros peruanos y documenta las principales regularidades empíricas respecto a esta relación. La información contenida en los diferenciales de tasas de interés respecto a la depreciación esperada es evaluada bajo distintas representaciones econométricas. En el caso peruano, si se consideran aproximaciones lineales y se incluyen períodos en los cuales las expectativas de inflación son relativamente altas, la paridad se cumpliría en promedio en el corto plazo (contrario a la evidencia internacional). En períodos de estabilidad de precios (bajo esquemas de metas de inflación), por el contrario, representaciones lineales muestran evidencia contraria a la PDI. En ambos escenarios, los modelos de cambios de régimen distinguen, sobre un mismo tamaño de muestra, entre períodos consistentes con la PDI y aquellos en que ésta no es tan relevante. En particular, los modelos Markov de regímenes cambiantes señalan la importancia de la volatilidad de los movimientos cambiarios para evaluar la validez de la PDI. |
| Keywords: | Paridad descubierta de tasas de interés, diferenciales de tasas de interés, tipo de cambio, modelos de regímenes cambiantes Markov. |
| JEL: | F21 F31 F41 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-002&r=fmk |
| By: | Christophe Hurlin (LEO - Laboratoire d'économie d'Orleans - [CNRS : UMR6221] - [Université d'Orléans]); Sessi Tokpavi (LEO - Laboratoire d'économie d'Orleans - [CNRS : UMR6221] - [Université d'Orléans]) |
| Abstract: | This paper proposes a new test of Value at Risk (VaR) validation. Our test exploits the idea that the sequence of VaR violations (Hit function) - taking value 1-α, if there is a violation, and -α otherwise - for a nominal coverage rate α verifies the properties of a martingale difference if the model used to quantify risk is adequate (Berkowitz et al., 2005). More precisely, we use the Multivariate Portmanteau statistic of Li and McLeod (1981) - extension to the multivariate framework of the test of Box and Pierce (1970) - to jointly test the absence of autocorrelation in the vector of Hit sequences for various coverage rates considered as relevant for the management of extreme risks. We show that this shift to a multivariate dimension appreciably improves the power properties of the VaR validation test for reasonable sample sizes. |
| Keywords: | Value-at-Risk; Risk Management; Model Selection |
| Date: | 2006–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00068384_v1&r=fmk |
| By: | Vinicius Carrasco (Department of Economics PUC-Rio.); João Manoel Pinho de Mello (Department of Economics PUC-Rio) |
| Abstract: | Relationships are a valuable technology to produce loans. (Berger and Udell [1995], Petersen and Rajan [1994], Aoki and Dinç [2002]). While there are convincing theories in which relationships solve hidden action or hidden information problems, there is very little empirical corroboration of either theory. In this paper, we assess the empirically validity of these theories in the small firm credit market. While results suggest that relationships are more valuable for firms with worse incentive misaligment problems, more informationally opaque firms do not seem to extract more value from relationships. Contrary to what most empirical research on the value of relationships has assumed (but not tested), this indicates that relationships are, at very least, as important for aligning incentives as they are for solving hidden information problems. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:519&r=fmk |
| By: | Don Harding; Adrian Pagan |
| Abstract: | Macroeconometric and Financial researchers often use secondary or constructed binary random variables that differ in terms of their statistical properties from the primary random variables used in microeconometric studies. One important di¤erence between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions. |
| Keywords: | Business cycle;binary variable;Markov chain;probit model;yield curve |
| JEL: | C22 C53 E32 E37 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:963&r=fmk |
| By: | Arnaud Féral (THEMA, Department of Economics, Cergy-Pontoise University) |
| Abstract: | In a Cournot model of takeover under asymmetric information, we identify a link between efficiency gains and structural remedies, we show that more efficient Insiders are asked to divest a bigger part of their assets. Aware that a unique tool is insufficient to make Insider revealing their type, we allow the Antitrust Agency to choose the mix of cash and stock used as payment for the target, which indirectly defines a transfer. Relying on the medium of paiement literature we show that the merger is even more costly for Insiders when the amount of cash in the mix bid is more important, because of capital gains tax compensations. We introduce a relevant limited liability problem in the model, since the AA cannot ask higher transfers than those underlying to the all cash procedure. In this context we show that inefficient Insiders divest more than their First Best and make an all cash offer, whereas efficient Insider divest their First best and incorporate less cash in the global bid. |
