Financial Markets, Institutions and Instruments最新文献

Global foreign exchange (FX) trading volume in traditional FX products and derivatives in Asia and the Pacific has expanded rapidly over the last fifteen years, more so than in other regions. Asian currencies also have experienced exceptional growth in offshore turnover, including non-deliverable forwards (NDFs). Trading activity on this scale spread across many countries and currencies underscores the need for a well-functioning infrastructure and exceptional risk management processes. While settlement risks are mitigated for the vast majority of turnover through systems like CLS Bank, the Asia Pacific region would benefit by having more countries and currencies become CLS enabled or tradable under other Payment versus payment (PVP) systems. Though less pronounced than during the global financial crisis, FX markets in the region experienced added turbulence during the “taper tantrum” period of 2013. High turnover currencies tended to depreciate more after taper announcements; though volatility rose more sharply in currencies with low turnover. The FX market is a prominent venue for carry trades that are subject to crash risk. While there is some evidence of herding behavior exacerbating this risk over the past decade, the measures calibrated more recently do not suggest exceptional crowding into carry trades ahead of the “taper tantrum” in 2013. At the same time, our measures of crowdedness for the carry trade show considerable variation over time. Making crowdedness measures publicly available might be advisable.

Bank risk is not directly observable, so empirical research relies on indirect measures. We evaluate how well Z-score, the widely used accounting-based measure of bank distance to default, can predict bank failure. Using the U.S. commercial banks’ data from 2004 to 2012, we find that on average, Z-score can predict 76% of bank failure, and additional set of other bank- and macro-level variables do not increase this predictability level. We also find that the prediction power of Z-score to predict bank default remains stable within the three-year forward window.

This paper analyzes the lending behavior of foreign-owned banks during the recent global crisis. Using bank-level panel data for 51 countries, the paper explores the role of affiliate and parent financial characteristics, host location, as well as the impact of parent geographic origin and reach on foreign banks’ credit growth. Overall, the analysis finds robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region in which they operate. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor regional reach of parent banks influenced the lending growth of foreign affiliates. Parent capitalization and not parent funding explained the behavior of foreign bank credit growth during the global crisis. However, funding did affect the lending behavior of domestic and foreign banks in host countries, with those relying more heavily on deposits suffering a smaller decline in bank lending. Although not the focus of the paper, we also find that government-owned banks played a countercyclical role in all regions.

This paper examines the relationship between the Islamic and conventional equity indices by employing the newly launched MSCI Global Islamic Indices which began in 2008. We argue for the case of cointegration supported by fundamental, category and habitat theories, and against cointegration due to the fundamental difference between Islamic and conventional stocks in terms of debt ratio, accounts receivable and interest bearing securities. We find Islamic and conventional equity markets move together despite fundamental differences and given that market microstructure, dividends, capital gains, taxation and governance systems are different across the markets. Almost simultaneous movement of the permanent and cycle components of Islamic and mainstream equity indices has been supported by the application of the Beveridge Nelson (BN) time series decomposition technique. Theoretically, the volatility of Islamic equities should be lower due to their low leverage ratio. Surprisingly, permanent parts of the Islamic indices appear to be more volatile during the crisis period and less volatile during the post-crisis period.

This paper compares the size and book-to-market value factors of Fama and French (1993) alongside Momentum of Jagadeesh and Titman (1993) with two Liu (2006) liquidity factors formed from 1 year rebalancing and 1 month rebalancing respectively. A heterogeneous and comprehensive sample of the top blue chip stocks of all national Asian equity markets with further differentiation undertaken between sub samples formed for Japan only and Asia excluding Japan for period January 2000 to August 2014. Our empirical results suggest that multifactor time invariant pricing models based on augmented capital asset pricing model (CAPM) framework are ineffective in explaining the cross section of stock returns in the presence of significant inter and intra-market segmentation. However an alternative model specification based on a time varying parameter specification and using same sets of factors yields significant enhancements in explaining cross section of stock returns across universe. We find that momentum factor largely lacks significance while a time varying two factor model, based on CAPM plus liquidity factor, is optimal. The liquidity factor being that of Liu (2006) and annually rebalanced. Our findings are important for investment managers seeking appropriate factors and modelling techniques to hedge against risks as well as firm's financial managers seeking to reduce costs of equity capital.

There are many studies in the finance and management literature that examine the impact of diversification on performance. Yet, the literature remains inconclusive as for the potential benefits in terms of risk and return. The present study aims to re-examine this issue, while proposing a methodological framework that integrates various bank performance and risk indicators into a single measure of financial strength. Using an international sample of commercial banks, we find that diversification in terms of income, earning assets, and on- and off-balance sheet activities influences positively their financial strength. We also find that income diversification can be more beneficial for banks operating in less developed countries compared to banks in advanced and major advanced economies. However, we observe the opposite in the case of diversification between off-balance sheet and on-balance sheet activities. Furthermore, the results reveal that income and earning assets diversification can mitigate the adverse effect of the financial crisis on bank financial strength. We continue to find a positive relationship between diversification and financial strength when we account for nesting effects, endogeneity, as well as when using an alternative approach for the construction of the financial strength indicator.

We examine the conditions, complexities and risks of a fragmented market microstructure to contextualize the role of algorithmic and high frequency trading in the US equity markets. The establishment of a national market system and Regulation NMS was meant to promote competition, recognizing the evolution and changing dynamics introduced by technological innovation. This evolution and governing rule set has had many positive effects in terms of competition, fee compression, tighter spread potential and volumes. Our paper identifies certain unintended consequences and complexities of the national market system including fragmentation, sub second quoting and trading, complex order types, data asymmetry, technological innovation, unique strategies and the algorithms that power them. When acting in concert, these complexities give rise to opportunities as well as emerging risks.

This high-speed system can be unstable and susceptible to inherent conflicts of interest, market abuse and price shocks. These shocks can be amplified by positive feedback loops accelerating single stock declines and also posing systemic risks in time scales beyond real-time physical human comprehension and reaction times. Furthermore they can produce contagion, which we refer to as ‘Flash Splashes’ caused by rapid withdrawals and injections of liquidity in increasingly linked asset classes, indices, sectors and global liquidity pools. High frequency trading strategies can be both passive and aggressive and usually display risk averse and low inventory characteristics. These strategies leverage fragmentation as they create or capture informational asymmetries. They interact directly with sell side algorithms that can hide intentions, hunt liquidity and sweep the order book. These interactions create market dynamics that can benefit and challenge anyone exposed to US equity markets.

Every market participant has a risk profile unique to their strategy and objective and while regulations will be enriched or revised and certain unfair practices eliminated great attention should be paid to understanding modern high speed trading risks and both the positive and negative impacts on all stakeholders. We have examined the regulations, complexities and risks to bring clarity and understanding to the current trading ecosystem for its users.