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on Financial Markets |
| By: | Paola Robotti |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp560&r=fmk |
| By: | Laeven, Luc; Beck, Thorsten |
| Abstract: | There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. The authors use quantitative analysis for 57 countries and discuss specific country cases to illustrate this variation. Using data for over 1,700 banks across 57 countries, they show that banks in countries where the deposit insurer has the responsibility of intervening failed banks and the power to revoke membership in the deposit insurance scheme are more stable and less likely to become insolvent. Involvement of the deposit insurer in bank failure resolution thus dampens the negative effect that deposit insurance has on banks ' risk taking. |
| Keywords: | Banks & Banking Reform,Financial Crisis Management & Restructuring,Financial Intermediation,Corporate Law,Insurance & Risk Mitigation |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3920&r=fmk |
| By: | Philip Lane; Gian Maria Milesi-Ferretti |
| Abstract: | This paper addresses the implications of financial globalization for exchange rate behavior. We highlight two dimensions: first, a wider dispersion in net foreign asset positions implies stronger long-term trends in real exchange rates; second, the impact of currency movements on net external wealth is an increasing function of the scale of international balance sheets. |
| Keywords: | Financial integration, exchange rates |
| JEL: | F31 F32 |
| Date: | 2006–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp129&r=fmk |
| By: | Colm Kearney; Valerio Poti |
| Abstract: | We examine the dynamics of idiosyncratic risk, market risk and return correlations in European equity markets using weekly observations from 3515 stocks listed in the 12 Euro area stock markets over the period 1974-2004. Similarly to Campbell, Lettau, Malkiel and Xu (2001), we find a rise in idiosyncratic volatility, implying that it now takes more stocks to diversify away idiosyncratic risk. Contrary to the United States , however, market risk is trended upwards in Europe and correlations are not trended downwards. Both the volatility and correlation measures are pro-cyclical, and they rise during times of low market returns. Market and average idiosyncratic volatility jointly predict market wide returns, and the latter impact upon both market and idiosyncratic volatility. This has asset pricing and risk management implications. |
| Keywords: | Idiosyncratic risk, correlation, portfolio management, asset pricing |
| Date: | 2006–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp132&r=fmk |
| By: | Juan Ignacio Pena; Santiago Forte |
| Abstract: | This paper presents a procedure for computing homogeneous measures of credit risk from stocks, bonds and CDSs. The measures are based on bond spreads (BS), CDS spreads (CDS) and implied stock market credit spreads (ICS). We compute these measures for a sample of North American and European firms and find that in most cases, the stock market leads the credit risk discovery process with respect to bond and CDS markets. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb063310&r=fmk |
| By: | Fan, Xuejun; Jacobs, Jan; Lensink, Robert (Groningen University) |
| Abstract: | This paper contributes to the empirical finance-growth literature by examining the relationship between financial depth, banking sector development, stock market development and economic growth in China. After an extensive survey on recent financial reforms in China, we apply Granger (non-)causality tests for non-stationary variables to examine long-run and short-run causality between economic growth and financial development. We find positive relationships between financial depth, banking sector development and growth. However, stock market development does not seem to have a positive effect on long-run economic growth. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:200509&r=fmk |
| By: | Tung Liu (Department of Economics, Ball State University); Gary Santoni (Department of Economics, Ball State University); Courtenay Cliff Stone (Department of Economics, Ball State University) |
| Abstract: | This paper examines the impact of federal securities statutes (seven major legislative acts and 535 amendments) on the mean and variance of total real U.S. stock market returns. In contrast to previous work, this study controls for the persistence of the variability of stock returns, employs a longer time period, utilizes a broader array of stocks and examines the impact of seven federal securities regulations and their selected amendments from 1933 through 2001. Despite the popular appeal of this legislation, our results indicate that these federal securities statutes and amendments have had no statistical impact on the mean or variance of total real stock returns over the past 70 years. |
| Keywords: | stock returns, volatility, regulation |
| JEL: | G14 G18 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:bsu:wpaper:200501&r=fmk |
| By: | Viviana Fernandez; Brian M. Lucey |
| Abstract: | Based on weekly data of the Dow Jones Country Titans, the CBT-municipal bond, spot and futures prices of commodities for the period 1992-2005, we analyze the implications for portfolio management of accounting for conditional heteroskedasticity and structural breaks in long-term volatility. In doing so, we first proceed to utilize the ICSS algorithm to detect volatility shifts, and incorporate that information into PGARCH models fitted to the returns series. At the next stage, we simulate returns series and compute a wavelet-based value at risk, which takes into consideration the investor’s time horizon. We repeat the same procedure for artificial data generated from distribution functions fitted to the returns by a semi-parametric procedure, which accounts for fat tails. Our estimation results show that neglecting GARCH effects and volatility shifts may lead us to overestimate financial risk at different time horizons. In addition, we conclude that investors benefit from holding commodities as their low or even negative correlation with stock indices contribute to portfolio diversification. |
| Keywords: | volatility shifts, wavelets, value at risk |
| Date: | 2006–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp131&r=fmk |
| By: | Antonio Scalia (Banca d’Italia) |
| Abstract: | I estimate a two-equation system on the euro-Czech koruna exchange rate and order flow at hourly frequency within the framework of Evans-Lyons (JME 2002). I use transac-tions data from the Reuters Spot Matching market in the second half of 2002, during which the Czech National Bank conducted discreet interventions to stem the appreciation of the domestic currency. I find a significant impact of order flow on the exchange rate, equal on average to 7.6 basis points per €10 million, of which 80 percent persists through the day. The news of intervention increases the price impact of order flow by 3.9 basis points per €10 million, consistently with the notion of intervention efficacy. The order flow equation yields in-conclusive results. |
| Keywords: | Foreign exchange, central bank intervention, Czech koruna, ERM II, empirical microstructure |
| JEL: | E65 F31 G15 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_579_06&r=fmk |
| By: | Kuper, Gerard H.; Lestano (Groningen University) |
| Abstract: | This paper examines the dynamic linkages among financial markets in Thailand and Indonesia. In particular, we focus on the cross-border relationship in individual markets and on the relationship between finan- cial markets within each country. We find that while tight monetary policy pursued by Thailand authorities helped to defend the exchange rate at the outbreak of the financial crisis, it had little consequences for Indonesia at the end of 1998. The correlations between countries within each of the financial market reveals a certain degree of interde- pendence among countries, which is lower during crises. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:200602&r=fmk |
| By: | Christopher J. Neely; Paul A. Weller |
| Abstract: | Shleifer and Vishny (1997) pointed out some of the practical and theoretical problems associated with assuming that rational speculation would quickly drive asset prices back to long-run equilibrium. In particular, they showed that the possibility that asset price disequilibrium would worsen, before being corrected, tends to limit rational speculators. Uniquely, Shleifer and Vishny (1997) showed that “performance-based asset management” would tend to reduce speculation when it is needed most, when asset prices are furthest from equilibrium. We analyze a generalized Shleifer and Vishny (1997) model for central bank intervention. We show that increasing availability of arbitrage capital has a pronounced effect on the dynamic intervention strategy of the central bank. Intervention is reduced during periods of moderate misalignment and amplified at times of extreme misalignment. This pattern is consistent with empirical observation. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-033&r=fmk |
| By: | Love, Inessa; Gatti, Roberta |
