New Economics Papers
on Financial Markets
Issue of 2008‒09‒13
five papers chosen by

  1. Volatility, Jumps and Predictability of Returns: a Sequential Analysis By S. Bordignon; D. Raggi
  2. Crude Oil and Stock Markets: Stability, Instability, and Bubbles By J. Isaac Miller; Ronald Ratti
  3. On the Stability of Domestic Financial Market Linkages in the Presence of time-varying Volatility By Thomas J. Flavin; Ekaterini Panopoulou; Deren Unalmis
  4. Microfinance meets the market By Cull, Robert; Demirguc-Kunt, Asli; Morduch, Jonathan
  5. Bank competition and financial stability By Berger, Allen N.; Klapper, Leora F.; Turk-Ariss, Rima

  1. By: S. Bordignon; D. Raggi
    Date: 2008–05
  2. By: J. Isaac Miller (Department of Economics, University of Missouri-Columbia); Ronald Ratti (Department of Economics, University of Missouri-Columbia)
    Abstract: We analyze the long-run relationship between the world price of crude oil and international stock markets over 1971:1-2008:3 using a cointegrated vector error correction model with additional regressors. We find a clear long-run relationship between these series for six OECD countries from 1971 until 1998, suggesting that stock market indices respond negatively to increases in the oil price. Up until December 1998, the statistically significant cointegrating coefficients for real stock market price and real oil price are close to -1 for France, Germany, U.K. and the U.S., and closer to -0.5 for Canada and Italy. After 1998, this negative long-run relationship appears to disintegrate. This finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years and the presence of several stock market bubbles and/or oil price bubbles since the turn of the century
    Keywords: crude oil, stock market prices, cointegrated VECM, structural stability, stock market bubble, oil price bubble
    JEL: C13 C32
    Date: 2008–08–20
  3. By: Thomas J. Flavin; Ekaterini Panopoulou; Deren Unalmis
    Date: 2008
  4. By: Cull, Robert; Demirguc-Kunt, Asli; Morduch, Jonathan
    Abstract: Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embraces the market, drawing on a data set that includes 346 of the world's leading microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome the challenges of high costs.
    Keywords: Access to Finance,Debt Markets,,Banks&Banking Reform,Emerging Markets
    Date: 2008–05–01
  5. By: Berger, Allen N.; Klapper, Leora F.; Turk-Ariss, Rima
    Abstract: Under the traditional"competition-fragility"view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative"competition-stability"view, more market power in the loan market may result in greater bank risk as the higher interest rates charged to loan customers make it more difficult to repay loans and exacerbate moral hazard and adverse selection problems. But even if market power in the loan market results in riskier loan portfolios, the overall risks of banks need not increase if banks protect their franchise values by increasing their equity capital or engaging in other risk-mitigating techniques. The authors test these theories by regressing measures of loan risk, bank risk, and bank equity capital on several measures of market power, as well as indicators of the business environment, using data for 8,235 banks in 23 developed nations. The results suggest that - consistent with the traditional"competition-fragility"view - banks with a greater degree of market power also have less overall risk exposure. The data also provide some support for one element of the"competition-stability"view - that market power increases loan portfolio risk. The authors show that this risk may be offset in part by higher equity capital ratios.
    Keywords: Banks&Banking Reform,Debt Markets,Access to Finance,,Markets and Market Access
    Date: 2008–08–01

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