Pub Date : 2025-01-30DOI: 10.1016/j.intfin.2025.102115
Yang Su , Junrui Zhang , Hong Zhao , Mingming Zhou
In this study, we explore how banks manage risk in response to Other Comprehensive Income (OCI) volatility. We find that banks with high OCI volatility decrease perceived risk while increasing their contribution to systemic risk. As strategies in response to OCI volatility, banks reduce available-for-sale (AFS) holdings and loans, and expand the off-balance-sheet (OBS) entrusted loans and wealth management products. The effects on systemic risk and OBS activities are more pronounced under tight monetary policy but less so under macroprudential supervision. These results indicate that OCI captures the attention of banks in their risk management, yet their response to OCI volatility intensifies systemic fragility. The enforcement of OCI disclosure should be complemented by effective macroprudential supervision to ensure financial stability.
{"title":"Other comprehensive income volatility and bank risk","authors":"Yang Su , Junrui Zhang , Hong Zhao , Mingming Zhou","doi":"10.1016/j.intfin.2025.102115","DOIUrl":"10.1016/j.intfin.2025.102115","url":null,"abstract":"<div><div>In this study, we explore how banks manage risk in response to Other Comprehensive Income (OCI) volatility. We find that banks with high OCI volatility decrease perceived risk while increasing their contribution to systemic risk. As strategies in response to OCI volatility, banks reduce available-for-sale (AFS) holdings and loans, and expand the off-balance-sheet (OBS) entrusted loans and wealth management products. The effects on systemic risk and OBS activities are more pronounced under tight monetary policy but less so under macroprudential supervision. These results indicate that OCI captures the attention of banks in their risk management, yet their response to OCI volatility intensifies systemic fragility. The enforcement of OCI disclosure should be complemented by effective macroprudential supervision to ensure financial stability.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102115"},"PeriodicalIF":5.4,"publicationDate":"2025-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183705","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-28DOI: 10.1016/j.intfin.2025.102114
Hamid Yahyaei , Abhay Singh, Tom Smith
We examine the dynamics of U.S. Treasury term premia by applying and extending the nonparametric framework of Boudoukh, Richardson, Smith, and Whitelaw (1999) into a time-varying test of monotonicity. The framework exploits conditioning variables with economic relevance to the business cycle, which a priori predict non-monotonic Treasury returns to permit a formal test of the Liquidity Preference Hypothesis (LPH). Conditioning ex ante returns against inversion in the yield curve, restrictive monetary policy rates, and negative investor sentiment reveals a non-monotonic term premium on Treasury bills. In contrast, term premia on portfolios comprising longer-term Treasury notes are primarily monotonic but exhibit non-monotonicity that coincides with unexpected macroeconomic shocks. When interest rates reach the zero lower bound, term premia are universally monotonic, demonstrating the Federal Reserve’s ability to normalise the yield curve. Ultimately, we illustrate the importance of accounting for the time-varying behaviour of the term premium, especially as changes in the business cycle influence the term structure of interest rates.
{"title":"Ex ante bond returns and time-varying monotonicity","authors":"Hamid Yahyaei , Abhay Singh, Tom Smith","doi":"10.1016/j.intfin.2025.102114","DOIUrl":"10.1016/j.intfin.2025.102114","url":null,"abstract":"<div><div>We examine the dynamics of U.S. Treasury term premia by applying and extending the nonparametric framework of Boudoukh, Richardson, Smith, and Whitelaw (1999) into a time-varying test of monotonicity. The framework exploits conditioning variables with economic relevance to the business cycle, which a priori predict non-monotonic Treasury returns to permit a formal test of the Liquidity Preference Hypothesis (LPH). Conditioning ex ante returns against inversion in the yield curve, restrictive monetary policy rates, and negative investor sentiment reveals a non-monotonic term premium on Treasury bills. In contrast, term premia on portfolios comprising longer-term Treasury notes are primarily monotonic but exhibit non-monotonicity that coincides with unexpected macroeconomic shocks. When interest rates reach the zero lower bound, term premia are universally monotonic, demonstrating the Federal Reserve’s ability to normalise the yield curve. Ultimately, we illustrate the importance of accounting for the time-varying behaviour of the term premium, especially as changes in the business cycle influence the term structure of interest rates.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102114"},"PeriodicalIF":5.4,"publicationDate":"2025-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183703","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-24DOI: 10.1016/j.intfin.2025.102119
Lucas N.C. Vasconcelos , Rafael Schiozer
We investigate whether banks located in countries with extractive institutions benefit from larger implicit subsidies, using a sample of banks from 35 countries. We conjecture that the banking systems in countries with extractive institutions have the political and economic powers to lead governments to absorb banks’ distress risk and use public resources to guarantee banks’ survival in distressed events. This creates ex-ante implicit subsidies that reduce banks’ cost of equity financing in these countries. To reinforce the causal evidence, we explore variations in external democratic capital as an instrument for institutional exploitation. Our results indicate that the less extractive the institutional environment, the lower the banks’ implicit subsidies. In countries with less extractive institutions, regulatory instruments are more likely to be adopted, such as bail-in rules and tighter bank resolution frameworks. These policies reduce regulators’ discretion to use public resources to save distressed banks when these interventions are welfare decreasing, reducing ex-ante implicit subsidies enjoyed by the financial sector.