| Abstract: | Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth on the micro-level is scant. Using data from a cross section of Bulgarian firms, the authors estimate the impact of access to credit (as proxied by indicators of whether firms have access to a credit or overdraft facility) on productivity. To overcome potential omitted variable bias of OLS estimates, they use information on firms ' past growth to instrument for access to credit. The authors find credit to be positively and strongly associated with total factor productivity. These results are robust to a wide range of robustness checks. |
| Keywords: | Banks & Banking Reform,Economic Theory & Research,Investment and Investment Climate,Economic Growth,Financial Intermediation |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3921&r=fmk |
| By: | Michel Beine (Université du Luxembourg and DULBEA, Université libre de Bruxelles, Brussels.); Pierre-Yves Preumont; Ariane Szafarz (CEB (SBS) and DULBEA, Université libre de Bruxelles, Brussels) |
| Abstract: | The dynamics of the cross-correlations between the 10 Dow Jones European sector financial indices are analyzed through to the Dynamic Conditional Correlations (DCC) model during the period 1987-2003. First, the paper confirms that, on the whole, the correlations are highly volatile. Second, it brings insights on the behavior of the sector correlations during the IT bubble. The comparison of the pre- and post-bubble periods leads to the conclusion that the sector indices do not suffer from the contagion effects (a correlation increase damaging the portfolio diversification) observed by several authors on country indices. Therefore, it is argued that the benefits from sector diversification during crises must be taken into account by portfolio managers. |
| Keywords: | dynamic correlation, sector diversification, IT bubble, contagion |
| JEL: | G11 G15 C32 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:06-07rs&r=fmk |
| By: | Jean-Pierre Zigrand; Jon Danielsson |
| Abstract: | We provide an equilibrium multi-asset pricing model with micro-founded systemic risk and heterogeneous investors. Systemic risk arises due to excessive leverage and risk taking induced by free-riding externalities. Global risk-sensitive financial regulations are introduced with a view of tackling systemic risk, with Value -at - Risk a key component. The model suggests that risk sensitive regulation can lower systemic risk in equilibrium, at the expense of poor risk-sharing, an increase in risk premia, higher and asymmetric asset volatility, lower liquidity, more comovement in prices, and the chance that markets may not clear.Journal of Economics Literature classification numbers: G12, G18, G20, D50.Keywords: systemic risk, value-at-risk, risk sensitive regulation, general equilibrium |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp561&r=fmk |
| By: | Carolina Fugazza; Massimo Guidolin; Giovanna Nicodano |
| Abstract: | We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize predictability. We find that real estate ought to play a significant role in optimal portfolio choices, with weights between 12 and 44 percent. Under plausible assumptions, the welfare costs of either ignoring predictability or restricting portfolio choices to traditional financial assets only are found to be in the order of 150-300 basis points per year. These results are robust to changes in the benchmarks and in the statistical framework. |
| Keywords: | Real estate investment ; Rate of return ; European Union |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-028&r=fmk |
| By: | Ricardo Lagos |
| Abstract: | I develop an asset-pricing model in which financial assets are valued for their liquidity—the extent to which they are useful in facilitating exchange—as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985). |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:373&r=fmk |
| By: | Gregory Birg; Brian M. Lucey |
| Abstract: | The objective of this paper is to study capital market integration in smaller european countries and its implications for an international portfolio investment allocation. A time-varying analysis based on Barari (2004) suggests that the markets have recently started moving towards international financial integration. Results vary from country to country and sample countries can be broken down into distinctive groups according to their recent integration score performance: a) countries which are becoming increasingly integrated with both regional European and international equity markets (Estonia, Hungary, Czech Republic, Lithuania, Poland) b) countries which have becoming increasingly integrated with the regional market, while growing segmented with the world market (Latvia, Slovakia, Slovenia). This is an encouraging indicator in that none of the countries have been growing segmented from the European equity markets since the EU accession. |
| Keywords: | Stock Market Integration, Portfolio Diversification, Smaller European markets, Time-varying methods. |
| Date: | 2006–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp136&r=fmk |
| By: | Calvet, Laurent E. (Department of Finance, HEC School of Management and CREST); Campbell, John Y. (Department of Economics, Littauer Center); Sodini, Paolo (Department of Finance, Stockholm School of Economics) |
| Abstract: | This paper investigates the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden. The analysis focuses on two main sources of inefficiency in the financial portfolio: underdiversification of risky assets (“down”) and nonparticipation in risky asset markets (“out”). We find that while a few households are very poorly diversified, the cost of diversification mistakes is quite modest for most of the population. For instance, a majority of participating Swedish households are sufficiently diversified internationally to outperform the Sharpe ratio of their domestic stock market. We document that households with greater financial sophistication tend to invest more efficiently but also more aggressively, so the welfare cost of portfolio inefficiency tends to be greater for these households. The welfare cost of nonparticipation is smaller by almost one half when we take account of the fact that nonparticipants would be unlikely to invest efficiently if they participated in risky asset markets. |
| Keywords: | Asset allocation; Diversification; Familiarity; Participation |
| JEL: | D50 D90 E30 O10 |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0195&r=fmk |
| By: | Ilias Lekkos (Eurobank Ergasias); Costas Milas (Keele University, Department of Economics); Theodore Panagiotidis (Loughborough University) |
| Abstract: | This paper explores the ability of common risk factors to predict the dynamics of US and UK interest rate swap spreads within a linear and a non-linear framework. We reject linearity for the US and UK swap spreads in favour of a regime-switching smooth transition vector autoregressive (STVAR) model, where the switching between regimes is controlled by the slope of the US term structure of interest rates. The first regime is characterised by a "flat" term structure of US interest rates, while the alternative is characterised by an "upward" sloping US term structure. We compare the ability of the STVAR model to predict swap spreads with that of a non-linear nearest-neibours model as well as that of linear AR and VAR models. We find some evidence that the nearest-neighbours and STVAR models predict better than the linear AR and VAR models. However, the evidence is not overwhelming as it is sensitive to swap spread maturity. We also find that within the non-linear class of models, the nearest-neighbours model predicts better than the STVAR model US swap spreads in periods of increasing risk conditions and UK swap spreads in periods of decreasing risk conditions. |
| Keywords: | Interest rate swap spreads, term structure of interest rates, regime switching, smooth transition models, nearest-neighbours, forecasting |
| JEL: | C51 C52 C53 E43 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:kee:kerpuk:2005/13&r=fmk |
| By: | Juan Ignacio Pena; Rosa Rodriguez |
| Abstract: | This paper presents a model linking two financial markets (stocks and bonds) with the real business cycle, in the framework of the Consumption Capital Asset Pricing Model with Generalized Isoelastic Preferences. Besides interest rate term spread, the model includes a new variable to forecast economic activity: stock market term spread, which constitutes the slope of expected stock market returns. The empirical evidence documented in this paper suggests systematic relationships between the state of the business cycle and the shapes of two yield curves (interest rates and expected stock returns). Results are robust to changes in measures of economic growth, stock prices, interest rates and expectation-generating mechanisms. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb063209&r=fmk |
| By: | Jonathan A. Batten; Peter G. Szilagyi |
| Abstract: | This study investigates the development of Korea’s foreign bond (Arirang) market for won-denominated foreign bonds. We provide an institutional perspective and discuss the problems, concerns and key issues related to the development of this market. We find no evidence that Arirang issuance either crowded out local debt or had exchange rate implications. Overall, the Korean experience provides valuable lessons for other emerging nations seeking to build bond markets for local and foreign issuers. Instigating market development demands an enabling infrastructure, the nurturing of local and international demand and the deregulation of capital flows. This process is demanding, as the sophistication of the local bond market does not make it appealing to foreign borrowers per se. |
