nep-ifn New Economics Papers
on International Finance
Issue of 2012‒06‒05
five papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. Identifying the De Facto Exchange Rate Regime for Moldova: A State-Space Approach By Vitalie Ciubotaru
  2. Regulatory Arbitrage and International Bank Flows By Joel F. Houston; Chen Lin; Yue Ma
  3. Firm Survival and Financial Development: Evidence from a Panel of Emerging Asian Economies By Serafeim Tsoukas
  4. How Important are Foreign Ownership Linkages for International Stock Returns? By Sohnke M. Bartram; John Griffin; David T. Ng
  5. Understanding Liquidity and Credit Risks in the Financial Crisis By Gefang, Deborah; Koop, Gary; Potter, Simon M.

  1. By: Vitalie Ciubotaru (Graduate School of Economics, Osaka University)
    Abstract: It has been noted that there is an inconsistency between the Moldovan monetary authoritiesf declared pursuit of price stability and the de facto exchange rate peg. This paper looks into the exchange rate regime of the Moldovan leu (MDL) aiming to identify the de facto regime, to test whether it differes from the de jure regime stipulated by legislation, whether it can be described by a basket peg (and, if so, to determine the composition of this basket), and whether the regime has been stable over time. The methodology used in our analysis is the celebrated Frankel-Wei regression, to which we apply a Kalman filter algorithm. We show that the MDL generally follows a peg to the US dollar with varying implicit weight and fluctuation bands. Surprisingly, despite the large share of euro-denominated transactions on the Moldovan exchange market, and an even larger share of euro-denominated assets, the euro has never exhibited any statistically signicant weight.
    Keywords: Exchange Rate Regime, Moldovan Leu, Frankel-Wei Regression, Kalman Filter, Empirical Fluctuation Process
    JEL: E42 F31 P33
    Date: 2012–05
  2. By: Joel F. Houston (University of Florida); Chen Lin (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Yue Ma (Lingnan University and Hong Kong Institute for Monetary Research)
    Abstract: We study whether cross-country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This form of regulatory arbitrage suggests there may be a destructive "race to the bottom" in global regulations which restricts domestic regulators' ability to limit bank risk-taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that while differences in regulations have important influences, that without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.
    Date: 2012–05
  3. By: Serafeim Tsoukas (University of Nottingham and Hong Kong Institute for Monetary Research)
    Abstract: Using a panel of five Asian economies - Indonesia, Korea, Malaysia, Singapore and Thailand - over the period 1995-2007 we analyze the links between firm survival and financial development. We find that traditionally used measures of financial development play an important role in influencing firm survival. When stock markets become larger or more liquid firms' survival chances improve. On the contrary, we show that higher levels of financial intermediation can increase firm failures. We also find that the beneficial effects of stock market development are more pronounced during the later years of our sample, while the adverse effects of bank intermediation have declined over time. Finally, large firms are more likely to benefit from developments in financial markets compared to small firms.
    Keywords: Firm Survival, Firm-Specific Characteristics, Financial Development
    JEL: E44 D92 L20 O10
    Date: 2012–05
  4. By: Sohnke M. Bartram (Warwick University); John Griffin (University of Texas at Austin); David T. Ng (Cornell University and Hong Kong Institute for Monetary Research)
    Abstract: We develop a simple measure of international ownership linkages and show that this measure is of similar importance as the traditional effects coming from country and industry fundamentals. International ownership linkages are not explained by omitted country/industry variations, wealth effects or other explanations like liquidity, investment style, or fund flows. We find that ownership linkages are a summary measure of investment locale that links investor capital around the world. Beyond the level of foreign ownership, the specific ownership composition of a stock is an important facet of international equity returns - a finding which has important implications for diversification.
    Keywords: Institutional Ownership, Asset Management, Portfolio Diversification, International Finance, Comovement
    JEL: G3 F4 F3
    Date: 2012–05
  5. By: Gefang, Deborah; Koop, Gary; Potter, Simon M.
    Abstract: This paper develops a structured dynamic factor model for the spreads between London Interbank Offered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which reflect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 fi nancial crisis were largely driven by liquidity risk. However, credit risk played a more signifi cant role in the longer term (twelve-month) LIBOR-OIS spread. The liquidity risk factors are more volatile than the credit risk factor. Most of the familiar events in the financial crisis are linked more to movements in liquidity risk than credit risk.
    Date: 2011

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