nep-fmk New Economics Papers
on Financial Markets
Issue of 2006‒09‒16
76 papers chosen by
Carolina Valiente
London South Bank University

  1. Access and risk - friends or foes? Lessons from Chile By Adasme, Osvaldo; Majnoni, Giovanni; Uribe, Myriam
  2. Futures prices as risk-adjusted forecasts of monetary policy By Monika Piazzesi; Eric T. Swanson
  3. Banks, Distances and Financing Constraints for Firms By Pietro ALESSANDRINI; Alberto ZAZZARO; Andrea PRESBITERO
  4. Diversification at financial institutions and systemic crises By Wagner,Wolf
  5. The broadening of activities in the financial system : implications for financial stability and regulation By Wagner,Wolf
  6. The impact of organizational structure and lending technology on banking competition By Degryse,Hans; Laeven,Luc; Ongena,Steven
  7. Asset Restructuring Strategies in Bank Acquisitions: Evidence from the Italian Banking Industry By Pietro ALESSANDRINI; Alberto ZAZZARO; Giorgio CALCAGNINI
  8. The impact of competition on bank orientation By Degryse,Hans; Ongena,Steven
  9. Is there a bank lending channel in Hungary? Evidence from bank panel data By Csilla Horváth; Judit Krekó; Anna Naszódi
  10. Portfolio management implications of volatility shifts: Evidence from simulated data By Viviana Fernandez; Brian M Lucey
  11. International Financial Instability in a World of Currencies Hierarchy By Andrea Terzi
  12. Periodically Collapsing Rational Bubbles in Exchange Rates: A Markov-Switching Analysis for a Sample of Industrialised Markets By Jose Eduardo de A. Ferreira
  13. Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns By Antonio Diez de los Rios; René Garcia
  14. The Forward Market in Emerging Currencies: Less Biased Than in Major Currencies By Jeffrey Frankel; Jumana Poonawala
  15. A tale of tails: an empirical analysis of loss distribution models for estimating operational risk capital By Kabir Dutta; Jason Perry
  16. Studies on the validation of internal rating systems (revised) By Basel committee on banking supervision
  17. The Cost of Banking Regulation By Luigi Guiso; Paola Sapienza; Luigi Zingales
  18. The Credibility of Cabo Verde’s Currency Peg By Macedo, Jorge Braga de; Pereira, Luis Brites
  19. Does aggregate relative risk aversion change countercyclically over time? evidence from the stock market By Hui Guo; Zijun Wang; Jian Yang
  20. Robust Lessons about Practical Early Warning Systems By Beckmann, Daniela; Menkhoff, Lukas; Sawischlewski, Katja
  21. Risk and Returns Around Bond Rating Changes: New evidence from the Spanish Stock Market By Pilar Abad-Romero; M. Dolores Robles-Fernández
  22. The Returns to Currency Speculation By Craig Burnside; Martin Eichenbaum; Isaac Kleshchelski; Sergio Rebelo
  23. Look at Me Now: What Attracts U.S. Shareholders? By John Ammer; Sara B. Holland; David C. Smith; Francis E. Warnock
  24. Are Rural Credit Markets Competitive? Is There Room for Competition in Rural Credit Markets? By Kilkenny, Maureen; Jolly, Robert W.
  25. Highs and Lows: A Behavioral and Technical Analysis By Bruce Mizrach; Susan Weerts
  26. Nonlinear Bivariate Comovements of Asset Prices: Theory and Tests By Marco Corazza; A.G. Malliaris; Elisa Scalco
  27. The adaptive markets hypothesis: evidence from the foreign exchange market By Christopher J. Neely; Paul A. Weller; Joshua M. Ulrich
  28. UK Gas Markets: the Market Price of Risk and Applications to Multiple Interruptible Supply Contracts By Alvaro Cartea; Thomas Williams
  29. Productivity in Economies with Financial Frictions: Facts and a Theory By David Benjamin, Felipe Meza
  30. The Determinants of Sovereign Spreads in Emerging Markets By Olcay Yucel Culha; Fatih Ozatay; Gulbin Sahinbeyoglu
  31. Geometry of Financial Markets - Towards Information Theory Model of Markets By Edward W. Piotrowski; Jan Sladkowski
  32. The International Role of the Dollar and Trade Balance Adjustment By Linda S. Goldberg; Cédric Tille
  33. The internationalization of the dollar and trade balance adjustment By Linda Goldberg; Cedric Tille
  34. La scomparsa dei centri decisionali dal sistema bancario meriodionale By Alberto ZAZZARO
  35. Optimal portfolio choice with annuitization By Koijen,Ralph S.J.; Nijman,Theo E.; Werker,Bas J.M.
  36. History and Unique Features of the Farm Credit System By Harl, Neil E.
  37. Evolución y crisis del sistema financiero Colombiano By Miguel Arango
  38. Rules Rather Than Discretion: Lessons from Hurricane Katrina By Howard Kunreuther; Mark Pauly
  39. Do households benefit from financial deregulation and innovation?: the case of the mortgage market By Kristopher Gerardi; Harvey S. Rosen; Paul Willen
  40. Kelly Criterion Revisited: Optimal Bets By Edward W. Piotrowski; Malgorzata Schroeder
  41. Why do companies issue convertible bond loans? : an empirical analysis for the Canadian market By Loncarski,Igor; Horst,Jenke ter; Veld,Chris
  42. The tradeoff between mortgage prepayments and tax-deferred retirement savings By Gene Amromin; Jennifer Huang; Clemens Sialm
  43. A factor analysis of volatility across the term structure: the Spanish case By Sonia Benito; Alfonso Novales
  44. An Economic Analysis of the Bekaert NV Insider Trading Case By Peter-Jan Engelen
  45. Performance of an economy with credit constraints, bankruptcy and labor inflexibility By Felipe Balmaceda; Ronald Fischer
  46. Overbidding in Independant Private-Values Auctions and Misperception of Probabilities By Olivier Armantier; Nicolas Treich
  47. The Decline in German Output Volatility: A Bayesian Analysis By Aßmann, Christian; Hogrefe, Jens; Liesenfeld, Roman
  48. Output Growth, Capital Flow Reversals and Sudden stop Crises By Saubhik Deb
  49. Specification tests of asset pricing models using excess returns By Raymond Kan; Cesare Robotti
  50. Cash or Credit? The importance of reward medium and experiment timing in classroom preferences for fairness By David L. Dickinson
  51. Leveraged buyouts in the U.K. and continental Europe : retrospect and prospect By Wright,Mike; Renneboog,Luc; Simons,Tomas; Scholes,Louise
  52. What is effective aid? How would donors allocate It? By Kenny, Charles
  53. The quality of fiscal adjustment and the long-run growth impact of fiscal policy in Brazil By Blanco, Fernando; Herrera, Santiago
  54. Se mantienen las expectativas de incrementos en la inflación y en las tasas de interés By FEDESARROLLO
  55. Investment in oligopoly under uncertainty : the accordion effect By Bouis,Romain; Huisman,Kuno J.M.; Kort,Peter M.
  56. Portfolio Selection with Monotone Mean-Variance Preferences By Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini; Marco Taboga
  57. Modelling the Duration of Interest Rate Spells Under Inflation Targeting in Canada By Ruby Shih; David E. A. Giles
  58. El sistema financiero y el Banco de la Republica en Santander By Amilcar Mojica Pimiento; Joaquín Paredes Vega
  59. Trade First and Trade Fast: A Duration Analysis of Recovery from Currency Crisis By Saubhik Deb
  60. Belief-free Equilibria in games with incomplete information By LOVO, Stefano; HÖRNER, Johanes
  61. TERM PREMIUM AND EQUITY PREMIUM IN ECONOMIES WITH HABIT FORMATION By Santiago Budria; Antonia Diaz
  62. International Share Ownership, Profit Shift and Protectionism. By T.Huw Edwards
  63. The Effect of State Community Rating Regulations on Premiums and Coverage in the Individual Health Insurance Market By Bradley Herring; Mark V. Pauly
  64. Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism Among G7 Countries By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
  65. A Companion to "The Origin and Diffusion of Shocks to Regional Interest Rates in the United States, 1880-2002." By Hugh Rockoff; John Landon-Lane
  66. Tendencies and problems of economical insolvency (bankruptcy) institution development in Belarus: 1991-2005 By Aliaksei Smolski
  67. A Worldwide System of Reference Rates By John Williamson
  68. Selling a Piece of the Farm Credit System By Jolly, Robert W.; Roe, Josh
  69. Synergies are a reason to prefer first-price auctions! By Leufkens Kasper; Peeters Ronald
  70. A trend and variance decomposition of the rent-price ratio in housing markets By Sean D. Campbell; Morris A. Davis; Joshua Gallin; Robert F. Martin
  71. Swiss Exchange Rate Policy in the 1930s. Was the Delay in Devaluation Too High a Price to Pay for Conservatism? By Michael Bordo; Thomas Helbling; Harold James
  72. ON THE USER COST AND HOMEOWNERSHIP By Antonia Diaz; Maria J. Luengo-Prado
  73. How relevant is dividend policy under low shareholder protection? By Renneboog,Luc; Szilagyi,Peter G.
  74. Using Probabilistic Analysis to Value Power Generation Investments Under Uncertainty By Fabien A. Roques; William J. Nuttall; Newbery, D.M.