| Keywords: | Arirang bonds; foreign bonds; bond market development |
| Date: | 2006–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp138&r=fmk |
| By: | Gauthier Lanot (Keele University, Department of Economics); Peter Lawrence (Keele University, Department of Economics) |
| Abstract: | Changes in financial policy are expected to result in the greater availability of credit as financial controls are relaxed and banking competition is increased. This ‘financial deepening’ should show up in ahigher consumption expenditure in areas where credit is often required, such as durable consumption, education and health. We use the household consumption data collected by India’s National Sample Survey Organisation for 11 rounds which straddle the period before and during financial liberalization (i.e. 1987-2000).We generate measures of the within-households shifts in distribution of consumption and see how far these are correlated with financial development variables. We find that at the macro level, financial depth did not increase from the beginning to the end of the period under study. However we did find some association between some of the financial development variables and expenditure on durables goods, although the changes in behaviour are very small. |
| Keywords: | Financial liberalization, financial depth, durables, household consumption, credit. |
| JEL: | D12 O12 O16 O23 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:kee:kerpuk:2005/15&r=fmk |
| By: | Massimo Guidolin; Stuart Hyde |
| Abstract: | We calculate optimal portfolio choices for a long-horizon, We use multivariate regime switching vector autoregressive models to characterize the time-varying linkages among the Irish stock market, one of the top world performers of the 1990s, and the US and UK stock markets. We find that two regimes, characterized as bear and bull states, are required to characterize the dynamics of excess equity returns both at the univariate and multivariate level. This implies that the regimes driving the small open economy stock market are largely synchronous with those typical of the major markets. However, despite the existence of a persistent bull state in which the correlations among Irish and UK and US excess returns are low, we find that state comovements involving the three markets are so relevant to reduce the optimal mean variance weight carried by ISEQ stocks to at most one-quarter of the overall equity portfolio. We compute time-varying Sharpe ratios and recursive mean-variance portfolio weights and document that a regime switching framework produces out-of-sample portfolio performance that outperforms simpler models that ignore regimes. These results appear robust to endogenizing the effects of short term interest rates on excess stock returns. |
| Keywords: | Stock exchanges |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-029&r=fmk |
| By: | Ivo J.M. Arnold; Ronald MacDonald; Casper G. de Vries (Nyenrode Business Universiteit) |
| Abstract: | A widely held notion holds that freely floating exchange rates are excessively volatile when judged against fundamentals and when moving from fixed to floating exchange rates. We re-examine the data and conclude that the disparity between the fundamentals and exchange rate volatility is more apparent than real, especially when the Deutsche Mark, rather than the dollar is chosen as the numeraire currency. We also argue, and indeed demonstrate, that in cross-regime comparisons one has to account for certain ‘missing variables’ which compensate for the fundamental variables’ volatility under fixed rates. |
| Keywords: | Exchange rates; Exchange rate regimes; Excess volatility. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:nijrep:2006-04&r=fmk |
| By: | Massimo Caruso (Bank of Italy) |
| Abstract: | This paper examines the impact of stock market fluctuations on money demand in Italy taking a long-run perspective. The empirical findings suggest that stock market fluctuations contribute to explain temporary movements in the liquidity preference, rather than its secular patterns. Overall, a positive association emerges between an index of stock market prices that includes dividends and real money balances; however, the estimated long-run relationship is unstable. In a dynamic, short-term specification of money demand the estimated coefficient on deflated stock prices is positive, thus compatible with a wealth effect, in the years 1913-1980, while in the last two decades a substitution effect prevailed and the correlation between money and share prices has been negative. This is likely to reflect a change in financial structure and the increasing role of opportunity costs defined over a wider range of assets. These results are confirmed by data on stock market capitalisation. Moreover, in the recent period stock market turnover and money growth are positively correlated. |
| Keywords: | long-run money demand function, asset prices volatility |
| JEL: | E41 E44 N14 N24 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_576_06&r=fmk |
| By: | Ivo J.M. Arnold; Evert B. Vrugt (Nyenrode Business Universiteit) |
| Abstract: | This paper provides empirical evidence on the link between stock market volatility and macroeconomic uncertainty. We show that US stock market volatility is significantly related to the dispersion in economic forecasts from SPF survey participants over the period from 1969 to 1996. This link is much stronger than that between stock market volatility and the more traditional time-series measures of macroeconomic volatility, but disappears after 1996. |
| Keywords: | Stock market volatility, macro-economic factors, survey data |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:nijrep:2006-08&r=fmk |
| By: | Glenn D. Rudebusch; Eric T. Swanson; Tao Wu |
| Abstract: | In 2004 and 2005, long-term interest rates remained remarkably low despite improving economic conditions and rising short-term interest rates, a situation that former Fed Chairman Alan Greenspan dubbed a "conundrum." We document the extent and timing of this conundrum using two empirical no-arbitrage macro-finance models of the term structure of interest rates. These models confirm that the recent behavior of long-term yields has been unusual--that is, it cannot be explained within the framework of the models. Therefore, we consider other macroeconomic factors omitted from the models and find that some of these variables, particularly declines in long-term bond volatility, may explain a portion of the conundrum. Foreign official purchases of U.S Treasuries appear to have played little or no role. |
| Keywords: | Monetary policy - United States ; Federal funds rate ; Treasury bonds |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-16&r=fmk |
| By: | Ugur Lel |
| Abstract: | Corporate governance can provide mechanisms to effectively monitor the use of derivatives. Using a sample of firms from 34 countries over the period 1990 to 1999, I find that firms with strong governance use currency derivatives for value-maximizing reasons as established by theory. On the other hand, firms with weak governance use such derivatives mostly for managerial self-interests and selective hedging. These results are robust to using a sample of US firms, the use of foreign denominated debt as an alternative strategy to hedge currency risk, selection bias, and a possible endogeneity between hedging policies, corporate governance, and other financial policies. Overall, the results serve as the first comprehensive evidence on the impact of corporate governance on why firms use derivatives and consequently why they hedge. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:858&r=fmk |
| By: | Michel Beine; Jérôme Lahaye; Sébastien Laurent; Christopher J. Neely; Franz C. Palm |
| Abstract: | We analyze the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we decompose exchange rate volatility into two major components: a continuously varying component and jumps. Some coordinated interventions affect the temporary (jump) part of the volatility process. Most coordinated operations are associated with an increase in the persistent (continuous) part of exchange rate volatility. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-031&r=fmk |
| By: | Barbara Berkel (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | Despite large potential gains, international equity investment is less diversified across countries than predicted by the international version of the traditional capital asset pricing model (ICAPM). This paper provides empirical evidence on the impact of capital market frictions on international equity portfolios using data on bilateral equity holdings. Two important findings are reported: First, besides a home bias in equities, a ‘friendship bias’ can be observed for some country pairs. Second, indirect barriers such as the degree of financial market development and especially information asymmetries have strong explanatory power, whereas direct barriers such as capital flow restrictions have no impact on the portfolio share of foreign equities. |
| JEL: | G11 G15 F21 F36 |
| Date: | 2004–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:04061&r=fmk |
