nep-fmk New Economics Papers
on Financial Markets
Issue of 2010‒05‒15
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Persistent collective trend in stock markets By Emeric Balogh; Ingve Simonsen; Balint Zs. Nagy; Zoltan Neda
  2. Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach By Olivier Jeanne; Anton Korinek
  3. Convergence of EMU Equity Portfolios By Maela Giofré
  4. Drivers of Private Equity Investment in CEE and Western European Countries By Kerstin Bernoth; Roberta Colavecchio; Magdolna Sass

  1. By: Emeric Balogh; Ingve Simonsen; Balint Zs. Nagy; Zoltan Neda
    Abstract: Empirical evidence is given for a significant difference in the collective trend of the share prices during the stock index rising and falling periods. Data on the Dow Jones Industrial Average and its stock components are studied between 1991 and 2008. Pearson-type correlations are computed between the stocks and averaged over stock-pairs and time. The results indicate a general trend: whenever the stock index is falling the stock prices are changing in a more correlated manner than in case the stock index is ascending. A thorough statistical analysis of the data shows that the observed difference is significant, suggesting a constant-fear factor among stockholders.
    Date: 2010–05
  2. By: Olivier Jeanne (Peterson Institute for International Economics); Anton Korinek
    Abstract: This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.
    Keywords: capital flows, deleveraging episodes, emerging market economies, Pigouvian tax
    JEL: F3 F32 F34 G15 G18 H21
    Date: 2010–05
  3. By: Maela Giofré (CeRP-Collegio Carlo Alberto, Turin)
    Abstract: This paper demonstrates that, after integration, equity portfolios of countries that joined the European Monetary Union have converged at faster rate than those of NON EMU countries. This outcome can be interpreted as a combination of the convergence of inflation rates and the convergence of investment barriers. On the one hand, the common monetary policy might have driven a stronger comovement in inflation rates, leading to increasingly similar hedging strategies among member countries. On the other hand, exposure to the common currency might have homogenized bilateral investment barriers, thus inducing increasingly similar portfolio allocations among member countries. We find that the comovement of inflation rates has not significantly increased after EMU inception, pointing toward an exclusive role for convergence in investment barriers.
    Keywords: Financial integration; EMU; inflation hedging; investment barrier
    JEL: F21 F30 F36 G11 G15
    Date: 2009–07
  4. By: Kerstin Bernoth; Roberta Colavecchio; Magdolna Sass
    Abstract: A strong private equity market is a cornerstone for commercialization and innovation in modern economies. However, substantial differences exist in the relative amounts raised and invested in private equity across European countries. We investigate the macro-determinants of private equity investment in Europe, focusing on the comparison between CEE and Western European countries. Our estimations are based on a data set running from 2001 to 2008 and covers 14 Western European and three CEE countries. Applying robust estimation techniques we identify a 'robust' set of determinants of private equity activity in both regions. We find similarities as well as differences in the driving forces of private equity investments in Western European and CEE countries. Our results suggest that commercial bank lending, equity market capitalization, unit labour costs and corporate tax rates are significant determinants of private equity activity.
    Keywords: Private Equity, Extreme Bounds Analysis, Central and Eastern European Countries
    JEL: C23 C52 E22 G24
    Date: 2010

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