  75. Ampliación del acceso a los servicios financieros mediante corresponsales no bancarios: La experiencia de Brasil y Perú By Ana María Prieto Ariza
  76. An Ethical Analysis of Regulating Insider Trading By Peter-Jan Engelen; Luc Van Liedekerke

  1. By: Adasme, Osvaldo; Majnoni, Giovanni; Uribe, Myriam
    Abstract: This paper documents the link between risk, stability, and access to credit markets in an emerging economy. It presents annual credit loss distributions of Chilean banks for the period 1999-2005, providing the first empirical evidence of the cyclical pattern of expected losses and unexpected losses of bank loan portfolios in emerging countries. The paper provides three main contributions to the debate on bank solvency and access to credit markets. First, it derives nonparametric estimators of expected losses and unexpected losses, free from model error and, in particular, from distributional restrictions. Second, it shows how the distribution of credit losses for portfolios of retail and commercial loans is affected by the lumpiness of bank loans. Finally, it shows that the shape of credit loss distributions helps select appropriate policies to promote broader and sounder access to bank credit for the poor and the unbanked.
    Keywords: Banks & Banking Reform,Investment and Investment Climate,Financial Intermediation,Economic Theory & Research,Insurance & Risk Mitigation
    Date: 2006–09–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:4003&r=fmk
  2. By: Monika Piazzesi; Eric T. Swanson
    Abstract: Many researchers have used federal funds futures rates as measures of financial markets' expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature.
    Keywords: Federal funds rate ; Federal funds market (United States) ; Monetary policy
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-23&r=fmk
  3. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Andrea PRESBITERO ([n.a.])
    Abstract: The wave of bank mergers and acquisitions experienced in European and U.S. credit markets during the Nineties has deeply changed the geography of banking industry. While the number of bank branches has increased in almost every country, reducing the operational distance between banks and borrowers, bank decisional centres and strategic functions have been concentrated in only a few places within each nation, increasing the functional distance between banks and local communities. In this paper, we carry out a multivariate analysis to assess the correlation of functional and operational distances with local borrowers' financing constraints. We apply our analysis on Italian data at the local market level defined as provinces. Our findings consistently show that increased functional distance makes financing constraints more binding, it being positively associated with the probability of firms being rationed, investment-cash flow sensitivity, and the ratio of credit lines utilized by borrowers to credit lines make available by banks. These adverse effects are particularly evident for small firms and for firms located in southern Italian provinces. Furthermore, our findings suggest that the negative impact on financing constraints following the actual increased functional distance over the period 1996-2003 has substantially offset (and sometimes exceeded) the beneficial effects of the increased diffusion of bank branches occurring during the same period.
    Keywords: financing constraints, funtional distance, local banking system, operational proximity
    JEL: G21 G34 R51
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:anc:wpaper:266&r=fmk
  4. By: Wagner,Wolf (Tilburg University, Center for Economic Research)
    Abstract: We show that the diversification of risks at financial institutions has unwelcome effects by increasing the likelihood of systems crises. As a result, complete diversification is not warranted adn the optimal degree of diversification is arbitrarily low. We also identify externalities that cause financial institutions to diversify beyond diversification may thus have reduced welfare.
    Keywords: diversification;financial consolidation;conglomeration;securitization;system risk
    JEL: G21 G28
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200671&r=fmk
  5. By: Wagner,Wolf (Tilburg University, Center for Economic Research)
    Abstract: Conglomeration and consolidation in the financial system broaden the activities financial institutions are undertaking and cause them to become more homogenous.Although resulting diversification gains make each institution appear less risky, we argue that financial stability may not improve as total risk in the financial system remains the same. Stability may even fall as institution' incentives for providing liquidity and limiting their risk taking worsen. Optimal regulation may thus not provide a relief for diversification. However, we also identify important benefits of a broadening of activities. By reducing the differences among institutions, it lowers the need for inter-institutional risk sharing. This mitigates the impact of any imperfections such risk sharing may be subject to. The reduced importance of such risk sharing, moreover, lowers externalities across institutions. As a result, institutions' incentives are improved and there is less need for regulating them.
    Keywords: conglomeration;financial consolidation;homogenization;stability
    JEL: G21 G28
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200672&r=fmk
  6. By: Degryse,Hans; Laeven,Luc; Ongena,Steven (Tilburg University, Center for Economic Research)
    Abstract: Recent theoretical models argue that a bank's organizational structure reflects its lending technology. A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information. We investigate theoretically and empirically how bank organization shapes banking competition. Our theoretical model illustrates how a bank's geographical reach and loan pricing strategy is determined not only by its own organizational structure but also by organizational choices made by its rivals. We take our model to the data by estimating the impact of the rival banks' organization on the geographical reach and loan pricing of a singular, large bank in Belgium. We employ detailed contract information from more than 15,000 bank loans granted to small firms, comprising the entire loan portfolio of this large bank, and information on the organizational structure of all rival banks located in the vicinity of the borrower. We find that the organizational structure of the close rival banks matters for both branch reach and loan pricing. The geographical footprint of the lending bank is smaller when the close rival banks are large, hierarchically organized, and technologically advanced. Such rival banks may rely more on hard information. Large rival banks in the vicinity also lower the degree of spatial pricing. We also find that the effects on spatial pricing are more pronounced for firms that generate less hard information, such as small firms. In short, size and hierarchy of rival banks in the vicinity influences both branch reach and loan pricing of the lender.
    Keywords: banking sector;bank size;competition;mode of organization
    JEL: G21 L11 L14
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200667&r=fmk
  7. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Giorgio CALCAGNINI (Universit… di Urbino "Carlo Bo", Facolt… di Economia)
    Abstract: One of the most lively debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transactional activities, at the expense of small and informational opaque borrowers. These changes may be the result of two distinct restructuring strategies of the asset portfolio of the bidder bank. An asset cleaning strategy (ACS), in which the acquiring bank makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank, and an asset portfolio strategy (APS), in which the acquiring bank permanently changes the portfolio allocation of the acquired bank. In this paper we focus on Italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997-2003. Moreover, we estimate both a model for the whole Italian banking industry and a model for the acquired banks located in economic backward Southern regions. At the national level we find evidence of a primacy of ACSs over APSs. When we concentrate on bank acquisitions that occurred in the Mezzogiorno (Italy’s Southern regions), evidence seems to reverse, i.e. APSs dominate over ACSs.
    Keywords: asset restructuring strategies, bank acquisitions, small business lending
    JEL: G21 L22
    Date: 2006–06
    URL: http://d.repec.org/n?u=RePEc:anc:wpaper:264&r=fmk
  8. By: Degryse,Hans; Ongena,Steven (Tilburg University, Center for Economic Research)
    Abstract: How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking. We empirically investigate the impact of interbank competition on bank branch orientation. We employ a unique data set containing detailed information on bank-firm relationships. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending. Our results illustrate that competition and relationships are not necessarily inimical.
    Keywords: bank orientation;bank industry specialization;competition;lending relationships
    JEL: G21 L11 L14
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200668&r=fmk
  9. By: Csilla Horváth; Judit Krekó (Magyar Nemzeti Bank); Anna Naszódi (Magyar Nemzeti Bank)
    Abstract: In this paper we analyze the bank lending channel in Hungary. We provide a brief overview of the theory and the empirical approaches used to investigate the existence of bank lending channel. From the possible methods we use the generally applied approach suggested by Kahsyap and Stein (1995) which relies on discovering asymmetries in changes in the amount of loans to monetary actions in order to isolate supply and demand effects. We estimate an ARDL model where the asymmetric effects are captured by interaction-terms. We find significant asymmetric adjustment of loan quantities along certain bank characteristics. The existence of bank lending channel, and therefore loan supply decisions of banks, can explain these asymmetries. In addition, we do not find any sign for asymmetric loan demand adjustment along these variables. According to these findings, we cannot rule out the existence of the bank lending channel in Hungary.
    Keywords: monetary transmission, credit channel, bank lending channel, ARDL model.
    JEL: C23 E44 E52 G21
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:mnb:wpaper:2006/7&r=fmk
  10. By: Viviana Fernandez; Brian M Lucey
    Abstract: Based on weekly data of the Dow Jones Country Titans, the CBT-municipal bond, spot and futures prices of commodities for the period 1992-2005, we analyze the implications for portfolio management of accounting for conditional heteroskedasticity and structural breaks in long-term volatility. In doing so, we first proceed to utilize the ICSS algorithm to detect volatility shifts, and incorporate that information into PGARCH models fitted to the returns series. At the next stage, we simulate returns series and compute a wavelet-based value at risk, which takes into consideration the investor’s time horizon. We repeat the same procedure for artificial data generated from distribution functions fitted to the returns by a semi-parametric procedure, which accounts for fat tails. Our estimation results show that neglecting GARCH effects and volatility shifts may lead us to overestimate financial risk at different time horizons. In addition, we conclude that investors benefit from holding commodities as their low or even negative correlation with stock indices contribute to portfolio diversification.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:edj:ceauch:219&r=fmk
  11. By: Andrea Terzi
    Abstract: The 1990s witnessed an increase in international financial turbulence. In fact, financial crises have become a global policy issue, due to their frequency, size, geographic extension, and social costs, while an array of policy actions have been advocated to prevent crises from happening again. One significant, yet controversial question is whether efforts should be directed towards national reforms in emerging markets or, rather, towards a new international design of international payments. After a critical review of the standing proposals, this paper contends that this debate has not yet fully explored one of the problems of international instability, that is to say, the problem raised by international payments in a world where currencies are of diverse quality. As Keynes firmly contended, the monetary side of the (global) economy is not a neutral factor. In fact, it may be that some of the fundamental factors behind any model of international financial instability, are the problems posed by the different degrees of “international moneyness” that make currencies unequal. Viewed in this light, a major re-design of international payments systems is warranted, and options seem limited to either world dollarization or the ‘bancor’ solution. Recent reformulations of Keynes’s original ‘bancor’ proposal seem to be a more viable alternative to either the status quo or world dollarization.
