D. Dabara, O. Omotehinshe, J. Guyimu, O. Asa, Anthony Abbey Tinufa
With a focus on the organisational structure of Nigerian REIT (N-REIT), the paper examines how returns on N-REIT intertwine organisational structure. We used a mixed research design to first analyse the qualitative aspect by creating semantic networks from the quotations and codes generated, which were accordingly given appropriate interpretations, drawing out inferences by means of thematic content analysis. The quantitative aspect utilised the holding period returns, return-risk ratio, coefficient of variation, and Sharpe Ratio. We found that the organisational structure of N-REIT impacted on its performance by providing a positive risk-adjusted performance throughout the study period (2008 to 2019). Results of this study reveal the peculiar nature of Nigerian REITs; both individual and institutional investors (foreign and domestic) can use this information for informed investment decisions within the context of REIT markets in emerging economies.
{"title":"Organisational Structure and Performance of Nigerian REITs","authors":"D. Dabara, O. Omotehinshe, J. Guyimu, O. Asa, Anthony Abbey Tinufa","doi":"10.2139/ssrn.3904879","DOIUrl":"https://doi.org/10.2139/ssrn.3904879","url":null,"abstract":"With a focus on the organisational structure of Nigerian REIT (N-REIT), the paper examines how returns on N-REIT intertwine organisational structure. We used a mixed research design to first analyse the qualitative aspect by creating semantic networks from the quotations and codes generated, which were accordingly given appropriate interpretations, drawing out inferences by means of thematic content analysis. The quantitative aspect utilised the holding period returns, return-risk ratio, coefficient of variation, and Sharpe Ratio. We found that the organisational structure of N-REIT impacted on its performance by providing a positive risk-adjusted performance throughout the study period (2008 to 2019). Results of this study reveal the peculiar nature of Nigerian REITs; both individual and institutional investors (foreign and domestic) can use this information for informed investment decisions within the context of REIT markets in emerging economies.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"102 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122453180","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines sovereign wealth fund (SWF) equity investments in publicly traded firms according to a SWF’s investment purpose and home country political regime. Savings funds focus on long-term value creation; foreign exchange reserve funds focus on reducing the negative carry costs of holding reserves or earning higher returns on excess reserves. The results indicate savings funds located in an authoritarian regime are more activist, their targets experience a positive short-term market reaction but the performance of their targets over the subsequent three years varies depending on the performance metric used.
{"title":"Sovereign Wealth Funds’ Investment Purpose and the Investment Implications","authors":"Richard W. Carney","doi":"10.2139/ssrn.3902962","DOIUrl":"https://doi.org/10.2139/ssrn.3902962","url":null,"abstract":"This paper examines sovereign wealth fund (SWF) equity investments in publicly traded firms according to a SWF’s investment purpose and home country political regime. Savings funds focus on long-term value creation; foreign exchange reserve funds focus on reducing the negative carry costs of holding reserves or earning higher returns on excess reserves. The results indicate savings funds located in an authoritarian regime are more activist, their targets experience a positive short-term market reaction but the performance of their targets over the subsequent three years varies depending on the performance metric used.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130793239","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Merchant banking services contribute to a country's economic progress by serving as sources of finances and information for businesses. The importance of merchant banking services in India is undeniable, given the country's economic growth. These financial institutes also act as corporate advising boards, assisting corporations in making informed decisions about how to engage in various financial activities. The emergence of merchant banking in India is examined in this study, with a focus on its history and evolution. The first half of the article is devoted to describing merchant banking's operation and how it is regulated by the SEBI. The second section of the paper went over the procedural requirements that the SEBI has defined.
{"title":"Merchant Banking in India","authors":"Ankur Tyagi","doi":"10.2139/ssrn.3902332","DOIUrl":"https://doi.org/10.2139/ssrn.3902332","url":null,"abstract":"Merchant banking services contribute to a country's economic progress by serving as sources of finances and information for businesses. The importance of merchant banking services in India is undeniable, given the country's economic growth. These financial institutes also act as corporate advising boards, assisting corporations in making informed decisions about how to engage in various financial activities. The emergence of merchant banking in India is examined in this study, with a focus on its history and evolution. The first half of the article is devoted to describing merchant banking's operation and how it is regulated by the SEBI. The second section of the paper went over the procedural requirements that the SEBI has defined.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127796182","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the “creative destruction” through the role of typhoon occurrence on existing firms’ innovation and firm creation for the universe of Chinese firms by utilizing novel administrative data. We find that typhoon occurrence during a firm’s early life reduces both patent quantity and quality in following years, which is not driven by the expectation of such natural disasters. The negative impact of typhoon occurrence is much stronger among firms with concentrated share ownership as well as single shareholder firms; therefore, insufficient risk-sharing is likely channeling the negative impact of typhoon occurrence. On the other hand, financial constraints do not have much explanatory power. Moreover, the typhoon-induced innovation decline increases the likelihood of firm death. Finally, in contrast with the impact of existing firms’ innovation and survival, typhoon occurrence in the previous year increases the total capital and employees of new firms and hence “creative destruction” happens.
