nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒10‒22
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cross-Market Spillovers with ‘Volatility Surprise’ By Sofiane Aboura; Julien Chevallier
  2. Banking Relationships and Syndicated Loans during the 2008 Financial Crisis By Herve Alexandre; Karima Bouaiss; Catherine Refait-Alexandre
  3. Credit Booms and Busts in Emerging Markets: The Role of Bank Governance and Risk Managment By Andries, Alin Marius; Brown, Martin
  4. Debt Markets in Emerging Economies: Major Trends By Tatiana Didier; Sergio L. Schmukler
  5. Correlation Dynamics in East Asian Financial Markets By Kuper, Gerard H.; Lestano
  6. Main Drivers of LBO in Asia By Aurélie Sannajust; Abdelbari El Khamlichi
  7. Herding in French stock markets: Empirical evidence from equity mutual funds By Mohamed El Hedi Arouri; Raphaëlle Bellando; Sébastien Ringuedé; Anne-Gaël Vaubourg

  1. By: Sofiane Aboura; Julien Chevallier
    Abstract: This article adopts the asymmetric DCC with one exogenous variable (ADCCX) model developed by Vargas (2008), by updating the concept of ‘volatility surprise’ to capture cross-market relationships. Current methods for measuring spillovers do not focus on volatility interactions, and neglect cross-effects between the conditional variances. This paper aims to fill this gap. The dataset includes four aggregate indices representing equities, bonds, foreign exchange rates and commodities from 1983 to 2013. The results provide strong evidence of spillover effects coming from the ‘volatility surprise’ component across markets. Against the background of the recent financial crisis, the aim is to contribute to the literature on the interdependencies of financial markets, both in conditional means and (co)variances. In addition, asset management implications are derived.
    Keywords: Cross-market relationships, Volatility surprise, Volatility spillover, ADCCX, Asset management.
    JEL: C32 C4 G15
    Date: 2014
  2. By: Herve Alexandre (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Karima Bouaiss (CERMAT - Centre d'Études et de Recherche en MAnagement de Touraine - Institut d'Administration des Entreprises (IAE) - Tours); Catherine Refait-Alexandre (CRESE - Centre de REcherches sur les Stratégies Economiques - Université de Franche-Comté : EA)
    Abstract: The research shows that banking relationships are important to lending. However, few studies focus on the banking relationships in syndicated loans, although these loans have became a major source of financing. The last financial crisis clearly shows the impacts of credit rationing and tightening credit conditions, even in the syndicated loans market. We investigate whether banking relationships help firms to benefit from better terms for syndicated loans in a chaotic financial environment. Using a sample of syndicated loans arranged from 2003 to 2008 in North America and Europe, we find that firms with a previously developed relationship with a lead bank obtained a lower spread and a longer maturity during the financial crisis but did not benefit from larger loan facilities.
    Keywords: Syndication Loans Banking relationship Financialcrisis
    Date: 2014–08–01
  3. By: Andries, Alin Marius; Brown, Martin
    Abstract: This paper investigates to what extent risk management and corporate governance mitigate the involvement of banks in credit boom and bust cycles. Using a unique, handcollected dataset on 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with stronger risk management and corporate governance display more moderate credit growth in the pre-crisis credit boom as well as a smaller credit contraction and fewer credit losses in the crisis period. With respect to bank governance we document that a higher share of financial experts on the supervisory board is associated with more rapid credit growth in the pre-crisis period and a larger contraction of credit in the crisis period, but not with larger credit losses. With respect to risk management we document that a strong risk committee is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis. We find no evidence of an organizational learning process among crisishit banks: those banks with the largest credit losses during the crisis are least likely to improve their risk management in the aftermath of the crisis
    Keywords: Credit boom and busts, corporate governance, risk management
    JEL: G21 G32 P34
  4. By: Tatiana Didier (World Bank); Sergio L. Schmukler (World Bank and Hong Kong Institute for Monetary Research)
    Abstract: This paper documents the major trends in debt (bank and bond) markets in emerging economies since the early 1990s, when these markets started expanding. The paper shows that banks have increased in size in most emerging economies though from low bases. But bond markets have expanded even more, gaining importance relative to banks. The nature of financing has also changed. Local currency bond financing has expanded, the extent of dollarization of loans and bonds has declined, and the maturity of public and private sector bonds has typically increased. However, not all regions have moved in the same direction. Eastern Europe for instance increased its foreign currency debt before the global financial crisis. Relative to developed countries, emerging countries' financial systems still remain in many aspects underdeveloped. Except in a few cases, liquidity in secondary bond markets has been declining. And the public sector captures a significant share of bond markets.
    JEL: G00 G20 G21 G23
    Date: 2014–07
  5. By: Kuper, Gerard H.; Lestano (Groningen University)
    Abstract: This paper examines the dynamic relationship between stock returns and exchange rate changes using daily data from January 3, 1994?September 27, 2013 for six East Asian countries: Indonesia, Malaysia, the Philippines, Singapore, South Korea and Thailand. We estimate conditional correlations using the multivariate GARCH-DCC model in order to disclose the relationship between stock markets and foreign exchange markets. This is important for understanding financial stability. The estimation results reveal time varying correlations in the pre and post Asian crisis and the Global Financial Crisis periods for all countries. The correlations are stronger when the crisis intensifies. The degree of interdependence between both markets reflects a mutually markets response to shocks and changes in policy.
    Date: 2014
  6. By: Aurélie Sannajust; Abdelbari El Khamlichi
    Abstract: We extend the research on private equity by studying the drivers of LBO operating performance in Asia. We consider a large set of candidate drivers (financial, governance, macroeconomic, cultural, microeconomic and industry variables) and study their effects on performance over the short- and long-term. Also, we contribute to the current literature by doing the first investigation of the impact of macroeconomic factors on the performance of LBOs in Asia. We use a sample of 156 LBO transactions which occurred between 2000 and 2009. Our results show that GDP growth, industry growth, and market return are important drivers that significantly contribute to create value in LBOs.
    Keywords: Latin America, going private, delisting, drivers, macroeconomic variables.
    JEL: G24 G34
    Date: 2014–09–25
  7. By: Mohamed El Hedi Arouri (CRGM - Centre de Recherche Clermontois en Gestion et Management - Université d'Auvergne - Clermont-Ferrand I); Raphaëlle Bellando (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans); Sébastien Ringuedé (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans); Anne-Gaël Vaubourg (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)
    Abstract: Using the traditional herding measure of Lakonishok, Shleifer and Vishny (1992) (LSV) and the more recent measure of Frey, Herbst and Walter (2007) (FHW), we assess herding by French equity mutual funds between 1999 and 2005. We show that LSV herding amounts to 6.5%, while FHW herding is approximately 2.5 times stronger. We find that herding is stronger in small capitalisation firms than in medium- and large capitalisation firms. Herding is also more severe among foreign stocks than among EU-15 or French stocks. Moreover, French mutual funds are shown to partially use positive feedback strategies. Finally, we establish that sell-herding has a destabilising impact on stock prices and that this impact is larger for foreign stocks.
    Keywords: Herding ; French ; equity ; mutual funds
    Date: 2013

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