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on International Finance |
| By: | Laura Alfaro; Ester Faia; Ruth A. Judson; Tim Schmidt-Eisenlohr |
| Abstract: | Using a unique confidential data set with industry disaggregation of official U.S. claims and liabilities, we find that dollar-denominated securities are increasingly intermediated by tax havens financial centers (THFC) and by less regulated funds. These securities are risky and respond to tax rates and prudential regulations, suggesting tax avoidance and regulatory arbitrage. Issuers are mostly intangible-intensive multinationals, that can more easily move across borders. Investors require a high Sharpe ratio, suggesting search for yield. In contrast, safe treasuries are mainly held by the foreign official sector and increased with quantitative easing policies. Facts on the privately held securities are rationalized through a model where multinationals with heterogeneous default probabilities endogenously choose to shift profits to a THFC against a cost and are funded by global intermediaries with endogenous monitoring intensity. A fall in debt costs, due to an increase in global savings channeled by low regulated intermediaries, raises firms' profits. More firms can afford to enter the THFC and, as they appear elusively safer, intermediaries reduce monitoring intensity, increasing ex post risk. |
| JEL: | F2 F3 F4 G15 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27048&r=all |
| By: | Kenza Benhima; Rachel Cordonier |
| Abstract: | We examine empirically the effect of two types of expectations-related shocks - "news" (increases in expected future productivity) and "sentiment" (surges in optimism unrelated to future productivity) - on gross capital flows. We find that news shocks lead to a decrease in both gross capital inflows and outflows, while sentiment shocks lead to an increase in both gross inflows and outflows. Both these shocks drive a positive correlation between gross inflows and outflows but only sentiments shocks generate procyclical gross flows. These effects are not driven by global shocks or financial shocks. They are consistent with the existence of asymmetric information between domestic and foreign investors about the country's fundamentals. |
| Keywords: | Capital flows, SVAR, asymmetric information |
| JEL: | D82 E32 F32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-04&r=all |
| By: | Demien Pouzo; Victoria Vanasco |
| Abstract: | We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past macroeconomic outcomes have been shown to exert a long-lasting influence on beliefs about future realizations, and to explain domestic stock-market investment. We argue that experience effects can explain the tendency of investors to hold an over proportional fraction of their equity wealth in domestic stocks (home bias), to invest in domestic equity markets in periods of domestic crises (retrenchment), and to withdraw capital from foreign equity markets in periods of foreign crises (fickleness). Experience-based learning generates additional implications regarding the strength of these puzzles in times of higher or lower economic activity and depending on the demographic composition of market participants. We test and confirm these predictions in the data. |
| Keywords: | Experience effects, learning, asset prices, portfolio choice, demographics. |
| JEL: | G11 G12 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1710&r=all |