New Economics Papers
on Financial Markets
Issue of 2011‒08‒15
three papers chosen by

  1. The Future of Financial Markets and Regulation: What Strategy for Europe? By Jean-Baptiste Gossé; Dominique Plihon
  2. Five Perspectives on an Emerging Market: Challenges with Clean Tech Private Equity By Eric R. W. Knight
  3. Nonlinearities in CDS-Bond Basis (CDS-Bono Farkinin Dogrusal Olmayan Duzeltme Hareketi) By Kurmas Akdogan; Meltem Gulenay Chadwick

  1. By: Jean-Baptiste Gossé (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris-Nord - Paris XIII - CNRS : UMR7234); Dominique Plihon (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris-Nord - Paris XIII - CNRS : UMR7234)
    Abstract: This article provides insight into the future of financial markets and regulation in order to define what would be the best strategy for Europe. To preserve financial stability, Europe has to choose between financial opening and independently determining how to regulate finance. Among the five scenarios we defined, three achieve financial stability both inside and outside Europe. In terms of market efficiency, the multi-polar scenario is the best and the fragmentation scenario is the worst, since gains of integration depend on the size of the new capital market. Regarding sovereignty of regulation, fragmentation is the best scenario and the multi-polar scenario is the worst because it necessitates coordination at the global level which implies moving further away from respective national preferences. However, the more realistic option seems to be the regionalisation scenario: (i) this level of coordination seems much more realistic than the global one; (ii) the market should be of sufficient size to enjoy substantial benefits of integration. Nevertheless, the "European government" might gradually increase the degree of financial integration outside Europe in line with the degree of cooperation with the rest of the world.
    Keywords: Financial Stability, Supervision and Regulation, Financial Integration
    Date: 2011–08–01
  2. By: Eric R. W. Knight (University of Oxford)
    Abstract: Private equity investment in technologies which deliver low carbon energy has grown as an area of both economic and social performance. This article offers a perspective on some of the challenges in the industry. It relies on case studies drawn from thirty five interviews with leading clean tech investment managers across Silicon Valley, New York and London. The findings suggest that despite the long-term growth opportunities, some investors have struggled to find attractive risk-reward premiums in early stage investments.
    JEL: G24 O32 Q55 Q40
    Date: 2011–08
  3. By: Kurmas Akdogan; Meltem Gulenay Chadwick
    Abstract: Theoretically, the risk premium captured by Credit Default Swap (CDS) and bond yield spreads should be equal. However, data reveals a significant difference between the two spreads. We explore the presence of a mean-reverting behavior in this difference (CDS-bond basis), for selected emerging markets, employing alternative threshold models (TAR, TAR-GARCH and ESTAR). Our results indicate a positive relationship between the speed of adjustment and the trading frequency of the sovereign CDS’s and bonds. The TAR-GARCH model suggests that the adjustment of the CDS-bond basis is immediate for economies with more liquid CDS’s and bonds, such as Argentina, Brazil and Mexico. The ESTAR model indicates that the adjustment displays a gradual pattern for the basis of the economies with less frequently traded bonds and CDS’s.
    Keywords: CDS-bond Basis, Nonlinear Adjustment
    JEL: C32 G12
    Date: 2011

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.