nep-ifn New Economics Papers
on International Finance
Issue of 2015‒09‒26
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. What drives bank-intermediated trade finance? Evidence from cross-country analysis By José María Serena Garralda; Garima Vasishtha
  2. Are retail traders compensated for providing liquidity? By Barrot, Jean-Noël; Kaniel, Ron; Sraer, David

  1. By: José María Serena Garralda (Banco de España); Garima Vasishtha (Bank of Canada)
    Abstract: Empirical work on the underlying causes of the recent dislocations in bank-intermediated trade finance has been limited by the scant availability of hard data. This paper aims to analyse the key determinants of bank-intermediated trade finance using a novel dataset covering ten banking jurisdictions. It focuses on the role of global factors as well as country-specific characteristics in driving trade finance. Results indicate that country-specific variables, such as growth in trade flows and funds available for domestic banks, as well as global financial conditions and global import growth, are important determinants of trade finance. These results are robust to different model specifications. Further, we do not find that trade finance is more sensitive to global financial conditions than other loans to non-bank entities.
    Keywords: bank-intermediated trade finance, trade flows, global financial crisis
    JEL: F14 F19
    Date: 2015–09
  2. By: Barrot, Jean-Noël; Kaniel, Ron; Sraer, David
    Abstract: This paper examines the extent to which individual investors provide liquidity to the stock market and whether they are compensated for doing so. We show that the ability of aggregate retail order imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced during times of market stress, when market liquidity provisions decline. While a weekly rebalanced portfolio long in stocks purchased and short in stocks sold by retail investors delivers 19% annualized excess returns over a four-factor model from 2002 to 2010, it delivers up to 40% annualized returns in periods of high uncertainty. Despite this high aggregate performance, individual investors do not reap the rewards from liquidity provision because they experience a negative return on the day of their trade and they reverse their trades long after the excess returns from liquidity provision are dissipated. During the financial crisis, French active retail stock traders stepped up to the plate, increased stock holdings, and provided liquidity. In contrast, mutual fund investors fled from delegation by selling their mutual funds.
    Keywords: crisis; liquidity; retail investors
    JEL: G01 G11 G14
    Date: 2015–09

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