nep-ifn New Economics Papers
on International Finance
Issue of 2014‒02‒21
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Surges and stops in FDI flows to developing countries : does the mode of entry make a difference ? By Burger, Martijn J.; Ianchovichina, Elena I.
  2. Crises and Exchange Rate Regimes: Time to break down the bipolar view? By Jean-Louis Combes; Alexandru Minea; Mousse Ndoye SOW
  3. Equity Market Integration and Currency Risk: Empirical Evidence for Indonesia By Khaled Guesmi; Frederic Teulon
  4. The interbank market risk premium, central bank interventions, and measures of market liquidity By Alexius, Annika; Birenstam, Helene; Eklund, Johanna

  1. By: Burger, Martijn J.; Ianchovichina, Elena I.
    Abstract: This paper investigates the factors associated with foreign direct investment"surges"and"stops,"defined as sharp increases and decreases, respectively, of gross foreign direct investment inflows to the developing world and differentiated based on whether these events are led by waves in greenfield investments or mergers and acquisitions. Greenfield-led surges and stops occur more frequently than mergers and acquisitions-led ones and different factors are associated with the onset of the two types of events. Global liquidity is the only factor significantly associated with a surge, regardless of its kind, while decline in global economic growth and a surge in the preceding year are the only predictors of a stop. Greenfield-led surges and stops are more likely in low-income and resource-rich countries than elsewhere. Global growth, financial openness, and domestic economic and financial instability enable mergers and acquisitions-led surges. These results differ from those in the literature on surges and stops and are particularly relevant in countries where foreign direct investments dominate capital flows.
    Keywords: Currencies and Exchange Rates,Emerging Markets,Debt Markets,Economic Theory&Research,Achieving Shared Growth
    Date: 2014–02–01
  2. By: Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Mousse Ndoye SOW (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: We revisit the link between crises and exchange rate regimes (ERR). Using a panel of 90 developed and developing countries over the period 1980-2009, we find that corner ERR are not more prone to crises compared to intermediate ERR. This finding holds for different types of crises (banking, currency and debt), and is robust to a wide set of alternative specifications. Consequently, we clearly break down the traditional bipolar view: countries that aim at preventing crisis episodes should focus less on the choice of the ERR, and instead implement sound structural macroeconomic policies.
    Keywords: exchange rate regimes;economic crises;bipolar view
    Date: 2014–02–10
  3. By: Khaled Guesmi; Frederic Teulon
    Abstract: This paper tests the time-varying degree of Indonesian market integration using conditional version of the International Capital Asset Pricing Model (ICAPM) with applying a GDC-GARCH. The use of the GDC-GARCH technique allows us to first, describe the time-varying stochastic conditional covariance matrix and second, take into account the dynamic changes in the degree of market integration and risk premium. Our empirical results show clear evidence of market integration varying degree, explained by the U.S term premium and the level of market openness. Even though it reaches high values during turmoil periods, and exhibits an upward trend towards the end of the estimation period, Indonesian stock market still remain substantially segmented from the regional market. These results thus suggest that diversification into emerging market assets continues to produce substantial profits, and that the asset pricing rules should reflect a state of partial integration. Our investigation addresses the evolution and formation of total risk premiums and confirms this empirically. In fact, the total risk premium decomposition shows that the variance risk related to the local market index (the local risk factor), explains more than 50% of the total risk premium on average.
    Keywords: Time-varying integration, risk premium, ICAPM, GCC-GARCH
    JEL: C32 F36 G11
    Date: 2014–02–12
  4. By: Alexius, Annika (Dept. of Economics, Stockholm University); Birenstam, Helene (Department of Statistics, Stockholm University); Eklund, Johanna (Sveriges Riksbank)
    Abstract: When the interbank market risk premium soared during the finnancial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank market. This paper studies the Swedish interbank market risk premium using a unique data set on traded volume between banks and between banks and the Riksbank. We find that the main determinants of the Swedish interbank premium are international variables, such as US and EURO area risk premia. International exchange rate volatility and the EURO/USD deviations from CIP also matters, while standard mesures of domestic market liquidity and domestic credit risk have insignificant effects. Our measure of actual turnover in the interbank market is however associated with a significant reduction of the interbank market risk premium, as are credit provisions by the central bank.
    Keywords: Interbank market risk premium; liquidity risk; credit risk; credit provisions.
    JEL: F31 F41
    Date: 2014–02–06

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