nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒02‒15
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature By Michiel Bijlsma; Andrei Dubovik
  2. Speculative Asset Prices (Nobel Prize Lecture) By Robert J. Shiller
  3. Reforming Finance; A Literature Review By Ton Notermans
  4. The negative feedback loop between banks and sovereigns By Paolo Angelini; Giuseppe Grande; Fabio Panetta
  5. Correlation and Network Topologies in Global and Local Stock Indices By Ashadun Nobi; Sungmin Lee; Doo Hwan Kim; Jae Woo Lee
  6. Are there any contagion effects from Greek bonds? By Pragidis, Ioannis; Chionis, Dionisios

  1. By: Michiel Bijlsma; Andrei Dubovik
    Abstract: We review the literature on finance and growth with a focus on developed countries We find little evidence that increases in the traditional proxies for financial development will enhance growth in these countries. Potential causes include: decreasing returns, misallocation of credit, difficulties in measuring efficient financial development, and increasing macroeconomic or systemic risk. To stimulate efficient financial intermediation, policy makers should focus on lending to firms instead of consumers; avoid too high concentration levels; and keep government ownership of banks at a minimum.
    JEL: G01 G38
    Date: 2014–02
  2. By: Robert J. Shiller (Cowles Foundation, Yale University)
    Date: 2014–02
  3. By: Ton Notermans (Department of International Relations, Tallinn School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: The almost consensual view on the global financial crisis is that it should be attributed to massive regulatory failure. Regulation is either argued to have failed in constraining an inherently instable financial system or to have provoked the crisis by means of inappropriate regulatory changes. Even though a core conclusion from the present crisis is that a microeconomic focus on financial stability does not suffice and will need to be complemented by macroprudential regulation, there is also widespread consensus that the crisis has demonstrated the need to strengthen the microprudential regulatory framework itself. This literature review focuses on the microeconomic aspects of financial regulation. It is built around three main questions: what exactly did the regulatory failure consists of? How was it possible for regulatory failure to emerge? What lessons have been drawn from the crisis? Not surprisingly, the consensus in the literature evaporates when looking for precise answers to these questions. The introductory section of the paper address two broader question; i.e. why financial firms should be subjected to tighter regulation than the rest of the economy and how financial instability may be defined and measured.
    Keywords: Banking Union, Corporate Governance, Credit Rating Agencies, Financial Sector Reform, Financial Stability, Household, Indebtedness, Microprudential Regulation, Shadow Banking, Sovereign Debt
    JEL: G01 G21 G24 G28 G32 G35
    Date: 2013–12–03
  4. By: Paolo Angelini (Banca d'Italia); Giuseppe Grande (Banca d'Italia); Fabio Panetta (Banca d'Italia)
    Abstract: More than three years since the outbreak of the sovereign debt crisis in the euro area the banking systems of several countries remain exposed to the vagaries of government bond markets. The paper analyzes the different channels through which sovereign risk affects banking risk (and vice versa), presents some new evidence on bank-sovereign links, and discusses policy options for addressing the related risks.
    Keywords: sovereign risk, sovereign debt crisis, global financial crisis, banking sector risk, bank regulation, contagion, credit crunch
    JEL: E44 E51 E58 G01 G21 G28 H63
    Date: 2014–01
  5. By: Ashadun Nobi; Sungmin Lee; Doo Hwan Kim; Jae Woo Lee
    Abstract: This study examined how the correlation and network structure of 30 global indices and 145 local Korean indices belonging to the KOSPI 200 have changed during the 13-year period, 2000-2012. The correlations among the indices were calculated. The results showed that although the average correlations of the global indices increased with time, the local indices showed a decreasing trend except for drastic changes during crises. The average correlation of the local indices exceeded the global indices during the crises from 2000-2002, implying a strong correlation structure among the local indices during this period due to the detrimental effect of the dot-com bubble. The threshold networks (TN) were constructed in the observation time window by assigning a threshold value and determining the network topologies. A significant change in the network topologies was observed due to the financial crises in both markets. The Jaccard similarities were also determined using the common links of TNs. The TNs of the financial network were not consistent with the evolution of the time, and the successive TNs of the global indices were more similar than those of the successive local indices. Finally, the Jaccard similarities identified the change in the market state due to a crisis in both markets.
    Date: 2014–02
  6. By: Pragidis, Ioannis (Democritus University of Thrace, Department of Economics); Chionis, Dionisios (Democritus University of Thrace, Department of Economics)
    Abstract: Since the onset of the global financial crisis, the sovereign risk premium differential and associated government bond yields have been widening so much as to cause the Eurozone crisis. The stylized facts of the 10-year Greek government bond yield attract much interest since there are deepened fears of this spreading to the government bonds of other European countries. Moreover, the impact of the Greek bond market on other European countries during the crisis period has not been examined adequately in the international literature. By employing a set of wellestablished econometric methods, in which we take into account the presence of heteroskedasticity, we do not find any evidence for the existence of contagious effects stemming from the Greek 10-year government bonds to the government bond markets of other European countries.
    Keywords: Greek crisis; sovereign bonds; contagion; EGARCH; dynamic correlation
    JEL: G01
    Date: 2014–01–30

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