nep-ifn New Economics Papers
on International Finance
Issue of 2016‒08‒21
five papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Global variance term premia and intermediary risk appetite By Van Tassel, Peter; Vogt, Erik
  2. Cross-border Spillover Effects of Unconventional Monetary Policies on Swiss Asset Prices By Severin Bernhard; Till Ebner
  3. International banking and cross-border effects of regulation: Lessons from Germany By Ohls, Jana; Pramor, Marcus; Tonzer, Lena
  4. Firm performance and (Foreign) Debt Financing before and During the Crisis: Evidence from Firm-Level Data By Mateja GabrijelÄ iÄ; UroÅ¡ Herman; Andreja LenarÄ iÄ
  5. Global price of risk and stabilization policies By Adrian, Tobias; Stackman, Daniel; Vogt, Erik

  1. By: Van Tassel, Peter (Federal Reserve Bank of New York); Vogt, Erik (Federal Reserve Bank of New York)
    Abstract: Sellers of variance swaps earn time-varying risk premia for their exposure to realized variance, the level of variance swap rates, and the slope of the variance swap curve. To measure risk premia, we estimate a dynamic term structure model that decomposes variance swap rates into expected variances and term premia. Empirically, we document a strong global factor structure in variance term premia across the U.S., U.K., Europe, and Japan. We further show that variance term premia are negatively correlated with the risk appetite of hedge funds, broker-dealers, and mutual funds. Our results support the hypothesis that financial intermediaries are marginal investors in the variance swap market.
    Keywords: variance swap; variance risk premium; term structure; empirical asset pricing; volatility; financial intermediaries
    JEL: C58 G12 G13
    Date: 2016–08–12
  2. By: Severin Bernhard; Till Ebner
    Abstract: Unconventional monetary policies (UMPs) by the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan exert important spillover effects on asset prices in Switzerland if market anticipation of UMP announcements is properly accounted for. Using a broad event set and a long-term bond futures-based measure as a proxy for market anticipation of the announcements, we show that the unexpected part of those UMPs boost Swiss government and corporate bond prices, induce the CHF to appreciate, and dampen Swiss equity prices. Four extensions provide additional insights: First, the estimated effects are strongest for announcements by the ECB. Second, the impact on government bonds is largest for bonds with residual maturities of 7-10 years. Third, the impact of foreign UMP shocks on exchange rates and Swiss bond yields is less pronounced after the introduction of the EURCHF-floor by the Swiss National Bank on September 6, 2011. Fourth, the sign of spillover effects differs for positive and negative UMP surprises, but their strength does not. Our results hint at an important role played by both international portfolio re-balancing channels and international signalling channels in the transmission of foreign monetary policy shocks to Swiss asset prices.
    JEL: E52 E58 E65 F31 F42 G12
    Date: 2016
  3. By: Ohls, Jana; Pramor, Marcus; Tonzer, Lena
    Abstract: We analyze the inward and outward transmission of regulatory changes through German banks' (international) loan portfolio. Overall, our results provide evidence for international spillovers of prudential instruments, these spillovers are however quite heterogeneous between types of banks and can only be observed for some instruments. For instance, foreign banks located in Germany reduce their loan growth to the German economy in response to a tightening of sector-specific capital buffers, local reserve requirements and loan to value ratios in their home country. Furthermore, from the point of view of foreign countries, tightening reserve requirements was effective in reducing lending inflows from German banks. Finally, we find that business and financial cycles matter for lending decisions.
    Keywords: cross-border spillovers,prudential regulation,loan supply,German banks
    JEL: F30 G01 G21 G28
    Date: 2016
  4. By: Mateja GabrijelÄ iÄ (Bank of Slovenia); UroÅ¡ Herman (GSEFM, Goethe University Frankfurt); Andreja LenarÄ iÄ (European Stability Mechanism)
    Abstract: We study the effects of financial leverage and foreign financing on firm performance before and during the recent crisis, using a large panel of Slovenian companies. We find a significant negative impact of leverage on firm performance, even when we explicitly control for the reverse causality between the two variables. The negative effect, albeit weaker, persists also in the crisis period. Firms with some foreign debt performed better on average than firms relying only on domestic financing. At the same time, they suffered a stronger decrease in performance if their total leverage increased. Moreover, when we explicitly control for the amount of foreign financing, we find that it has a positive and highly significant effect on firm performance. The significant positive effect of foreign financing in the pre-crisis period seems to be entirely driven by privately owned firms, while the effects are negative for the state owned companies. During the crisis, the effects are positive but insignificant for both ownership types. Finally, when comparing domestic and foreign owned firms, we see no substantial variation in the coefficients.
    Keywords: Leverage, foreign leverage, firm performance, instrumental variable, panel data, crisis
    JEL: F34 G15 G24 H63
    Date: 2016–07
  5. By: Adrian, Tobias (Federal Reserve Bank of New York); Stackman, Daniel (Federal Reserve Bank of New York); Vogt, Erik (Federal Reserve Bank of New York)
    Abstract: We estimate a highly significant price of risk that forecasts global stock and bond returns as a nonlinear function of the CBOE Volatility Index (VIX). We show that countries’ exposure to the global price of risk is related to macroeconomic risks as measured by output, credit, and inflation volatility, the magnitude of financial crises, and stock and bond market downside risk. Higher exposure to the global price of risk corresponds to both higher output volatility and higher output growth. We document that the transmission of the global price of risk to macroeconomic outcomes is mitigated by the magnitude of stabilization in the Taylor rule, the degree of countercyclicality of fiscal policy, and countries’ tendencies to employ prudential regulations. The estimated magnitudes are quantitatively important and significant, with large cross-sectional explanatory power. Our findings suggest that macroeconomic and financial stability policies should be considered jointly.
    Keywords: financial stability; monetary policy; fiscal policy; regulatory policy
    JEL: G01 G12 G17
    Date: 2016–08–01

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