| By: | Param Silvapulle; Xibin Zhang |
| Abstract: | This paper investigates whether or not there are significant changes in the dependence between the Thai equity market and six Asian markets - namely, Singaporean, Malaysian, Hong Kong, Korean, Indonesian and Taiwanese markets - due to 1997-July financial crisis. If so, this may be an indication that the underlying bivariate joint distributions capturing the dependence between the Thai market and these six markets have changed. We employ the chi-plot proposed by Fisher and Switzer (2001) and the Kendall plot proposed by Genest and Boies (2003) to examine the dependence in these six markets for the pre- and post-1997 financial crisis periods. We find that marginal distributions of all seven markets have notably changed due to this financial crisis, and that the functional forms of the underlying joint distributions generating the dependence in the Korean, Indonesian and Taiwan markets have also changed for the post-crisis period. It appears that the same parametric copula can capture the dependence in the Singapore, Malaysia and Hong Kong markets for both pre- and post-crisis periods, and that only the tail indices of bivariate distributions between the Thai and these three markets have changed. It is interesting to observe that the same conclusions can be drawn using both chi- and Kendall plots. |
| Keywords: | chi-plot, copula, dependence, Kendall-plot |
| JEL: | C14 G14 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2006-9&r=fmk |
| By: | Chiaki Hara (Institute of Economic Research, Kyoto University); James Huang (Department of Accounting and Management, Lancaster University Management School); Christoph Kuzmics (MEDS, Kellogg School of Management, Northwestern University) |
| Abstract: | In an exchange economy in which there is a complete set of markets for macroeconomic risks but no market for idiosyncratic risks, we consider how the efficient risk-sharing rules for the macroeconomic risk are affected by the heterogeneity in the consumersf risk attitudes and idiosyncratic risks. We provide sufficient conditions under which an idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), the determinant of the curvatures of the efficient risk-sharing rules. While the curvature of the risk-sharing rules at high consumption levels are governed by the consumersf risk attitudes, the curvature at low consumption levels depend not only on the risk attitudes but also on the lower tail distributions of the idiosyncratic risks. |
| Keywords: | Efficient risk-sharing rules, relative risk aversion, absolute risk tolerance, Inada condition, idiosyncratic risks, background risks, incomplete markets. |
| JEL: | D51 D58 D81 G11 G12 G13 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:621&r=fmk |
| By: | Riccardo LUCCHETTI (Universita' Politecnica delle Marche, Dipartimento di Economia); Giulio PALOMBA ([n.d.]) |
| Abstract: | Forecasting models for bond yields often use macro data to improve their properties. Unfortunately, macro data are not available at frequencies higher than monthly.;In order to mitigate this problem, we propose a nonlinear VEC model with conditional heteroskedasticity (NECH) and find that such model has superior in-sample performance than models which fail to encompass nonlinearities and/or GARCH-type effects.;Out-of-sample forecasts by our model are marginally superior to competing models; however, the data points we used for evaluating forecasts refer to a period of relative tranquillity on the financial markets, whereas we argue that our model should display superior performance under "unusual" circumstances. |
| Keywords: | conditional heteroskedasticity, forecasting, interest rates, nonlinear cointegration |
| JEL: | C32 C53 E43 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:261&r=fmk |
| By: | Annalisa Castelli; Gerald P. Dwyer, Jr.; Iftekhar Hasan |
| Abstract: | We examine the relationship between the number of bank relationships and firms’ performance, evaluating possible differential effects related to firms’ size. Our sample of firms from Italy includes many small firms, 99 percent of which are not listed and for which bank debt is a major source of financing. In the sample, 4 percent of the firms have a single bank relationship, and 66 percent of them have five or fewer relationships. We find that return on equity and return on assets decrease as the number of bank relationships increases, with a stronger relationship for small firms than for large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, our results are consistent with analyses indicating that fewer bank relationships reduce information asymmetries and agency problems, which outweigh negative effects connected to holdup problems. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2006-05&r=fmk |
| By: | Matteo Pelagatti; Stefania Rondena |
| Abstract: | The Dynamic Conditional Correlation (DCC) model of Engle has made the estimation of multivariate GARCH models feasible for reasonably big vectors of securities’ returns. In the present paper we show how Engle’s multi-step estimation of the model can be easily extended to elliptical conditional distributions and apply different leptokurtic DCC models to twenty shares listed at the Milan Stock Exchange. |
| Keywords: | Multivariate GARCH, Correlation, Elliptical distributions, Fat Tails |
| JEL: | C32 C51 C87 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:mis:wpaper:20060508&r=fmk |
| By: | Dimitrios Malliaropulos; Ekaterini Panopoulou; Nikitas Pittis; Theologos Pantelidis |
| Abstract: | This paper employs a new methodology for measuring the contribution of growth and interest rate differentials to the half-life of deviations from Purchasing Power Parity (PPP). Our method is based on directly comparing the impulse response function of a VAR model, where the real exchange rate is Granger caused by these variables with the impulse response function of a univatiate ARMA model for the real exchange rate. We show that the impulse response function of the VAR model is not, in general, the same with the impulse response function obtained from the equivalent ARMA representation, if the real exchange rate is Granger caused by other variables in the system. The difference between the two functions captures the effects of the Granger-causing variables on the half-life of deviations from PPP. Our empirical results for a set of four currencies suggest that real and nominal long term interest rate differentials and real GDP growth differentials account for 22% to 50% of the half-life of deviations from PPP. |
| Keywords: | real exchange rate; persistence measures; VAR; impulse response function; PPP. |
| Date: | 2006–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp135&r=fmk |
| By: | Axel Börsch-Supan; Alexander Ludwig; Joachim Winter (Mannheim Research Institute for the Economics of Aging (MEA)) |
| JEL: | E27 F21 G15 H55 J11 |
| Date: | 2004–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:04064&r=fmk |
| By: | Philip Lane; Sébastien Wälti |
| Abstract: | We provide a quantitative analysis of the impact of the euro on European financial integration. We consider both volume- and price-based indicators. In general, we find evidence that common membership of the euro area strengthens bilateral financial linkages. However, we emphasize that EMU has only been one innovation driving European financial integration in recent years, with global factors also increasingly important. |
| Date: | 2006–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp139&r=fmk |
| By: | Maximilian J B Hall (Dept of Economics, Loughborough University) |
| Abstract: | Should be added soon |
| Keywords: | Banking, Japan |
| JEL: | L11 L13 L93 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2004_13&r=fmk |
| By: | Thomas Lagoarde-Segot; Brian M. Lucey |
| Abstract: | We examine the issue of possible portfolio diversification benefits into seven Middle-Eastern and North African (MENA) stock markets. We construct international portfolios in dollars and local currencies. We compute the ex-ante weights by plugging five optimization models and two risk measures into a rolling block-bootstrap methodology. This allows us to derive 48 monthly rebalanced ex-post portfolio returns. We analyze the out-of-sample performance based on Sharpe and Sortino ratios and the Jobson-Korkie statistic. Our results highlight outstanding diversification benefits in the MENA region, both in dollar and local currencies. Overall, we show that these under-estimated, under-investigated markets could attract more portfolio flows in the future. |
| Keywords: | Portfolio Allocation, Emerging Markets, Middle East and North Africa. |
| Date: | 2006–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp141&r=fmk |
| By: | Evelyn Korn (Faculty of Business Administration and Economics, Philipps Universitaet Marburg) |
| Abstract: | The information quality of mandatory financial reporting depends on two factors: (1) Are standards appropriate to produce financial statements that provide investors with sufficient information? (2) Is compliance to standards enforced by appropriate institutions? This paper addresses the question if firms should be able to create hidden reserves as an example for the effect of standards on information quality. The analysis shows that rational investors are able to correctly decipher financial statements – independent of the standards in use. The question of sufficient enforcement proves to have a deeper impact on the quality of information. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mar:volksw:200601&r=fmk |