{"title":"Natural Disasters and Creative Destruction: Evidence from the Universe of Firms in China","authors":"Hua Cheng, Tse-Chun Lin","doi":"10.2139/ssrn.3901022","DOIUrl":"https://doi.org/10.2139/ssrn.3901022","url":null,"abstract":"We investigate the “creative destruction” through the role of typhoon occurrence on existing firms’ innovation and firm creation for the universe of Chinese firms by utilizing novel administrative data. We find that typhoon occurrence during a firm’s early life reduces both patent quantity and quality in following years, which is not driven by the expectation of such natural disasters. The negative impact of typhoon occurrence is much stronger among firms with concentrated share ownership as well as single shareholder firms; therefore, insufficient risk-sharing is likely channeling the negative impact of typhoon occurrence. On the other hand, financial constraints do not have much explanatory power. Moreover, the typhoon-induced innovation decline increases the likelihood of firm death. Finally, in contrast with the impact of existing firms’ innovation and survival, typhoon occurrence in the previous year increases the total capital and employees of new firms and hence “creative destruction” happens.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124851468","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Exploiting the unique financial reporting format in China, we document that stocks with the strongest past year-to-date earnings growth experience a significant price run-up of 1.2% during the five trading days before their quarterly earnings announcements and a significant return reversal of -1.35% in the five trading days afterward. This inverted V-shaped pattern on cumulative return spreads is more pronounced among smaller firms with lower institutional ownership and fewer analyst coverage, and it is less pronounced among foreign B-share. Consistent with investor excess demand driving the price run-up, we find retail investor sentiment and buy-sell order imbalance rise ahead of earnings announcements for firms with high past earnings growth. Our findings support models of fundamental extrapolation and suggest investors naively extrapolate the salient but not-so-informative year-to-date earnings growth when forming expectations about the upcoming earnings.
{"title":"Naïve Earnings Growth Extrapolation","authors":"Chenyu Cui, F. Li, Xinyi Zhang","doi":"10.2139/ssrn.3897761","DOIUrl":"https://doi.org/10.2139/ssrn.3897761","url":null,"abstract":"Exploiting the unique financial reporting format in China, we document that stocks with the strongest past year-to-date earnings growth experience a significant price run-up of 1.2% during the five trading days before their quarterly earnings announcements and a significant return reversal of -1.35% in the five trading days afterward. This inverted V-shaped pattern on cumulative return spreads is more pronounced among smaller firms with lower institutional ownership and fewer analyst coverage, and it is less pronounced among foreign B-share. Consistent with investor excess demand driving the price run-up, we find retail investor sentiment and buy-sell order imbalance rise ahead of earnings announcements for firms with high past earnings growth. Our findings support models of fundamental extrapolation and suggest investors naively extrapolate the salient but not-so-informative year-to-date earnings growth when forming expectations about the upcoming earnings.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"85 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122025094","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Tiwari, Emmanuel Joel Aikins Abakah, David Gabauer, Richard Adjei Dwumfour
This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity wherein it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks using daily data spanning from 1st January 2013 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.
