Peter F. Christoffersen, V. Errunza, Kris Jacobs, Hugues Langlois
International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We find that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversi?cation bene?ts that take into account higher order moments and nonlinear dependence. The bene?fits from international diversi?cation have reduced over time, drastically so for DMs. EMs still offer signi?cant diversi?cation bene?ts, especially during large market downturns.
{"title":"Is the Potential for International Diversification Disappearing? A Dynamic Copula Approach","authors":"Peter F. Christoffersen, V. Errunza, Kris Jacobs, Hugues Langlois","doi":"10.2139/ssrn.2066076","DOIUrl":"https://doi.org/10.2139/ssrn.2066076","url":null,"abstract":"International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We find that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversi?cation bene?ts that take into account higher order moments and nonlinear dependence. The bene?fits from international diversi?cation have reduced over time, drastically so for DMs. EMs still offer signi?cant diversi?cation bene?ts, especially during large market downturns.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-05-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122965344","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 empirically analyze the characteristic differences and shareholder wealth effect in domestic and cross-border acquisitions involving Japanese acquiring firms over the period from 2000 to 2010. During this period, the Japanese economy had reached a mature economic state, and there was a strong trend for Japanese firms to shift production to foreign sites, and also to target foreign markets to enhance growth. The results of our study reveal that cross-border acquisitions create larger returns for the acquirers’ shareholders than domestic deals. Furthermore, in the last three years of our analysis period, which corresponds to the period of slow economic growth in G7 countries due to the economic crisis in the US and EU, acquisitions involving target firms in emerging markets created greater wealth gains for shareholders than deals targeted firms in G7 countries. This suggests that within the context of a mature economy, cross-border acquisitions can be considered a prime investment option for value creation. The importance of M&A in emerging markets is increasing for Japan and other advanced industrial economics.
{"title":"Do Cross-Border Acquisitions Create More Shareholder Value than Domestic Deals for Firms in a Mature Economy? The Japanese Case","authors":"Kotaro Inoue, R. Ings","doi":"10.2139/ssrn.2048571","DOIUrl":"https://doi.org/10.2139/ssrn.2048571","url":null,"abstract":"We empirically analyze the characteristic differences and shareholder wealth effect in domestic and cross-border acquisitions involving Japanese acquiring firms over the period from 2000 to 2010. During this period, the Japanese economy had reached a mature economic state, and there was a strong trend for Japanese firms to shift production to foreign sites, and also to target foreign markets to enhance growth. The results of our study reveal that cross-border acquisitions create larger returns for the acquirers’ shareholders than domestic deals. Furthermore, in the last three years of our analysis period, which corresponds to the period of slow economic growth in G7 countries due to the economic crisis in the US and EU, acquisitions involving target firms in emerging markets created greater wealth gains for shareholders than deals targeted firms in G7 countries. This suggests that within the context of a mature economy, cross-border acquisitions can be considered a prime investment option for value creation. The importance of M&A in emerging markets is increasing for Japan and other advanced industrial economics.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129770053","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 study estimates the reactions to surprises in announcements of macroeconomic variables for two yield curves of the Brazilian market: the yield curve in foreign currency, the U.S. dollar, which is known in the jargon of the Brazilian market as the over-libor curve, and the Credit Default Swap (CDS) curve of the sovereign bonds from the Brazilian government. Our results partly contradict the anecdotal vision of the local market that these curves behave like two wild horses. The results indicate that over libor negatively reacts to positive surprises in Brazilian or U.S. indicators of activity and equally to surprises in Brazilian indicators of inflation. The CDS behaves in a similar manner for Brazilian indicators, yet more inconsistently for the U.S. indicators, reacting differently within the same class of indicators. Finally, we extend our analysis to evaluate the predictive capacity of the model outside of the sample and the economic value of the model in the investment decisions in the over-libor curve.