    Keywords: Currency hierarchy, Currency crises, Banking crises, Capital flows, International monetary arrangements and institutions
    JEL: F02 F33 F34 G15
    Date: 2005–10
    URL: http://d.repec.org/n?u=RePEc:sac:wpaper:641005&r=fmk
  12. By: Jose Eduardo de A. Ferreira
    Abstract: This paper investigates the presence of periodically collapsing rational bubbles in exchange rates for a sample of industrialised countries. A periodically collapsing rational bubble is defined as an explosive deviation from economic fundamentals with distinct expansion and contraction phases in finite time. By using Markov-switching regime models we were not able to find robust evidence of a bubble driving the exchange rate away from fundamentals. Moreover, the results also revealed significant non-linearities and different regimes. The importance of these findings suggests that linear monetary models may not be appropriate to examine exchange rate movements.
    Keywords: Foreign Exchange; Bubbles; Fundamentals; Markov-Switching; Assets
    JEL: F31 F37 F41
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:ukc:ukcedp:0604&r=fmk
  13. By: Antonio Diez de los Rios; René Garcia
    Abstract: Several studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies. The authors provide a statistical methodology to test for such non-linear features with the returns on any benchmark portfolio. They estimate the portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the contingent claim features, and test whether the identified non-linear features have a positive value. The authors find that not all categories of funds exhibit significant non-linearities, and that only a few strategies as a group provide significant value to investors. Individual funds may still provide value in an otherwise poorly performing category.
    Keywords: Econometric and statistical methods; Financial institutions
    JEL: C1 C5 G1
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:bca:bocawp:06-31&r=fmk
  14. By: Jeffrey Frankel; Jumana Poonawala
    Abstract: Many studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate. Usually the forward discount actually points in the wrong direction. But virtually all those studies apply to advanced economies and major currencies. We apply the same tests to a sample of 14 emerging market currencies. We find a smaller bias than for advanced country currencies. The coefficient is on average positive, i.e., the forward discount at least points in the right direction. It is never significantly less than zero. To us this suggests that a time-varying exchange risk premium may not be the explanation for traditional findings of bias. The reasoning is that emerging markets are probably riskier; yet we find that the bias in their forward rates is smaller. Emerging market currencies probably have more easily-identified trends of depreciation than currencies of advanced countries.
    JEL: F0 F15 F31
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12496&r=fmk
  15. By: Kabir Dutta; Jason Perry
    Abstract: Operational risk is being considered as an important risk component for financial institutions as evinced by the large sums of capital that are allocated to mitigate this risk. Therefore, risk measurement is of paramount concern for the purposes of capital allocation, hedging, and new product development for risk mitigation. We perform a comprehensive evaluation of commonly used methods and introduce new techniques to measure this risk with respect to various criteria. We find that our newly introduced techniques perform consistently better than the other models we tested.
    Keywords: Risk management
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedbwp:06-13&r=fmk
  16. By: Basel committee on banking supervision
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:att:baiswp:200514&r=fmk
  17. By: Luigi Guiso; Paola Sapienza; Luigi Zingales
    Abstract: We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and - contrary to expectations- access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rates spreads and an increased access to credit at a cost of an increase in bad loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalizations.
    JEL: E0 G0
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12501&r=fmk
  18. By: Macedo, Jorge Braga de; Pereira, Luis Brites
    Abstract: This paper studies the credibility of the currency peg of Cape Verde (CV) by assessing the impact of economic fundamentals, our explanatory variables, on the stochastic properties of Exchange Market Pressure (EMP), the dependent variable, using EGARCH-M models. Our EMP descriptive analysis finds a substantial reduction in the number of crisis episodes and of (unconditional) volatility after the peg’s adoption. Moreover, our estimation results suggest that mean EMP is driven by fundamentals and that conditional variability is more sensitive to negative shocks. We also find evidence that the expected return from holding CV’s assets is lower under the currency peg for the same increase in monthly volatility. The reason is that the return’s composition is “more virtuous”, as it results from the strengthening of CV’s foreign reserve position and is not due to either a larger risk premium or favourable exchange rate movements. We take this to be a sign of the credibility of the peg, which apparently reflects the intertemporal credibility of CV’s economic policy and so has successfully withstood international markets’ scrutiny.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:unl:unlfep:wp494&r=fmk
  19. By: Hui Guo; Zijun Wang; Jian Yang
    Abstract: Using a semiparametric estimation technique, we show that the risk-return tradeoff and the Sharpe ratio of the stock market increases monotonically with the consumption wealth ratio (CAY) across time. While early studies have commonly interpreted such a finding as evidence of the countercyclical variation in aggregate relative risk aversion (RRA), we argue that it mainly reflects changes in investment opportunities for two reasons. First, we fail to reject the null hypothesis of constant RRA after controlling for CAY as a proxy for the hedge against changes in the investment opportunity set. Second, by contrast with habit formation models but consistent with ICAPM, we find that loadings on the conditional stock market variance scaled by CAY are negatively priced in the cross-sectional regressions. For illustration, we replicate the countercyclical stock market risk-return tradeoff using simulated data from Guo's (2004) limited stock market participation model, in which RRA is constant and CAY is a proxy for shareholders' liquidity conditions.
    Keywords: Capital assets pricing model ; Stock market
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-047&r=fmk
  20. By: Beckmann, Daniela; Menkhoff, Lukas; Sawischlewski, Katja
    Abstract: Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Keeping this in mind, five lessons emerge : First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, among competing crisis definitions there is one which is most practical. Third, take a logit model to condense information from various fundamental variables. Fourth, add a regional contagion dummy to the standard set of variables. Fifth, one may be tempted to address instability over time and countries by taking shorter samples and regional EWSs.
    Keywords: early warning system, currency crises, emerging markets
    JEL: F31 F33 F37
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:zbw:gdec05:3476&r=fmk
  21. By: Pilar Abad-Romero (Universidade de Vigo. Dpto. de Economía Aplicada.); M. Dolores Robles-Fernández (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. Dpto. Fundamentos del Análisis Económico II (Economía cuantitativa).)
    Abstract: This study analyzes the effect of corporate bond rating changes over stock prices. We explore the effects over excess of returns and systematic risk. Rating changesby Moody's, Standard and Poor's of FitchIBCA are analyzed. On an efficient market, these changes will only have some effect if they contain some new information or if they are asociated to a redestribution of wealth between shareholders and bondholders. We use an extension of the event study dummy approach. Our results indicate that rating downgrades do not cause abnormal returns around the date of the announcement while upgrades cause significantly negative effect. This behavior reflect a redistribution of wealth behaviour. Changes of both directions cause a rebalancing effect in the total risk of the firm, with significant reductions on their systematic component.
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:ucm:doicae:0505&r=fmk
  22. By: Craig Burnside; Martin Eichenbaum; Isaac Kleshchelski; Sergio Rebelo
    Abstract: Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' represents an egregious deviation from uncovered interest parity. We document the properties of returns to currency speculation strategies that exploit this anomaly. The first strategy, known as the carry trade, is widely used by practitioners. This strategy involves selling currencies forward that are at a forward premium and buying currencies forward that are at a forward discount. The second strategy relies on a particular regression to forecast the payoff to selling currencies forward. We show that these strategies yield high Sharpe ratios which are not a compensation for risk. However, these Sharpe ratios do not represent unexploited profit opportunities. In the presence of microstructure frictions, spot and forward exchange rates move against traders as they increase their positions. The resulting `price pressure' drives a wedge between average and marginal Sharpe ratios. We argue that marginal Sharpe ratios are zero even though average Sharpe ratios are positive.
    JEL: E24 F31 G15
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12489&r=fmk
  23. By: John Ammer; Sara B. Holland; David C. Smith; Francis E. Warnock
    Abstract: This paper investigates the underlying determinants of home bias using a comprehensive data set on U.S. investors’ aggregate holdings of every foreign stock. Among those foreign stocks that are not listed on U.S. exchanges, which account for more than 96 percent of our usable data sample, we find that U.S. investors prefer firms with characteristics associated with greater information transparency, such as stronger home-country accounting standards. We document that a U.S. cross-listing is economically important, as U.S. ownership of a foreign firm roughly doubles upon cross-listing in the United States. We explore the cross-sectional variation in this “cross-listing effect†and find that the increase in U.S. investment is greatest for firms that are from weak accounting backgrounds and are otherwise informationally opaque, suggesting that the key effect of cross-listing is improvements in disclosure that are valued by U.S. investors. By contrast, cross-listing does not increase the appeal of stocks from countries with weak shareholder rights, suggesting that U.S. cross-listing cannot substitute for legal protections in the home country. Nor does the cross-listing effect appear to be driven simply by increased “familiarity†with the stock or lowered cross-border transactions costs.
    JEL: G11 G15 G3 M4
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12500&r=fmk
  24. By: Kilkenny, Maureen; Jolly, Robert W.
    Abstract: Not available.
    Date: 2006–05–31
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12634&r=fmk
  25. By: Bruce Mizrach (Rutgers University); Susan Weerts (Rutgers University)
    Abstract: We find that turnover rises on n-day highs and lows and is an increasing function of n. We offer several explanations from the technical and behavioral finance literature for why traders might use these signals. Turnover is persistent following these events, and new lows provide abnormal returns for up to 6 trading days.