| Keywords: | Merger control, structural remedies, asymmetric information, Medium of paiement, Limited liability |
| JEL: | L51 D82 L41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2006-05&r=fmk |
| By: | Charles Engel; Akito Matsumoto |
| Abstract: | This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some goods prices are set without full information of the state. We show that temporarily sticky nominal goods prices can have large effects on equity portfolios. Home and foreign portfolios are not identical in equilibrium. In response to technology shocks, sticky prices generate a negative correlation between labor income and the profits of domestic firms, biasing portfolios in favor of home equities. In contrast, under flexible prices, labor income and the profits of the domestic firms are positively correlated. Even a small amount of nominal price stickiness can generate these portfolio differences, depending on the diversification role played by the terms of trade. Returns on human capital and equities may be positively correlated under sticky prices when the source of shocks is monetary, but this risk is hedged through nominal assets rather than through equities. |
| JEL: | F31 F41 G11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12214&r=fmk |
| By: | Lucia Alessi; Matteo Barigozzi; Marco Capasso |
| Abstract: | We propose a new model for multivariate forecasting which combines the Generalized Dynamic Factor Model (GDFM)and the GARCH model. The GDFM, applied to a huge number of series, captures the multivariate information and disentangles the common and the idiosyncratic part of each series of returns. In this financial analysis, both these components are modeled as a GARCH. We compare GDFM+GARCH and standard GARCH performance on samples up to 475 series, predicting both levels and volatility of returns. While results on levels are not significantly different, on volatility the GDFM+GARCH model outperforms the standard GARCH in most cases. These results are robust with respect to different volatility proxies. |
| Keywords: | Dynamic Factors, GARCH, Volatility Forecasting |
| Date: | 2006–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2006/13&r=fmk |
| By: | Hagem, Cathrine (Dept. of Economics, University of Oslo); Westskog, Hege (CICERO, Center for International Climate and Environmental Research) |
| Abstract: | It is a well known result that taking distributional constraints into account when allocating tradable permits to different agents can lead to an imperfectly competitive permit market. Hence, the emission target is no longer met at least cost. In this paper we suggest an allocation rule for permits which can handle this problem. If the permits are allocated twice during the same period, and the allocation in the second round is dependent on the market price for permits, this allocation rule can achieve both cost effectiveness and meet specific requirements for cost distribution across agents. |
| Keywords: | Climate Change; Emission Permits; Allocation; Cost Effectiveness; Distributional Constraints |
| JEL: | Q52 Q54 |
| Date: | 2006–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2006_009&r=fmk |
| By: | Reich, Denis; Kliebenstein, James |
| Keywords: | Breeding, Gestating, Hogs |
| Date: | 2006–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12613&r=fmk |
| By: | Lahura Erick (Central bank of Peru) |
| Abstract: | El propósito del presente trabajo es investigar el efecto traspaso (pass-through) de la tasa de interés interbancaria sobre las tasas de interés en moneda doméstica y su relación con la política monetaria en el Perú, considerando el periodo 1995-2004. Específicamente, se evalúan las siguientes hipótesis: (a) el traspaso de largo plazo es aún incompleto; sin embargo, se ha incrementado luego del anuncio del corredor de tasas de interés de referencia (febrero de 2001) y se ha reforzado con la adopción del esquema de Metas Explícitas de Inflación o MEI (enero de 2002); (b) el anuncio del corredor de tasas de interés por parte del banco central ha incrementado la velocidad de ajuste de las tasas de mercado ante cambios en la tasa de referencia; y (c) en el corto plazo, las tasas de interés de mercado responden asimétricamente cuando la tasa de interés de referencia sube o baja. Las hipótesis fueron evaluadas a través de un modelo de corrección de errores no lineal-asimétrico. Los resultados de las estimaciones muestran evidencia a favor de las hipótesis planteadas. De esta manera, se puede inferir que la política monetaria ha mostrado una evolución favorable en términos de su impacto sobre las tasas de interés de mercado, desde el anuncio del corredor de referencia y la adopción del esquema MEI. |
| Keywords: | Tasa de interés, efecto traspaso, política monetaria, cointegración, modelo de corrección de errores, no linealidad, asimetrías. |
