Danger on the exchange: How counterparty risk was managed on the Paris exchange in the nineteenth century

In the nineteenth century, the Paris Bourse struggled to manage counterparty risk, revealing the awkward choices for the regulation of derivatives markets. The exchange, primarily a forward market, instituted a mutual guarantee fund to prevent broker failures from snowballing into a liquidity crisis. The fund then forced the Bourse to search for mechanisms to control moral hazard. With new archival data, we describe the evolving regulatory regime and analyze the determinants of broker failures. The Bourse faced a conundrum; when it finally imposed a tight regulatory regime that limited risk, trading began to migrate off the exchange to less regulated markets.     

Herding behaviour in the Chinese and Indian stock markets

The existence of herding behaviour challenges the validity of the “efficient market hypothesis”. This study examines herding behaviour in the Chinese and Indian stock markets; our findings suggest that herding behaviour exists in both. The level of herding depends on market conditions. In the Chinese market, herding behaviour is greater when the market is falling and the trading volume is high. On the other hand, in India the study finds that it occurs during up-swings in market conditions. Herding behaviour is more prevalent during large market movements in both markets. In relative terms, a lower prevalence of herding behaviour was detected in the Indian stock market.     

EXPLAINING THE MARKET POWER OF GHANAIAN BANKS1

A competitive banking system helps lower transaction costs and risks. It also helps make financial markets more efficient. In Ghana however, observers believe that the banking industry is not competitive and point to the huge spread between bank lending and borrowing rates as evidence. The Ghanaian banking industry is analysed for evidence of market power by computing the Lerner Index of banks using quarterly data from 2001 to 2006. The evidence is that Ghanaian banks possess market power. Factors that significantly explain the market power of Ghanaian banks are: bank size, efficiency of banks with respect to staff costs, the macroeconomic environment and time.     

Testing contagion of the 1997–98 crisis in Asian stock markets with structural breaks and incubation periods

This study tests for the existence of financial contagion, using a method that allows an incubation period before contagion takes effect. We define contagion as an increase in cross-market linkages following shocks. With daily data on Asian stock markets during the 1997–98 crisis, we find significant upward shifts in the linkages between the Asian markets of both crisis and non-crisis countries. The upward shifts are maintained even after controlling for heteroskedasticity and common world and regional factors, providing strong evidence for financial contagion.     

Who Influences the Asian–Pacific Real Estate Markets: The US,Japan or China?

As rapid economic growth in China has led to significant appreciation of urban real estate market values, this study examines China's influence on Asian–Pacific real estate markets by focusing on their respective market integration with the US, Japan and China during the period January 2005 to December 2017. Market integration is examined by unconditional and time‐varying conditional correlations, nonlinear Granger causality and dynamic connectedness effects. Overall, although the US and Japanese real estate markets have significantly influenced return and volatility in the regional markets, China has emerged as another major regional real estate volatility leader with rising influence over volatility integration, especially during the 2007–2011 crisis period. Financial crises have strengthened China's volatility connectedness effects and market integration with other Asian–Pacific real estate markets. Our results imply that the benefits of regional portfolio diversification may be declining as volatility integration across the Chinese and Asian–Pacific real estate markets becomes stronger. Therefore, diversified global investors should pay greater attention to these real estate markets.     

Equity,Bonds, Institutional Debt and Economic Growth: Evidence from South Africa

We examine the finance‐growth nexus in South Africa accounting for the role of bond markets, stock markets, and bank and non‐bank financial intermediaries using a vector autoregressive technique. Extant empirical literature has largely accounted for only banks and stock markets, ignoring bond market and non‐bank financial intermediaries. We find that bond market development affects economic growth in South Africa, and no similar effect is observed for the bank and non‐bank financial intermediaries and the stock market. Our finding shows that examination of individual elements of the financial system is important in understanding the unique effect of each on growth. The observation that the bond market rather than stock market, bank and non‐bank institutions promote economic growth in South Africa induces an intriguing question as to what unique roles bond markets play that the intermediaries and equity market are unable to play.     