本研究受到主流投资活动中出现的社会责任投资实践的启发，利用2013年1月1日至2020年9月22日的每日数据，研究了绿色债券、碳价格和可再生能源股票之间回报模式的传递。在本研究中，我们的数据集包括标普绿色债券、Solactive全球太阳能、Solactive全球风能、标普全球清洁能源和碳的价格指数。我们采用TVP-VAR方法来研究收益溢出和连通性，并采用各种投资组合技术，包括最小方差投资组合、最小相关投资组合和最近开发的最小连通性投资组合来测试投资组合的绩效。此外，为了增强鲁棒性，还使用了LASSO动态连通性模型。TVP VAR的实证结果表明，资产之间的动态总连通性随着时间的推移是异质的，并且依赖于经济事件。此外，我们的研究结果表明，清洁能源在所有其他市场中占主导地位，并且被视为整个网络中冲击的主要净发射器，而绿色债券和Solactive Global Wind正在成为系统中冲击的主要接受者。基于对冲效果，我们发现二元和多元投资组合显著降低了除绿色债券外的单一资产的投资风险。最后，最小连通性投资组合达到最高的夏普比率，这意味着有关收益传递过程的信息有助于投资组合的创建。在2019冠状病毒病大流行期间也观察到同样的模式。
{"title":"Green Bond, Renewable Energy Stocks and Carbon Price: Dynamic Connectedness, Hedging and Investment Strategies during COVID-19 pandemic","authors":"A. Tiwari, Emmanuel Joel Aikins Abakah, David Gabauer, Richard Adjei Dwumfour","doi":"10.2139/ssrn.3897284","DOIUrl":"https://doi.org/10.2139/ssrn.3897284","url":null,"abstract":"This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity wherein it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks using daily data spanning from 1st January 2013 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125984353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stock split is a corporate strategy to increase the liquidity of shares by dividing the shares into multiple shares. As per efficient market hypothesis ( EMH) introduced by Eugene. F. Fama says that the capital market is efficient enough to fully reflect or absorb all available information in the market. Bonus issue, dividend declaration and stock split announcement are important decisions in the stock market based on this announcement the investors make decision. This study examines the stock market reaction to stock split announcement of CNX nifty 100 companies and also examines the trend of closing price of the companies after and before the stock split announcement. An event model of pre announcement and post announcement 90 days is used for this study. We found that every piece of information in the stock market affects the stock prices either positively or negatively.
{"title":"An Empirical Study on Impact of Stock Split Announcement in the Indian Stock Market","authors":"Athulya Shaji Theckanathukaduppil","doi":"10.2139/ssrn.3896945","DOIUrl":"https://doi.org/10.2139/ssrn.3896945","url":null,"abstract":"Stock split is a corporate strategy to increase the liquidity of shares by dividing the shares into multiple shares. As per efficient market hypothesis ( EMH) introduced by Eugene. F. Fama says that the capital market is efficient enough to fully reflect or absorb all available information in the market. Bonus issue, dividend declaration and stock split announcement are important decisions in the stock market based on this announcement the investors make decision. This study examines the stock market reaction to stock split announcement of CNX nifty 100 companies and also examines the trend of closing price of the companies after and before the stock split announcement. An event model of pre announcement and post announcement 90 days is used for this study. We found that every piece of information in the stock market affects the stock prices either positively or negatively.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122138336","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The present research aims to evaluate the performance of cooperatives and commercial banks, emphasizing the before and after the Brazilian economic crisis of 2015 and 2016. The worsening of the fiscal and monetary situation led to the impeachment of the Brazilian President of the Republic on May 12, 2016, which generated even more uncertainty and instability in the financial market, creating an effect like a 2008 global financial crisis. In this context, the objective of this work is to evaluate changes in the performance of cooperatives and commercial banks and presenting the consequence of the Brazilian crisis to these financial institutions. The main scope of the study was how cooperatives and banks fared in the face of the situation, especially on the indicators of net loans and derivatives. The methodology will identify the difference between this type of institution using panel data methods with fixed and random effect models, tested using the Hausmann test to see which one best fits the data scenario. The results point out the worse performance of cooperatives than commercial banks in the crisis period of 2015/2016 and over 2011-2020. The cooperatives usually established to provide financial support to small businesses and farmers have suffered significantly more than commercial banks; nevertheless, all suffer.