| JEL: | E43 E50 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-008&r=fmk |
| By: | Marco Vega (Central bank of Peru and London School of Economics); Diego Winkelried (Central bank of Peru and Cambridge University) |
| Abstract: | Este trabajo revisa la evidencia existente sobre el impacto de la adopción del esquema de metas explícitas de inflación (MEI) sobre la dinámica de la inflación. En particular, se reporta la evaluación econométrica de Vega y Winkelried (2005) y se compara sus resultados con aquellos obtenidos de estudios recientes sobre la materia. Un resultado general de esta revisión es que los efectos sobre la inflación son leves o estadísticamente no significativos cuando un país desarrollado es quien adopta el esquema MEI mientras que los efectos son bastante beneficioso cuando un país en desarrollo es quien adopta el esquema. |
| Keywords: | Metas explícitas de inflación. |
| JEL: | C50 E42 E52 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-001&r=fmk |
| By: | Célia Firmin (Centre d'Economie de la Sorbonne) |
| Abstract: | The object of this paper is to analyse the links between income distribution and growth in a finance-led economy, with a post Keynesian "stock-flow" macroeconomic model. In fact, the increased share of financial activities creates a new macroeconomic and income distribution dynamic. We will use the steady-state case and simulations experiments to analyse model reaction to a change in financial key parameter when the wage share is endogeneous. |
| Keywords: | Financialization, labor's share, capital accumulation, simulations experiments. |
| JEL: | E12 E24 E44 E51 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:r06024&r=fmk |
| By: | Christian Keuschnigg; Soren Bo Nielsen |
| Abstract: | In financing start-up firms, venture capitalists carefully select among alternative projects, design incentive compatible financial contracts and support portfolio companies with value enhancing managerial advice. This paper considers how venture capitalists can induce self-selection among entrepreneurial firms with different qualities and growth potential by designing appropriate contracts and offering managerial support. We study the efficiency of the competitive market equilibrium with respect to the level and quality of entrepreneurship and the level of effort by entrepreneurs and venture capitalists. We also provide comparative static results with respect to basic preference and technology parameters. |
| Keywords: | Venture capital, entrepreneurship, self-selection, moral hazard |
| JEL: | D82 G24 M13 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-06&r=fmk |
| By: | Chad Syverson |
| Abstract: | In markets where spatial competition is important, many models predict that average prices are lower in denser markets (i.e., those with more producers per unit area). Homogeneous-producer models attribute this effect solely to lower optimal markups. However, when producers instead differ in their production costs, a second mechanism also acts to lower equilibrium prices: competition-driven selection on costs. Consumers’ greater substitution possibilities in denser markets make it more difficult for high-cost firms to profitably operate, truncating the equilibrium cost (and price) distributions from above. This selection process can be empirically distinguished from the homogenous-producer case because it implies that not only do average prices fall as density rises, but that upper-bound prices and price dispersion should also decline as well. I find empirical support for this process using a rich set of price data from U.S. readymixed concrete plants. Features of the industry offer an arguably exogenous source of producer density variation with which to identify these effects. I also show that the findings do not simply result from lower factor prices in dense markets, but rather because dense-market producers have low costs because they are more efficient. |
| JEL: | L0 L1 D4 L6 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12231&r=fmk |
| By: | Elke Holst (German Institute for Economic Research, DIW Berlin); Mechthild Schrooten (Institute of Economic Research, Hitotsubashi University, Tokyo and German Institute for Economic Research, DIW Berlin) |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:fln:wpaper:009&r=fmk |
| By: | Bagnoli, Mark; Watts, Susan G.; Zhang, Yong |