| By: | Ricardo Coehlo; Claire Gilmore; Brian M. Lucey |
| Abstract: | The minimum spanning tree concept from physics is used to study the process of market integration for a large group of national stock market indices. We show how the tree grows over time and describe the dynamics of its various characteristics. Over the period studied, 1997-2006, the tree shows a tendency to become less bushy. This implies that global equity markets are increasingly interrelated. The consequence for global investors is a potential reduction of the benefits of international portfolio diversification. |
| Keywords: | Econophysics, minimal spanning trees |
| Date: | 2006–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp142&r=fmk |
| By: | Christina E. Bannier (geb. Metz); Falko Fecht; Marcel Tyrell |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fra:franaf:165&r=fmk |
| By: | Lothar Essig (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | This paper presents selected highlights drawn from the German SAVE surveys in 2001 and 2003, expanding the findings of Börsch-Supan and Essig (2003) along three lines. First, it analyses the households' assessment of their general, economic and financial well-being in the past, present and future. Second, it reports findings for the respondents' information level on, and expectations about, the public pension system. Third, it presents answers to a newly developed set of questions about risk. Specifically, it tests the reliability of the experimental question design and links self-assessed risk to respondents' financial behavior. |
| JEL: | D12 |
| Date: | 2005–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:05083&r=fmk |
| By: | Marcello Pericoli (Banca d’Italia); Marco Taboga (Banca d’Italia) |
| Abstract: | We study the dynamics of risk premiums on the German bond market, employing no-arbitrage term-structure models with both observable and unobservable state variables, recently popularized by Ang and Piazzesi (2003). We conduct a specification analisys based on a new canonical representation for this class of models. We find that risk premiums display a considerable variability over time, are strongly counter-cyclical and bear no significant relation to inflation. |
| Keywords: | term structure models, yield curve, risk premium |
| JEL: | C5 G1 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_580_06&r=fmk |
| By: | Axel Börsch-Supan; Lothar Essig (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | Demographic change presents major financing problems for the pay-as-you-go pension system. In response to these problems, the 2001 and 2004 German pension reforms reduced the statutory level of benefits from the pay-as-you system. The resulting pension gap is supposed to be filled by funded second and third pillar private pensions. This paper examines the extent to which households are in a position today to close this gap with their personal assets, assuming that they stick to their current saving and asset accumulation behaviour. Four critical factors are relevant to this issue: 1. the anticipated life expectancy, 2. the level of personal assets on retirement 3. the expected age of retirement, and 4. the anticipated interest rate. Our results indicate that about a third of German households will not be able to fill the pension gap unless they were to change their current savings behaviour. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:05085&r=fmk |
| By: | Prasad Bidarkota (Department of Economics, Florida International University); Brice Dupoyet (Department of Finance, Florida International University) |
| Abstract: | We study the consumption based asset pricing model in a discrete time pure exchange setting with incomplete information. Incomplete information leads to a filtering problem which agents solve using the Kalman filter. We characterize the solution to the asset pricing problem in such a setting. Empirical estimation with US consumption data indicates strong statistical support for the incomplete information model versus the benchmark complete information model. We investigate the ability of the model to replicate some key stylized facts about US equity and riskfree returns. |
| Keywords: | asset pricing, incomplete information, Kalman filter, equity returns, riskfree returns |
| JEL: | G12 G13 E43 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:0603&r=fmk |
| By: | Michela Lacangellera; Paolo Mariani |
| Abstract: | A strategy of exploratory multidimensional statistical analysis about key attributes of banking services is proposed. A static perspective, showing customers evaluation of banking offer as a whole, is followed by a dynamic view, analyzing regional paths across the considered waves, according to the importance and evaluation of the service attributes. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:mis:wpaper:20050601&r=fmk |
| By: | Lindblad, Hans (Sveriges Riksdag); Sellin, Peter (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | In this paper we simultaneously estimate the real exchange rates between the Swedish Krona, the US Dollar and the Euro. A prime candidate for explaining the exchange rate movements is relative potential output. Since this variable is unobservable, cyclical and potential output are estimated in an unobserved components framework together with a Phillips curve. Our empirical exchange rate results are in line with theory. Increases in relative potential output and the terms of trade strengthen the exchange rate, while a relative increase of the fraction of middle-aged people in the population and budget deficits depreciate the exchange rate. The estimates suggest that the recent deterioration of the relative budget situation for the US versus Europe is a prime candidate for explaining the USD/EUR exchange rate change lately. |
| Keywords: | Equilibrium real exchange rate; expectations augmented Phillips curve; unobserved-components model |
| JEL: | C32 E31 F31 F41 |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0193&r=fmk |
| By: | Pieter Walhof*; André B. Dorsman; André Thibeault (Nyenrode Business Universiteit) |
| Abstract: | Recently Life Insurance Securitisation practices have been probed in dedicated areas to access the wider capital markets. These developments have shown a rising interest among leading insurers and reinsurers to start building experience with securitisation practices, either for risk transfer, raising additional capital or a combination of these. As these structures have proven to be cost effective and generally accepted in the banking segment it is foreseen that securitisation can become an accepted method in insurance environments too in the foreseeable future. This paper provides an overview of recent practices in Life Insurance Securitisation and aims to demonstrate that Life Insurance Securitisation has viable potential for insurance companies in the future to reduce the cost of (regulatory) capital and transferring risk to the capital markets. |
| Keywords: | Life Insurance Securitisation, risk transfer, capital raising |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:nijrep:2005-05&r=fmk |
| By: | Axel Börsch-Supan; Jens Köke; Joachim Winter (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | This paper shows that the capital market effects of population aging and pension reform are particularly strong in continental European economies such as France, Germany, and Italy. Reasons are threefold: these countries have large and ailing pay-as-you-go public pension systems, relatively thin capital markets and less than benchmark capital performance. The aging process will force the younger generations in these countries to provide more retirement income through own private saving. Capital markets will therefore grow in size and active institutional investors will become more important as intermediaries. Aim of this paper is to show that these changes are likely to generate beneficial side effects in terms of improved productivity and aggregate growth. |
| JEL: | Z00 |
| Date: | 2004–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:04053&r=fmk |
| By: | Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg) |
| Abstract: | This paper gives an account of the financial crisis that took place in Korea from the point of view of the Korean population using survey data collected in 1998 and 1999. Although both, internal and external factors were blamed as causes, domestic factors were considered to be of greater importance. After identifying respondents as supporting either market-based or statebased reform strategies using factor analysis, various determinants of these alternative views are being analyzed within the framework of regression models. A particularly interesting result is that, contrary to theoretical assumptions and empirical evidence on other regions, it is political ideology and not individual economic determinants that helps to explain the respondents’ attitudes towards reform strategies in Korea. |
| Keywords: | South Korea, financial crisis, public opinion, economic reform strategies institution |
| JEL: | O5 F3 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mar:volksw:200504&r=fmk |
