nep-ifn New Economics Papers
on International Finance
Issue of 2020‒03‒23
five papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The International Market for Corporate Control By Anusha Chari
  2. International Capital Flows at the Security Level – Evidence from the ECB’s Asset Purchase Programme By Katharina Bergant; Michael Fidora; Martin Schmitz
  3. Financial Cycles in Asset Markets and Regions By Beirne, John
  4. A fistful of dollars:Transmission of global funding shocks to EMs By Shekhar Hari Kumar; Aakriti Mathur
  5. How Integrated Are Corporate Bond and Stock Markets? By Mirela Sandulescu

  1. By: Anusha Chari
    Abstract: This paper documents a set of stylized facts about recent trends in cross-border M&A (CBMA) activity around the world. The facts focus on key features of CBMA such as (i) the magnitude; (ii) how it varies across industries and locations; (iii) how it compares to levels of greenfield FDI over time; (iv) horizontal (market access) versus vertical (integrating supply chains) transactions; (v) the mode of financing; (vi) diversifying transactions versus those in the same industry; (vii) patterns of control acquisition; and (viii) strategic versus financially motivated transactions. The paper also examines whether the nature of cross-border M&A activity differs across developed and emerging markets. Next, it considers the incentives for firms to buy firms in other countries and to sell divisions to foreign buyers and examines the evidence about post-acquisition outcomes. The paper concludes with a discussion of policy challenges that confront governments as they weigh the balance of national security concerns against a desire to increase foreign investment in their economies.
    JEL: F2 F23 F3 G34
    Date: 2020–03
  2. By: Katharina Bergant; Michael Fidora; Martin Schmitz
    Abstract: We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase Programme at the security level. Our empirical analysis shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme and other euro-denominated debt securities, towards foreign debt instruments, including `closest substitutes', i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. Our analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts.
    Date: 2020–02–28
  3. By: Beirne, John (Asian Development Bank Institute)
    Abstract: We provide a comprehensive analysis of financial cycles in asset markets and regions. Using a large sample of 38 advanced and emerging economies to enable a comparative assessment, the analysis conforms with the prevailing literature on financial cycles pertaining to advanced economies, but finds that equity market cycles in emerging market economies in Asia, Latin America, and Eastern Europe may be a more useful gauge of the financial cycle compared to cycles in credit and property markets. Similar to more advanced economies, it is found that financial and business cycles in emerging economies are synchronized, albeit partially and with some cross-country heterogeneity. This underscores the importance for policy makers to be vigilant of interlinkages between real and financial sectors, pointing toward a need for carefully designed macroprudential policies. Finally, we find that financial cycles in emerging markets remain vulnerable to global risk aversion in financial markets and spillovers from the United States, thereby reinforcing the importance of continuing to strengthen domestic macroeconomic fundamentals, and develop further local financial sectors through targeted structural reforms.
    Keywords: financial cycle; business cycle; emerging markets
    JEL: C38 E32 E44
    Date: 2019–12–09
  4. By: Shekhar Hari Kumar (IHEID, Graduate Institute of International and Development Studies, Geneva); Aakriti Mathur (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: In this paper, we study transmission of global funding shocks to emerging economies (EMs) from the perspective of interbank markets. Money markets enable banks to engage in risk-sharing against liquidity shocks and are sensitive to global funding conditions. Accordingly, we first show that interbank rates better reflect the magnitude of transmission of foreign liquidity shocks to EMs as compared to benchmark short-term bond yields. Next, we disentangle the transmission into its various channels, focusing in particular on two pull factors associated with the domestic banking microstructure: dependence on wholesale funding and share of foreign banks. Our results indicate that money market rates in EMs react to global shocks, and that in particular dependence on wholesale funding has a significant role to play. Finally, we provide evidence that tools of macro-prudential policy like reserve requirements can help alleviate liquidity shocks to the EM banking system, weakening this global transmission.
    Keywords: International transmission of liquidity shocks; quantitative easing; wholesale funding; interbank rates; macro-prudential policy; reserve requirements.
    JEL: E43 E44 E52 E58 F42 G15 G21
    Date: 2020–03–02
  5. By: Mirela Sandulescu (University of Lugano; Swiss Finance Institute)
    Abstract: In this paper, I study the degree of market integration between US corporate bonds and stocks of the corresponding issuing firms, accounting for their characteristics. I find that short-selling constraints are essential restrictions to optimal Sharpe ratio portfolios that yield admissible portfolio positions and implied pricing errors within quoted bid-ask spreads. My empirical evidence suggests that markets are more integrated for larger firms, with more liquid corporate bonds and stocks. Similarly, firms that are more leveraged, have a higher asset growth and profitability feature a greater extent of integration between their debt and equity securities.
    Keywords: stochastic discount factor, corporate bonds, stocks, market integration, firm characteristics
    JEL: G11 G12 G14
    Date: 2020–03

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