nep-ifn New Economics Papers
on International Finance
Issue of 2017‒03‒26
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. International Illiquidity By Aytek Malkhozov; Philippe Mueller; Andrea Vedolin; Gyuri Venter
  2. Exchange Rate Flexibility, Financial Market Openness and Economic Growth By Lee , Il Houng; Kim , Kyunghun; Kang , Eunjung
  3. Infrastructure and FDI: Evidence from district-level data in India By Rajesh Chakrabarti; Krishnamurthy Subramanian; Sesha Meka; Kuntluru Sudershan

  1. By: Aytek Malkhozov; Philippe Mueller; Andrea Vedolin; Gyuri Venter
    Abstract: We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) strategies across countries.
    Keywords: Liquidity ; Market Frictions ; Capital Constraints ; International CAPM
    JEL: G11 G12 G15
    Date: 2017–03
  2. By: Lee , Il Houng (Bank of Korea - Monetary Policy Department; Korea Institute for International Economic Policy); Kim , Kyunghun (Korea Institute for International Economic Policy); Kang , Eunjung (Korea Institute for International Economic Policy)
    Abstract: With global recovery not in sight, along with calls for stronger structural reform, international policy coordination is again under spotlight. Correcting global imbalance would contribute towards closing the demand gap. Emerging economies in particular should allow greater exchange rate flexibility and not intervene in the foreign exchange market to reflect fundamentals. Yet, the impact of greater exchange rate flexibility is unclear as they also struggle to keep their growth momentum alive and hedge against greater exposure to potential capital reversal than ever before. With the loss of monetary policy independence, emerging markets (EMs) are running out of policy options. Against this background, unless international policy coordination is fundamentally recast, a comprehensive review of all emerging market economies’ policy options are in order, including both macro policy instruments, micro measures, and global safety net aimed at attaining the best possible solution to escaping global recession.
    Keywords: Exchange Rate Flexibility; Financial Market; Economic Growth; Emerging Economies; Monetary Policy Independence
    JEL: F31 F33 F43 G15
    Date: 2016–04–20
  3. By: Rajesh Chakrabarti (Indian School of Business,Hyderabad); Krishnamurthy Subramanian (Indian School of Business,Hyderabad); Sesha Meka (Indian School of Business,Hyderabad); Kuntluru Sudershan (Indian Institute of Management, Kozhikode)
    Abstract: Though public infrastructure – physical and financial – is widely believed to play a critical role in attracting Foreign Direct Investment (FDI), identifying this effect remains a challenge. In this paper, we use unique data to identify this effect by exploiting purely cross-sectional variation among approximately 600 districts in India. We examine the effect of infrastructure in 2001 on cumulative FDI flows into the district during 2002-07. Using panel regressions that include state fixed effects, we employ a two-pronged identification strategy. First, we test by netting out average (and maximum) FDI inflows into surrounding districts. Second, we exploit variation among different sectors within a district depending upon the sector’s propensity to attract FDI. Since our variables vary primarily at the district level, these tests together control for all omitted variables at the district level. Surprisingly, we find that FDI inflows remain insensitive to changes in infrastructure till a threshold is reached; thereafter, FDI inflows increase steeply with an increase in infrastructure.
    Keywords: Infrastructure, FDI, India, District

This nep-ifn issue is ©2017 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.