nep-ifn New Economics Papers
on International Finance
Issue of 2018‒12‒24
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Media Sentiment and International Asset Prices By Samuel P. Fraiberger; Do Lee; Damien Puy; Romain Rancière
  2. Quantitative Easing, Collateral Constraints, and Financial Spillovers By John Geanakoplos; Kieran Haobin Wang

  1. By: Samuel P. Fraiberger; Do Lee; Damien Puy; Romain Rancière
    Abstract: This paper assesses the impact of media sentiment on international equity prices using a dataset of more than 4.5 million Reuters articles published across the globe between 1991 and 2015. Media sentiment robustly predicts daily returns in both advanced and emerging markets, even after controlling for known determinants of stock prices. But not all news sentiment is alike. A local (country-specific) increase in news optimism (pessimism) predicts a small and transitory increase (decrease) in local returns. By contrast, changes in global news sentiment have a larger impact on equity returns around the world, which does not reverse in the short run. Media sentiment affects mainly foreign – rather than local – investors: although local news optimism attracts international equity flows for a few days, global news optimism generates a permanent foreign equity inflow. Our results confirm the value of media content in capturing investor sentiment.
    JEL: F3 G12 G14 G15
    Date: 2018–12
  2. By: John Geanakoplos (Cowles Foundation, Yale University); Kieran Haobin Wang (International Monetary Fund)
    Abstract: The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic e?ects on international asset prices and international capital flows. These are di?icult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a general-equilibrium framework to explore QE’s international transmission involving an advanced economy (AE) and an emerging market economy (EM) whose assets have less collateral capacity. Capital flows arise as a result of international sharing of scarce collateral. The crucial insight is that private AE agents adjust their portfolios in di?erent ways in response to QE, conditional on whether they are (i) fully leveraged, (ii) partially leveraged or (iii) unleveraged. These portfolio shifts of international assets can diminish or even reverse the e?ectiveness of ever-larger QE interventions on asset prices. The model provides a simultaneous interpretation of several important stylized facts associated with QE.
    Keywords: Quantitative easing, Collateral, Leverage, Financial spillovers, Emerging markets, Capital flows
    JEL: D52 D53 E32 E44 E52 F34 F36 G01 G11 G12
    Date: 2018–12

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