EU Banks Rating Assignments: Is There Heterogeneity between New and Old Member Countries?

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than “old” ones. We find that country‐specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst “new” EU countries typically have lower ratings than “old” ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country's rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for “new” EU countries compared with “old” EU countries.     

Do foreign-owned banks affect banking system liquidity risk?

Existing empirical research shows that foreign-owned banks play a stabilizing role in emerging economies’ banking systems. Anecdotal evidence suggests that this stabilizing role can be attributed to transnational banks’ access to more diversified sources of liquidity. There exists, however, no empirical evidence so far on transnational banks’ liquidity behavior and its effect on aggregate banking system liquidity. This paper aims at closing this gap. First, we look at the liquid assets holdings of transnational banks and show that in “normal” times they are significantly lower but in crises times higher than those of single-market banks. Second, we find evidence that transnational banks’ presence significantly reduces the risk of aggregate liquidity shortages in emerging economies.     

Liquidity default,liquidity management and smooth dividends policy

Our article models liquidity financing constraints with the real options framework. By conducting a comprehensive investigation of the effects of shocks to liquidity constraints on the firm’s optimal investment, financing and dividend policies, our model highlights the importance of liquidity management and extends the liquidity management approach to hedge liquidity default risk. We find that being concerned about liquidity default risk will significantly change a firm’s behaviours, including those related to investment and the optimal capital structure. A firm that is concerned about its liquidity default risk will become more cautious: it will choose to delay investment and have higher leverage when internal liquidity is very low, but choose earlier investment and lower leverage when liquidity is high enough. The dividends policy can alleviate risks from both the external market and internal project volatility and provides an alternative explanation for the ‘smooth dividends policy puzzle’ commonly reported in empirical research.     

Distance and beyond: What drives financial flows to emerging economies?

A major theme in the empirical literature is whether country-specific ‘pull’ or external ‘push’ factors drive international capital flows. In this paper we show that pull-push interactions matter: the response of international investors to country-specific developments depends on global volatility/liquidity stress conditions. We model asset-trade behaviour of investors: with limited information, strong institutional quality ‘pulls’ asset demand; mounting tensions in global markets amplify portfolio adjustments. We derive an empirically testable equation for cross-border bank flows to emerging economies (EMEs) and focus on pull-push interactions that trigger financial vulnerabilities. We find that global volatility amplifies demand for institutional quality, prior to the recent crisis, implying that EMEs with weak institutional settings are exposed to sharp capital retrenchments. In the aftermath of the crisis, the liquidity easing in advanced economies drives down concerns for EMEs' developments, boosting flows and challenging EMEs' ability to use capital controls to mitigate unbridled flows.     

“Interest Rate Trap”, or Why Does the Central Bank Keep the Policy Rate Too Low for Too Long?

In this paper, we provide a framework for modeling one risk‐taking channel of monetary policy, the mechanism whereby financial intermediaries' incentives for liquidity transformation are affected by the central bank's reaction to a financial crisis. The anticipation of the central bank's reaction to liquidity stress gives banks incentives to invest in excessive liquidity transformation, triggering an “interest rate trap” – the economy will remain stuck in a long‐lasting period of suboptimal, low interest rate equilibrium. We demonstrate that interest rate policy as a financial stabilizer is dynamically inconsistent, and the constrained efficient outcome can be implemented by imposing ex ante liquidity requirements.     

Life with habit and expectation: A new explanation of equity premium puzzle

Previous writers have attempted to resolve the equity premium puzzle by employing a utility function that depends on current consumption minus (or relative to) past habit consumption. This paper points out that an individual's current utility may also depend upon how well off in the recent past he or she had expected to be today. Hence we add the concept “expectation formation” to the utility modification term in a model with a habit‐formation utility function. We apply the model to the equity premium puzzle and find that it is able to fit the data with a relatively low coefficient of relative risk aversion. Furthermore, we introduce an updated data sample and apply different values of discounting factors, and find that in all circumstances, the model is able to generate coefficients of risk aversion that are consistent with theory. Hence we conclude that the model is able to resolve the equity premium puzzle.     

公司购并利益相关者的利益均衡吗?——基于公司购并动因的风险溢价套利分析

本文利用信息经济学与博弈论理论 ,从公司利益相关者的利益均衡角度对公司购并进行动态博弈分析。为刻画行为主体利益动态均衡过程 ,论文应用Rubinstein讨价还价模型 ,揭示公司购并过程中利益均衡及其对公司购并的推动作用。为解开“购并公司股东损益之谜” ,论文引进购并公司信息占优条件下的风险套利模型 ,分析购并公司溢价购并损失在市场背后的风险套利补偿。在此基础上 ,采用市场分析法对上市公司购并利益分配进行实证 ,检验结果显示中国证券市场同样存在“购并公司股东损益之谜”。     

