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on Financial Markets |
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Issue of 2010‒07‒17
seven papers chosen by |
| By: | Adolfo Barajas; Ralph Chami; Dalia Hakura; Thomas F. Cosimano |
| Abstract: | The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserve’s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital. |
| Date: | 2010–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/131&r=fmk |
| By: | Luc Laeven; Fabian Valencia |
| Abstract: | This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries. |
| Date: | 2010–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/146&r=fmk |
| By: | Sandra Schmidt; Dieter Nautz |
| Abstract: | This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of in- dividual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's in- terest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. |
| Keywords: | Central bank communication, Interest rate forecasts, Survey expectations, Panel random coefficient model |
| JEL: | E47 E52 E58 C23 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-036&r=fmk |
| By: | Michiel Bijlsma; Jeroen Klomp; Sijmen Duineveld |
| Abstract: | The financial crisis has put systemic risk firmly on the policy agenda. In such a crisis, an initial shock gets amplified while it propagates to other financial intermediaries, ultimately disrupting the financial sector. We review the literature on such amplification mechanisms which create externalities from risk taking. We distinguish between two classes of mechanisms: contagion within the financial sector and pro-cyclical connection between the financial sector and the real economy. Regulation can diminish systemic risk by reducing these externalities. However, regulation of systemic risk faces several problems. First, systemic risk and its costs are difficult to quantify. Second, banks have strong incentives to evade regulation meant to reduce systemic risk. Third, regulators are prone to forbearance. Finally, the inability of governments to commit not to bail out systemic institutions creates moral hazard and reduces the market’s incentive to price systemic risk. Strengthening market discipline can play an important role in addressing these problems, because it reduces the scope for regulatory forbearance, does not rely on complex information requirements, and is difficult to manipulate. |
| Keywords: | Financial markets; Contagion; Systemic risk |
| JEL: | G28 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:docmnt:210&r=fmk |
| By: | Kaizoji, Taisei |
| Abstract: | The aim of this paper is to compare statistical properties of stock price indices in periods of booms with those in periods of stagnations. We use the daily data of the four stock price indices in the major stock markets in the world: (i) the Nikkei 225 index (Nikkei 225) from January 4, 1975 to August 18, 2004, of (ii) the Dow Jones Industrial Average (DJIA) from January 2, 1946 to August 18, 2004, of (iii) Standard and Poor’s 500 index (SP500) from November 22, 1982 to August 18, 2004, and of (iii) the Financial Times Stock Exchange 100 index (FT 100) from April 2, 1984 to August 18, 2004. We divide the time series of each of these indices in the two periods: booms and stagnations, and investigate the statistical properties of absolute log return, which is a typical measure of volatility, for each period. We find that (i) the tail of the distribution of the absolute log-returns is approximated by a power-law function with the exponent close to 3 in the periods of booms while the distribution is described by an exponential function with the scale parameter close to unity in the periods of stagnations. |
| Keywords: | volatility; boom; and stagnation; stock price indices |
| JEL: | C16 D30 G19 |
| Date: | 2010–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23727&r=fmk |
| By: | Schindler, Felix |
| Abstract: | This paper tests the random walk hypothesis and market efficiency for twelve emerging as well as for four developed securitized real estate markets from 1992 to 2009. Random walk properties of equity prices influence return dynamics, and market efficiency is often considered an essential criterion in the assessment of the functionality of markets and the asset pricing process, which is of significant relevance for emerging markets in particular. The analysis is based on autocorrelation tests as well as both single variance and multiple variance ratio tests. Furthermore, non-parametric runs tests are conducted. Empirical evidence shows that the efficient market hypothesis in its weak form is not rejected by any statistical test for seven of the twelve analyzed emerging securitized real estate markets. This result is surprising since all four developed securitized real estate stock markets analyzed in this study do not follow a random walk. The results are confirmed by the analysis of excess returns following from technical trading rules. -- |
| Keywords: | Securitized real estate markets,market efficiency,random walk hypothesis,variance ratio tests,runs test,trading strategies |
| JEL: | G12 G14 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10033&r=fmk |
| By: | Safari, Meysam |
| Abstract: | This study investigates the relationship between dividend yields and stock returns in bull and bear markets. Evidences from developed countries show that there should be a positive correlation between dividend yields and stock return in bear markets and a negative correlation between dividend yields and stock return during the bull markets. Findings of this study, in emerging market content, show that there is a positive relation between dividend yield and stock returns in both bull and bear markets which are not consistent with previous works. |
| Keywords: | Dividend Yield; Stock Return; Economic Environment; Bull/Bear Market; Malaysia |
| JEL: | D53 E32 G35 C23 E44 |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23841&r=fmk |