| By: | Bevilacqua, Franco (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology) |
| Abstract: | This paper is based on a recent paper by Juselius and MacDonald (2000, 2003) and two `Journal of Econometrics' article s by Juselius (1995) and Johansen and Juselius (1992). The basic feature in all these articles is that the joint modelling of international parity conditions, namely ppp and uip, produces stationary relations showing an important interaction between the goods and the capital markets. We replaced the consumer price index (CPI) considered by Juselius and MacDonald with the producer price index (PPI) to check whether the international parity relationships still cointegrate. To our surprise we outstandingly produced similar results to those by Juselius and MacDonald, suggesting that the cointegration relationships in the international parity conditions hold also if we use different measures of prices. What is striking in our results is that even if there is no direct cointegration relation between CPI and PPI both in Germany and USA, the cointegration relation found between ppp and uip still holds notwithstanding of how ppp is measured. |
| Keywords: | ppp, uip, Fisher parity |
| JEL: | E31 E43 F31 F32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2006012&r=fmk |
| By: | Ron Borzekowski; Elizabeth K. Kiser; Shaista Ahmed |
| Abstract: | Debit card use at the point of sale has grown dramatically in recent years in the U.S., and now exceeds the number of credit card transactions. However, many questions remain regarding patterns of debit card use, consumer preferences when using debit, and how consumers might respond to explicit pricing of card transactions. Using a new nationally representative consumer survey, this paper describes the current use of debit cards by U.S. consumers, including how demographics affect use. In addition, consumers' stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments. We also examine the relationship between household financial conditions and payment choice. Finally, we use a key variable on bank-imposed transaction fees to analyze price sensitivity of card use, and find a 12 percent decline in overall use in reaction to a mean 1.8 percent fee charged on certain debit card transactions; we believe this represents the first microeconomic evidence in the United States on price sensitivity for a card payment at the point of sale. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2006-16&r=fmk |
| By: | Boubacar Diallo (LEO - Laboratoire d'économie d'Orleans - [CNRS : UMR6221] - [Université d'Orléans]) |
| Abstract: | l'objectif de cette recherche est de développer un modèle de Credit Scoring en utilisant un échantillon de 269 emprunteurs individuels de l'institution de micro-finance Nyèsigiso au Mali. Les résultats ont montré l'importance de la relation de long terme, du taux d'intérêt, des coûts de transactions et du rationnement dans la prédiction du défaut de remboursement. Le modèle qui a été développé à partir de la régression logistique et de l'analyse discriminante, prédit correctement dans plus 70% des cas. Une fixation plus conservatrice du point de coupure de 0.5 à 0.4 améliore significativement pouvoir de prédiction sur les mauvais prêts sans affecter la performance globale de prédiction du modèle. L'analyse des cas de rejets a montré une certaine cohérence entre les prédictions du modèle et les décisions de rejet de l'institution. |
| Keywords: | Micro-finance ; Credit Scoring ; Régression logistique ; Probabilité de défaut |
| Date: | 2006–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00069163_v1&r=fmk |
| By: | Ricardo Lagos |
| Abstract: | A distinction is drawn between outside money—money that is either of a fiat nature or backed by some asset that is not in zero net supply within the private sector—and inside money, which is an asset backed by any form of private credit that circulates as a medium of exchange. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:374&r=fmk |
| By: | Robert Breunig; Deborah Cobb-Clark; Xiaodong Gong; Danielle Venn |
| Abstract: | We use unique data in which both partners report about household finances to demonstrate that there is often disagreement about whether the household has experienced financial difficulty in the past year. Four alternative explanations for this disagreement are tested using the data. The results indicate that disagreement may be related to the severity of the underlying material hardship rather than to gender differences or individual (as opposed to household) views of financial difficulty. We find only weak evidence that information asymmetries explain couple disagreement about financial difficulty. This implies that standard surveys which collect information about the household’s financial position from a representative individual may fail to completely characterize the nature of material hardship. |
| Keywords: | Household Finances, Survey Methodology, Material Hardship |
| JEL: | C42 D14 I31 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:520&r=fmk |
| By: | Mathias Sommer (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | We start out from a comparison of aggregate trends in German households’ portfolio shares and participation rates as they derive from micro data and from the National Accounts. We find the broad trends supported by both data sources. By international comparison the portfolio share of safe investments with banks in Germany has always been high. It is continuously and strongly declining though. Life insurance has gained substantial importance since the 1960s. In the 1990s it lost some of its previous dominance with the rise of stocks and mutual funds. We find that the popularity of mutual funds continued through the stock market downturn. The baisse caused rather few investors to finally quit on direct investments in the stock market. Looking at the underlying developments at the age- and cohort-level, we aim to compare empirical life-cycle trajectories with the implications of theoretical models and assess the importance of age- and cohort-effects in the observed aggregate trends. We find the rising importance of securities as well as the declining share of saving accounts to be prominent at almost all ages. We observe a declining importance of life insurance for the oldest cohorts and – somewhat surprisingly – for the youngest cohorts. Last, we use a decomposition of the observed trends into age- and cohort-effects and highlight the crucial assumptions that there is a unique age-profile and cohort differences all take the form of shifts to this age-profile. We argue that both assumptions might well be at odds with theoretical considerations and therefore harm the desired interpretation. |
| Date: | 2005–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:05082&r=fmk |
| By: | Alexander Ludwig; Alexander Zimper (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | We define pessimistic, respectively optimistic, investors as CEU (Choquet expected utility) decision makers who update their pessimistic, respectively optimistic, beliefs according to a pessimistic (Dempster-Shafer), respectively optimistic, update rule. This paper then demonstrates that, in contrast to optimistic investors, pessimistic investors may strictly prefer investing in an illiquid asset to investing in a liquid asset. Key to our result is the dynamic inconsistency of CEU decision making, implying that a CEU decision maker ex ante prefers a different strategy with respect to prematurely liquidating an uncertain long-term invest- ment project than after learning her liquidity needs. Investing in an illiquid asset then serves as a commitment device guaranteeing an ex ante favorable outcome. |
| JEL: | D81 G20 |
| Date: | 2004–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:04060&r=fmk |
| By: | Ron Borzekowski; Elizabeth K. Kiser |
| Abstract: | Dramatic changes have occurred in the U.S. payment system over the past two decades, most notably an explosion in electronic card-based payments. Not surprisingly, this shift has been accompanied by a series of policy debates, all of which hinge critically on understanding consumer behavior at the point of sale. Using a new nationally representative survey, we transform consumers' responses to open-ended questions on reasons for using debit cards to estimate a characteristics-based discrete-choice demand model that includes debit cards, cash, checks, and credit cards. Market shares computed using this model line up well with aggregate shares from other sources. The estimates are used to conduct several counterfactual experiments that predict consumer responses to alternative payment choices. We find that consumers respond strongly to elapsed time at the checkout counter and to whether the payment instrument draws from debt or liquidity. In addition, substitution patterns vary substantially with demographics. New "contactless" payment methods designed to replace debit cards are predicted to draw market share from cash, checks, and credit, in that order. Finally, although we find an effect of cohort on payment technology adoption, this effect is unlikely to diminish substantially over a 10-year horizon. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2006-17&r=fmk |
| By: | Gabriella Legrenzi (Keele University, Department of Economics); Costas Milas (Keele University, Department of Economics) |