| Abstract: | This paper examines the impact of Regulation Fair Disclosure (Reg FD) on the competitive advantage of All-Star analysts. We find that Institutional Investor All-Americans, chosen by the votes of institutional investors based on overall helpfulness to the buy-side, experienced a significant increase in turnover during the implementation and immediate aftermath of Reg FD. We do not observe a similar change in the Institutional Investor buy-side rankings of non-U.S. analysts or in the Wall Street Journal’s Best on the Street rankings which are based solely on returns generated from the analyst’s public stock recommendations. Furthermore, the significant change in All-American rankings is concentrated in those sectors identified by DIRI and Hutton (2005) as being most affected by Reg FD. By 2003, the competitive environment for All-Americans had stabilized, with turnover returning to (approximately) pre-Reg FD levels. This suggests that within a few years, All-Americans had built a new competitive advantage stressing aspects of performance less dependent on privileged communication with management. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1185&r=fmk |
| By: | Carlos Cortinhas (Universidade do Minho - NIPE) |
| Abstract: | This paper aims to investigate whether structural shocks among ASEAN countries are becoming more symmetrical over time, thus indicating whether this region is becoming better prepared to introduce a common monetary policy. For that purpose a dynamic space-state model that complements the conventional Structural VAR models used in the existing literature was estimated by using the Kalman filter so that the evolution of the degree of shock symmetry and, therefore, the evolution in the degree of convergence could be identified over time, distinguishing between a country’s convergence with a regional partner and a more general trend of convergence with the rest of the world. The results showed that in the majority of cases there has been an increase in the degree of convergence of demand shocks in recent years. More importantly, it also showed an increase in divergence in supply shocks for most cases since the beginning of the 90’s even when taking into account the Asian Financial Crisis. This is especially true for the periphery countries suggesting that the Philippines and Thailand are not only not converging but actually diverging from the core group. These results have important implications for the prospects of the creation of a common monetary policy in the region. |
| Keywords: | Optimum currency areas; Monetary integration; Asymmetric shocks; Convergence; Asean. |
| JEL: | F15 F33 E42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:3/2006&r=fmk |
| By: | Rodrigo M. Zeidan; Marcelo Resende |
| Abstract: | Many studies have questioned empirical utilization of accounting data as internal rates of return would be more consistent with the relevant economic concept. The paper investigates the dynamic relationships between different measures of accounting rates of return (ARRs) and different approximations for the internal rates of returns (IRRs). In contrast with the prevailing case-study investigations, one considers a panel for quoted Brazilian firms in the manufacturing industry along the 1988-3/2003-2 period. Granger causality tests are considered and even though the results are not completely clear cut, some discernible uni-directional patterns emerge. In particular, there seems to be informational content between economic and accounting rates of return, between ROA (Net Profits/Total Assets) and PM (Gross Profits/ Operational Income), and internal rates of return. This seems to indicate that there is some validity in using accounting rates of return in certain economic studies. |
| JEL: | M21 M41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/7&r=fmk |
| By: | Barry Eichengreen; Poonam Gupta; Ashoka Mody |
| Abstract: | Could a high-access, quick-disbursing “insurance facility” in the IMF help to reduce the incidence of sharp interruptions in capital flows (“sudden stops”)? We contribute to the debate on this question by analyzing the impact of conventional IMF-supported programs on the incidence of sudden stops. Correcting for the non-random assignment of programs, we find that sudden stops are fewer and generally less severe when an IMF arrangement exists and that this form of “insurance” works best for countries with strong fundamentals. In contrast there is no evidence that a Fund-supported program attenuates the output effects of capital account reversals if these nonetheless occur. |
| JEL: | F02 F32 F34 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12235&r=fmk |
| By: | Martha A. Starr (Department of Economics, American University) |
| Abstract: | Saving, investment, and pensions are avenues by which households build up claims to future income and consumption. Such claims are important in a number of respects: they broaden people’s options, reduce their insecurities about material living standards, and enhance their ability to live with dignity in old age. As such, understanding the multiplicity of factors that shape how people save, invest and acquire pension rights is important for understanding their access to well-being and the ways in which social arrangements improve or undercut that access. This paper reviews social-economics perspectives on these macroeconomic issues, highlighting contributions of existing research and identifying fruitful directions for future work. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0906&r=fmk |