    Keywords: behavioral finance, technical analysis, turnover, n-day high/low, abnormal returns
    JEL: G14 G20
    Date: 2006–08–21
    URL: http://d.repec.org/n?u=RePEc:rut:rutres:200610&r=fmk
  26. By: Marco Corazza (Department of Applied Mathematics, University of Venice); A.G. Malliaris (Department of Economics, Loyola University of Chicago); Elisa Scalco (Department of Applied Mathematics, University of Venice)
    Abstract: Comovements among asset prices have received a lot of attention for several reasons. For example, comovements are important in cross-hedging and cross-speculation; they determine capital allocation both domestically and in international meanÐvariance portfolios and also, they are useful in investigating the extent of integration among financial markets. In this paper we propose a new methodology for the nonÐlinear modelling of bivariate comovements. Our approach extends the ones presented in the recent literature. In fact, our methodology outlined in three steps, allows the evaluation and the statistical testing of non-linearly driven comovements between two given random variables. Moreover, when such a bivariate dependence relationship is detected, our approach solves for a polynomial approximation. We illustrate our threeÐsteps methodology to the time series of energy related asset prices. Finally, we exploit this dependence relationship and its polynomial approximation to obtain analytical approximations of the Greeks for the European call and put options in terms of an asset whose price comoves with the price of the underlying asset.
    Keywords: Comovement, asset prices, bivariate dependence, non-linearity, t-test, polynomial approximation, energy asset, (vanilla) European call and put options, crossÐGreeks.
    JEL: C59 G19 Q49
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:vnm:wpaper:137&r=fmk
  27. By: Christopher J. Neely; Paul A. Weller; Joshua M. Ulrich
    Abstract: We analyze the intertemporal stability of returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously published rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the mid-1990s for filter and moving average (MA) rules. Returns to less-studied rules, such as channel, ARIMA, genetic programming and Markov rules, also have declined, but have probably not completely disappeared. The volatility of returns makes it difficult to estimate mean returns precisely. The most likely time for a structural break in the MA and filter rule returns is the early 1990s. These regularities are consistent with the Adaptive Markets Hypothesis (Lo, 2004), but not with the Efficient Markets Hypothesis.
    Keywords: Foreign exchange market ; Foreign exchange
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-046&r=fmk
  28. By: Alvaro Cartea (School of Economics, Mathematics & Statistics, Birkbeck); Thomas Williams
    Abstract: We employ the Schwartz and Smith (2000) model to explore the dynamics of the UK gas markets. We discuss in detail the short-term and long-term market prices of risk borne by the market players and how deviations from expected cyclical storage affect the short-term market price of risk. Finally, we illustrate an application of the model by pricing interruptible supply contracts that are currently traded in the UK.
    Keywords: Interruptible supply contracts, gas markets, commodities, market price of short-term and long-term risk, multi-exercise Bermudan options, convenience yield.
    JEL: G12 C61
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:bbk:bbkefp:0608&r=fmk
  29. By: David Benjamin, Felipe Meza
    Abstract: We document and account for two facts regarding the relation between international interest rates and total factor productivity (TFP) in a sample of developing countries. First, there is a negative correlation between both variables at quarterly frequency. Second, the share of agricultural labor and interest rates are positively correlated, whereas the share of agricultural labor and TFP are negatively correlated. Manufacturing labor shows opposite correlations. These relationships are particularly strong in the aftermath of financial crises. We then construct a model in which the presence of costly intermediation can produce such relationships. We show that, after increases in interest rates, the presence of significant requirement to intermediate factors of production in high productivity sectors, like manufacturing, causes resources to leave these sectors. Resources end up in low productivity sectors where intermediation is cheaper like agriculture. We show that the channel we identify is quantitatively important in the case of Korea after the 1997 financial crisis. Keywords; small open economy, financial intermediation, total factor productivity JEL Classification: E44, F41,F32
    URL: http://d.repec.org/n?u=RePEc:stn:sotoec:0613&r=fmk
  30. By: Olcay Yucel Culha; Fatih Ozatay; Gulbin Sahinbeyoglu
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:tcb:wpaper:0604&r=fmk
  31. By: Edward W. Piotrowski; Jan Sladkowski
    Abstract: Most of parameters used to describe states and dynamics of financial market depend on proportions of the appropriate variables rather than on their actual values. Therefore, projective geometry seems to be the correct language to describe the theater of financial activities. We suppose that the object of interest of agents, called here baskets, form a vector space over the reals. A portfolio is defined as an equivalence class of baskets containing assets in the same proportions. Therefore portfolios form a projective space. Cross ratios, being invariants of projective maps, form key structures in the proposed model. Quotation with respect to an asset X (i.e. in units of X) are given by linear maps. Among various types of metrics that have financial interpretation, the min-max metrics on the space of quotations can be introduced. This metrics has an interesting interpretation in terms of rates of return. It can be generalized so that to incorporate a new numerical parameter (called temperature) that describes agent's lack of knowledge about the state of the market. In a dual way, a metrics on the space of market quotation is defined. In addition, one can define an interesting metric structure on the space of portfolios/quotation that is invariant with respect to hyperbolic (Lorentz) symmetries of the space of portfolios. The introduced formalism opens new interesting and possibly fruitful fields of research.
    URL: http://d.repec.org/n?u=RePEc:sla:eakjkl:26&r=fmk
  32. By: Linda S. Goldberg; Cédric Tille
    Abstract: The pattern of international trade adjustment is affected by the continuing international role of the dollar and related evidence on exchange rate pass-through into prices. This paper argues that a depreciation of the dollar would have asymmetric effects on flows between the United States and its trading partners. With low exchange rate pass-through to U.S. import prices and high exchange rate pass-through to the local prices of countries consuming U.S. exports, the effect of dollar depreciation on real trade flows is dominated by an adjustment in U.S. export quantities, which increase as U.S. goods become cheaper in the rest of the world. Real U.S. imports are affected less because U.S. prices are more insulated from exchange rate movements — pass-through is low and dollar invoicing is high. In relation to prices, the effects on the U.S. terms of trade are limited: U.S. exporters earn the same amount of dollars for each unit shipped abroad, and U.S. consumers do not encounter more expensive imports. Movements in dollar exchange rates also affect the international trade transactions of countries invoicing some of their trade in dollars, even when these countries are not transacting directly with the United States.
    JEL: F1 F3 F4
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12495&r=fmk
  33. By: Linda Goldberg; Cedric Tille
    Abstract: The pattern of international trade adjustment is affected by the continuing international role of the dollar and related evidence on exchange rate pass-through to prices. This paper argues that a depreciation of the dollar would have asymmetric effects on flows between the United States and its trading partners. With low exchange rate pass-through to U.S. import prices and high exchange rate pass-through to the local prices of countries consuming U.S. exports, the effect of dollar depreciation on real trade flows is dominated by an adjustment in U.S. export quantities, which increase as U.S. goods become cheaper in the rest of the world. Real U.S. imports are affected less because U.S. prices are more insulated from exchange rate movements-pass-through is low and dollar invoicing is high. In relation to prices, the effects on the U.S. terms of trade are limited: U.S. exporters earn the same amount of dollars for each unit shipped abroad, and U.S. consumers do not encounter more expensive imports. Movements in dollar exchange rates also affect the international trade transactions of countries invoicing some of their trade in dollars, even when these countries are not transacting directly with the United States.
    Keywords: Foreign exchange rates ; Dollar, American ; Exports ; Imports - Prices ; International trade
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fednsr:255&r=fmk
  34. By: Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: More than a decade has now gone by since the crises of Banco di Napoli, Banco di Sicilia, Sicilcassa and the majors southern "Casse di Risparmio" have actually decreed the vanishing of a independent banking system in southern regions, but the economic and political debate on the effects of this process is still lively. In this paper, I introduce the main themes debated during the last ten years by scholars, practitioners and politicians. Specifically, I present the theoretical and practical reasons of those who consider the present structure of the southern banking system unsatisfactory for he economic prospects of the area.
    Keywords: banks, decisional centres, mergers and acquisitions, southern italian regions
    JEL: G21 G34 R11
    Date: 2006–05
    URL: http://d.repec.org/n?u=RePEc:anc:wpaper:262&r=fmk
  35. By: Koijen,Ralph S.J.; Nijman,Theo E.; Werker,Bas J.M. (Tilburg University, Center for Economic Research)
    Abstract: We study the optimal consumption and portfolio choice problem over an individual's life-cycle taking into account annuity risk at retirement. Optimally, the investor allocates wealth at retirement to nominal, inflation-linked, and variable annuities and conditions this choice on the state of the economy. We also consider the case in which there are, either for behavioral or institutional reasons, limitations in the types of annuities that are available at retirement. Subsequently, we determine how the investor optimally anticipates annuitization before retirement. We find that i) using information on term structure variables and risk premia significantly improves the optimal annuity choice, ii) restricting the annuity menu to nominal or inflation-linked annuities is costly for both conservative and more aggressive investors, and iii) adjustments in the optimal investment strategy before retirement induced by the annuity demand due to inflation risk and time-varying risk premia are economically significant. This holds as well for sub-optimal annuity choices. The adjustment to hedge real interest rate risk is negligible. We estimate that the welfare costs of not taking these three factors into account at retirement are 9% for an individual with an average risk aversion ( = 5). Not hedging annuity risk before retirement causes an additional welfare costs between 1% and 13%, depending on the annuitization strategy implemented at retirement.