{"title":"Financial Cooperatives and Commercial Banks Differences before and after the 2014–2016 Brazilian Economic Crisis","authors":"Ederaldo Lima, A. Beiruth, Antonio Martinez","doi":"10.2139/ssrn.3895987","DOIUrl":"https://doi.org/10.2139/ssrn.3895987","url":null,"abstract":"The present research aims to evaluate the performance of cooperatives and commercial banks, emphasizing the before and after the Brazilian economic crisis of 2015 and 2016. The worsening of the fiscal and monetary situation led to the impeachment of the Brazilian President of the Republic on May 12, 2016, which generated even more uncertainty and instability in the financial market, creating an effect like a 2008 global financial crisis. In this context, the objective of this work is to evaluate changes in the performance of cooperatives and commercial banks and presenting the consequence of the Brazilian crisis to these financial institutions. The main scope of the study was how cooperatives and banks fared in the face of the situation, especially on the indicators of net loans and derivatives. The methodology will identify the difference between this type of institution using panel data methods with fixed and random effect models, tested using the Hausmann test to see which one best fits the data scenario. The results point out the worse performance of cooperatives than commercial banks in the crisis period of 2015/2016 and over 2011-2020. The cooperatives usually established to provide financial support to small businesses and farmers have suffered significantly more than commercial banks; nevertheless, all suffer.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129954737","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The purpose of this study is to examine the effect of financial inclusion, supported by digital technology development on income inequality, poverty, and banking stability in ASEAN’s emerging countries. This study employs the Generalized Method of Moment (GMM) and Generalized Least Square (GLS) methodology, using annual data for ten years from 2007 to 2016. The empirical results support the argument. First, digital technology development (usage of the mobile phone) can improve financial inclusion because technology makes it easier to access financial services to people who are difficult to reach. Second, financial inclusion decreases income inequality, but it has no significant effect on reducing poverty. This finding indicates that formal financial services seem to be unable to reach the poor. Finally, the empirical results show that the increasing use of banking services through financial inclusion contributes positively to banking stability. Results of this study could encourage the presence of better policies to reform the financial sector by showing that the expansion in the use of financial services has a direct impact on financial/economic distribution. In addition, the paper provides implication for the banking regulator that the usage of banking and formal financial services still dominated by middle- and high-income society. Furthermore, the synergies between promoting financial inclusion and financial stability can also exist if using the right tools.
{"title":"Financial Inclusion, Banking Stability, and Digital Technology Development in ASEAN","authors":"Raisha Noor, V. Viverita, Z. Husodo","doi":"10.2139/ssrn.3891317","DOIUrl":"https://doi.org/10.2139/ssrn.3891317","url":null,"abstract":"The purpose of this study is to examine the effect of financial inclusion, supported by digital technology development on income inequality, poverty, and banking stability in ASEAN’s emerging countries. This study employs the Generalized Method of Moment (GMM) and Generalized Least Square (GLS) methodology, using annual data for ten years from 2007 to 2016. The empirical results support the argument. First, digital technology development (usage of the mobile phone) can improve financial inclusion because technology makes it easier to access financial services to people who are difficult to reach. Second, financial inclusion decreases income inequality, but it has no significant effect on reducing poverty. This finding indicates that formal financial services seem to be unable to reach the poor. Finally, the empirical results show that the increasing use of banking services through financial inclusion contributes positively to banking stability. Results of this study could encourage the presence of better policies to reform the financial sector by showing that the expansion in the use of financial services has a direct impact on financial/economic distribution. In addition, the paper provides implication for the banking regulator that the usage of banking and formal financial services still dominated by middle- and high-income society. Furthermore, the synergies between promoting financial inclusion and financial stability can also exist if using the right tools.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129485209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The ability of credit rating agencies (CRAs) to influence financial markets has been widely debated in the academic literature, policy circles and general press. While some commentators think that CRAs’ announcements have relevant effects on the markets, others reckon that they may simply follow investor opinion. To address the issue, the empirical literature has mainly employed the event study methodology, analyzing the behavior of financial markets around rating change announcements. Following a recent trend that has emphasized the use of high-frequency data to achieve credible identification in macroeconomics, in this paper, we use the instrumental variable-local projection (IV-LP) methodology to obtain the effect of structural shocks to CRAs’ communication on financial markets. Applying this approach to Mexico, we find that CRAs’ communication about the sovereign has statistically significant effects on CDS spreads, interest rates and the exchange rate.
{"title":"Communication of Credit Rating Agencies and Financial Markets","authors":"Lorenzo Menna, Martin Tobal","doi":"10.2139/ssrn.3891158","DOIUrl":"https://doi.org/10.2139/ssrn.3891158","url":null,"abstract":"The ability of credit rating agencies (CRAs) to influence financial markets has been widely debated in the academic literature, policy circles and general press. While some commentators think that CRAs’ announcements have relevant effects on the markets, others reckon that they may simply follow investor opinion. To address the issue, the empirical literature has mainly employed the event study methodology, analyzing the behavior of financial markets around rating change announcements. Following a recent trend that has emphasized the use of high-frequency data to achieve credible identification in macroeconomics, in this paper, we use the instrumental variable-local projection (IV-LP) methodology to obtain the effect of structural shocks to CRAs’ communication on financial markets. Applying this approach to Mexico, we find that CRAs’ communication about the sovereign has statistically significant effects on CDS spreads, interest rates and the exchange rate.","PeriodicalId":153840,"journal":{"name":"Emerging Markets: Finance eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127540896","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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