| By: | Leonardo Villar Gómez; David M. Salamanca Rojas |
| Abstract: | En este trabajo se desarrolla un modelo teórico con fundamentos microeconómicos sobre el funcionamiento del mercado de crédito en una economía abierta. El modelo permite identificar los canales a través de los cuales el sistema financiero doméstico puede propagar y amplificar los ciclos inducidos por fluctuaciones en las tasas de interés internacionales y es consistente con la observación empírica de una correlación positiva entre el crédito en pesos al sector privado y los flujos de capitales que se puede apreciar en el caso colombiano. Con base en el modelo se muestra que la utilización activa de los coeficientes de encaje bancario con propósitos contracíclicos, tal como fue sugerida por Edwards y Vegh (1997), puede ser contraproducente. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002495&r=fmk |
| By: | Frode Brevik; Manfred Gärtner |
| Abstract: | We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically. |
| Keywords: | Banking secrecy, tax evasion, withholding tax, welfare effects |
| JEL: | E2 E62 F42 H2 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-10&r=fmk |
| By: | Constanza Martínez Ventura |
| Abstract: | Bajo una estimación dinámica de los efectos generados por variables específicas de actividad, impuestos y estructura de mercado, se presenta un seguimiento del margen de intermediación financiera, medido ex post, para un período con elementos de liberalización y crisis. Los resultados son concluyentes al mostrar que las cargas tributarias y medidas de regulación (impuestos explícitos e implícitos) adoptadas por las autoridades económicas se han convertido en los principales determinantes del margen de intermediación. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002494&r=fmk |
| By: | Mark Grinblatt; Matti Keloharju |
| Abstract: | This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor’s tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently. |
| JEL: | G10 G11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12223&r=fmk |
| By: | Marco LiCalzi; Paolo Pellizzari (Department of Applied Mathematics, University of Venice) |
| Abstract: | We study the performance of four market protocols that lead to allocative efficiency: batch auction, continuous double auction, specialist dealership, and a hybrid of these last two. In a former study, we compared them with respect to several additional performance criteria under the assumption of zero intelligence. This paper analyzes three performance criteria under different ways to remove the assumption of zero intelligence. The following conclusions are robust. The number of wasteful transaction is minimized by the batch auction and the dealership. Moreover, the former minimizes price dispersion and the latter minimizes time to convergence. |
| Keywords: | evaluation of market protocols, market design, microstructure, agent-based methodologies |
| JEL: | D61 G19 D44 C63 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpaper:134&r=fmk |
| By: | Luz Adriana Flórez; Carlos Esteban Posada; José Fernando Escobar |
| Abstract: | A fin de interpretar el desempeño del crédito bancario observado durante los años noventa y principios del actual decenio en Colombia, se construyó un modelo teórico de equilibrio general dinámico. Además, se puso a prueba econométrica la ecuación generada en tal modelo que establece una relación de equilibrio entre depósitos, crédito y tasa de interés activa (con datos del período 1990:01- 2004:04). Las pruebas econométricas y los impulsos-respuestas (estos últimos obtenidos gracias a la metodología de «tendencias comunes») permiten considerar plausibles dos hipótesis: a) existe una relación de equilibrio entre depósitos, crédito y tasa de interés activa como la que se deduce del modelo teórico, y b) la crisis de finales de los años noventa fue una ruptura transitoria del equilibrio y no un cambio estructural, así que la situación actual (junio de 2004) puede entenderse como una etapa de retorno al equilibrio. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002492&r=fmk |
| By: | Paola Dongili (Dipartimento di Scienze economiche (Università di Verona)) |
| Abstract: | Prof. G. Menegazzi was a Known Italian economist working in the mid of the twentieth century. His works are focused on the complex functioning of the economic systems and underline the importance of the aim of the actions of the economic agents and the consistency between aim and tools. The paper goes over some of his papers which testify that prof. Menegazzi was fully aware of the links between finance and growth and, moreover, he was acquainted with the importance of the efficiency of financial system in shaping this relation. |
| JEL: | G E44 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:29&r=fmk |