Regional economic growth disparities: A political economy perspective

Regional differences in economic growth have been observed within many countries. Our story emphasises three region-specific factors driving growth—capital, labour and political factors. Conditional on differences in production factor (i.e., labour and capital) variations across democratic states, what role do differences in underlying “political factors” across regions play in accounting for regional growth disparities? We build a political economy model of endogenous growth where regions have the same political institutions, but experience different (and estimable) distributions over voter political biases (i.e., our “political factors”). In our model, political factors affect regional productivity as a consequence of politico-economic equilibrium. We discipline our regional growth accounting exercises by calibrating/estimating each model to American state-level economic and political-survey data. We show that the capital factor is the predominant driving force behind growth in American states. Nevertheless, regional variations in distributions of voter's political biases also account a great deal for regional growth disparities. We also evaluate how much politics would have distorted agents' welfare and regional growth, were regional economies given the opportunity to live under an efficient social planner's allocation system; and, if agents were to live under the same democratic system but where all voters have equal voting influence.     

Financial Matching, Asymmetric Information and Entrepreneurial Risk Taking

We study financial matching in credit markets when entrepreneurs have private information about their success potential. Entrepreneurs can search for financing for either a “risky” or a “safe” investment and only the risky project is sensitive to entrepreneurs' intrinsic “types”. There is excess risk taking in the sense that entrepreneurs with inefficiently low success probabilities choose the risky investment. However, steady states featuring greater market liquidity are associated with higher efficiency. As market liquidity also reflects the intensity of competition among financiers, earlier results which indicate a negative relationship between competition and allocative efficiency do not hold in our setup.     

Intersectoral default contagion: A multivariate Poisson autoregression analysis

This paper analyzes credit rating default dependencies in a multisectoral framework. Using Mergent's FISD database, we study the default series in the U.S. over the last two decades, disaggregating defaults by industry-sector group. During this period, two main waves of default occurred: the implosion of the “dot-com” bubble and the global financial crisis. We estimate a Multivariate Autoregressive Conditional Poisson model according to the biweekly number of defaults that occurred in different sectors of the economy from 1996 to 2015. We discuss the contagion effect between sectors in two ways: the degree of transmission of the probability of default from one sector to another, i.e., the “infectivity” of the sector, and the degree of contagion of one sector from another, i.e., the “vulnerability” of the sector. Our results show differences between the sectors' relations during the first and second part of our sample. We add some exogenous variables to the analysis and evaluate their contribution to the goodness of fit.     

A fire sale without fire: An explanation of labor-intensive FDI in China

China's labor-intensive industries are characterized by low technology and high competition. The massive inflow of FDI in China's labor intensive industries is inconsistent with the conventional wisdom that FDI should be more prevalent in technology-intensive and low competition industries. To explain this puzzle, we offer a “fire sale” hypothesis: facing severe financial constraints, Chinese private firms give up their equity to form joint ventures with foreign firms in order to obtain financing. Using the garment industry as an example, we find that among domestic firms, the financial constraint index is highest for private firms and lowest for state-owned firms. We further estimate a probit model of joint-venture decisions by private firms. Our results suggest that those private firms with greater financial constraints are more likely to seek foreign joint ownership. The effect of financial constraints on joint venture decision is both statistically and economically significant.     

Credible communication in dynastic government

This paper studies information disclosure in a model of dynastic government. When information about past policy choices comes exclusively from the reports of previous administrations, each administration has an incentive to choose its (suboptimal) one-shot expenditure policy, and then misrepresent its choice to its successor. Consequently, it has been suggested that “horizontal accountability,” i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of a government's activities. This paper suggests a cautious approach to that view.The baseline model examines the reporting incentives of an external auditor who can independently verify the information each period. Even with auditing, credible disclosure is shown to be problematic. Various extensions to this baseline model are examined. In one extension, “liberal” (i.e., those prefering larger government expenditures) and “conservative” (those prefering smaller expenditures) regimes and auditors evolve over time. It is shown that “conservative” (“liberal”) auditors are not credible when the current regime is also “conservative” (“liberal”). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, effective deterrents even in the “good” periods (when the auditor's and the administration's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices. These constraints are shown to bind away from optimal policies in standard constructions of equilibrium. Various ways in which auditing protocols can overcome these problems are discussed.     

流动性、股票定价及时变性：来自我国沪深股市的经验证据

本文在经流动性风险调整的资产定价模型的基础上,通过引进四个工具变量,构建了一个检验模型,于时间序列上对中国股票市场进行了实证分析。实证结果显示：我国的股市流动性单位风险溢价于时间序列上存在显著的时变性。从而证实了投资者之内生流动性风险对股票收益率之影响效应,进而揭示了一个货币供给量影响股市的一个作用机制,即股票价格的涨跌由于流动性水平的不同和由前者导致的流动性风险溢价要求的不同而受到影响。     

Keynes's errors in the liquidity preference versus loanable funds controversy

How Keynes could have been so persistently wrong in the liquidity preference versus loanable funds controversy remains a puzzling enigma. This paper attempts to shed some light on this puzzle by tracing the evolution of Keynes's thinking and by looking at some of the policy issues with which he was concerned. In particular, it argues that two errors were inherent in Keynes's reasoning process. As a result, he regarded the two theories as “radically opposed” and thought that the loanable funds theory was a “wrong” theory with misleading policy implications.     