{"title":"Extractive institutions and banks’ implicit subsidies","authors":"Lucas N.C. Vasconcelos , Rafael Schiozer","doi":"10.1016/j.intfin.2025.102119","DOIUrl":"10.1016/j.intfin.2025.102119","url":null,"abstract":"<div><div>We investigate whether banks located in countries with extractive institutions benefit from larger implicit subsidies, using a sample of banks from 35 countries. We conjecture that the banking systems in countries with extractive institutions have the political and economic powers to lead governments to absorb banks’ distress risk and use public resources to guarantee banks’ survival in distressed events. This creates <em>ex-ante</em> implicit subsidies that reduce banks’ cost of equity financing in these countries. To reinforce the causal evidence, we explore variations in external democratic capital as an instrument for institutional exploitation. Our results indicate that the less extractive the institutional environment, the lower the banks’ implicit subsidies. In countries with less extractive institutions, regulatory instruments are more likely to be adopted, such as bail-in rules and tighter bank resolution frameworks. These policies reduce regulators’ discretion to use public resources to save distressed banks when these interventions are welfare decreasing, reducing <em>ex-ante</em> implicit subsidies enjoyed by the financial sector.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102119"},"PeriodicalIF":5.4,"publicationDate":"2025-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183702","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-21DOI: 10.1016/j.intfin.2025.102112
Yuanbiao Huang , Jinlei Li
Utilizing data from administrative penalty announcements by the former China Banking and Insurance Regulatory Commission (CBIRC), we analyze the impact of banking regulatory penalties on corporate R&D investment. Our findings indicate that stringent regulatory penalties crowd out corporate R&D investment by reducing the availability of loans and increasing borrowing costs, with a particularly pronounced effect of disciplinary actions and disqualifications, economic penalties, and loan-related penalties. Further analysis reveals that the crowding-out effect is more pronounced among firms with smaller asset sizes and lower internal financing. However, bank competition and international expansion significantly mitigate this crowding-out effect. Additionally, we find that regulatory penalties only crowd out R&D investment within the year following the penalty, with no direct evidence indicating a reduction in patent applications. Our study highlights that rigorous banking regulatory penalties may have a short-term adverse impact on corporate R&D investment, suggesting that regulatory authorities should balance the stability of the financial system with the development of the real economy when enforcing punitive actions.