| Abstract: | Using UK data over the 1973q1-2004q1 period, we find that the dynamics of the real exchange rate, real wages and unemployment vary both with large versus small real exchange rate disequilibria and rising versus falling unemployment regimes. The short-run real exchange rate adjusts only when large disequilibrium deviations occur. We report fast real exchange rate adjustment in periods of falling unemployment. This implies that prices and wages are more flexible when real output is high. When the real exchange rate is highly undervalued, workers respond to an improvement in domestic competitiveness by demanding and getting higher wages. Unemployment is reduced following gains in competitiveness when the real exchange rate is further away from equilibrium. |
| Keywords: | Real Exchange Rate; Unemployment; Smooth Transition Vector Error Correction Model. |
| JEL: | C32 C51 C52 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:kee:kerpuk:2005/08&r=fmk |
| By: | Ivo J.M. Arnold (Nyenrode Business Universiteit) |
| Abstract: | This paper uses a simple model of optimal monetary policy to consider whether the influence of national output and inflation rates on ECB interest rate setting should equal a country’s weight in the eurozone economy. The findings depend on assumptions regarding interest rate elasticities, exchange rate elasticities, and openness vis-à-vis non-eurozone countries. The major conclusion is that the ECB should respond less to inflation shocks in EMU countries that have strong trading ties with non-eurozone countries. Intuitively, these countries can take care of some of the monetary tightening themselves, through a real appreciation vis-à-vis their non-eurozone trading partners. |
| Keywords: | EMU, Taylor rule; Optimal monetary poli |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:nijrep:2005-01&r=fmk |
| By: | Nicholas Barr |
| Abstract: | Many countries face increasing fiscal problems financing pensions in the face of population aging. There is controversy about th e underlying economic theory, about th e extent of the problem, and about th ebest mix of policies to protect old-age security. This paper establishes the areas of debate: gives thumbnail descriptions of pension arrangements in different countries; discusses the main analytical and empirical issues relevant to thinking about pension design; and assess a range of policy directions. The main conclusions are that what matters most is effective government and economic growth; that the debate between pay-as-you-go and funding is secondary; that good pension schemes can take many forms; and that there is a problem in financing pensions, but not a crisis. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp562&r=fmk |
| By: | Antonio Nicolò; Piero Tedeschi |
| Abstract: | Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing prenuptial agreements. Partners who value more the benefit of the marriage wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement. |
| Keywords: | symmetric information, incomplete contracts, prenuptial agreement. |
| JEL: | D82 K12 D10 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mis:wpaper:20060506&r=fmk |
| By: | Jean Chateau; Xavier Chojnicki |
| Abstract: | We present a quantitative analysis of the impact of differential ageing and pension reforms on capital and labour market and, in particular, on intra-European capital flows. To this end, we develop a stylized general equilibrium model with overlapping generations of heterogeneous agents for the three largest European countries: France, Germany and the United-Kingdom. The model presents a structure halfway between pure general equilibrium models with rigorous microeconomic foundations accounting models where the macroeconomic environment remains exogenous. We show that the dynamics of capital accumulation and pension system sustainability are totally different depending on the assumption concerning economic openness. Two main conclusions may be drawn from the examination of the various prospective scenarios. First of all, the critical assumptions for PAYG systems are the future trend of the global factor productivity and the behavior of agents concerning activity and labour market participation. Secondly, in the long run, resorting to debt financing seems to be a dead end to finance retirement systems. |
| Keywords: | Public pensions; ageing; computable general equilibrium model |
| JEL: | H55 J1 C68 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2006-09&r=fmk |
| By: | Virmani Vineet |
| Abstract: | This study assesses and compares, on select criteria of evaluation, the time series of daily term structure estimates provided by the National Stock Exchange (NSE) [using the Nelson-Siegel (1987; NS) methodology] with author’s own estimates of NS, Svensson (1992; SV) and Cox-Ingersoll-Ross (1985; CIR). While no model comes across as best on all criteria of evaluation, NS as estimated by NSE (and in this study) turn out to be the worst of the lot. Wherever CIR comes out to be better than SV, however, the difference is only marginal. As none of the models came out to be best on all days, given the numerical tractability of parsimonious models and availability of relatively cheap computing resources, it is suggested that NSE report estimates based on 3/4 competing specifications and not just using NS, which should be phased out. A suitable alternative exists in SV. [Preliminary Draft. Please Don't Quote] |
| Date: | 2006–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2006-05-05&r=fmk |
| By: | Christopher Allsopp; Amit Kara; Edward Nelson |
| Abstract: | The United Kingdom*s monetary policy strategy is one of floating exchange rates and inflation forecast targeting, with the targeted measure referring to consumer prices. We consider whether it is welfare-reducing to target inflation in the CPI rather than in a narrower index; and the role of the exchange rate in the transmission of monetary policy actions to CPI inflation. We argue that it is appropriate to model imports as intermediate goods rather than as goods consumed directly by households. This leads to a simpler transmission mechanism of monetary policy, while also offering a sustainable explanation fore the weakness of the exchange rate/inflation relationship and making consumer price inflation an appropriate monetary policy target. |
| Keywords: | Inflation (Finance) - Great Britain ; Foreign exchange rates - Great Britain |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-030&r=fmk |
| By: | Axel Börsch-Supan; Barbara Berkel (Mannheim Research Institute for the Economics of Aging (MEA)) |
| JEL: | D1 J26 H55 |
| Date: | 2004–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:meawpa:04062&r=fmk |
| By: | Ben Craig; Joseph G. Haubrich |
| Abstract: | Changes in net lending hide the much larger and more variable gross lending flows. We present a series of stylized facts about gross loan flows and how they vary over time, bank size, and the business cycle. We look at both the intensive (increases and decreases) and extensive (entry and exits) margins. We compare these results with the output from a simple stochastic search model. |
| Keywords: | Bank loans ; Business cycles |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0604&r=fmk |
| By: | Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet MarburgAuthor-Name: Boris Hofmann); Boris Hofmann (Zentrum für Europäische Integrationsforschung, University of Bonn, Walter-Flex-Str. 3, D-53113 Bonn, Germany) |
| Abstract: | This paper compares the ECB’s conduct of monetary policy with that of the Bundesbank. Estimated monetary policy reaction functions for the Bundesbank (1979:4-1998:12) and the European Central Bank (1999:1-2004:5) show that, while the ECB and the Bundesbank react similarly to expected inflation, the ECB reacts significantly stronger to the output gap. Theoretical considerations suggest that this stronger response to the output gap may rather be due to a higher interest rate sensitivity of the German output gap than to a higher weight given to output stabilisation by the ECB. Counterfactual simulations based on the estimated interest rate reaction functions suggest that German interest rates would not have been lower under a hypothetical Bundesbank regime after 1999. However, this conclusion crucially depends on the assumption of an unchanged long-run real interest rate for the EMU period. Adjusting the Bundesbank reaction function for the lower long-run real interest rate estimated for the ECB regime reverses this conclusion. |
| Keywords: | Taylor rule, monetary policy, ECB, Bundesbank |
| JEL: | E5 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mar:volksw:200502&r=fmk |
| By: | Lucy F. Ackert; Narat Charupat; Richard Deaves; Brian D. Kluger |
| Abstract: | In twelve sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur. This finding suggests that both factors are important bubble drivers. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2006-06&r=fmk |
| By: | David Schmidt (Federal Trade Commission, Bureau of Economics); Robert S. Shupp (Department of Economics, Ball State University); James Walker (Department of Economics, Indiana University, Bloomington, IN) |