    Keywords: optimal life-cycle portfolio choice;annuity risk
    JEL: D91 G0 G11 G23
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200678&r=fmk
  36. By: Harl, Neil E.
    Abstract: Not available
    Date: 2006–09–08
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12677&r=fmk
  37. By: Miguel Arango
    Abstract: Durante los años noventa se presentaron grandes cambios en el sistema financiero colombiano. Ocurrieron modificaciones regulatorias de naturaleza cambiaria, monetaria y crediticia, además de las relacionadas con la estructura del sistema. La apertura comercial y financiera realizada a principios de la década del 90 y la crisis financiera establecieron el ambiente para que el sector iniciara un proceso de flexibilización y de modernización. En este trabajo se presenta el resumen de la liberalización financiera representada por el Índice de represión financiera, la evolución financiera del sector que hace hincapié en las diferencias por tipo de entidad, el impacto diferenciado de la crisis según el previo deterioro de la solvencia del sector público, la deficiente regulación del sector hipotecario, y los problemas regulatorios y de estructura de capital del sector cooperativo. También se presentan las medidas implementadas para enfrentar la crisis, compuesta por los aspectos regulatorios, financieros y de intervención del Estado, y las características del mayor esfuerzo dedicado al sector público para su estabilización. Finalmente, se presentan las principales conclusiones y las medidas de política que se pueden derivar. Los fenómenos que explican de mejor forma la ocurrencia de la crisis financiera de fin de siglo en Colombia, son: la liberalización financiera, el boom crediticio, el deterioro de los términos de intercambio, la revaluación constante durante la década, la reducción de los precios de los activos, el incrementó de la tasas de interés al final de la década, la deficiente regulación del sector hipotecario y cooperativo y, principalmente y en forma fundamental, la repentina y abrupta suspensión de los flujos de capital externos ocurrida en la mitad de los años noventa. Las recomendaciones del trabajo giran en torno a los flujos de capitales externos, al continuo monitoreo sobre la estrecha relación entre los factores macroeconómicos y el sector financiero, a la adecuada supervisión del sector cooperativo, a la creación de instrumentos de consolidación y control de los conglomerados financieros y a los mecanismos para supervisar la eficiencia del sector. Adicionalmente, se hacen recomendaciones sobre el incremento de la ponderación de riesgo de los papeles estatales, sobre una formulación normativa que considere los riesgos de los clientes y no sólo los de las entidades; y que en ningún caso se excluya de la regulación y de la supervisión a sectores específicos que participan en el sector. Finalmente, se advierte sobre la necesidad de contar con un compromiso de blindaje de las entidades públicas.
    Date: 2006–07–30
    URL: http://d.repec.org/n?u=RePEc:col:001004:002658&r=fmk
  38. By: Howard Kunreuther; Mark Pauly
    Abstract: This paper explores options for programs to be put in place prior to a disaster to avoid large and often poorly-managed expenditures following a catastrophe and to provide appropriate protection against the risk of those large losses which do occur. The lack of interest in insurance protection and mitigation by property owners and by public sector agencies prior to a disaster often creates major problems following a catastrophic event for victims and the government. Property owners who suffer severe damage may not have the financial resources easily at hand to rebuild their property and hence will demand relief. The government is then likely to respond with costly but poorly targeted disaster assistance. To avoid these large and often uneven ex post expenditures, we consider the option of mandatory comprehensive private disaster insurance with risk based rates. It may be more efficient to have an ex ante public program to ensure coverage of catastrophic losses and to subsidize low income residents who cannot afford coverage rather than the current largely ex post public disaster relief program.
    JEL: G22 H23
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12503&r=fmk
  39. By: Kristopher Gerardi; Harvey S. Rosen; Paul Willen
    Abstract: The U.S. mortgage market has experienced phenomenal change over the last 35 years. Most observers believe that the deregulation of the banking industry and financial markets generally has played an important part in this transformation. One issue that has received particular attention is the role that the housing Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have played in the development of a secondary market in mortgages. This paper develops and implements a technique for assessing the impact of changes in the mortgage market on individuals and households. ; Our analysis is based on an implication of the permanent income hypothesis: that the higher a household’s future income, the more it desires to spend and consume, ceteris paribus. If we have perfect credit markets, then desired consumption matches actual consumption and current spending on housing should forecast future income. Since credit market imperfections mute this effect, we can view the strength of the relationship between housing spending and future income as a measure of the “imperfectness” of mortgage markets. Thus, a natural way to determine whether mortgage market developments have actually helped households by decreasing market imperfections is to see whether this link has strengthened over time. ; We implement this framework using panel data going back to 1969. We find that over the past several decades, housing markets have become less imperfect in the sense that households are now more able to buy homes whose values are consistent with their long-term income prospects. However, we find no evidence that the GSEs’ activities have contributed to this phenomenon. This is true whether we look at all homebuyers, or at subsamples of the population whom we might expect to benefit particularly from GSE activity, such as low-income households and first-time homebuyers.
    Keywords: Mortgage loans
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedbpp:06-6&r=fmk
  40. By: Edward W. Piotrowski; Malgorzata Schroeder
    Abstract: Kelly criterion, that maximizes the expectation value of the logarithm of wealth for bookmaker bets, gives an advantage over different class of strategies. We use projective symmetries for a explanation of this fact. Kelly's approach allows for an interesting financial interpretation of the Boltzmann/Shannon entropy. A ``no-go'' hypothesis for big investors is suggested.
    URL: http://d.repec.org/n?u=RePEc:sla:eakjkl:24&r=fmk
  41. By: Loncarski,Igor; Horst,Jenke ter; Veld,Chris (Tilburg University, Center for Economic Research)
    Abstract: We examine the wealth effects associated with the announcements of convertible debt offerings in the Canadian market for the period between 1991 and 2004. The average wealth effect for the three day event window is a significantly negative -2.7%. This result is in line with previous studies on other Anglo-Saxon markets, but it is different from other markets where generally no effect or even a positive effect is found. In addition, support is found for the negative effect of both debt- and equity-related agency costs.
    Keywords: Event study;convertible bonds;wealth effects;agency costs
    JEL: G14 G30 G32
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200665&r=fmk
  42. By: Gene Amromin; Jennifer Huang; Clemens Sialm
    Abstract: We show that a significant number of households can perform a tax arbitrage by cutting back on their additional mortgage payments and increasing their contributions to tax- deferred accounts (TDA). Using data from the Survey of Consumer Finances, we show that about 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice. For these households, reallocating their savings can yield a mean benefit of 11 to 17 cents per dollar, depending on the choice of investment assets in the TDA. In the aggregate, these misallocated savings are costing U.S. households as much as 1.5 billion dollars per year. Finally, we show empirically that this inefficient behavior is unlikely to be driven by liquidity considerations or other constraints, and that self-reported debt aversion and risk aversion variables explain to some extent the preference for paying off debt obligations early and hence the propensity to forgo our proposed tax arbitrage.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-05&r=fmk
  43. By: Sonia Benito (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. de Economía Cuantitativa.); Alfonso Novales (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. de Economía Cuantitativa.)
    Abstract: We show how the term structure of volatilities for zero-cupon interest rates from the Spanish secondary debt market can be explained by a reduced number of factors. This factor representation can be used to produce time series volatilities across the whole term structure. As an alternative, volatilities can also be derived from a factor model for interest rates themselves. We find evidence contrary to the hypothesis that these two procedures lead to statistically equivalent time series, so that choosing the right model to estimate volatility is far from trivial. The volatility factor model fits univariate EGARCH volatility time series much better than the interest rate factor model does. However, observed differences seem to be of little consequence for VaR estimation on zero coupon bonds.
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:ucm:doicae:0502&r=fmk
  44. By: Peter-Jan Engelen
    Abstract: This article contains a clinical study of Bekaert NV, the biggest insider trading case in Belgium. Up to now, no economic analysis of this case was ever conducted. It showed that Belgian courts currently seem to lack knowledge of the functioning of financial markets to assess an insider trading case. Therefore their decisions give little guidance to future litigants. Using a law and economics framework, this case study is clarifying in several aspects compared to a traditional legal analysis. The analysis focuses on two aspects of an insider trading case. First, the price-sensitive character of the information is examined. Second, the standard of proof was examined.
    Keywords: insider trading, regulation, criminal prosecution, standard of proof, law & economics
    JEL: K14 K22 K42
    Date: 2006–06
    URL: http://d.repec.org/n?u=RePEc:use:tkiwps:0604&r=fmk
  45. By: Felipe Balmaceda; Ronald Fischer
    Abstract: We present a static general equilibrium model of an economy with agents with heterogenous wealth and endogenous credit constraints due to moral hazard. Credit constraints give rise to inefficiencies which are larger if wealth is distributed more unequally. We show that increases in the loan recovery rate improve the efficiency of the economy and raise the equilibrium interest rate. We also determine the sensitivity of the economy to the wealth distribution, and how this response depends on the loan recovery rate. We examine these results in an open economy, where interest rate increases are translated into inflows of capital due to improvements in loan recovery. The previous results are compounded if the economy faces labor inflexibilities, so smaller increases in inequality lead to productive inefficiencies and to lower wages. We simulate our model economy to determine the importance of these effects.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:edj:ceauch:222&r=fmk
  46. By: Olivier Armantier; Nicolas Treich
    Abstract: We conduct an experiment to test whether probability misperception may be a possible alternative to risk aversion to explain overbidding in independent first-price private-values auctions. The experimental outcomes indicate that subjects underestimate their probability of winning the auction, and indeed overbid. Yet, when provided with feed-back on the precision of their predictions, subjects learn first to predict their probability of winning correctly, and second to curb-down significantly overbidding. The structural estimation of different behavioral models suggests that i) subjects are heterogenous with respect to risk preferences and probability perceptions, ii) subjects tend to best-respond to their stated beliefs, and iii) although necessary to explain fully behavior, risk aversion appears to play a lesser role than previously believed. Finally, our experimental findings are shown to be consistent with a standard theoretical auction model combining risk aversion and misperception of probabilities. <P>Nous menons une expérience pour évaluer si le fait qu'un sujet évalue mal ses probabilités de gagner peut être une hypothèse alternative à l’aversion au risque pour expliquer les surenchères lors d'enchères indépendantes privées au premier prix. Les résultats expérimentaux montrent, en effet, que les sujets sous-estiment leurs probabilités de gagner l'enchère et ont tendance à surenchérir. Cependant, lorsqu'on leur présente plus de précisions sur leurs prédictions, les sujets apprennent d'abord à prédire correctement leurs probabilités de gagner, puis à limiter considérablement la surenchère. L'estimation de différents modèles du comportement suggère que i) les sujets sont hétérogènes par rapport à leurs préférences du risque et leurs perceptions des probabilités, ii) les sujets choisissent leur meilleure réponse conditionnellement aux croyances qu’ils révèlent, et iii) bien que nécessaire pour expliquer pleinement le comportement des sujets, l'aversion au risque semble jouer un rôle moins important que prévu. Finalement, nos résultats expérimentaux sont consistants avec un modèle théorique d'enchères standard qui combine l'aversion au risque et la mauvaise perception des probabilités.