Model uncertainty and liquidity

Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets like the market for mortgage backed securities or credit derivatives. Moreover, the observed behavior of traders and institutions that places a large emphasis on “worst-case scenarios” through the use of “stress testing” and “Value-at-Risk” seems different than Savage expected utility would suggest. In this paper, we capture model-uncertainty using an Epstein and Wang [Epstein, L.G., Wang, T., 1994. Intertemporal asset pricing under Knightian uncertainty. Econometrica 62, 283–322] uncertainty-averse utility function with an ambiguous underlying asset-returns distribution. To explore the connection of uncertainty with liquidity, we specify a simple market where a monopolist financial intermediary makes a market for a propriety derivative security. The market-maker chooses bid and ask prices for the derivative, then, conditional on trade in this market, chooses an optimal portfolio and consumption. We explore how uncertainty can increase the bid–ask spread and, hence, reduces liquidity. Our infinite-horizon example produces short, dramatic decreases in liquidity even though the underlying environment is stationary. We show how these liquidity crises are closely linked to the uncertainty aversion effect on the optimal portfolio. Effectively, the uncertainty aversion can, at times, limit the ability of the market-maker to hedge a position and thus reduces the desirability of trade, and hence, liquidity.     

Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?

Previously reported effects of institutional quality and political risks on foreign direct investment (FDI) are mixed and, therefore, difficult to interpret. We present empirical evidence suggesting a relatively clear, statistically robust, and intuitive characterization. Institutional factors that affect the likelihood of an abrupt and total loss of foreigners’ capital (i.e., return of capital) dominate factors that affect rates of return conditional on a strictly positive terminal investment value (i.e., return on capital). The evidence is consistent with the hypothesis that expropriation risk is most important among the available measures of different dimensions of institutional quality. A one-standard-deviation reduction in expropriation risk is associated with a 72% increase in FDI, which is substantially larger than the effects of any other dimensions of institutional quality as simultaneously estimated in our empirical models of expected FDI inflows. We show that this evidence is consistent with the predictions of a standard theory of FDI under imperfect contract enforcement and multiple dimensions of political risk.     

The “Cambridge” critique of the quantity theory of money: A note on how quantitative easing vindicates it

Through quantitative easing markets have been flooded with liquidity, but rather than inflation we have witnessed a general deflation because of the liquidity trap environment in which the banking system operated; this article revisits the arguments against the quantity theory in the “Cambridge” tradition of John Maynard Keynes, Richard Kahn, and Nicholas Kaldor, and defends their soundness and topicality.     

流动性过剩、贸易信贷与持续贸易顺差——基于中国货币政策影响贸易收支渠道的经验研究

文章针对经典理论不能解释的中国"流动性过剩的情况下还能产生持续贸易顺差"现象,将贸易信贷纳入货币政策传导机制分析框架,通过实证检验证明中国货币供给影响贸易收支的通道主要是"贸易信贷"以及"通过汇率影响贸易信贷".借此给出了我国"流动性过剩条件下产生贸易顺差之谜"的一个解释,强调紧缩性货币政策和人民币升值的汇率政策有助于消除内外均衡冲突.     

Credit risk – Return puzzle: Evidence from India

Although asset pricing theories predict a positive relation between risk and returns, empirical findings on credit risk-return relationship are mixed. And, observed negative relation between the two in this regard is referred to as credit risk-return puzzle. Using credit rating as a measure of credit risk, we have investigated into the existence of this puzzle in India during July 2011 to March 2019. We have used information for the companies listed on the National Stock Exchange for this purpose. Our results validate the presence of this puzzle in the Indian stock market. Moreover, credit risk is observed to be a systematic risk, which has not been captured in the traditional asset pricing models. We have also observed partial evidence favoring both behavioural and rational pricing explanations—the two widely acknowledged explanations in the literature behind this puzzle. On our further query in this connection, we have not seen any significant change in the puzzle due to the recent enactment of the Insolvency and Bankruptcy Code.     

企业家为何要进行媒体呈现*——基于企业家微博的实证检验

随着社交媒体的广泛应用，越来越多的企业家从企业幕后走向台前。本文利用中国上市公司2010—2017年企业家新浪微博的使用数据进行了实证检验。结果发现：（1）高科技企业更倾向于企业家媒体呈现;（2）企业家媒体呈现能够提升企业股票流动性，且微博发布数量越多，股票流动性上升越明显;（3）进一步对企业家微博内容进行文本分析后发现，相比于披露式微博，个性化微博更有助于提升股票流动性，正向情感倾向和负向情感倾向微博均会导致股票流动性的提升。本文结论为信息化时代企业转型升级过程中的企业家行为提供重要参考。