nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒07‒21
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. An Alternative Model to Basel Regulation By Aboura, Sofiane; Lépinette-Denis, Emmanuel
  2. Technology Upgrades in Emerging Equity Markets: Effects on Liquidity, Trading Activity and Volatility By M. Kemal Yilmaz; Orhan Erdem; Veysel Eraslan; Evren Arik
  3. Comparing series of rankings with ties by using complex networks: An analysis of the spanish stock market (IBEX-35 index) By F. Pedroche; R. Criado; E. Garcia; M. Romance; V. E. Sanchez

  1. By: Aboura, Sofiane; Lépinette-Denis, Emmanuel
    Abstract: The post-crisis financial reforms address the need for systemic regulation, focused not only on individual banks but also on the whole financial system. The regulator principal objective is to set banks' capital requirements equal to international minimum standards in order to mimimise systemic risk. Indeed, Basel agreement is designed to guide a judgement about minimum universal levels of capital and remains mainly microprudential in its focus rather than being macroprudential. An alternative model to Basel framework is derived where systemic risk is taken into account in each bank's dynamic. This might be a new departure for prudential policy. It allows for the regulator to compute capital and risk requirements for controlling systemic risk. Moreover, bank regulation is considered in a two-scale level, either at the bank level or at the system-wide level. We test the adequacy of the model on a data set containing 19 banks of 5 major countries from 2005 to 2012. We compute the capital ratio threshold per year for each bank and each country and we rank them according to their level of fragility. Our results suggest to consider an alternative measure of systemic risk that requires minimal capital ratios that are bank-specic and time-varying.
    Keywords: Systemic risk; Bank Regulation; Basel Accords;
    JEL: E44 E58 G01 G21 G28
    Date: 2014–05
  2. By: M. Kemal Yilmaz; Orhan Erdem; Veysel Eraslan; Evren Arik
    Abstract: This study examines the effects of technological changes on selected stock market qualities such as liquidity, turnover and volatility. The data set includes daily data of 361 stocks from 10 emerging market exchanges, namely Colombia, Indonesia, Johannesburg, Korea, Malaysia, Mexico, Russia, Shanghai, Shenzhen and Thailand. The analysis is based mainly on the comparison between the pre- and post-launch of a new trading platform for equity markets. A panel data regression analysis shows that technological upgrade decreases the bid-ask spread and increases trading activity. In other words, launching a more sophisticated trading platform contributes to the overall efficiency of the market. Moreover, we find that, in some exchanges, an important upgrade in the technological infrastructure of the exchange decreases its level of volatility.
    Keywords: Market Microstructure, Technological Upgrade, High Frequency Trading, Emerging Markets, Liquidity
    Date: 2014–06
  3. By: F. Pedroche; R. Criado; E. Garcia; M. Romance; V. E. Sanchez
    Abstract: In this paper we extend the concept of Competitivity Graph to compare series of rankings with ties ({\em partial rankings}). We extend the usual method used to compute Kendall's coefficient for two partial rankings to the concept of evolutive Kendall's coefficient for a series of partial rankings. The theoretical framework consists of a four-layer multiplex network. Regarding the treatment of ties, our approach allows to define a tie between two values when they are close {\em enough}, depending on a threshold. We show an application using data from the Spanish Stock Market; we analyse the series of rankings defined by $25$ companies that have contributed to the IBEX-35 return and volatility values over the period 2003 to 2013.
    Date: 2014–07

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