    Keywords: auctions, misperception of probabilities, overbidding, risk-aversion, aversion au risque, enchères, mauvaise perception des probabilités, surenchère
    JEL: C70 C92 D44 D81
    Date: 2006–08–01
    URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2006s-15&r=fmk
  47. By: Aßmann, Christian; Hogrefe, Jens; Liesenfeld, Roman
    Abstract: Empirical evidence suggests a sharp volatility decline of the growth in U.S. gross domestic product (GDP) in the mid-1980s. Using Bayesian methods, we analyze whether a volatility reduction can also be detected for the German GDP. Since statistical inference for volatility processes critically depends on the specification of the conditional mean we assume for our volatility analysis different time series models for GDP growth. We find across all specifications evidence for an output stabilization around 1993, after the downturn following the boom associated with the German reunification. However, the different GDP models lead to alternative characterizations of this stabilization : In a linear AR model it shows up as smaller shocks hitting the economy, while regime switching models reveal as further sources for a stabilization, a narrowing gap between growth rates during booms and recessions or flatter trajectories characterizing the GDP growth rates. Furthermore, it appears that the reunification interrupted an output stabilization emerging already around 1987.
    Keywords: business cycle models, Gibbs sampling, Markov Chain Monte Carlo, regime switching, structural breaks
    JEL: C11 C15 C32 E32
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:zbw:cauewp:4134&r=fmk
  48. By: Saubhik Deb (Department of Economics)
    Abstract: This paper studies the effects of capital flow reversals and sudden stop crises on output growth and how these effects vary across regions and between emerging and industrial countries. We found that capital flow reversals are generally contractionary in the developing countries and particularly in Asia and Africa. But neither capital flow reversals nor sudden stop crises have any significant growth effect in the industrial countries. Our initial estimates for sudden stop crises support the widely held belief regarding the contractionary nature of such crises. Further robustness checks indicate that the estimated negative growth effects for such crises are mainly driven by the presence of the Asian countries in the sample. Moreover, when the turbulent years of the East Asian crises are excluded from the sample, no significant effect of sudden stop crises could be found. Our research reconfirms the contractionary nature of capital flow reversals in developing countries but raises doubt about the existence of contractionary sudden stop crises.
    Keywords: Currency Crisis, Capital Flow Reversal, Sudden Stop Crisis
    JEL: F32 F43
    Date: 2006–04–06
    URL: http://d.repec.org/n?u=RePEc:rut:rutres:200606&r=fmk
  49. By: Raymond Kan; Cesare Robotti
    Abstract: We discuss the impact of different formulations of asset pricing models on the outcome of specification tests that are performed using excess returns. It is generally believed that when only excess returns are used for testing asset pricing models, the mean of the stochastic discount factor (SDF) does not matter. We show that the mean of the candidate SDF is only irrelevant when the model is correct. When the model is misspecified, the mean of the SDF can be a very important determinant of the specification test statistic, and it also heavily influences the relative rankings of competing asset pricing models. We point out that the popular way of specifying the SDF as a linear function of the factors is problematic because the specification test statistic is not invariant to an affine transformation of the factors and the SDFs of competing models can have very different means. In contrast, an alternative specification that defines the SDF as a linear function of the de-meaned factors is free from these two problems and is more appropriate for model comparison. In addition, we suggest that a modification of the traditional Hansen-Jagannathan distance (HJ distance) is needed when only excess returns are used. The modified HJ distance uses the inverse of the covariance matrix (instead of the second moment matrix) of excess returns as the weighting matrix to aggregate pricing errors. We provide asymptotic distributions of the modified HJ distance and of the traditional HJ distance based on the de-meaned SDF under the correctly specified model and the misspecified models. Finally, we propose a simple methodology for computing the standard errors of the estimated SDF parameters that are robust to model misspecification.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedawp:2006-10&r=fmk
  50. By: David L. Dickinson
    Abstract: The author conducts experiments examining fairness preferences (Andreoni and Miller, 2002) and compares cash versus extra credit points as the reward medium. Additionally, he explores the role that classroom experiment timing—over the course of a semester—can have on outcomes. The results show that subjects are just as rational, if not more so, when the motivation is class points rather than cash. Also, preference classifications show that subjects are significantly more likely to be Selfish (and less likely to be Utilitarian) when the experiment is conducted early in the academic semester. One possible explanation is that is that the ultimate value of an extra credit point is more uncertain early in the semester, thus leading risk-averse students to make more selfish experiment allocations.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:apl:wpaper:06-12&r=fmk
  51. By: Wright,Mike; Renneboog,Luc; Simons,Tomas; Scholes,Louise (Tilburg University, Center for Economic Research)
    Keywords: Public-to-private;going private;LBO;MBO;IBO;Management buy-ins;Management buyouts;Leveraged buyouts
    JEL: G34 G32
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200670&r=fmk
  52. By: Kenny, Charles
    Abstract: There are significant weaknesses in some of the traditional justifications for assuming that aid will foster development. This paper looks at what the cross-country aid effectiveness literature and World Bank Operations Evaluation Department reviews have suggested about effective aid, first in terms of promoting income growth, and then for promoting other goals. This review forms the basis for a discussion of recommendations to improve aid effectiveness and a discussion of effective aid allocation. Given the multiple potential objectives for aid, there is no one right answer. However, it appears that there are a number of reforms to aid practices and distribution that might help to deliver a more significant return to aid resources. We should provide aid where institutions are already strong, where they can be strengthened with the help of donor resources, or where they can be bypassed with limited damage to existing institutional capacity. The importance of institutions to aid outcomes, as well as the fungibility of aid flows, suggests that programmatic aid should be expanded in countries with strong institutions, while project aid should be supported based on its ability to transfer knowledge and test new practices and support global public good provision rather than (merely) as a tool of financial resource transfer. The importance of institutions also suggests that we should be cautious in our expectations regarding the results of increased aid flows.
    Keywords: Development Economics & Aid Effectiveness,Banks & Banking Reform,School Health,Population Policies,Economic Theory & Research
    Date: 2006–09–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:4005&r=fmk
  53. By: Blanco, Fernando; Herrera, Santiago
    Abstract: The authors describe the main trends of Brazil ' s fiscal policy during the past decade and analyze (1) the ability to raise the primary surplus in response to external shocks, (2) the pro-cyclical nature of fiscal policy, and (3) the long-run impact of government expenditure composition and taxation. They analyze the use of the primary balance as a policy tool within the Drudi-Prati model, wherein the government uses the primary balance to reveal its commitment to service its debt. The authors verify that both the debt ratio and the primary balance are determinants of spreads and credit ratings in Brazil. But the relationship is nonlinear: the impact of the primary balance on spreads is amplified as the debt ratio increases. Using an Autoregressive Distributed Lag (ARDL) approach, the authors analyze the relationship between the primary balance and economic activity, finding a positive correlation in the long run. However, in the short run fiscal expansions are associated with primary balance reductions and vice-versa during output contractions, confirming the procyclical nature of fiscal policy in the short run. The authors use two approaches, ARDL and a cointegrating value at risk (VAR), to analyze the interaction between public expenditure composition and taxation on growth. Similar results are obtained: large elasticities of output with respect to capital stocks, a significant negative impact of taxation on long-run GDP, and a negative impact of increasing government consumption and transfer payments on GDP. These results shed light on the contribution of fiscal policy to disappointing growth performance in Brazil during the past decade.
    Keywords: Economic Stabilization,Public Sector Expenditure Analysis & Management,Economic Theory & Research,Fiscal Adjustment,Banks & Banking Reform
    Date: 2006–09–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:4004&r=fmk
  54. By: FEDESARROLLO
    Abstract: En agosto el porcentaje neto de administradores que espera que las tasas de interés del Banco de la República aumenten creció a un 88%. Los factores externos se constituyen como la principal preocupación para invertir. El Índice de Confianza del Mercado (ICM) presenta un leve retroceso. Las presiones inflacionarias promueven el apetito por títulos atados al IPC. El Índice de Aversión al Riesgo (IAR) continua creciendo.
