nep-ifn New Economics Papers
on International Finance
Issue of 2018‒02‒05
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Changing business models in international bank funding By Leonardo Gambacorta; Stefano Schiaffi; Adrian Van Rixtel
  2. How ETFs Amplify the Global Financial Cycle in Emerging Markets By Tomas Williams; Nathan Converse; Eduardo Levy-Yeyati
  3. Equity Market Globalization and Portfolio Rebalancing By Kyungkeun Kim; Dongwon Lee

  1. By: Leonardo Gambacorta (Bank for international settlements and CEPR); Stefano Schiaffi (Bocconi University); Adrian Van Rixtel (Banco de España)
    Abstract: This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the great financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.
    Keywords: bank funding, global banking, cointegration analysis
    JEL: C32 G21
    Date: 2017–10
  2. By: Tomas Williams (George Washington University); Nathan Converse (Federal Reserve Board); Eduardo Levy-Yeyati (Universidad Torcuato di Tella)
    Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important investment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fundlevel data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global risk factors for equity (bond) ETFs is 1.5 (1.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global risk factors. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of the global financial cycle in emerging markets.
    Keywords: exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets
    JEL: F32 G11 G15 G23
  3. By: Kyungkeun Kim (Economic Research Institute, The Bank of Korea); Dongwon Lee (University of California, Riverside)
    Abstract: This paper examines how the financial globalization affects international equity mutual funds' portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds' propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds' equity holdings in emerging economies.
    Keywords: Equity market globalization, Portfolio allocation, Portfolio rebalancing, Return correlation
    JEL: F3 G11 G15
    Date: 2017–06–13

This nep-ifn issue is ©2018 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.