| By: | Paola Dongili (Dipartimento di Scienze economiche (Università di Verona)); Angelo Zago (Dipartimento di Scienze economiche (Università di Verona)) |
| Abstract: | The problem of taking into account the quality attributes of different goods has a long tradition in economics A strand of literature deals with the environmental impacts in the measurement of efficiency and productivity growth. Färe et al. (1989) indeed started what has become now a relatively vast literature extending efficiency measurement when some outputs are undesirable. The central notion of this paper is that of weak disposability of outputs. To credit firms for their effort to cut off on pollutants, technology is modeled so that it can handle the case when the reduction of some (bad) outputs requires the reduction of some of the other outputs and/or the increase of inputs.Besides the concept of output weak disposability, an interesting and useful idea for this setting is the directional distance function, a generalization of the radial distance function introduced to production economics by Chambers, Chung and Färe (1996). In this fashion it is possible to evaluate the performance of the firms that need to increase the production of the good outputs and decrease that bad outputs. |
| JEL: | G |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:28&r=fmk |
| By: | An Chen; Michael Suchanecki |
| Abstract: | The topic of insolvency risk in connection with life insurance companies has recently attracted a great deal of attention. In this paper, the question is investigated of how the value of the equity and of the liability of a life insurance company are affected by the default risk and the choice of the relevant bankruptcy procedure. As an example, the U.S. Bankruptcy Code with Chapter 7 and Chapter 11 bankruptcy procedures is used. Grosen and Jørgensen's (2002) contingent claim model, implying only a Chapter 7 bankruptcy procedure, is extended to allow for more general bankruptcy procedures such as Chapter 11. Thus, more realistically, default and liquidation are modelled as distinguishable events. This is realized by using so-called standard and cumulative Parisian barrier option frameworks. It is shown that these options have appealing interpretations in terms of the bankruptcy mechanism. Furthermore, a number of representative numerical analyses and comparative statics are performed in order to investigate the effects of different parameter changes on the values of the insurance company's equity and liability, and hence on the value of the life insurance contract. To complete the analysis, the shortfall probabilities of the insurance company implied by the proposed models are computed and compared. |
| Keywords: | Equity--Linked Life Insurance, Default Risk, Liquidation Risk, Contingent Claims Pricing, Parisian Options, Bankruptcy Procedures |
| JEL: | G13 G22 G33 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse8_2006&r=fmk |
| By: | Murat G. Kirdar (Department of Economics, METU) |
| Abstract: | In this paper, I develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on legal immigrants in Germany. The model gives a number of implications about the level, timing and selection of return migration as well as asset accumulation of immigrants according to their country of origin We also calculate the net lifetime contributions of immigrants to the pension and unemployment insurance systems of the host country. The estimated model is used to determine the impact of a number of counterfactual policy experiments on the return and savings behavior of immigrants as well as on their net contribution to the social security system. These counterfactuals include changes in the unemployment insurance program, payment of bonuses to selected groups to encourage return home, and exchange rate premiums by the source countries. In addition, I assess the impact of counterfactuals in the macroeconomic environment, like changes in wages in Germany and in purchasing power parity between Germany and the source countries. |
| Keywords: | International Migration, Unemployment Insurance, Life Cycle Models and Saving, Public Policy |
| JEL: | J61 D91 J64 J65 J68 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:0506&r=fmk |
| By: | Dimitrios Christelis (University of Salerno and CSEF); Tullio Jappelli (University of Salerno, CSEF and CEPR); Mario Padula (University of Salerno and CSEF) |
| Abstract: | We study the relation between cognitive ability and the decision to invest in stocks using the recent Survey of Health, Ageing and Retirement in Europe (SHARE). The survey has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and investment accounts. We also find that stockholding increases with social interactions, intention to leave a bequest, and is negatively associated with health status. |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:157&r=fmk |
| By: | Marco Battaglini; Stephen Coate |
| Date: | 2006–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:cla:najeco:321307000000000026&r=fmk |