nep-fmk New Economics Papers
on Financial Markets
Issue of 2011‒06‒04
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Emerging Stock Markets in Hostorical Perspective: A Research Agenda By Stefano Battilossi; Matthias Morys
  2. Global imbalances and the financial crisis: Link or no link? By Claudio Borio; Piti Disyatat
  3. Adding to the Regulator's Toolbox: Integration and Extension of Two Leading Market Models By Brian Tivnan; Matthew Koehler; Matthew McMahon; Matthew Olson; Neal Rothleder; Rajani Shenoy
  4. Credit conditions indices: controlling for regime shifts in the Norwegian credit market By Jansen, Eilev S.; Krogh, Tord S. H.

  1. By: Stefano Battilossi; Matthias Morys
    Abstract: This paper surveys the recent empirical literature on emerging stock markets of the last quarter of the 20th century and elaborates on its theoretical insights and empirical methods to design a research agenda on the “emergence†of equity markets in European peripheries before 1913. We present some preliminary evidence, both qualitative and quantitative, on the timeline and patterns of stock market emergence. The cases of the Madrid and several South-East European stock exchanges (Vienna, Belgrade, Bukarest, Sofia, Athens, and Istanbul) are used to exemplify. In the second part of the paper, we focus on three key empirical issues which should be addressed by financial historians: the determinants of stock market development, the realized return on market indices, and the specific characteristics (higher volatility, persistence, non-normality) of returns.
    Date: 2011–05
  2. By: Claudio Borio; Piti Disyatat
    Abstract: Global current account imbalances have been at the forefront of policy debates over the past few years. Many observers have recently singled them out as a key factor contributing to the global financial crisis. Current account surpluses in several emerging market economies are said to have helped fuel the credit booms and risk-taking in the major advanced deficit countries at the core of the crisis, by putting significant downward pressure on world interest rates and/or by simply financing the booms in those countries (the "excess saving" view). We argue that this perspective on global imbalances bears reconsideration. We highlight two conceptual problems: (i) drawing inferences about a country's cross-border financing activity based on observations of net capital flows; and (ii) explaining market interest rates through the saving-investment framework. We trace the shortcomings of this perspective to a failure to consider the distinguishing characteristics of a monetary economy. We conjecture that the main contributing factor to the financial crisis was not "excess saving" but the "excess elasticity" of the international monetary and financial system: the monetary and financial regimes in place failed to restrain the build-up of unsustainable credit and asset price booms ("financial imbalances"). Credit creation, a defining feature of a monetary economy, plays a key role in this story.
    Keywords: global imbalances, saving glut, money, credit, capital flows, current account, interest rates, financial crisis
    Date: 2011–05
  3. By: Brian Tivnan; Matthew Koehler; Matthew McMahon; Matthew Olson; Neal Rothleder; Rajani Shenoy
    Abstract: As demonstrated during the recent financial crisis, regulators require additional analytical tools to assess systemic risk in the financial sector. This paper describes one such tool; namely a novel market modeling and analysis capability. Our model builds upon two leading market models: one which emphasizes market micro-structure and another which emphasizes an ecology of trading strategies. We address a limitation of market modeling, namely the consideration of only one dominant trading strategy (i.e., long positions). Our model aligns closely with several widely held stylized facts of financial markets. And a final contribution of this work stems from our empirical analysis of the fractal nature of both empirical markets and our market model.
    Date: 2011–05
  4. By: Jansen, Eilev S.; Krogh, Tord S. H.
    Abstract: The interaction between financial markets and the macroeconomy can be strongly affected by changes in credit market regulations. In order to take account of these effects the authors control explicitly for regime shifts in a system of debt equations for Norway using a common, flexible trend. The estimated shape of the trend matches the qualitative development in the regulations, and the authors argue that it can be viewed as a measure of relative credit availability, or credit conditions, for the period 1975-2008 - a credit conditions index (CCI). This entails years of strict credit market regulations in the 1970s, its gradual deregulation in the 1980s, followed by a full-blown banking crisis in the years around 1990 and the development thereafter up to the advent of the current financial crisis. Our study is inspired by Fernandez-Corugedo and Muellbauer (2006), which introduced the methodology and provided estimates of a CCI for the UK. The trend conditions on a priori knowledge about changes in the Norwegian regulatory system, as documented in Krogh (2010b), and it shows robustness when estimated recursively. --
    Keywords: credit conditions,flexible trend,financial deregulation,household loans
    JEL: E44 G21 G28
    Date: 2011

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