nep-ifn New Economics Papers
on International Finance
Issue of 2019‒09‒30
five papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Sentiment Risk Premia in the Cross-Section of Global Equity and Currency Returns By Roland Fuess; Massimo Guidolin; Christian Koeppel
  2. Macroprudential policy spillovers and international banking - Taking the gravity approach By Norring, Anni
  3. Capital Inflows, Equity Issuance Activity, and Corporate Investment By Charles W. Calomiris; Mauricio Larrain; Sergio L. Schmukler
  4. Financial Openness and Capital Inflows to Emerging Markets: In Search of Robust Evidence By Diego A. Cerdeiro; Andras Komaromi
  5. Real Estate as a Common Risk Factor in the Financial Sector: International Evidence By Alain Coen; Benoit Carmichael; Alain Coen

  1. By: Roland Fuess; Massimo Guidolin; Christian Koeppel
    Abstract: This paper introduces a new sentiment-augmented asset pricing model in order to provide a comprehensive understanding of the role of non-fundamental risk factors. We find that news and social media search-based indicators that measure the aggregate investor sentiment are significantly related to excess returns across different asset classes and markets. Adding sentiment factors to both classical and more recent state-of-the-art pricing models leads to a significant increase in model performance. Following a two-stage Fama-MacBeth procedure, our modified pricing model obtains positive estimates of the risk premium for negative sentiment for global equity markets. We interpret them as measures of additional market uncertainty not captured by standard risk factors. Negative sentiment captures investors' fear, for which they demand an additional risk premium on sentiment-sensitive assets. Consequently, our empirical results contribute to the explanation of the cross-section of average, international excess equity and foreign exchange returns.
    Keywords: Sentiment; Cross-section of international equity indices; Currency returns; Fama-MacBeth risk premia estimation
    Date: 2019
  2. By: Norring, Anni
    Abstract: In this paper I study how the effects of nationally implemented macroprudential policy spill across borders via international lending. For a set of 157 countries, I estimate a gravity model applied to international banking where the use of different macroprudential policy measures enter as friction variables. My findings support the existence of cross-border spillovers from macroprudential policy. Moreover, I find that the overall effect from more macroprudential regulation is highly dependent on the income group of the countries in which banks operate: The effect is of opposite sign for advanced and for emerging economies. I argue that the difference may tell of banks having more opportunities for regulatory arbitrage in emerging market economies. JEL Classification: F42, G15, G21
    Keywords: international banking, macroprudential policy, policy spillovers
    Date: 2019–09
  3. By: Charles W. Calomiris (Columbia Business School, Hoover Institution, and NBER); Mauricio Larrain (Universidad Catolica de Chile School of Management and Financial Market Commission of Chile); Sergio L. Schmukler (World Bank Research Department)
    Abstract: This paper uses issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. It shows that foreign inflows are strongly correlated with country-level issuance. The relation especially reflects the behavior of large firms. To identify supply-side shocks, capital inflows into each country are instrumented with exogenous changes in other countries’ attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented contemporaneous and lagged capital inflows lead large firms to raise new equity, which they use to fund investment.
    Keywords: capital flows, corporate financing, emerging markets, domestic investors, foreign investors, use of funds
    JEL: F23 F32 G11 G15 G31
    Date: 2019–07
  4. By: Diego A. Cerdeiro; Andras Komaromi
    Abstract: We reassess the connection between capital account openness and capital flows in an empirical framework that is grounded in theory and makes use of previously unexplored variation in the data. We demonstrate how our theory-consistent regressions may overcome some ubiquitous measurement problems in the literature by relying on interaction terms between financial openness and traditional push-pull factors. Within our proposed framework, we ask: what can be said robustly about the effect of capital account restrictions on capital flows? Our results warrant against over-interpreting the existing cross-country evidence as we find very few robust relationships between capital account restrictiveness and various types of capital inflows. Countries with a higher degree of financial openness are more susceptible to some, but by no means all, push and pull factors. Overall, the results are still consistent with a complex set of tradeoffs faced by policymakers, where the ability to shield the domestic economy from volatile capital flow cycles must be weighed against the sources of exogenous risks and potential long run growth effects.
    Date: 2019–09–13
  5. By: Alain Coen; Benoit Carmichael; Alain Coen
    Abstract: This article studies the role of real estate as a potential risk factor in the financial sector returns over the period running from February 1990 to December 2015 for a sample of 14 countries. We develop and test parsimonious Intertemporal Capital Asset Pricing Models (ICAPM) including a systematic risk and a real estate risk factor. We suggest two factors to capture the real estate risk measures in two complementary dimensions. The EPRA index is used to valuate the domestic real estate risk. Besides, to illustrate the role played by the US real estate as a potential contagion risk factor, we develop a US real estate risk premium. Used separately or combined in a three-factor model, both risk factors report the presence of a real estate risk factor. Our results show that the real estate risk in its both dimensions is priced in the financial sector. If the domestic real estate risk factor is valued, the US real estate factor seems to be often prevalent. It raises the question of a potential contagion effect.
    Keywords: Asset Pricing; Financial sector; GMM; Multifactor Models; Real Estate Risk
    JEL: R3
    Date: 2019–01–01

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