nep-ifn New Economics Papers
on International Finance
Issue of 2010‒08‒06
five papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. Momentum in stock market returns: Implications ofr risk premia on foreign currencies By Nitschka, Thomas
  2. Exchange Rate Arrangements For East Asia Post-Crisis: Examining The Case For Open Economy Inflation Targeting By Tony Cavoli; Ramkishen S. Rajan
  3. Financial Crises and International Portfolio Dynamics By Fernando Broner; Tatiana Didier; Aitor Erce; Sergio L. Schmukler
  4. How do firms’ outward FDI strategies relate to their activity at home? Empirical evidence for the UK By Helen Simpson
  5. The Effects of Ownership Structure and Industry Characteristics On Export Performance By Dahai Fu; Yanrui Wu; Yihong Tang

  1. By: Nitschka, Thomas (Swiss National Bank)
    Abstract: Momentum in foreign stock market returns is exploitable as signal of currency excess returns. Past stock market winner currencies offer higher returns than past stock market loser currencies. This finding is unrelated to interest rate differentials. Funding liquidity risk explains the time series variation in foreign stock market momentum sorted currency portfolio returns. Their cross-sectional dispersion is hardly rationalized by systematic risk factors in contrast to forward discount and currency momentum sorted currency portfolios. This latter finding reflects that fundamentals driving stock market momentum based currency portfolio returns are not related to recently proposed currency risk factors in the cross-section.
    Keywords: currency returns; expected return news; intrinsic value; momentum; risk premia; stock market returns
    JEL: F31 F37 G15
    Date: 2010–07–26
  2. By: Tony Cavoli; Ramkishen S. Rajan
    Abstract: The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the main conclusion -- while favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere have continued to heavily manage their currencies despite being officially described as “floatersâ€. The paper goes on to explore the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The importance of incorporating the exchange rate in open economy monetary policy rules is stressed.
    Keywords: infeasibility, monetary union, East Asia, flexible regime, floaters, East Asia
    Date: 2010
  3. By: Fernando Broner; Tatiana Didier; Aitor Erce; Sergio L. Schmukler
    Abstract: This paper analyzes the behavior of international capital flows by foreigners and domestic agents, especially during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile, especially relative to net capital flows. This is because when foreigners invest in a country domestic agents tend to invest abroad and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This is especially true during severe crises and during systemic crises. The evidence can shed light on the nature of shocks driving international capital flows. It seems to favor shocks that affect foreigners and domestic agents asymmetrically –e.g. sovereign risk and asymmetric information– over productivity shocks.
    Keywords: capital flows, domestic investors, foreign investors, crises.
    JEL: F21 F32
    Date: 2010–06
  4. By: Helen Simpson
    Abstract: This paper investigates the structure of firms’ outward FDI and their behaviour at home in both manufacturing and business services sectors. UK multinationals with overseas affiliates in low-wage economies invest simultaneously in a large number of high-wage countries. I find that more productive multinationals operate in a greater number of countries, consistent with their being able to bear the fixed costs of investing in numerous locations abroad. UK manufacturing plants owned by large-scale, low-wage economy outward investors display lower domestic employment growth, in particular in low-skill activities, consistent with low-wage economy labour substituting for low-skill labour in the UK.
    Keywords: multinational enterprises, skills, globalisation
    JEL: F2
    Date: 2010–05
  5. By: Dahai Fu (UWA Business School, The University of Western Australia); Yanrui Wu (UWA Business School, The University of Western Australia); Yihong Tang (School of International Trade and Economics, University of International Business and Economics Beijing)
    Abstract: Ownership structure and industry characteristics as internal and external factors respectively significantly impact the export performance of Chinese manufacturing firms. Three different yet related models, namely, logit, tobit and ordered probit models, that correspond to three different indicators of export performance are considered. It was found that the export performance of Chinese manufacturing firms is related not only to foreign capital involvement but also to the extent of foreign investors’ control. Foreign controlled enterprises are more likely to show better export performance than those controlled by domestic investors. Furthermore, the impact of industry concentration on export performance is unclear, while both industry export-orientation and industry capital intensity have a strong impact on the export performance of Chinese firms.
    Keywords: Export performance; Chinese firms; Ownership; Industry characteristics
    Date: 2010

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