International Finance最新文献

As China's carbon market continues to develop, its close connection with the financial and energy markets is becoming increasingly apparent. A systematic study of the spillover effects between markets is important, as it can help prevent excessive fluctuations in carbon prices. With this in mind, this study proposes a time-varying parameter vector autoregression with Lanne–Nyberg decomposition extended joint connectedness approach to analyze quantitatively the spillover effects in the “carbon–energy–financial” system. Empirical results show that a bidirectional spillover effect exists among markets. Not only does the carbon market have the most pronounced return (volatility) linkages with the natural gas (clean energy) market, but the information connected with the energy markets is also more closely linked than with the financial markets. We also find that market fluctuations, caused by the China–US trade conflict and the COVID-19 pandemic, have increased spillovers in the system.

This paper investigates whether and how the development level of a country's digital economy affects stock price synchronicity. The results indicate that countries with high levels of digital economy development exhibit low stock price synchronicity. Additionally, by decomposing stock price synchronicity into systematic and firm-specific stock return variations, we find that systematic (firm-specific) variations of stock returns decrease (increase) with the level of a country's digitalization. These findings shed light on the future trend of stock price synchronicity in financial markets around the world and support the information-based interpretation of stock price synchronicity.

This study examines the role of the global financial cycle (GFCy) in the propagation of uncertainty shocks from the United States to other national economies using a large-scale global vector autoregressive model of 33 countries. Although the dominant role of US uncertainty over global economic dynamics is established, the findings highlight the moderating role of the GFCy in the spillover effects of uncertainty shocks. The US uncertainty shocks, compared with own-domestic uncertainty shocks, are found to have a more prominent negative impact on output during stressed market conditions, implied by low values of the GFCy, while the impact turns largely insignificant during high GFCy states. The findings provide evidence in favour of a US uncertainty spillover multiplier, suggesting that the design of monetary policy as a response to US uncertainty needs to be contingent on the state of the integrated global financial markets, captured by the GFCy.

This study applies the event-analysis method and takes three Chinese listed textile and apparel companies that are representative of the upstream, midstream, and downstream of the textile value chain as research objects. By tracking the Baidu index trend of the keyword “trade war” to identify the ‘time window’ for each iconic event, we apply the autoregressive distributed lag approach to examine the impact of important landmark events on the performance of these companies during the period of Sino–US trade friction in 2018. We find that the impact diminished over time. Additionally, compared with upstream companies, midstream and downstream companies were hurt more. However, the risks were generally controllable.

Currency depreciation dampens corporate investment through a financial channel. Using firm-level data for 16 major economies, we find that depreciation reduces investment by interacting with firm leverage. The finding is consistent with predictions from a stylized model of credit risk in which the exchange rate affects credit supply and investment when firms borrow in foreign currency, or in local currency from foreign lenders. Empirically, the channel is significantly more pronounced in emerging market economies (EMEs), reflecting greater dependence on foreign funding and less developed financial systems. Our findings suggest that the depreciation of EME currencies since 2011 probably contributed in a significant way to the investment slowdown in these economies.

This study examines the relationship between sentiment and the realized volatility of returns for different asset classes (stocks, bonds, foreign currency, and commodities). Specifically, we aim to answer two key questions: first, how does sentiment relate to volatility during crises (mainly during the global financial crisis [GFC] and the COVID-19 pandemic)? Second, can sentiment be used to forecast volatility during crises? Using two nonparametric methods, mutual information and transfer entropy, we find that information sharing and transfer increased during the pandemic. We also find that sentiment information transfer to the volatility of assets differed between the GFC and the COVID-19 crisis. Since sentiment can reduce uncertainty around the realized variance of assets, we investigate the forecasting ability of sentiment during crises. We find that sentiment has a greater predictive power on realized volatility during crises, with a differential impact on volatility depending on the asset class. Our findings carry important implications for hedging, risk management and building models to predict variance during crises.

Monetary spillovers are heterogeneous in two ways: how central banks generate them and how countries receive them. First, the Fed is mostly unique in its ability to affect other countries' financial markets, among ten developed central banks. This is noteworthy given the lack of data on other central banks' spillovers. This paper makes public a novel data set of these ten central banks' monetary shocks to support future research. Second, the Fed affects recipient countries in different ways, with the bonds and currencies of countries with high-interest rates reacting differently than those of low-rate countries. This can help shed light on theories around the Fed's spillovers, and this paper demonstrates how the exact pattern is inconsistent with models in which developed central banks react to the Fed.

This study sheds light on the finance–growth link by (i) carefully taking into account the lessons learned from the empirical literature, (ii) extending the period of analysis to include the years following the global financial crisis (GFC), (iii) adding the monetary-policy regime as a concomitant factor in this relation, and (iv) running different specifications and following a robust econometric approach. We find that the positive effect of finance via credit vanishes between the end of the 1990s and the beginning of the 2000s, coinciding with most countries reaching a high level of bank credit and with the GFC. This finding is also observed if an inverted U-shaped specification is used to capture the relation between finance and growth. As for the monetary-policy regime, the results reveal that the inflation-targeting strategy does not exert a positive influence on economic growth.

This study investigates what drives the credit cycle, focusing on the role of foreign-funded bank credit (FFC). Considering credit cycles in 41 countries over the period 1985–2015, this study finds that credit booms are associated with an increase in the share of FFC in an economy. This especially holds for emerging economies and for credit provided to nonfinancial corporations. The increased credit needs during a boom may cause the substitution of domestically funded credit by FFC, as the growth in FFC is less restricted than domestically funded credit, such as the domestic deposit base.