New Economics Papers
on Financial Markets
Issue of 2013‒02‒08
five papers chosen by

  1. The fading stock market response to announcements of bank bailouts By Michele Fratianni; Francesco Marchionne
  2. Are South East Europe stock markets integrated with regional and global stock markets? By Guidi, Francesco; Ugur, Mehmet
  3. Financial Systemic Stability: Challenging Aspects of Central Banks By Wanvimol Sawangngoenyuang; Sukrita Sa-nguanpan; Worawut Sabborriboon
  4. Spillovers of the Credit Default Swap Market By Mauricio Calani C.
  5. Stress Testing Liquidity Risk: The Case of the Brazilian Banking System. By Benjamin M. Tabak; Solange M. Guerra; Rodrigo C. Miranda; Sergio Rubens S. de Souza

  1. By: Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR); Francesco Marchionne (Nottingham Trent University, Division of Economics)
    Abstract: We analyze the effects on bank valuation of government policies aimed at shoring up banks' financial conditions during the 2008-2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks with negative ones. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish in Europe, whereas they weaken in the United States. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.
    Keywords: announcement, bank, event study, financial crisis, rescue plan
    JEL: G01 G21 N20
    Date: 2013–01
  2. By: Guidi, Francesco; Ugur, Mehmet
    Abstract: This paper analyses whether stock markets of South East Europe (SEE) have become more integrated with regional and global stock markets during 2000s. Using a variety of co integration methodologies we show that SEE stock markets have no long-run relationship with their mature counterparts. This means that SEE markets might be immunized to external shocks. We also model time varying correlations among these markets by using Multivariate Generalised Autoregressive Conditional Heteroschedastic (MGARCH) models as well as the Exponential Weighted Moving Average (EWMA) methodology. Results show that the correlations of UK and US equity markets with South East Europe market change over time. These changes in correlations between our benchmark markets and individual SEE market pairs are not uniform although evidence of increasing convergence among South East Europe and developed stock market is evident. Also examined in this paper whether the structure of correlations between returns of indices in different markets changed in different phases of the 2007-2009 global financial crisis. Overall our results show that diversification benefits are still possible for investors wishing to diversify their portfolio between developed and emerging SEE stock markets.
    Keywords: South East Europe; Stock markets; Cointegration; Correlation
    JEL: G15 G32
    Date: 2012–10
  3. By: Wanvimol Sawangngoenyuang (Bank of Thailand); Sukrita Sa-nguanpan (Bank of Thailand); Worawut Sabborriboon (Bank of Thailand)
    Abstract: Since 2007 global financial crisis, many central banks have tended to focus on financial stability much more than ever. Lessons learned from recent crises witness that in a period of sustained economic growth with low and stable inflation, financial imbalances could adversely affect financial system and real economy, which eventually leads to financial crises. In addition, the cost of crises becomes increasingly expensive over time because crises themselves have been more systemic. Risk from one financial institution can easily transfer to others and then to the whole financial market. Thus, current crises highlight the importance of financial stability role of central banks in two main aspects, crisis prevention and crisis management. The paper indicates that in recent financial crises, many central banks have stepped beyond their traditional roles in order to ensure financial system stability. Some instruments and measures that central banks have implemented can be considered as unconventional ones. Looking forward, these practices then lead to new challenges for central banks in three main aspects: risk identification, risk mitigation, and policy issuance process. Eventually, this paper also provides policy implications to Bank of Thailand, based on international experiences and lessons learned from recent crises.
    Keywords: Financial Systemic Stability
    Date: 2012–10–21
  4. By: Mauricio Calani C.
    Abstract: Credit Default Swap (CDS) prices have soared on the edge of a potential sovereign default of some European countries. Interestingly, not only countries on the verge of receiving bailouts have seen their CDS prices rise, but also those from which most of the bailout financing would come, such as Germany. If in fact default probabilities of countries like Germany have risen, should we still view them as safe-havens? In particular, to what extent should we see bond yields rise (as bond prices decline) vis-a-vis CDS spreads? This paper tackles this question by estimating the dynamic responses of bond yields to changes in the CDS spreads. The second, more fundamental question is to assess if the apparent contagion from troubled countries to otherwise-healthy economies is in fact so. I address this question using the Diebold - Yilmaz spillover index methodology for CDS data. I conclude that sovereign debt from Germany, Chile and Japan are unaffected by contagion from other economies and have served as safe-haven assets during the current financial distress episode.
    Date: 2012–10
  5. By: Benjamin M. Tabak; Solange M. Guerra; Rodrigo C. Miranda; Sergio Rubens S. de Souza
    Abstract: This paper discusses the effects of the recent financial crisis on the Brazilian banking system. It discusses how liquidity risks have risen during the crisis and preventive measures that were taken in order to cope with these risks. It presents the liquidity stress testing approach that is under use in the Central Bank of Brazil and results from a survey on liquidity stress testing that has been applied to banks that operate in the Brazilian banking system.
    Date: 2012–12

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