{"title":"Banking regulation and corporate R&D investment: Evidence from regulatory penalties in China","authors":"Yuanbiao Huang , Jinlei Li","doi":"10.1016/j.intfin.2025.102112","DOIUrl":"10.1016/j.intfin.2025.102112","url":null,"abstract":"<div><div>Utilizing data from administrative penalty announcements by the former China Banking and Insurance Regulatory Commission (CBIRC), we analyze the impact of banking regulatory penalties on corporate R&D investment. Our findings indicate that stringent regulatory penalties crowd out corporate R&D investment by reducing the availability of loans and increasing borrowing costs, with a particularly pronounced effect of disciplinary actions and disqualifications, economic penalties, and loan-related penalties. Further analysis reveals that the crowding-out effect is more pronounced among firms with smaller asset sizes and lower internal financing. However, bank competition and international expansion significantly mitigate this crowding-out effect. Additionally, we find that regulatory penalties only crowd out R&D investment within the year following the penalty, with no direct evidence indicating a reduction in patent applications. Our study highlights that rigorous banking regulatory penalties may have a short-term adverse impact on corporate R&D investment, suggesting that regulatory authorities should balance the stability of the financial system with the development of the real economy when enforcing punitive actions.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102112"},"PeriodicalIF":5.4,"publicationDate":"2025-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183701","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-20DOI: 10.1016/j.intfin.2025.102111
Yu Wang , Yiming Lu , Gaoya Song
Using data from 1724 listed banks across 43 nations, we investigate the effect of sudden stops of capital inflows on bank systemic risk. Empirical evidence demonstrates a significant increase in bank systemic risk as a result of sudden stops. In terms of impact mechanisms, we find that sudden stops heighten bank asset risk and contribute to the collapse of asset price bubbles. Furthermore, we examine whether the implementation of macroprudential policies can alleviate the effects of sudden stops on financial stability. Our findings demonstrate that macroprudential policies concerning capital, credit, and liquidity can effectively alleviate the heightened systemic risk associated with sudden stops. The regression results still hold after a series of robustness tests. Our research connects sudden stops of capital inflows with bank systemic risk and provides a policy reference for the regulatory agencies aiming to identify and prevent externally imported financial risks.
{"title":"Sudden stops of capital inflows, macroprudential policies, and bank systemic risk: An international investigation","authors":"Yu Wang , Yiming Lu , Gaoya Song","doi":"10.1016/j.intfin.2025.102111","DOIUrl":"10.1016/j.intfin.2025.102111","url":null,"abstract":"<div><div>Using data from 1724 listed banks across 43 nations, we investigate the effect of sudden stops of capital inflows on bank systemic risk. Empirical evidence demonstrates a significant increase in bank systemic risk as a result of sudden stops. In terms of impact mechanisms, we find that sudden stops heighten bank asset risk and contribute to the collapse of asset price bubbles. Furthermore, we examine whether the implementation of macroprudential policies can alleviate the effects of sudden stops on financial stability. Our findings demonstrate that macroprudential policies concerning capital, credit, and liquidity can effectively alleviate the heightened systemic risk associated with sudden stops. The regression results still hold after a series of robustness tests. Our research connects sudden stops of capital inflows with bank systemic risk and provides a policy reference for the regulatory agencies aiming to identify and prevent externally imported financial risks.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102111"},"PeriodicalIF":5.4,"publicationDate":"2025-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183700","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-14DOI: 10.1016/j.intfin.2024.102110
Rong (Irene) Zhong
In today’s interconnected global economy, economic shocks in one country often propagate across borders, causing significant fluctuations worldwide. Constructing a novel country-to-country multiplex network framework, this study demonstrates that financial reporting convergence enhances a country’s resilience to spillover shocks, resulting in a 16.12% and 23.30% decrease in the sensitivity of employment and value-added to shock-induced fluctuations. This resilience effect arises from network diversification, enabling countries to allocate resources more strategically across a broader range of foreign partners. Our findings are robust to multiple identification strategies. Overall, our study underscores the importance of global financial reporting convergence in reducing network risk and strengthening countries’ economic stability in the face of external shocks.
{"title":"Global convergence of financial reporting and resilience to fiscal spillover shocks","authors":"Rong (Irene) Zhong","doi":"10.1016/j.intfin.2024.102110","DOIUrl":"10.1016/j.intfin.2024.102110","url":null,"abstract":"<div><div>In today’s interconnected global economy, economic shocks in one country often propagate across borders, causing significant fluctuations worldwide. Constructing a novel country-to-country multiplex network framework, this study demonstrates that financial reporting convergence enhances a country’s resilience to spillover shocks, resulting in a 16.12% and 23.30% decrease in the sensitivity of employment and value-added to shock-induced fluctuations. This resilience effect arises from network diversification, enabling countries to allocate resources more strategically across a broader range of foreign partners. Our findings are robust to multiple identification strategies. Overall, our study underscores the importance of global financial reporting convergence in reducing network risk and strengthening countries’ economic stability in the face of external shocks.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102110"},"PeriodicalIF":5.4,"publicationDate":"2025-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183699","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-10DOI: 10.1016/j.intfin.2024.102105
Mario Bellia, Ludovic Calès
This paper analyses the potential effect of a European central bank digital currency (CBDC) on banks’ profitability. We use a large sample of euro area banks that spans the period from 2007 to 2021 to assess the sensitivity of banks’ profits to the deposits. Using quantile regressions, we estimate the conditional profit distribution of a representative bank. We then introduce a shock on the amount of deposits that would be replaced by the CBDC. Our results show that, for a large take-up of CBDC, there might be substantial challenges for the profitability of banks, especially for large banks and for small banks that mostly rely on deposits as a source of funding.