{"title":"Over-Libor and Brazilian CDS: Wild Horses?","authors":"Marcelo L. Moura, Gabriel D. Pecoli","doi":"10.2139/ssrn.2024395","DOIUrl":"https://doi.org/10.2139/ssrn.2024395","url":null,"abstract":"The present study estimates the reactions to surprises in announcements of macroeconomic variables for two yield curves of the Brazilian market: the yield curve in foreign currency, the U.S. dollar, which is known in the jargon of the Brazilian market as the over-libor curve, and the Credit Default Swap (CDS) curve of the sovereign bonds from the Brazilian government. Our results partly contradict the anecdotal vision of the local market that these curves behave like two wild horses. The results indicate that over libor negatively reacts to positive surprises in Brazilian or U.S. indicators of activity and equally to surprises in Brazilian indicators of inflation. The CDS behaves in a similar manner for Brazilian indicators, yet more inconsistently for the U.S. indicators, reacting differently within the same class of indicators. Finally, we extend our analysis to evaluate the predictive capacity of the model outside of the sample and the economic value of the model in the investment decisions in the over-libor curve.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"129 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122761493","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}
Post liberalization of primary markets in the year 1993, the Indian market has moved closer to the world economy. As a result, the policy changes and regulations of the Indian primary market have dynamically advanced as per the requirements of the economy. The present study attempts to understand the characteristics of IPOs in the Indian market post liberalization through a holistic assessment of critical factors that influence the performance of IPO stocks in both long and short term performances. Review of extant literature suggests three such factors: Underpricing, Liquidity & Ownership Structure. While researchers have analyzed these factors individually, there is dearth of literature investigating simultaneous interaction effects of the three factors on IPO performances. To fill such gap, the study first develops a theory driven conceptual model that measures the impact of the three factors on post IPO performance. Further, the model is tested with IPO performance data for the period 2000-2010. To eliminate abnormalities arising from ‘internet bubble’, data from pre-2000 era is not used for the analysis. Multiple regression analysis is used for the analysis of the complete model.A holistic study of the three characteristics provided explanation for above 80 percentage variance of short term performance and 20 percent variance of long term performance. The inclusion of liquidity and ownership variables in the model resulted in significant increment in explain-ability as compared to results of prior studies for long term performance. The study contributes to literature by providing a comprehensive model interlinking major factors that affect IPO stock performance. It also highlights the presence of higher amount of underpricing in the Indian markets and their impact on post-performance of IPO stocks. The role of allocated ownership structure and liquidity on the performance of IPO in the short and long terms is also emphasized. This study has significance in guiding the formation of IPO portfolios in terms of tenure to be invested and the composition of the portfolios to be formed in Indian financial markets.
{"title":"A Study of Underpricing, Ownership and Liquidity of Initial Public Offers (IPO) and their Impact on Performance of IPO Stocks in Indian Financial Markets","authors":"Venkata Dilip Kumar Pasupuleti","doi":"10.2139/ssrn.2019899","DOIUrl":"https://doi.org/10.2139/ssrn.2019899","url":null,"abstract":"Post liberalization of primary markets in the year 1993, the Indian market has moved closer to the world economy. As a result, the policy changes and regulations of the Indian primary market have dynamically advanced as per the requirements of the economy. The present study attempts to understand the characteristics of IPOs in the Indian market post liberalization through a holistic assessment of critical factors that influence the performance of IPO stocks in both long and short term performances. Review of extant literature suggests three such factors: Underpricing, Liquidity & Ownership Structure. While researchers have analyzed these factors individually, there is dearth of literature investigating simultaneous interaction effects of the three factors on IPO performances. To fill such gap, the study first develops a theory driven conceptual model that measures the impact of the three factors on post IPO performance. Further, the model is tested with IPO performance data for the period 2000-2010. To eliminate abnormalities arising from ‘internet bubble’, data from pre-2000 era is not used for the analysis. Multiple regression analysis is used for the analysis of the complete model.A holistic study of the three characteristics provided explanation for above 80 percentage variance of short term performance and 20 percent variance of long term performance. The inclusion of liquidity and ownership variables in the model resulted in significant increment in explain-ability as compared to results of prior studies for long term performance. The study contributes to literature by providing a comprehensive model interlinking major factors that affect IPO stock performance. It also highlights the presence of higher amount of underpricing in the Indian markets and their impact on post-performance of IPO stocks. The role of allocated ownership structure and liquidity on the performance of IPO in the short and long terms is also emphasized. This study has significance in guiding the formation of IPO portfolios in terms of tenure to be invested and the composition of the portfolios to be formed in Indian financial markets.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129189574","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 the relationship between net private capital inflows and the current account in a set of industrial and developing countries. The first question asks whether the cyclical volatility in current accounts can be explained by the volatility of capital flows. The second question addresses the causal link between net capital inflows and current account imbalances. There is evidence in our data that inflows do cause current account imbalances in the developing countries. In contrast, the evidence implies that inflows do not cause current account imbalances in the industrial countries, nor does the inflow volatility affect current account volatility.