    Date: 2006–09–06
    URL: http://d.repec.org/n?u=RePEc:col:001069:002666&r=fmk
  55. By: Bouis,Romain; Huisman,Kuno J.M.; Kort,Peter M. (Tilburg University, Center for Economic Research)
    Abstract: In the strategic investment under uncertainty literature the trade off between the value of waiting known from single decision maker models and the incentive to preempt competitors is mainly studied in duopoly models. This paper aims at studying competitive investments in new markets where more than two (potential) competitors are present. In case of three firms an accordion effect in terms of investment thresholds is detected in the sense that an exogenous demand shock results in a change of the wedge between the investment thresholds of the first and second investors that is qualitatively different from the change of the wedge between the second and third investment threshold. This result extends to the n firm case. We show that a direct implication of the accordion effect is that there are two types of equilibria in the three firm case. In the first type all firms invest sequentially and in the second type the first two investors invest simultaneously and the third investor invests at a later moment. If we consider sequential equilibria and compare entry times of the first investors for different potential market sizes, it turns out that in the two firm case the first investor invests earlier than in the monopoly case, in the three firm case the investment timing lies in between the one and the two firm case, the four firm case lies in between the two and the three firm case, and so on and so forth. Hence, a policy maker interested in an early start up should hope for an even number of competitors, although for n large the investment times of the first investors are almost equal.
    Keywords: investment;real options;oligopoly
    JEL: C73 D92 L13
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200669&r=fmk
  56. By: Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini; Marco Taboga
    Abstract: We propose a portfolio selection model based on a class of preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated to this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem and we show that the most important property of mean-variance optimal portfolios, namely the two fund separation property, still holds in our framework.
    Keywords: Mean-Variance Preferences, Optimal Portfolios
    JEL: D81 G11
    Date: 2004
    URL: http://d.repec.org/n?u=RePEc:cca:wpaper:6&r=fmk
  57. By: Ruby Shih (Department of Economics, University of Victoria); David E. A. Giles (Department of Economics, University of Victoria)
    Abstract: We use survival models to analyze the duration of the spells associated with the interest rate used by the Bank of Canada as its monetary policy instrument. Both non-parametric and parametric models are estimated, allowing for right-censoring of the data, and time-varying covariates. We find that the data are explained well by an accelerated failure time Weibull model, with the annual rate of inflation and the quarterly rate of growth in GDP as covariates. The model indicates that there is positive duration dependence in the interest rate spells, and that unemployment and exchange rate effects are insignificant.
    Keywords: Inflation target, survival analysis, monetary policy
    JEL: C14 C42 E43
    Date: 2006–09–08
    URL: http://d.repec.org/n?u=RePEc:vic:vicewp:0605&r=fmk
  58. By: Amilcar Mojica Pimiento; Joaquín Paredes Vega
    Abstract: La historia de los bancos en el Estado Soberano de Santander, se atribuyó a un grupo ilustre de santandereanos que fundaron la primera sociedad bancaria en la región en 1872, la cual se denominó Banco de Santander, sumándose a ella el Banco de Pamplona, el Prendario de Soto y el del Norte. No obstante, la debilidad de estas entidades fue producto de la decadencia durante el siglo XIX de la región santandereana, afectada por problemas de violencia y crisis política. Sin embargo, un nuevo proceso evolutivo que conllevó un reordenamiento financiero, trajo como consecuencia la creación de nuevas instituciones, especialmente el Banco de la República establecido como Instituto Central de Emisión de Colombia en desarrollo de la Ley 25 de 1923, cuya estructura se descentralizó con la apertura de las primeras oficinas regionales con carácter de agencias, en varias ciudades del país, entre ellas Bucaramanga.
    Date: 2006–03–30
    URL: http://d.repec.org/n?u=RePEc:col:001039:002654&r=fmk
  59. By: Saubhik Deb (Department of Economics)
    Abstract: Over the last three decades, durations of recovery of output from contractionary currency crises have shown much variation both within and across countries. Using a dataset comprising of both developing and industrial countries, this paper examines the importance of economic fundamentals, international trade and liberalized capital account in determining the speed of recovery from such crises. We found that poor macroeconomic fundamentals and capital account liberalization have no significant effect on duration of recovery. However, all trade related variables were found to be significant. Our results indicate the preeminence of export led recovery.
    Keywords: Currency Crisis, Output Recovery, Duration Analysis
    JEL: F30 F41 C41
    Date: 2006–04–06
    URL: http://d.repec.org/n?u=RePEc:rut:rutres:200607&r=fmk
  60. By: LOVO, Stefano; HÖRNER, Johanes
    Abstract: In this paper, the authors define belief-free equilibria in two-player games with incomplete information as sequential equilibria for which players’ continuation strategies are best-replies, after every history, independently of their beliefs about the state of nature. They characterize a set of payoffs that includes all belief-free equilibrium payoffs. Conversely, any payoff in the interior of this set is a belief-free equilibrium payoff.
    Keywords: game theory; equilibria; information
    JEL: C72 C73
    Date: 2006–05–01
    URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0845&r=fmk
  61. By: Santiago Budria; Antonia Diaz
    Abstract: In this paper we investigate the size of the risk premium and the term premium in an representative agent exchange model economy where households preferences are subject to habit formation. As a novel feature, we develop theoretical measures for risk premium and term premium that can be used even when the consumption growth process is serially autocorrelated. We find that habit formation increases risk aversion significantly but increases much more the aversion to variations of consumption across dates. This induces a substantial increase in the precautionary demand of short term assets and a significant fall in the precautionary demand of long term assets. As a result, the term premium increases substantially with habit formation. Next we calibrate our model economy and examine the quantitative predictions of our theoretical measures of equity premium, risk premium and term premium. In line with previous literature, we show that it is possible to find a reasonable calibration for which the equity premium is that observed in the data. However, we find that around 70 percent of the equity premium is just term premium. That is, a very large fraction of the increase in the equity premium is due to the asymmetric effect that habit formation has on the precautionary demand of an asset depending on its maturity.
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we065522&r=fmk
  62. By: T.Huw Edwards (Dept of Economics, Loughborough University)
    Abstract: This paper examines the implications of increasing globalisation of stock market ownership on the economics of protection. Current data on European stock exchanges indicate that over 30 per cent of the stock market is foreign-owned in most cases, a large increase on a couple of decades ago.This degree of foreign share-ownership is likely to change qualitatively the nature of the response of governments to FDI and support for 'domestic' firms. In particular, two worked examples, based upon duopoly theory, suggest that the level of foreign share-ownership is sufficient to render protection unattractive.
    Keywords: Trade, Oligopoly, Capital Ownership.
    JEL: F10 F12
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_15&r=fmk
  63. By: Bradley Herring; Mark V. Pauly
    Abstract: Some states have implemented community rating regulations to limit the extent to which premiums in the individual health insurance market can vary with a person�s health status. Community rating and guaranteed issues laws were passed with hopes of increasing access to affordable insurance for people with high-risk health conditions, but there are concerns that these laws led to adverse selection. In some sense, the extent to which these regulations ultimately affected the individual market depends in large part on the degree of risk segmentation in unregulated states. In this paper, we examine the relationship between expected medical expenses, individual insurance premiums, and the likelihood of obtaining individual insurance using data from both the National Health Interview Survey and the Community Tracking Study Household Survey. We test for differences in these relationships between states with both community rating and guaranteed issue and states with no such regulations. While we find that people living in unregulated states with higher expected expense due to chronic health conditions pay modestly higher premiums and are somewhat less likely to obtain coverage, the variation between premiums and risk in unregulated individual insurance markets is far from proportional; there is considerable pooling. In regulated states, we find that there is no effect of having higher expected expense due to chronic health conditions on neither premiums nor coverage. Overall, our results suggest that the effect of regulation is to produce a slight increase in the proportion uninsured, as increases in low risk uninsureds more than offset decreases in high risk uninsureds. Community rating and guaranteed issue regulations produce only small changes in risk pooling because the extent of pooling in the absence of regulation is substantial.
    JEL: I11 I18 I19
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12504&r=fmk
  64. By: Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
    Abstract: This paper investigates the international transmission of productivity shocks in a sample of five G7 countries. For each country, using long-run restrictions, we identify shocks that increase permanently domestic labor productivity in manufacturing (our measure of tradables) relative to an aggregate of other industrial countries including the rest of the G7. We find that, consistent with standard theory, these shocks raise relative consumption, deteriorate net exports, and raise the relative price of nontradables --- in full accord with the Harrod-Balassa-Samuelson hypothesis. Moreover, the deterioration of the external account is fairly persistent, especially for the US. The response of the real exchange rate and (our proxy for) the terms of trade differs across countries: while both relative prices depreciate in Italy and the UK (smaller and more open economies), they appreciate in the US and Japan (the largest and least open economies in our sample); results are however inconclusive for Germany. These findings question a common view in the literature, that a country's terms of trade fall when its output grows, thus providing a mechanism to contain differences in national wealth when productivity levels do not converge. They enhance our understanding of important episodes such as the strong real appreciation of the dollar as the US productivity growth accelerated in the second half of the 1990s. They also provide an empirical contribution to the current debate on the adjustment of the US current account position. Contrary to widespread presumptions, productivity growth in the US tradable sector does not necessarily improve the US trade deficit, nor deteriorate the US terms of trade, at least in the short and medium run.
    JEL: F32 F41 F42
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12483&r=fmk
  65. By: Hugh Rockoff (Rutgers); John Landon-Lane (Rutgers)
    Abstract: This paper contains all of the statistical results underlying our paper "The Origin and Diffusion of Shocks to Regional Interest Rates in the United States, 1880-2002." It also contains a table of the underlying data, and a discussion of how the data was constructed.