{"title":"Bank profitability and central bank digital currency","authors":"Mario Bellia, Ludovic Calès","doi":"10.1016/j.intfin.2024.102105","DOIUrl":"10.1016/j.intfin.2024.102105","url":null,"abstract":"<div><div>This paper analyses the potential effect of a European central bank digital currency (CBDC) on banks’ profitability. We use a large sample of euro area banks that spans the period from 2007 to 2021 to assess the sensitivity of banks’ profits to the deposits. Using quantile regressions, we estimate the conditional profit distribution of a representative bank. We then introduce a shock on the amount of deposits that would be replaced by the CBDC. Our results show that, for a large take-up of CBDC, there might be substantial challenges for the profitability of banks, especially for large banks and for small banks that mostly rely on deposits as a source of funding.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102105"},"PeriodicalIF":5.4,"publicationDate":"2025-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183711","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-10DOI: 10.1016/j.intfin.2024.102103
Patrizia Perras, Niklas Wagner
We provide evidence that the equity premium does not simply compensate investors for bearing market risk per se and contribute to an adequate modeling of the intertemporal risk-return relationship. Our model captures the relationship between conditional expected excess stock market returns, conditional market volatility, and conditional market illiquidity, while taking scheduled trading breaks into account. We distinguish between two distinct sources of market risk, namely continuous diffusive risk during trading hours and a discontinuous component representing random overnight price jumps. Utilizing high-frequency data, we estimate specific premia for trading and non-trading components in terms of conditional volatility as well as conditional illiquidity. Our findings reveal that the conditional equity premium primarily compensates for bearing risk and illiquidity during market closures. Conditional volatility and illiquidity during trading hours play only a minor role in explaining the equity premium and shaping the intertemporal risk-return relationship.
{"title":"Give me a break: What does the equity premium compensate for?","authors":"Patrizia Perras, Niklas Wagner","doi":"10.1016/j.intfin.2024.102103","DOIUrl":"10.1016/j.intfin.2024.102103","url":null,"abstract":"<div><div>We provide evidence that the equity premium does not simply compensate investors for bearing market risk per se and contribute to an adequate modeling of the intertemporal risk-return relationship. Our model captures the relationship between conditional expected excess stock market returns, conditional market volatility, and conditional market illiquidity, while taking scheduled trading breaks into account. We distinguish between two distinct sources of market risk, namely continuous diffusive risk during trading hours and a discontinuous component representing random overnight price jumps. Utilizing high-frequency data, we estimate specific premia for trading and non-trading components in terms of conditional volatility as well as conditional illiquidity. Our findings reveal that the conditional equity premium primarily compensates for bearing risk and illiquidity during market closures. Conditional volatility and illiquidity during trading hours play only a minor role in explaining the equity premium and shaping the intertemporal risk-return relationship.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102103"},"PeriodicalIF":5.4,"publicationDate":"2025-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183698","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-09DOI: 10.1016/j.intfin.2024.102107
Hyun-Jung Nam , Doojin Ryu
We analyze the U-shaped effect of economic development, indicated by GDP per capita, on income inequality. Using extensive data from European Union (EU) countries, we find that at lower GDP per capita levels, increases in GDP per capita reduce income inequality. However, beyond a certain threshold, further GDP per capita growth contributes to rising income inequality. International trade plays a moderating role, reducing income inequality at higher GDP per capita levels, though this effect is less pronounced in Eastern Europe. Our findings highlight the need for trade policies across the EU that ensure international trade has positive effects on income distribution.