{"title":"The Relationship between Capital Flows and Current Account: Volatility and Causality","authors":"Selen Sarisoy Guerin","doi":"10.2139/ssrn.2018195","DOIUrl":"https://doi.org/10.2139/ssrn.2018195","url":null,"abstract":"This paper examines the relationship between net private capital inflows and the current account in a set of industrial and developing countries. The first question asks whether the cyclical volatility in current accounts can be explained by the volatility of capital flows. The second question addresses the causal link between net capital inflows and current account imbalances. There is evidence in our data that inflows do cause current account imbalances in the developing countries. In contrast, the evidence implies that inflows do not cause current account imbalances in the industrial countries, nor does the inflow volatility affect current account volatility.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117165465","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}
Pub Date : 2012-03-01DOI: 10.1111/j.1468-0327.2012.00295.x
G. Corsetti, André Meier, Gernot Müller
This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.
{"title":"What Determines Government Spending Multipliers?","authors":"G. Corsetti, André Meier, Gernot Müller","doi":"10.1111/j.1468-0327.2012.00295.x","DOIUrl":"https://doi.org/10.1111/j.1468-0327.2012.00295.x","url":null,"abstract":"This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133660073","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}
In this paper we analyze the impact of financial liberalization and reforms on the banking performance in 17 countries from CEE for the period 2004–2008 using a two-stage empirical model that involves estimating bank performance in the first stage and assessing its determinants in the second one. From our analysis it results that banks from CEE countries with higher level of liberalization and openness are able to increase cost efficiency and eventually to offer cheaper services to clients. Banks from non-member EU countries are less cost efficient but experienced much higher total productivity growth level and large sized banks are much more cost efficient than medium and small banks, while small sized banks show the highest growth in terms of productivity.
{"title":"Impact of Financial Liberalization on Banking Sectors Performance from CEEC","authors":"A. Andrieș, Bogdan Căpraru","doi":"10.2139/ssrn.2136800","DOIUrl":"https://doi.org/10.2139/ssrn.2136800","url":null,"abstract":"In this paper we analyze the impact of financial liberalization and reforms on the banking performance in 17 countries from CEE for the period 2004–2008 using a two-stage empirical model that involves estimating bank performance in the first stage and assessing its determinants in the second one. From our analysis it results that banks from CEE countries with higher level of liberalization and openness are able to increase cost efficiency and eventually to offer cheaper services to clients. Banks from non-member EU countries are less cost efficient but experienced much higher total productivity growth level and large sized banks are much more cost efficient than medium and small banks, while small sized banks show the highest growth in terms of productivity.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124233308","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 paper analyses the transmission of liquidity shocks and risk shocks to global financial markets. Using a Global VAR methodology, the findings reveal fundamental differences in the transmission strength and pattern between the 2007-08 financial crisis and the 2010-11 sovereign debt crisis. Unlike in the former crisis, emerging market economies have become much more resilient to adverse shocks in 2010-11. Moreover, a flight-to-safety phenomenon across asset classes has become particularly strong during the 2010-11 sovereign debt crisis, with risk shocks driving down bond yields in key advanced economies. The paper relates this evolving transmission pattern to portfolio choice decisions by investors and finds that countries' sovereign rating, quality of institutions and their financial exposure are determinants of cross-country differences in the transmission.
