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on Financial Markets |
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Issue of 2008‒06‒07
seven papers chosen by |
| By: | Grégory Levieuge (Laboratoire d'Economie d'Orléans (LEO), UMR CNRS 6221); Alexis Penot (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France,) |
| Abstract: | Compared with the U.S., the amplitude of the European monetary policy rate cycle is strikingly narrow. Is it an evidence of a less reactive ECB? This observation can certainly reflect the preferences and then the strategy of the ECB. But its greater inertia must also be assessed in the light of the singularity of the European structure and of the shocks hitting it. From this perspective, several contributions assert that the nature, size and persistence of shocks mainly explain the different interest rate setting. Therefore, they rely on the idea that both areas share the same monetary policy rule and, more surprising, the same structure. This paper aims at examining this conclusions with an alternative modelling. The results confirm that the euro area and U.S. monetary policy rules are not fundamentally different. But we reject the differences of nature and amplitude of shocks. What is often interpreted as such is in fact the consequence of how distinctly both economies absorb shocks. So differences in the amplitude of the interest rate cycles in both areas are basically explained by structural dissimilarities. |
| Keywords: | interest rate, macroeconomic shocks, monetary policy rules, policy activism, structural divergence |
| JEL: | C51 E52 E58 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0804&r=fmk |
| By: | Philip R. Lane |
| Abstract: | The first decade of EMU has taught us much about the power of a single currency to integrate financial markets. In this review, I first discuss the quantitative impact of the euro on cross- border financial holdings before turning to the macroeconomic implications of enhanced financial integration. |
| Date: | 2008–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp248&r=fmk |
| By: | Shin-ichi Fukuda (Faculty of Economics, University of Tokyo); Munehisa Kasuya (esearch and Statistics Department, Bank of Japan); Kentaro Akashi (Graduate School of Economics, University of Tokyo) |
| Abstract: | Empirical studies in corporate finance have long been focused on the role of banks in reducing the costs of financial distress. The environment and events in Japan provide a "natural experiment" that allows such empirical studies. The number of bankruptcies steadily increased throughout the 1990s, and peaked in 2000. During this period, Japan's banking sector, in contrast, faced considerable problems regarding the disposal of their bad loans. The purpose of this paper is to investigate how various measures of bank health and how defaults of major trading partners affected the probability of bankruptcy among medium-size firms in Japan. Using probit models, we examine the causes of bankruptcy for unlisted Japanese companies in the late 1990s and early 2000s. We find that several measures of bank-specific financial health have had significant impacts on a borrower's probability of bankruptcy, even when observable characteristics relating to these borrower's financial variables are controlled. In particular, a close bank-firm relationship-which usually reduces the probability of bankruptcy-exacerbates the impacts of a financial crisis, which substantially damages other bank health measures as well. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2008cf564&r=fmk |
| By: | Noussair, C.N.; Powell, O.R. (Tilburg University, Center for Economic Research) |
| Abstract: | We report the results of an experiment designed to measure how well asset market prices track fundamentals when the latter experience peaks and troughs. We observe greater price efficiency in markets in which fundamentals rise to a peak and then decline, than in markets in which fundamentals decline to a trough and undergo a subsequent increase. The findings demonstrate that the characteristics of the time path of the fundamental value can influence the degree of market efficiency. |
| Keywords: | Bubble;Peak;Experiment |
| JEL: | C9 G10 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200849&r=fmk |
| By: | Agnes Benassy-Quere; Sophie Bereau; Valérie Mignon |
| Abstract: | In this paper, we investigate different views of equilibrium exchange rates within a single, stock-flow adjustment framework. We then compare FEER and BEER estimations of equilibrium exchange rates based on the same, econometric model of the net foreign asset position, with special focus on the euro-dollar rate. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio allocation. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance. |
| Keywords: | Equilibrium exchange rates; euro-dollar; FEER; BEER; global imbalances |
| JEL: | F31 C23 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2008-02&r=fmk |
| By: | Vázquez, Miguel; Sánchez-Úbeda, Eugenio F.; Berzosa, Ana; Barquín, Julián |
| Abstract: | We propose in this paper a model for the description of electricity spot prices, which we use to describe the dynamics of forward curves. The spot price model is based on a long-term/short-term decomposition, where the price is thought of as made up of two factors: A long-term equilibrium level and short-term movements around the equilibrium. We use a non-parametric approach to model the equilibrium level of power prices, and a mean-reverting process with GARCH volatility to describe the dynamics of the short-term component. Then, the model is used to derive the expression of the short-term dynamics of the forward curve implicit in spot prices. The rationale for the approach is that information concerning forward prices is not available in most of power markets, and the direct modeling of the forward curve is a difficult task. Moreover, power derivatives are typically written on forward contracts, and usually based on average prices of forward contracts. Then, it is difficult to obtain analytical expressions for the forward curves. The model of forward prices allows for the valuation of power derivatives, as well as the calculation of the volatilities and correlations required in risk management activities. Finally, the methodology is proven in the context of the Spanish wholesale market |
| Keywords: | Forward curves;Power Markets;GARCH volatility;nonparametric regression |
| JEL: | C32 D81 D84 C14 C15 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8932&r=fmk |
| By: | Oberndorfer, Ulrich |
| Abstract: | This paper constitutes a first analysis on stock returns and stock return volatility of energy corporations from the Eurozone. According to our results, the gas market does not play a role for the pricing of Eurozone energy stocks. However, changes in the Euro to U.S. Dollar exchange rate as well as developments at the money and especially at the oil market strongly affect returns of the energy stock portfolios analyzed. While oil price hikes negatively impact on stock returns of European utilities, they lead to an appreciation of oil and gas stocks. Most importantly, we show that oil market volatility negatively affects European oil and gas stocks. In contrast, energy stock volatility is not driven by volatility of the resource market, but only by its own dynamics. |
| Keywords: | Energy stocks, resource prices, volatility, asset pricing |
| JEL: | C13 G12 Q40 Q43 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7226&r=fmk |