我们分析了以人均国内生产总值为指标的经济发展对收入不平等的 U 型效应。利用欧盟国家的大量数据，我们发现，在较低的人均 GDP 水平上，人均 GDP 的增长会减少收入不平等。然而，超过一定临界值后，人均 GDP 的进一步增长会导致收入不平等的加剧。国际贸易发挥了调节作用，在人均 GDP 水平较高时减少了收入不平等，尽管这种效应在东欧不太明显。我们的研究结果突出表明，欧盟需要制定贸易政策，确保国际贸易对收入分配产生积极影响。
{"title":"Does international trade moderate economic development’s impact on income inequality in the EU?","authors":"Hyun-Jung Nam , Doojin Ryu","doi":"10.1016/j.intfin.2024.102107","DOIUrl":"10.1016/j.intfin.2024.102107","url":null,"abstract":"<div><div>We analyze the U-shaped effect of economic development, indicated by GDP per capita, on income inequality. Using extensive data from European Union (EU) countries, we find that at lower GDP per capita levels, increases in GDP per capita reduce income inequality. However, beyond a certain threshold, further GDP per capita growth contributes to rising income inequality. International trade plays a moderating role, reducing income inequality at higher GDP per capita levels, though this effect is less pronounced in Eastern Europe. Our findings highlight the need for trade policies across the EU that ensure international trade has positive effects on income distribution.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102107"},"PeriodicalIF":5.4,"publicationDate":"2025-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183697","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-06DOI: 10.1016/j.intfin.2024.102108
Rafael Baptista Palazzi , Sebastian Schich , Alan de Genaro
This study empirically investigates the potential of stablecoins to act as anchors within the volatile cryptocurrency market, using a novel conceptual framework that defines an anchor asset in three dimensions relative to other assets, namely stability, independence, and resilience. To assess these three dimensions, we employ three distinct methods to analyze the linear and nonlinear relationships between stablecoins (Tether, USD Coin, and Binance USD), the top three unpegged crypto-assets (Bitcoin, Ethereum, and Binance), and the three most heavily traded fiat currencies after the US dollar (EUR, JPY, and GBP), all denominated in USD. Specifically, we utilize Granger causality, asymmetric dynamic conditional correlation (ADCC)-GARCH, and transfer entropy approaches. These methods help us examine volatility spillover effects among the three types of assets. Our resilience criteria requires us to measure market liquidity, which we do by employing the turnover ratio weighted by market capitalization and the approach proposed by Abdi and Ranaldo (2017). The results challenge the notion that stablecoins are robust anchors in the sense that they are more stable, independent, or resilient than other types of assets, and cast doubt on the suggestion that stablecoins might become a useful means of exchange that provide a private alternative to existing fiat currencies.
{"title":"Stablecoins as anchors? Unraveling information flow dynamics between pegged and unpegged crypto-assets and fiat currencies","authors":"Rafael Baptista Palazzi , Sebastian Schich , Alan de Genaro","doi":"10.1016/j.intfin.2024.102108","DOIUrl":"10.1016/j.intfin.2024.102108","url":null,"abstract":"<div><div>This study empirically investigates the potential of stablecoins to act as anchors within the volatile cryptocurrency market, using a novel conceptual framework that defines an anchor asset in three dimensions relative to other assets, namely stability, independence, and resilience. To assess these three dimensions, we employ three distinct methods to analyze the linear and nonlinear relationships between stablecoins (Tether, USD Coin, and Binance USD), the top three unpegged crypto-assets (Bitcoin, Ethereum, and Binance), and the three most heavily traded fiat currencies after the US dollar (EUR, JPY, and GBP), all denominated in USD. Specifically, we utilize Granger causality, asymmetric dynamic conditional correlation (ADCC)-GARCH, and transfer entropy approaches. These methods help us examine volatility spillover effects among the three types of assets. Our resilience criteria requires us to measure market liquidity, which we do by employing the turnover ratio weighted by market capitalization and the approach proposed by Abdi and Ranaldo (2017). The results challenge the notion that stablecoins are robust anchors in the sense that they are more stable, independent, or resilient than other types of assets, and cast doubt on the suggestion that stablecoins might become a useful means of exchange that provide a private alternative to existing fiat currencies.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"99 ","pages":"Article 102108"},"PeriodicalIF":5.4,"publicationDate":"2025-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143183696","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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