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on Financial Markets |
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Issue of 2012‒10‒27
five papers chosen by |
| By: | Ardliansyah, Rifqi |
| Abstract: | The paper empirically analyzes stock market integration and the benefit possibilities of international portfolio diversification across the Southeast Asia (ASEAN) and U.S. equity markets. It employs daily sample of 6 ASEAN equity market indices and S&P 500 index as a proxy of U.S. market index from years 2001 to 2010. The paper examines the stock market return interdependence from three different perspectives which are ‘long-term’, ‘short-term’ and ‘dynamic’ perspectives. In order to investigate the long-run interdependencies, the Johansen-Juselius multivariate co-integration test and the bivariate Engle-Granger 2-step method were used. In respect to the short-run interdependencies, the Generalized Impulse Response Function (GIRF) and the Generalized Forecast Error Variance Decomposition (GFEVD) are employed. Finally, to assess the dynamic structure of equity market co-movements, the Dynamic Conditional Correlation (DCC) model is engaged. Results suggest that in the long-run, there are no potential benefits in diversifying investment portfolios across the ASEAN and U.S. market since there are evidences of cointegration among them. However, the potential benefits of international portfolio diversification can be seen throughout the short-run-period. Subsequently, the DCC findings suggest an overall proposition that by the end of 2010, most of the ASEAN markets do not share the U.S. stock price movement. |
| Keywords: | Market Cointegration; International Portfolio Diversification; U.S.; ASEAN; ‘long-term’; ‘short-term’ and ‘dynamic’ perspectives; Johansen-Juselius Cointegration; Bivariate Engle-Granger method; GIRF; GFEVD and DCC |
| JEL: | G14 C51 G11 C87 N20 C35 C32 G15 C61 C01 F36 |
| Date: | 2012–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41958&r=fmk |
| By: | Radim Gottwald (Department of Finance, Faculty of Business and Economics, Mendel university in Brno) |
| Abstract: | The focus of the author is the Value at Risk model which is currently often adopted as the risk analysis model, particularly in banking and insurance. Following the model principle characteristics, the Value at Risk is economically interpreted. Attention is paid to the distinct features of three sub-methods: historical simulation, the Monte Carlo method and variance and covariance method. A row of empirical studies of the practical application of these methods are provided. The objective of the paper is the application of the Value at Risk model on shares from the SPAD segment of the Prague Stock Exchange between 2009 and 2011. A corresponding reliability interval, hold time, historical period and other essential parameters related to the sub-methods are gradually defined and chosen. By using historical values of stocks and shares, diverse statistical indicators are calculated. The diversified Values at Risk of the sub-methods are benchmarked against the non-diversified ones. The results show that any loss related to the non-diversified Value at Risk is always higher among the three methods than a loss related to a diversified Value at Risk. We can expect – with selected probability – a drop in the value of the portfolio which differs depending on which method is adopted based on recent share developments. The methodology is further benchmarked against other methodologies used in other papers applying the Value at Risk model. The message of this paper lies in the unique selection of applied methods, risk factors and the stock market. The methodology allows us to evaluate the risk level for investments in shares in a specific way, which will be appreciated by numerous financial entities when making an investment decision. |
| Keywords: | risk measurement, historical simulation method, Monte Carlo method, variance covariance method |
| JEL: | C15 E37 G32 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:30_2012&r=fmk |
| By: | Aitor Erce |
| Abstract: | This paper looks at whether the tendency of some governments to borrow short term is reinforced by financial support from the International Monetary Fund. I first present a model of sovereign debt issuance at various maturities featuring endogenous liquidity crises and maturity mismatches due to financial under-development. I use the model to analyse the impact of IMF lending during debt crises on the sovereign's optimal maturity structure. Within the model, although IMF assistance is able to catalyse private flows, this provides incentives for government to issue larger amounts of short-term debt, making the roll-over problem larger. I take the model to the data and find support for the hypothesis that IMF lending leads countries to increase their short-term borrowing. Additionally, I do not find any positive effect of IMF lending on countries' ability to tap international capital markets. These results help explain why a catalytic effect of IMF lending has proved empirically elusive. |
| Keywords: | Loans ; Debt |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:128&r=fmk |
| By: | Azusa Takeyama (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: azusa.takeyama@boj.or.jp)); Nick Constantinou (Lectuer, Essex Business School, University of Essex (E-mail: nconst@essex.ac.uk)); Dmitri Vinogradov (Lectuer, Essex Business School, University of Essex (E-mail:dvinog@essex.ac.uk)) |
| Abstract: | This paper investigates how the market valuation of credit risk changed during 2008-2009 via a separation of the probability of default (PD) and the loss given default (LGD) of credit default swaps ( CDSs), using the information implied by equity options. While the Lehman Brothers collapse in September 2008 harmed the stability of the financial systems in major industrialized countries, the CDS spreads of some major UK banks did not increase in response to this turmoil in financial markets including the decline in their own stock prices. This implies that the CDS spreads of financial institutions may not reflect all their credit risk due to the government interventions. Since CDS spreads are not appropriate to analyze the impact of the government interventions on credit risk and the cross sectional movement of credit risk, we investigate how the government interventions affect the PD and LGD of financial institutions and how the PD and LGD of financial institutions were related with those of non-financial firms. We demonstrate that the rise in the credit risk of financial institutions did not bring about that of non-financial firms (credit risk contagion) both in the US and UK using principal component analysis. |
| Keywords: | Credit Default Swap (CDS), Probability of Default (PD), Loss Given Default (LGD), Credit Risk Contagion |
| JEL: | C12 C53 G13 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:12-e-15&r=fmk |
| By: | Diego Bastourre (Central Bank of Argentina, Universidad Nacional de La Plata); Jorge Carrera (Central Bank of Argentina, Universidad Nacional de La Plata); Javier Ibarlucia (Central Bank of Argentina, Universidad Nacional de La Plata); Mariano Sardi (Central Bank of Argentina) |
| Abstract: | This paper presents and evaluates the hypothesis that emerging countries specialized in commodity production are prone to experience non orthogonal commercial and financial shocks. Specifically, we investigate a set of global macroeconomic variables that, in principle, could simultaneously determine in opposite direction commodity prices and bonds spreads in commodity-exporting emerging economies. Employing common factors techniques and pairwise correlation analysis we find a strong negative correlation between commodity prices and emerging market spreads. Moreover, the empirical FAVAR (Factor Augmented VAR) model developed to test our main hypothesis confirms that this negative association pattern is not only explained by the fact that commodity prices are one of the most relevant fundamentals of bond spreads of commodity exporters. In particular, we find that reductions in international interest rates and global risk appetite; rises in quantitative global liquidity measures and equity returns; and US dollar depreciations, tend to diminish spreads of emerging economies and strengthen commodity prices at the same time. These results are relevant in order to improve our knowledge regarding the reasons behind some typical characteristics of emerging commodity producers, such as their tendency to experience high levels of macroeconomic volatility and procyclicality, or their propensity to be affected from exchange rate overshooting, external crisis and sudden stops. Concerning policy lessons, a mayor conclusion is the complexity of the task of disentangle challenges coming from financial openness and structural considerations in emerging economies, such as the lack of diversification of the productive structure or the difficulties of a grow strategy solely based on natural recourses. It would be profitable to internalize the connection between these two key variables in formulating and conducting economic policy. |
| Keywords: | commodity prices, emerging economies, financial flows, market spreads |
| JEL: | F32 F42 O13 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:bcr:wpaper:201257&r=fmk |