nep-ifn New Economics Papers
on International Finance
Issue of 2021‒05‒31
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. U.S. Populist Rhetoric and Currency Returns By Filippou, Ilias; Gozluklu, Arie; Nguyen, My; Taylor, Mark P
  2. Global Business and Financial Cycles: A Tale of Two Capital Account Regimes By Acalin, Julien; Rebucci, Alessandro

  1. By: Filippou, Ilias; Gozluklu, Arie; Nguyen, My; Taylor, Mark P
    Abstract: We develop a novel measure of U.S. populist rhetoric. Aggregate Populist Rhetoric (APR) Index spikes around populist events. We decompose the APR Index into sub-indices. We show that APR Index and International Relations sub-index are negatively priced in the cross-section of currency excess returns. Currencies that perform well (badly) when U.S. populist rhetoric is high yield low (high) expected excess returns. Investors require high risk premium for holding currencies which underperform in times of rising U.S. populist rhetoric, especially in the post-crisis period. A long-short strategy that buys (sells) currencies with high (low) exposure to U.S. populism offers strong diversification benefits.
    Keywords: Foreign exchange market; populism; textual analysis
    JEL: G11 G12 G14 G32
    Date: 2020–07
  2. By: Acalin, Julien; Rebucci, Alessandro
    Abstract: Using a new equity price-based measure of the global financial cycle, this paper evaluates the relative importance of global financial shocks for quarterly equity returns and output growths in a large sample of advanced and emerging economies, as well as in South Korea and China--two countries on different sides of the trilemma triangle of international finance. We document that global financial shocks in both China and South Korea explain a substantial share of equity return variability (20 and 50 percent of total variance, respectively), but a much smaller portion of real output fluctuations (less than 10 percent in Korea and negligible in the case of China). We also find that the combination of a closer capital account and a more rigid exchange rate regime, as in China, is associated with some costs in terms of diversification opportunities quantified by very large exposures to domestic financial and real shocks, dwarfing the contribution of any other shock in the model. More surprisingly, the combination of a relatively open capital account and a flexible exchange rate, as in South Korea, not only is associated with a higher exposure to the global financial cycle than in China but also with a significant incidence of domestic financial shocks on output fluctuations.
    Keywords: business cycles; China; Factor-models; Global financial cycle; Panel VARs; South Korea
    JEL: C38 E44 F44 G15
    Date: 2020–08

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