| Abstract: | Across many forms of rent seeking contests, the impact of risk aversion on equilibrium play is indeterminate. We design an experiment to compare individuals’ decisions across three contests which are isomorphic under risk-neutrality, but are typically not isomorphic under other risk preferences. The pattern of individual play across our contests is not consistent with a Bayes-Nash equilibrium for any distribution of risk preferences. We show that replacing the Bayes-Nash equilibrium concept with the quantal response equilibrium, along with heterogeneous risk preferences can produce equilibrium patterns of play that are very similar to the patterns we observe. |
| Keywords: | rent seeking, experiments, risk aversion, game theory |
| JEL: | C72 C92 D72 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bsu:wpaper:200506&r=fmk |
| By: | Nooteboom,Bart (Tilburg University, Center for Economic Research) |
| Keywords: | transaction costs;innovation;learning;inter-organizational relations;networks |
| JEL: | L14 L22 L24 O31 O32 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200636&r=fmk |
| By: | John Armour |
| Abstract: | The characterisation of a security interest as 'fixed' or 'floating' has generated much litigation in English courts. This is because a floating charge is subordinated by statute to other claims in the debtor's insolvency, whereas a fixed charge is not. This paper uses the example of the floating charge to argue that such statutory redistribution between claimants in corporate insolvency is generally undesirable. |
| Keywords: | corporate insolvency, law and finance, history of floating charge, bankruptcy priorities, secured credit. |
| JEL: | G32 G33 H23 K22 N43 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp319&r=fmk |
| By: | Kelly Edmiston |
| Abstract: | Nonbusiness bankruptcy filing rates have increased very rapidly over the last couple of decades. In 1980, roughly 15 of every 10,000 Americans filed for bankruptcy protection. By 2004, that number had reached 54 of every 10,000 Americans. These alarming increases in bankruptcy filing rates over the last decade were largely the impetus for the Bankruptcy Abuse Prevention and Consumer Protection Act, which went into effect in October, 2005. A substantial literature already exists that seeks to determine the causes of personal bankruptcy, but critical holes in the literature remain. In particular, existing studies offer only weak inferences about the role of stigma in explaining the decision to file for bankruptcy or in explaining regional variation in bankruptcy filing rates. I enhance the existing literature by using innovative approaches to measuring the effects of age and geography, traditional proxies for stigma, and by utilizing a novel proxy for stigma, namely, religious adherence. There is also a lack of consensus on the effects of gambling on bankruptcy, with most research finding no statistically significant relationships. I utilize a unique measure of proximity to gambling establishments and subsequently find more definitive results. The existing literature lacks consensus on the effects of homestead exemptions as well, with some finding positive effects, some finding negative effects, and still others finding no effects. I assert that the explanation of these inconsistent results may lie in endogeneity, and therefore I estimate two-stage models that effectively instrument for homestead exemptions. In addition, I explore the effects on bankruptcy filing rates of factors generally left out of existing studies, including small business and self-employment, a full distribution of age and income, more narrow demographic definitions, disability, lack of health insurance, public assistance, housing and vehicle choices, and additional information on debts and debt service. |
| Keywords: | Bankruptcy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkcw:2005-05&r=fmk |
| By: | Jeffrey R. Brown; Nellie Liang; Scott Weisbenner |
| Abstract: | Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, we test whether stock holdings among company executives is an important determinant of payout policy. We have three primary findings. First, we find that when top executives have greater stock ownership, and thus an incentive to increase dividends for personal liquidity reasons, there is a significantly greater likelihood of a dividend increase following the 2003 dividend tax cut, whereas no such relation existed in the prior decade when the dividend tax rate was much higher. This finding is strongest for dividend initiations, and is robust to a rich set of firm and shareholder characteristics. Second, we provide evidence that approximately one-third of the firms that initiated dividends in 2003, a higher share than in previous years, scaled back share repurchases by an amount sufficient to reduce their total payouts. This offset potentially raised the total tax burden on shareholders at these firms because share repurchases are still tax-advantaged relative to dividends. Third, we find that while dividend-paying firms with a larger fraction of individual shareholders had greater stock price gains in response to the tax cut, the market appears to have at least partially anticipated that executives with high stock ownership might raise dividends at the expense of share repurchases and increase the average tax burden for individuals, which is consistent with the presence of agency conflicts within the firm. |
| Keywords: | Dividends ; Taxation |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2006-14&r=fmk |
| By: | John Armour |
| Abstract: | This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an 'opt in' (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by Ônon-adjustingÕ creditors in a proportionate and effective manner, consistent with the Gebhard formula. |
| Keywords: | Corporate Law, Creditor Protection, Legal Capital, Regulatory Competition |
| JEL: | G32 G38 K12 K22 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp320&r=fmk |
| By: | Anthony Pennington-Cross |
| Abstract: | This paper examines what happens to mortgages in the subprime mortgage market once foreclosure proceeding are initiated. A multinominial logit model that allows for the interdependence of the possible outcomes or risks (cure, partial cure, paid off, and real estate owned) through the correlation of associated unobserved heterogeneities is estimated. The results show that the duration of foreclosures is impacted by many factors including contemporaneous housing market conditions, the prior performance of the loan (prior delinquency), and the state-level legal environment. |
| Keywords: | Mortgages |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-027&r=fmk |
| By: | Miguel Segoviano; Thomas Kirchmaier |
| Abstract: | We argue on theoretical grounds that obligatory compliance with stricter financial reporting rules (e.g. the US Sabanes-Oxley Act) may entail important unintended consequences. Paradoxically, the amount of misreporting may increase because corporate boards spend more valuable resources fulfilling statutory mandates rather than involving themselves in forward-looking strategy setting, As these surveillance devices are substitute methods of gauging management quality, when boards focus on the firm's internal control and accounting system they become semi-detached from strategy - their business acumen falters. Top executives are then judged primarily on the basis of financial metrics as opposed to long-term fit. Since the balance sheet review carries more weight in the board's decision-making process, the return to managerial book-cooking (a purely ¶influence¶ activity) and the risk of endorsing flawed business plans swell. This confirms a burgeoning sentiment among business leaders and scholars that boards should perhaps pay less rather than more heed to codified, verifiable 'good ' governance principles.JEL classification: D23, G30, K20, M21, M40.Keywords: Corporate Governance, Earnings Manipulation, Auditing, Misreporting, Sarbanes-Oxley Act, Combined Code on Corporate Governance |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp559&r=fmk |
| By: | Angela Birk |
| Abstract: | The paper shows an easy method to get the impulse responses of VARs of a stochastic recursive dynamic macro model by defining the transition matrix and the stationary distribution function of a model using the model, i.e. economic theory, itself. |
| URL: | http://d.repec.org/n?u=RePEc:lsu:lsuwpp:2006-11&r=fmk |
| By: | E Bataa; D R Osborn; D H Kim |
| Abstract: | We extend the vector autoregression (VAR) based expectations hypothesis tests of term structure using recent developments in bootstrap literature. Firstly, we use wild bootstrap to allow for conditional heteroskedasticity in the VAR residuals without imposing any parameterization on this heteroskedasticity. Secondly, we endogenize the model selection procedure in the bootstrap replications to reflect true uncertainty. Finally, a stationarity correction is introduced which is designed to prevent finitesample bias adjusted VAR parameters from becoming explosive. When the new methodology is applied to extensive US zero coupon term structure data ranging from 1 month to 10 years, we find less rejections for the theory in a subsample of Jan 1982-Dec 2003 than in Jan 1952-Dec 1978, and when it is rejected it occurs at only the very short and long ends of the maturity spectrum, in contrast to the U shape pattern observed in some of the previous literature. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:72&r=fmk |