nep-fmk New Economics Papers
on Financial Markets
Issue of 2012‒01‒18
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Network Models of Financial Contagion: A Definition and Literature Review By G. WIMS; D. MARTENS; M. DE BACKER
  2. Bank competition and stability: cross-country heterogeneity By T. BECK; O. DE JONGHE; G. SCHEPENS
  3. Are There Spillover Effects from Munis? By Rabah Arezki; Bertrand Candelon; Amadou N. R. Sy
  4. Reassessing the Relationships between Private Equity Investors and Their Portfolio Companies By S. MANIGART; M. WRIGHT
  5. Central Bank Communication and Correlation between Financial Markets: Canada and the United States By Melanie-Kristin Beck; Bernd Hayo; Matthias Neuenkirch
  6. Assessing the Risks to the Japanese Government Bond (JGB) Market By Kiichi Tokuoka; Raphael W. Lam
  7. The Impact of the Financial Crisis on Insider Trading Profitability in Belgium By D. VAN GEYT; P. VAN CAUWENBERGE; H. VANDER BAUWHEDE
  8. Do Bubbles Spill Over? Estimating Financial Bubbles in Emerging Markets: Case of Turkey By Ozan Hatipoglu; Onur Uyar

    Abstract: Determining the risk of contagious failures due to credit exposures between organisations is a problem that has been the subject of a growing body of literature in recent years. The network model has become a commonly used tool, applied to both theoretical and empirical studies of financial contagion and systemic risk. The purpose of this paper is twofold. First, we propose a definition of the ‘Financial System Network’ which may be used to define the characteristics of any specific implementation of a network model in this field. Secondly, we evaluate the network models created by other researchers and compare and contrast various aspects of these implementations. We conclude by exploring avenues for future research in the area.
    Date: 2011–07
    Abstract: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unied framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks’ risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.
    Keywords: Competition, Stability, Banking, Herding, Deposit Insurance, Information Sharing, Risk Shifting
    JEL: G21 G28 L51
    Date: 2011–08
  3. By: Rabah Arezki; Bertrand Candelon; Amadou N. R. Sy
    Abstract: This paper studies the spillover effects both within the bond markets for individual U.S. states and between the latter and the market for U.S. Treasury securities. We perform the Forbes and Rigobon (2002) spillover test using daily bond yield data over the period 2005 to 2011. Results are twofold. First, we find that between most markets for individual U.S. state bonds there are negative spillovers. In other words, an increase in borrowing costs in one U.S. state results in better borrowing conditions for other states. Second, we find no substantial spillover effect between shocks originating from state securities and from federal markets, except for a few large issuers. Using causality tests in the frequency domain, we find that the Treasury bond market directly causes changes in the markets for municipal bonds in both the short and long run. There is also some evidence of causality from the municipal to the Treasury bond market, but only of a long-run nature. Our results shed some light on the policy debate on the nature of spillover effects within fiscal unions.
    Keywords: Bond markets , Bonds , Fiscal analysis , Risk management , Spillovers , United States ,
    Date: 2011–12–09
    Abstract: The scope and purpose of this special issue is to reassess the relationships between private equity investors and their portfolio companies in the light of the need for VC/PE firms to adapt their strategies for value creation in the light of the recent financial crisis. We particularly focus upon VC/PE characteristics that differently contribute to portfolio firm performance. The papers presented in this special issue capture this aim in various ways, reflecting the heterogeneity of VC/PE investors and the firms in which they invest. We begin this introductory paper by providing a brief overview of each paper’s contribution. We articulate themes for an agenda for future research relating to the heterogeneity of investor types and the contexts in which they invest.
    Date: 2011–09
  5. By: Melanie-Kristin Beck; Bernd Hayo (University of Marburg); Matthias Neuenkirch (University of Marburg)
    Abstract: We study the correlation between pairs of bond and stock markets in Canada and the United States between January 1998 and December 2006 in the framework of Diagonal-BEKK models. Our research question is whether monetary policy action and communication by the Bank of Canada and the Federal Reserve significantly affect the co-movement of financial markets. We find that target rate changes and various forms of communication by both central banks increase correlations within Canadian bond and stock markets as well as between Canadian and US financial markets.
    Keywords: Bank of Canada, Central Bank Communication, Diagonal-BEKK Models, Dynamic Correlations, Federal Reserve, Financial Markets
    JEL: E52 F30 G12 G15
    Date: 2012
  6. By: Kiichi Tokuoka; Raphael W. Lam
    Abstract: Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from the household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows from heightened sovereign risks in Europe. Over time, however, the market’s capacity to absorb new debt will likely shrink as population ages and risk appetite recovers. In the short term, a decline in fund supply from the corporate sector, where financial surpluses are abnormally high, and spillovers from global financial distress could push up JGB yields. Fiscal reforms to reduce public debt more quickly and lengthen the maturity of government bonds will help limit these risks.
    Keywords: Banks , Bond markets , Corporate sector , Financial risk , Fiscal policy , Public debt , Risk management , Sovereign debt ,
    Date: 2011–12–15
    Abstract: The 2007 global financial crisis led to a chaotic financial environment characterized by highly uncertain and volatile stock markets. This created additional uncertainty about the fundamental value of shares and potentially increased the benefit of inside information. In this paper, we use event study methodology to examine whether Belgian corporate insiders were able to benefit from these turbulent market conditions. Given the large weight of financial institutions, the Belgian stock market was especially vulnerable to the financial crisis and provides an interesting environment to test this hypothesis. Our results show that, while insiders are generally able to earn abnormal returns, these returns are significantly higher during the years of the financial crisis.
    Keywords: Insider trading, equity markets, market efficiency, information asymmetry, financial crisis, event study, abnormal returns.
    JEL: G01 G14 G18
    Date: 2011–09
  8. By: Ozan Hatipoglu; Onur Uyar
    Date: 2011–06

This nep-fmk issue is ©2012 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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