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18
2009): “What drives international bank flows? Politics, institutions and other determinants
- Journal of Development Economics
"... This paper uses a large panel of bilateral bank flow data to assess how institutions and politics affect international capital-bank in particular- flows. The following key findings emerge: 1) The empirical "gravity " model is the benchmark in explaining the volume of international banking ..."
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Cited by 30 (1 self)
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This paper uses a large panel of bilateral bank flow data to assess how institutions and politics affect international capital-bank in particular- flows. The following key findings emerge: 1) The empirical "gravity " model is the benchmark in explaining the volume of international banking activities. 2) Conditioned on standard gravity factors (distance, GDP, population), well-functioning institutions are a key driving force for international bank flows. Specifically, foreign banks invest substantially more in countries with i) uncorrupt bureaucracies, ii) high-quality legal system, and iii) a non-government controlled banking system. 3) Beyond legal institutions, politics exert also a first-order impact and reforms (democratizations, privatization, decentralizations of power) are followed with a significant increase of foreign bank investment. 4) The European Integration process has spurred cross-border banking activities between member states. These results are robust to various econometric methodologies, samples, and the potential endogeneity of political and institutional characteristics. The strong institutions/politics-bank flows nexus has strong implications for asset trade and international macro theories, which have not modelled these relationships explicitly.
WHAT LIES BENEATH THE EURO’S EFFECT ON FINANCIAL INTEGRATION? CURRENCY RISK, LEGAL HARMONIZATION, OR TRADE? 1
, 1216
"... publications feature a motif taken from the €500 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. This paper can be downloaded without ..."
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Cited by 20 (1 self)
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publications feature a motif taken from the €500 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. This paper can be downloaded without charge from
THE MISSING WEALTH OF NATIONS: ARE EUROPE AND THE U.S. NET DEBTORS OR NET CREDITORS?
, 2013
"... This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on a unique Swiss dataset and exploiting systematic anomalies in countries ’ port ..."
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Cited by 15 (1 self)
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This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on a unique Swiss dataset and exploiting systematic anomalies in countries ’ portfolio investment positions, I find that around 8 % of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world’s second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that, after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics.
Spatial linkages in international financial markets. Quantitative Finance
, 2011
"... Spatial dependency has been studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has essentially been overlooked in other subfields of economics and in the field of finance as a whole. A key element at sta ..."
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Cited by 4 (0 self)
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Spatial dependency has been studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has essentially been overlooked in other subfields of economics and in the field of finance as a whole. A key element at stake is the definition of contiguity. In the context of financial markets, defining a metric distance is not a simple matter. In this article, we explore the notion of spatial dependency by formulating a spatial version of the capital asset pricing model (S-CAPM). Such a model specification makes it possible to account for alternative measures of distance between firms, such as market capitalization, the market-to-book, and other financial ratios. Our model is tested on a panel of 126 Latin American firms. In addition, we derive Value-at-Risk (VaR) measures from our S-CAPM formulation. We complement our discussion with Monte Carlo simulations aimed at quantifying the benefits of diversification in terms of VaR reduction.
Are Islamic Stock Markets Integrated Globally? Evidence From Time Series Techniques
, 2013
"... Abstract: This study attempts to investigate the issue of integration of Islamic equity markets (i) not only whether these markets are moving together or not (ii) but also whether the permanent and temporary components of these markets are moving together or not. Our evidence tends to indicate that ..."
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Abstract: This study attempts to investigate the issue of integration of Islamic equity markets (i) not only whether these markets are moving together or not (ii) but also whether the permanent and temporary components of these markets are moving together or not. Our evidence tends to indicate that these selected Islamic markets are bound together by one cointegrating relationship with the Euro zone Islamic equity market being the most leading one and the U.K. Islamic equity market being the follower. Beveridge-Nelson (BN) time series decomposition analysis reinforces the integration by indicating that both the permanent and transitory components of all these Islamic equity indices tend to move almost together leading to further integration of the Islamic equity markets. Finally, the study tends to suggest that the financial crises did affect the investments in Islamic Equity markets. The findings of this study are also consistent with the Shariah views of economic and financial integration and have strong policy implications.
Home bias revisited *
, 2009
"... We examine a large number of potential home bias determinants, including some novel ones, using extensive panel data. We distinguish between the actual home bias (overinvestment in domestic securities) and foreign investment bias, for which we propose a new measure. For foreign investment bias, we a ..."
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We examine a large number of potential home bias determinants, including some novel ones, using extensive panel data. We distinguish between the actual home bias (overinvestment in domestic securities) and foreign investment bias, for which we propose a new measure. For foreign investment bias, we also demonstrate how “size biases ” significantly affect the results. We find that the old empirical results based on the U.S. data alone do not generalize to the panel data set; information and familiarity variables and proxies for the degree of capital market openness play an important role in explaining both home and foreign investment biases. We appreciate the comments and suggestions of Ricardo Brito, Bob Hodrick, Wei Jiang and participants at
Large Global Volatility Shocks, Equity Markets and Globalisation:
, 2013
"... I estimate the transmission of large global volatility shocks in international equity markets from the earlier (pre-1914) to the modern era of globalisation. To that end, I identify 43 such shocks over the period 1885-2011, defined as significant increases in unanticipated volatility in US equity ma ..."
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I estimate the transmission of large global volatility shocks in international equity markets from the earlier (pre-1914) to the modern era of globalisation. To that end, I identify 43 such shocks over the period 1885-2011, defined as significant increases in unanticipated volatility in US equity markets, which I relate to well-known historical events. My estimates suggest that the response of global equity markets to these shocks in a panel of 16 countries is both statistically significant and large economically. On average, global equity market valuations correct by about 20 % in the month when a shock occurs. There is substantial heterogeneity in responses both across countries and time, however, which can be partly explained by differences in global trade integration. I find no evidence that other potential theoretical determinants, such as output composition, country fundamentals or global policy responses matter, by contrast. These results shed light on a neglected aspect of globalisation, which creates opportunities but also heightens the exposure of economies to acute surges in global uncertainty and risk aversion.
the author and do not necessarily reflect those of the European Central Bank or the Eurosystem. They should not be reported as such.
, 1548
"... Large global volatility shocks, equity markets and globalisation ..."
and the Pattern of Speculative Capital Flows ∗
, 2012
"... This paper proposes theoretical and empirical analysis of the effect of capital controls and alternative exchange rate regimes on the patterns of speculative capital. I argue that the exchange rate regime and its interaction with the monetary regime can explain the patterns of speculative capital ar ..."
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This paper proposes theoretical and empirical analysis of the effect of capital controls and alternative exchange rate regimes on the patterns of speculative capital. I argue that the exchange rate regime and its interaction with the monetary regime can explain the patterns of speculative capital around the world. I show that speculative capitals are more likely to flow into countries in which there is a contradiction between the monetary and the exchange regimes, e.g. more likely in countries with managed exchange rates. I model exchange-rate as a jump process in a stochastic dynamic portfolio optimization. Through this approach, the influence of the frequency and the size of “jumps ” in the exchange rate on the allocation of speculative capital can be determined. It will also allow inflows to be endogenous. By linking the jumps to the frequency of exchange rate movements, this paper determines the effectiveness of different exchange rate regimes in fending off “hot money ” for a given monetary regime. On the empirical side, I use a newly constructed data set to verify the theoretical predictions of the determinants and the patterns of speculative capital. Capital controls do not affect speculative capital.