{"title":"Liquidity, Risk and the Global Transmission of the 2007-08 Financial Crisis and the 2010-11 Sovereign Debt Crisis","authors":"Marcel Fratzscher, A. Chudik","doi":"10.2139/ssrn.2023452","DOIUrl":"https://doi.org/10.2139/ssrn.2023452","url":null,"abstract":"The paper analyses the transmission of liquidity shocks and risk shocks to global financial markets. Using a Global VAR methodology, the findings reveal fundamental differences in the transmission strength and pattern between the 2007-08 financial crisis and the 2010-11 sovereign debt crisis. Unlike in the former crisis, emerging market economies have become much more resilient to adverse shocks in 2010-11. Moreover, a flight-to-safety phenomenon across asset classes has become particularly strong during the 2010-11 sovereign debt crisis, with risk shocks driving down bond yields in key advanced economies. The paper relates this evolving transmission pattern to portfolio choice decisions by investors and finds that countries' sovereign rating, quality of institutions and their financial exposure are determinants of cross-country differences in the transmission.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114198983","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 study patterns of FDI in a multi-country world economy. First, we present evidence for a broad sample of countries that firms direct FDI disproportionately to markets with income levels similar to their home market. Then we develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for FDI, consistent with the patterns found in the data.
{"title":"A Linder Hypothesis for Foreign Direct Investment","authors":"Pablo D. Fajgelbaum, G. Grossman, E. Helpman","doi":"10.1093/RESTUD/RDU027","DOIUrl":"https://doi.org/10.1093/RESTUD/RDU027","url":null,"abstract":"We study patterns of FDI in a multi-country world economy. First, we present evidence for a broad sample of countries that firms direct FDI disproportionately to markets with income levels similar to their home market. Then we develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for FDI, consistent with the patterns found in the data.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"65 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121564984","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 resumption of strong capital flows into emerging markets in mid-2009 brought back the debate over whether pull or push factors are the main determinants. This paper, using panel specifications with alternative measures of global liquidity, asks the question whether G-4 liquidity expansion spills over to the rest of the world. The paper finds strong positive links between G-4 liquidity expansion and asset prices, such as equities, in the liquidity receiving economies, which indicates that the push factor plays an important role in asset prices. Liquidity also has a strong positive link with the accumulation of official reserves and with equity portfolio inflows in receiving economies. Moreover, the association between excess equity returns, excess credit growth, and global liquidity has implications for rising risks to financial stability in the receiving economies.
{"title":"Does G-4 Liquidity Spill Over?","authors":"L. Psalida, T. Sun","doi":"10.2139/SSRN.1991945","DOIUrl":"https://doi.org/10.2139/SSRN.1991945","url":null,"abstract":"The resumption of strong capital flows into emerging markets in mid-2009 brought back the debate over whether pull or push factors are the main determinants. This paper, using panel specifications with alternative measures of global liquidity, asks the question whether G-4 liquidity expansion spills over to the rest of the world. The paper finds strong positive links between G-4 liquidity expansion and asset prices, such as equities, in the liquidity receiving economies, which indicates that the push factor plays an important role in asset prices. Liquidity also has a strong positive link with the accumulation of official reserves and with equity portfolio inflows in receiving economies. Moreover, the association between excess equity returns, excess credit growth, and global liquidity has implications for rising risks to financial stability in the receiving economies.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134280282","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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