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on Financial Markets |
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Issue of 2012‒07‒29
five papers chosen by |
| By: | Caterina Liberati; Massimiliano Marzo; Paolo Zagaglia; Paola Zappa |
| Abstract: | We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. First, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a yearly frequency. Second, we identify the 'key players' in the marketplace and study their behaviour. Key players are 'locally-central banks' within a network that lend (or borrow) large volumes to (from) several counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions. Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by largely asymmetric relations. This implies a clear division of roles between lenders and borrowers. Second, the key players do not exploit their position of network leaders by imposing opportunistic pricing policies. We find that only a fraction of the networks composed by big players are characterized by interest rates that are statistically different from the average market rate throughout the turmoil period. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1207.5269&r=fmk |
| By: | Mili, Mehdi |
| Abstract: | The purpose of this study is to develop an efficient strategy for managing fixed-income portfolios in crisis periods. We use the volatility ratio model of Briere and Szafarz (2008) and the Expected Tail Loss (ETL) approach of Litzenberger and Modest (2008). Our methodology is applied to U.S. and European markets of fixed-income products using interest rates at different maturities over the period 2002 through 2010. U.S. portfolio exhibits his optimum with small amounts of interest rates belonging to the short-term strategy and the European portfolio exhibits his optimum with small amounts belonging to the long-term strategy. The results show that the ETL is a better measure of the downside risk than the Value-at-Risk (VaR). For instance, the U.S. (European) portfolio has a VaR of -3.6% (-0.7%) against an ETL of -6% (-0.8%). Moreover, we find that, for these two geographical areas, the short-term interest rates make little contribution to the overall ETL of the American fixed-income portfolio and vice versa for the European portfolio. -- |
| Keywords: | fixed-income portfolio,financial crisis,flight-to-quality,contagion,expected tail loss |
| JEL: | G11 G15 N20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201233&r=fmk |
| By: | Enrique Mendoza; Marco Terrones |
| Abstract: | What are the stylized facts that characterize the dynamics of credit booms and the associated fluctuations in macro-economic aggregates? This paper answers this question by applying a method proposed in our earlier work for measuring and identifying credit booms to data for 61 emerging and industrialized countries over the 1960-2010 period. We identify 70 credit boom events, half of them in each group of countries. Event analysis shows a systematic relationship between credit booms and a boom-bust cycle in production and absorption, asset prices, real exchange rates, capital inflows, and external deficits. Credit booms are synchronized internationally and show three striking similarities between industrialized and emerging economies: (1) credit booms are similar in duration and magnitude, normalized by the cyclical variability of credit; (2) banking crises, currency crises or sudden stops often follow credit booms, and they do so at similar frequencies in industrialized and emerging economies; and (3) credit booms often follow surges in capital inflows, TFP gains, and financial reforms, and are far more common with managed than flexible exchange rates. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:670&r=fmk |
| By: | Claudio Raddatz ;; Sergio L. Schmukler |
| Abstract: | Using micro-level data on mutual funds from different financial centers investing in equity and bonds, this paper analyzes how investors and managers behave and transmit shocks across countries. The paper shows that the volatility of mutual fund investments is quantitatively driven by investors through injections of capital into, or redemptions out of, each fund, and by managers changing the country weights and cash in their portfolios. Both investors and managers respond to returns and crises, and substantially adjust their investments accordingly. These mechanisms generated large capital reallocations during the global financial crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries experiencing crises and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run "pass-through," meaning that price changes affect country weights. Consequently, capital flows from mutual funds do not seem to stabilize markets and instead expose countries to foreign shocks. |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:668&r=fmk |
| By: | Wermers, Russ |
| Abstract: | This paper studies daily investor flows to and from each money market mutual fund during the period prior to and including the money fund crisis of September and October 2008. We focus on the determinants of flows in the prime money fund category to shed light on the covariates of money fund runs, since this category was, by far, the most heavily impacted by the money fund crisis. We find that institutional investors moved their money simultaneously (or with a one-day delay) into or out of prime money funds, especially within the same fund complex. Specifically, during September and October 2008, flows in a given prime institutional fund are strongly correlated with same-day flows in all other same-complex prime institutional funds, indicating that the money fund crisis was especially focused on certain types of fund complexes. To illustrate, a daily outflow of 1% of total assets from other same-complex prime institutional money funds predicts, on average, a 0.92% outflow in a given prime institutional money fund during the same day; by contrast, prime fund flows are not correlated with same-day, different complex prime fund flows. We also find that investors are sensitive to the liquidity of money fund holdings: correlated flow patterns are less likely to occur in money funds with greater levels of securities with very short maturity (seven days or less). Our analysis also suggests that prime retail money funds also exhibited persistent outflows, and that (similar to institutional shareclasses) retail runs were focused on certain complexes, as well as on funds holding lower levels of short-maturity securities. -- |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1205&r=fmk |