    Keywords: interest rates, monetary unions
    JEL: N22
    Date: 2006–07–31
    URL: http://d.repec.org/n?u=RePEc:rut:rutres:200608&r=fmk
  66. By: Aliaksei Smolski (Vitebsk State Technological University)
    Abstract: The paper investigates becoming and development of bankruptcy institution in Republic of Belarus after USSR disintegration. It shows the approaches of government to regulation of bankruptcy at different stages of transitional economy development and its current state. The economical, legal and political problems of bankruptcy institution application in Belarus are reviewed.
    Keywords: transition economy, insolvency, bankruptcy
    JEL: E61 G33 K12 P21
    URL: http://d.repec.org/n?u=RePEc:nos:wuwpfi:smolski_aliaksei.41567-11&r=fmk
  67. By: John Williamson (Institute for International Economics)
    Date: 2006–06–31
    URL: http://d.repec.org/n?u=RePEc:onb:oenbwp:130&r=fmk
  68. By: Jolly, Robert W.; Roe, Josh
    Abstract: Not available.
    JEL: G0
    Date: 2006–05–31
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12633&r=fmk
  69. By: Leufkens Kasper; Peeters Ronald (METEOR)
    Abstract: In this paper we show that in a private value setting first-price auctions can be preferred to second-price auctions. We consider a sequential auction of two objects with positive synergies and compare both auction formats. Although the second-price auction performs better in terms of efficiency and revenue, the first-price auction performs much better on a so far neglected dimension. Namely, the probability that the winner of the first object goes bankrupt is almost always higher when using the second-price rule. Our findings therefore support the common use of first-price auctions, most notably for procurement.
    Keywords: industrial organization ;
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:umamet:2006033&r=fmk
  70. By: Sean D. Campbell; Morris A. Davis; Joshua Gallin; Robert F. Martin
    Abstract: We use the dynamic Gordon-growth model to decompose the rent-price ratio for owner-occupied housing in the U.S., four Census regions, and twenty-three metropolitan areas into three components: The expected present value of real rental growth, real interest rates, and future housing premia. We use these components to decompose the trend and variance in rent-price ratios for 1975-2005, for an early sub-sample (1975-1996), and for the recent housing boom (1997-2005). We have three main findings. First, variation in expected future real rents accounts for a small share of variation in our sample rent-price ratios; variation in real interest rates and housing premia account for most of the variability. Second, expected future real rates and housing premia were so strongly negatively correlated prior to 1997 that changes to real interest rates did not affect the rent-price ratio. After 1997, rates and premia have been positively correlated, and the decline in the rent-price ratio that has occurred in almost every geographic area in our sample since 1997 reflects both declining real rates and declining premia. Third, we show that in the recent housing boom, 65 percent of the decline in the aggregate rent-price ratio is due to a declining housing premium.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedgfe:2006-29&r=fmk
  71. By: Michael Bordo; Thomas Helbling; Harold James
    Abstract: In this paper we examine the experience of Switzerland’s devaluation in 1936. The Swiss case is of interest because Switzerland was a key member of the gold bloc, and much of the modern academic literature on the Great Depression tries to explain why Switzerland and the other gold bloc countries, France, and the Netherlands, remained on the gold standard until the bitter end. We ask the following questions: what were the issues at stake in the political debate? What was the cost to Switzerland of the delay in the franc devaluation? What would have been the costs and benefits of an earlier exchange rate policy? More specifically, what would have happened if Switzerland had either joined the British and devalued in September 1931, or followed the United States in April 1933? To answer these questions we construct a simple open economy macro model of the interwar Swiss economy. On the basis of this model we then posit counterfactual scenarios of alternative exchange rate pegs in 1931 and 1933. Our simulations clearly show a significant and large increase in real economic activity. If Switzerland had devalued with Britain in 1931, the output level in 1935 would have been some 18 per cent higher than it actually was in that year. If Switzerland had waited until 1933 to devalue, the improvement would have been about 15 per cent higher. The reasons Switzerland did not devalue earlier reflected in part a conservatism in policy making as a result of the difficulty of making exchange rate policy in a democratic setting and in part the consequence of a political economy which favored the fractionalization of different interest groups.
    JEL: N1 N13
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12491&r=fmk
  72. By: Antonia Diaz; Maria J. Luengo-Prado
    Abstract: This paper studies the determinants of housing tenure choice and the differences in the cost of housing services across households in an overlapping generations model with household-specific uninsurable earnings risk and housing prices that vary over time. We model houses as illiquid assets that provide collateral for loans. To analyze the impact of preferential housing taxation on the tenure choice, we consider a tax system that mimics that of the U.S. economy in a stylized way. We find that a mixture of idiosyncratic earnings uncertainty, house price risk, down payments and transaction costs are needed for the model to deliver life cycle patterns of homeownership and portfolio composition similar to those found in the data. Through simulations, we also show that a rental equivalence approach (relative to a user cost approach) overestimates the mean unit cost of housing by approximately 3 percent.
    Date: 2006–04
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we065421&r=fmk
  73. By: Renneboog,Luc; Szilagyi,Peter G. (Tilburg University, Center for Economic Research)
    Abstract: This paper reopens the debate on the substitutability of dividends and shareholder control in mitigating free cash flow concerns, by examining dividend behavior when shareholder control is restricted in the firm. We consider the stakeholder-oriented governance regime of the Netherlands, where shareholdings are concentrated, but shareholder rights are often severely restricted by a legally imposed governance regime and anti-shareholder devices such as Dutch-style poison pills. We find that dividend payouts are generally low, unresponsive to earnings changes and show little relationship with size, leverage, and investment opportunities. Shareholder power restrictions affect dividend behavior to varying degrees, but those that do are used by the vast majority of Dutch listed firms. Once accounting for these, we find no evidence that strong shareholders would allow firms to relax their dividend policy, as has been proposed in the existing literature. As shareholders, institutional investors and managers actually force higher payouts. Thus, it seems that dividends often complement rather than substitute shareholders efforts to alleviate agency concerns. This finding is unlikely to be specific to the Netherlands, and could possibly be extended to other stakeholder-oriented governance regimes.
    Keywords: Dividend policy;Corporate governance;Shareholder power restrictions;Ownership and control
    JEL: G35 G32 G30
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200673&r=fmk
  74. By: Fabien A. Roques; William J. Nuttall; Newbery, D.M.
    Abstract: This paper reviews the limits of the traditional ‘levelised cost’ approach to properly take into account risks and uncertainties when valuing different power generation technologies. We introduce a probabilistic valuation model of investment in three base-load technologies (combined cycle gas turbine, coal plant, and nuclear power plant), and demonstrate using three case studies how such a probabilistic approach provides investors with a much richer analytical framework to assess power investments in liberalised markets. We successively analyse the combined impact of multiple uncertainties on the value of alternative technologies, the value of the operating flexibility of power plant managers to mothball and de-mothball plants, and the value of mixed portfolios of different production technologies that present complementary risk-return profiles.
    Keywords: investment, uncertainty, Monte-Carlo simulation, operating flexibility
    JEL: C15 D81 L94
    Date: 2006–07
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0650&r=fmk
  75. By: Ana María Prieto Ariza
    Abstract: En el marco de la discusión acerca de ampliar el acceso de la población de menores recursos a los servicios financieros, se han identificado como principales obstáculos los elevados costos operativos y de regulación que acarrea la apertura de oficinas o sucursales bancarias tradicionales, especialmente en zonas apartadas, de difícil acceso y con infraestructura precaria en materia de vías y de telecomunicaciones. La experiencia brasileña y peruana ilustra el enorme potencial de implementar novedosos esquemas de distribución de servicios financieros para flexibilizar y abaratar la operación bancaria, así como poder profundizar la actividad de intermediación y de bancarización en las regiones. En los dos casos mencionados se ha logrado expandir la cobertura del sector financiero mediante esquemas de corresponsales no bancarios (CNB), que simplifican y disminuyen los costos operativos de los procesos bancarios. Este canal de atención permite a las entidades ofrecer sus servicios por medio de establecimientos no financieros, como supermercados, droguerías, oficinas de correos y puestos de lotería. En la mayor parte de los casos, los clientes realizan operaciones financieras cualquier día (incluidos domingos y festivos) y en el horario definido por el establecimiento comercial, que hace las veces de corresponsal, que por lo general se encuentra cerca del lugar de residencia o trabajo del cliente. En este documento se resume la normativa sobre los canales de distribución, se muestran las experiencias de los principales bancos que han incorporado CNB en su red y se exponen algunas cifras que indican el alcance que los CNB han tenido en cada país relativo a bancarización y acceso a servicios financieros en general.
    Date: 2006–07–30
    URL: http://d.repec.org/n?u=RePEc:col:001048:002656&r=fmk
  76. By: Peter-Jan Engelen; Luc Van Liedekerke
    Abstract: Although there seems to be a broad consensus to prohibit insider trading among supervising authorities and market professionals, the debate on insider trading has not settled definitively. We introduce a distinction between insider trading and market manipulation on the one hand and corporate insiders versus misappropriators on the other hand. This gives rise to four types of alleged wrong transactions. Using a utilitarian and a non-utilitarian fairness approach, we demonstrate that it is hard to find good arguments against insider trading in its purest form (type I transactions). Using a property rights perspective in particular, we show that neither a general ban nor a general permitting of insider trading is an efficient outcome. We propose a solution in which companies solve this compensation problem contractually with their corporate agents. In this way,insider trading can be used as a governance instrument which can reinforce the fiduciary relationship.
    Keywords: insider trading, market manipulation, fairness, property rights
    JEL: G18 K22
    Date: 2006–06
    URL: http://d.repec.org/n?u=RePEc:use:tkiwps:0605&r=fmk

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