nep-ifn New Economics Papers
on International Finance
Issue of 2019‒11‒11
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Investment funds under stress By Maqui, Eduardo; Sydow, Matthias; Gourdel, Régis
  2. Making Sense of Increased Synchronization in Global House Prices By Duca, John V.
  3. Assessing International Commonality in Macroeconomic Uncertainty and Its Effects By Carriero, Andrea; Clark, Todd E.; Marcellino, Massimiliano

  1. By: Maqui, Eduardo; Sydow, Matthias; Gourdel, Régis
    Abstract: This paper presents a model for stress testing investment funds, based on a broad worldwide sample of primary open-end equity and bond funds. First, we employ a Bayesian technique to project the impact of macro-financial scenarios on country-level portfolio flows worldwide that are constructed from fund-level asset holdings. Second, from these projected country-level flows, we model the scenarios’ repercussions on individual funds along a three year horizon. Importantly, we further decompose portfolio flows, disentangling the specific contributions of transactions, valuation and foreign exchange effects. Overall, our results indicate that the impact of a global adverse macro-financial scenario leads to a median depletion in assets under management (AUM) of 24% and 5%, for euro area-domiciled equity and bond funds respectively, largely driven by valuation effects. Scenario and results both present similarities to the global financial crisis. We use historical information on fund liquidations to estimate a threshold for a drop in AUM that signals a high likelihood of a forthcoming liquidation. Based on this, we estimate that 5.8% and 0.5% of euro area-domiciled equity and bond funds respectively could go into liquidation. Such empirical thresholds can be useful for the implementation of prudential policy tools, such as redemption gates. JEL Classification: F21, G15, G17, G23, G28
    Keywords: Bayesian model averaging, international capital flows, investment funds, portfolio valuation, prudential policy
    Date: 2019–10
  2. By: Duca, John V. (Federal Reserve Bank of Dallas)
    Abstract: Evidence indicates that house prices have become somewhat more synchronized during this century, likely reflecting more correlated movements in long-term interest rates and macroeconomic cycles that are related to trends in globalization and international portfolio diversification. Nevertheless, the trend toward increased synchronization has not been continuous, reflecting that house prices depend on other fundamentals, which are not uniform across countries or cities. Theory and limited econometric evidence indicate that the more common are fundamentals, the more in-synch house price cycles will become and the more substitution effects may matter. In addition, real estate markets that are open to immigration and foreign investment have become more sensitive to shifts in the international demand for property by migrants or investors.
    Keywords: House prices; synchronization; star cities; international capital flows
    JEL: R0 R20
    Date: 2019–10–09
  3. By: Carriero, Andrea (Queen Mary, University of London); Clark, Todd E. (Federal Reserve Bank of Cleveland); Marcellino, Massimiliano (Bocconi University, IGIER, and CEPR)
    Abstract: This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of significant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new estimates of international macroeconomic uncertainty indicate that surprise increases in uncertainty reduce output and stock prices, adversely affect labor market conditions, and in some economies lead to an easing of monetary policy.
    Keywords: Uncertainty; Endogeneity; Identifcation; Stochastic Volatility; Bayesian Methods;
    JEL: C11 C32 D81 E32
    Date: 2019–09–05

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