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on International Finance |
| By: | Guglielmo Maria Caporale; Faek Menla Ali; Nicola Spagnolo |
| Abstract: | This paper examines the impact of exchange rate uncertainty on different components of portfolio flows, namely equity and bond flows, as well as the dynamic linkages between exchange rate volatility and the variability of these two types of flows. Specifically, a bivariate GARCH-BEKK-in-mean model is estimated using bilateral data for the US vis-à-vis Australia, the UK, Japan, Canada, the euro area, and Sweden over the period 1988:01- 2011:12. The results indicate that the effect of exchange rate uncertainty on equity flows is negative in the euro area, the UK and Sweden, and positive in Australia, whilst it is negative in all countries except Canada (where it is positive) in the case of bond flows. Under the assumption of risk aversion, this suggests that exchange rate uncertainty induces a home bias and causes investors to reduce their financing activities to maximise returns and minimise exposure to uncertainty. Furthermore, since exchange rate volatility and the variability of flows are interlinked, exchange rate or credit controls on these flows can be used to pursue economic and financial stability. |
| Keywords: | Exchange rate uncertainty, Equity flows, Bond flows, Causality-in-variance |
| JEL: | F31 F32 G15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1296&r=ifn |
| By: | Niepmann, Friederike |
| Abstract: | Banking across borders has risen substantially over the past two decades. Yet there is significant heterogeneity in the international and global activities of banks across countries. This paper develops and tests a theoretical model that explains this variation from an international trade theory perspective. In the model, banking across borders arises from differences in factor endowments and differences in banking sector efficiencies between countries. The paper shows how these differences determine banks' foreign asset and liability holdings as well as foreign direct investment in the banking sector. It highlights the differential effects of capital account and banking sector liberalization on banks' foreign positions and international capital flows. The model is consistent with major stylized facts on cross-border banking. The data strongly support its cross-sectional predictions. -- |
| Keywords: | cross-border banking,international capital flows,trade in banking services |
| JEL: | F21 F23 F34 G21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:192013&r=ifn |
| By: | Düwel, Cornelia |
| Abstract: | This paper examines how the exposure of German parent banks to the disruptions on sale and repurchase markets (repo markets) during the financial crisis has affected their provision of funds to their foreign branches and subsidiaries via bank-internal capital markets. The collapse of the subprime market, the rescue of Bear Stearns and the bankruptcy of Lehman Brothers are analyzed with regard to their role as amplifiers of uncertainty about the value of collateral used in repo transactions and mistrust among market participants. The results show that parent banks which were more exposed to these disruptions were more likely to withdraw bank-internal funds from their branches and subsidiaries located abroad. Among the three events, the rescue of Bear Stearns triggered the largest contraction on internal capital markets from the part of the parent bank, possibly because this event demonstrated for the first time the fragility of even very large financial institutions. After the subprime market collapse, branches were briefly more protected as core investment locations, while subsidiaries were used as core funding locations up to the Lehman Brothers bankruptcy. All in all, funding via repo markets is found to be one channel that transmitted shocks primarily related to the US financial system abroad. -- |
| Keywords: | repo,funding structure,multinational banks,internal capital market,intra-bank lending,financial crisis |
| JEL: | G21 G15 F34 E44 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:162013&r=ifn |
| By: | Baltzer, Markus; Stolper, Oscar; Walter, Andreas |
| Abstract: | Extant literature consistently documents that investors tilt their domestic equity portfolios towards regionally close stocks (local bias). We hypothesize that individual investors' local bias is not limited to the domestic sphere but instead also determines their international investment decisions. Our results confirm the presence of a cross-border local bias. Specifically, we show (i) that the stockholdings of individual investors living within regional proximity to a foreign country display a significantly lower foreign investment bias towards investment opportunities in that country and (ii) that this drop in foreign investment bias levels is disproportionately driven by investments in regionally close neighborcountry companies. The impact of cross-border local bias on investors' bilateral foreign equity investments is economically significant and holds even after controlling for previously identified explanations of international asset allocation. -- |
| Keywords: | local bias,foreign investment bias,portfolio diversification,individual investor behavior,household finance |
| JEL: | G01 G11 G14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:182013&r=ifn |