Do Sales of Foreign Exchange Reserves Lead to Currency Appreciation?

We employ novel time‐stamped reserve sales data, provided by the Czech National Bank (CNB), to carry out a time‐series analysis of the exchange rate implications of Czech reserve sales aimed at mitigating valuation losses on Euro‐denominated assets. The sales were explicitly not intended to influence the value of the koruna relative to the euro. The period under study includes a well‐defined regime change in the CNB's approach to reserves sales, allowing us to address whether the manner in which the sales are carried out matters for their influence on the relative value of the domestic currency. We find little evidence that reserve sales influence the exchange rate when sales are carried out on a discretionary and relatively infrequent basis. However, when the sales are carried out daily, we find a statistically and economically significant appreciation of the domestic currency follows.     

Effective or Manipulated Crawling Pegged? Examining the Efficiency of China’s Foreign Exchange Markets

Through data on the balance of payments, this article examines the performance of the crawling peg system in China’s foreign exchange markets. We are interested in whether the exchange rates are steered by the market fundamentals or manipulation. We investigate the changes in market efficiency for the RMB against 12 major currencies in the past decade. Our findings reveal that even with a small floating band in China’s foreign exchange markets, if the market allows the exchange rate to adjust according to the price mechanism, then market efficiency does improve significantly. When the RMB was pegged to the USD at 6.83 during the global financial crisis, there was a severe market failure. That also occurred in 2014, when the China government began to depreciate the RMB to stimulate exports.     

Does the Use of Foreign Currency Derivatives Affect Firms' Market Value? Evidence from Colombia

High returns in emerging markets over the last decade have attracted international investors. This study investigates if and how economic or political news affects stock market activity in two emerging markets: Argentina and Turkey. Our analysis shows that political and economic news influences both the volatility of returns and trading volume in these markets to varying degrees. Results suggest that both economic and political factors, as well as specific market characteristics, should be taken into consideration by international investors when making investment decisions in emerging markets.     

The Relationship Between Sovereign Spreads and International Reserves: Does the Exchange Rate Regime Matter?

International reserves have been put forward as an important factor affecting sovereign spreads in the literature. This article empirically analyzes whether the relationship between international reserves and sovereign spreads depends on exchange rate policy in emerging markets. The analysis is carried out using exchange rate classifications based on both the officially declared regimes and the actual exchange rate behavior. The results show that international reserves reduce sovereign spreads for all levels of exchange rate flexibility using both classifications. Reserves have a similar effect on spreads for all exchange rate categories, except for hard pegs, under which the effect is larger.     

The more the better? Foreign ownership and corporate performance in China

We examine the relationship between the degree of foreign ownership and performance of recipient firms, using a panel of 21,582 Chinese firms over the period 2000–2005. We find that joint-ventures perform better than wholly foreign-owned and purely domestic firms. Although productivity and profitability initially rise with foreign ownership, they start declining once it reaches a certain point. This suggests that some domestic ownership is necessary to ensure optimal performance. We referred these findings to a model of a joint-venture, where strategic interactions between a foreign and a domestic owner's inputs may lead to an inverted U-shaped ownership–performance relationship.     

What Effect Did AIG's Bailout,and the Preceding Events,Have on Its Competitors?

We examine the effect of American International Group's (AIG) bailout, and the events leading up to it, on its insurance industry rivals. The reaction of rivals to AIG‐related events depends on the relative strength of two competing effects. The contagion effect implies that rival returns will decrease following negative events affecting AIG. In contrast, competitive effects will occur if investors expect that rivals will be able to benefit from AIG's downfall. Using three‐factor multivariate regression model event study methodology, we find evidence of both effects around several key dates in AIG's decline.     

Would a Relaxation of the Exchange Rate Regime Increase the Independence of Chinese Monetary Policy? Evidence from China

Some policymakers and academic researchers suggest that relaxing the exchange rate regime will increase the independence of Chinese monetary policy. To test this argument, we estimate spot interest rate models with dummy variable sets and derive an economic interpretation. The empirical results suggest that a relaxation of the exchange rate regime increases the independence of market-based monetary policy; however, it weakens the independence of monetary policy for forecasting future normal events, and it also imposes an ambiguous impact on the independence of monetary policy for forecasting future rare events.     

Did China avoid the ‘Asian flu’? The contagion effect test with dynamic correlation coefficients

Many economists believe that China avoided the so-called Asian flu due to its strong balance of payments position and substantial foreign reserves. This study introduces an improved method for testing financial-crisis contagion and shows that crisis-contagion effects were significant among Thailand and the Chinese economic area (i.e. China, Hong Kong, and Taiwan) stock markets during the Asian financial crisis. The main contribution of this study is its use of a two-step procedure to identify the crisis dates for testing for contagion and data pertaining to a growing triangular economic area during the Asian financial crisis. This result suggests that if investors ignore the economic and financial information within regional markets, they will face an increase in uncertainty vis-à-vis investment returns.     

Relationships between Financial Sectors’ CDS Spreads and Other Gauges of Risk: Did the Great Recession Change Them?

The objectives are to discern how the three financial sectors’ credit default swap (CDS) spreads interrelate to each other and with three other risks in terms of possible contagion, competition, interdependence and independence relations under the full sample and two subperiods: the 2007 Great Recession and the 2009 Recovery, and to assess the impact of QE1 on those risks in the second subperiod. The results indicate that the own and cross‐effects among the CDSs and the other risk measures are significant and mixed, but all in all contagion is dominant. The system has become less stable and less adjusting to the equilibrium in the first subperiod. QE1 in the second period decreases risks but increases inflationary expectations.     

Did mega-regional trade agreements reshuffle the financial influence of the US,China, and Japan in ASEAN? Evidence from the volatility-spillover effects

The Trans-Pacific Partnership (TPP) and the succeeding Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) were widely viewed as trade agreements aiming at containing the influence of China and raising that of the US and Japan in Asia. This study utilizes the outward volatility-spillover effect of the equity market as a proxy for a country’s financial influence and analyzes whether the signing of the TPP and CPTPP reshuffled the financial influence of the US, China, and Japan in the Association of Southeast Asian Nations (ASEAN). The study finds that the TPP and CPTPP did boost the financial influence of the US and Japan in some ASEAN countries; however, there is no evidence that they have reduced the financial influence of China in ASEAN.