Bank market power and revenue diversification: Evidence from selected ASEAN countries

This paper examines the association between bank market power and revenue diversification using a sample of 153 commercial banks from five Association of Southeast Asian Nations (ASEAN) member countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam). We find a non-linear relationship between bank market power and revenue diversification, where at lower degrees of market power (in loan and deposit markets) banks concentrate on revenue diversification. In contrast, those with greater market power focus more on traditional interest-based products. Our findings also indicate that credit losses experienced earlier, during and after the Asian financial crisis have encouraged ASEAN banks to diversify into non-traditional activities to compensate for their excessive losses. When the markets recovered and loan demand increased, however, traditional interest-based business has become more important. These results remain consistent across all models providing robust results.     

Determinants of bond market development in Asia

One of the major reasons behind the Asian financial crisis in 1997 was the excessive dependence of the Asian economies on commercial banks for domestic financing. The region failed to diversify its sources of corporate financing as it relied mainly on banks since its other types of financing, namely bond markets, were still underdeveloped and their sizes were quite small. On the other hand, the 2008 global financial crisis and the ongoing European debt crisis have led to constraints in acquiring local currency and foreign currency liquidity in the corporate sector in Asia as foreign banks withdrew investments from Asia. Furthermore, Asia needs large long term capital (US$ 750 billion per year for 2010–2020) for developing infrastructure connectivity within and across its economies. Local and regional capital can be channeled for long-term infrastructure projects and other productive investment through bond markets. Having a well-developed local currency bond markets can enhance the resilience of domestic financial sector to external shocks and it can facilitate better intermediation of savings into productive investments in Asia. To enhance corporate bond financing, it is important to examine factors that affect the effective development of bond markets in Asia. The study attempts to identify the determinants of bond market development in Asian economies through examining the relationship of bond issuance with selected key financial and economic factors. It also intends to provide policy recommendations for the further development of the Asian bond market. Major determinants for bond market development in Asia include the size of an economy, the stage of economic development, the openness of an economy, the exchange rate variability, the size of the banking system, and interest rate variability.     

资本账户开放对商业银行风险的影响研究——来自新兴经济体的经验证据

资本账户开放对一国宏观经济至关重要。文章总结了资本账户开放影响商业银行风险的财富与估值效应、周期效应、道德风险效应和竞争效应,利用2011-2017年期间22个新兴经济体111家商业银行的微观数据,构建动态面板广义矩估计（GMM）模型实证检验了资本账户开放对商业银行风险的影响,并且进行了异质性检验。实证结果显示：（1）资本账户开放与商业银行风险呈正U型关系。（2）资本越雄厚、规模越大的商业银行抵抗资本账户开放影响的能力越强。为避免银行体系风险的过度积累,政府应考虑银行业资本充足情况与宏观经济情况,不断探索宏观审慎工具,合理安排资本账户开放程度。     

The Competitiveness of Commercial Banks in Ghana

Abstract: The paper empirically investigates the degree of bank competition and intermediation efficiency in Ghana. The evidence obtained suggests a non‐competitive market structure in the Ghanaian banking system, which hampers financial intermediation. The study also finds that Ghanaian banks are monopolistically competitive. It is argued that the structure, as well as the other markets characteristics, constitutes an indirect barrier to entry thereby shielding the large profits in the Ghanaian banking system. Further, it is argued that policies that encourage and stimulate greater consolidation in the financial sector would go a long way to enhance competition among banks and improve efficiency and profitability.     

The Industrial Organization of Financial Markets in Thailand

The purpose of this paper is to investigate the industrial organizational features of the financial markets in Thailand which may play an important role in promoting the recent high economic growth. Specifically, we examine whether or not the market-structure-performance hypothesis is valid by estimating profit and cost functions. The main results are as follows:
1) market concentration in Thailand is higher than in Japan;
2) expense rate of Thai commercial banks is considerably higher than Japanese banks;
3) economies of scale are not found;
4) the more concentrated the market is, the larger are the profits and costs of the commercial banks.     

The new main bank system

We develop a main bank model where the main bank decides whether or not to raise additional funds from the capital market to continue to invest in a borrowing firm when nonmain banks withdraw funds. We show that the threat of withdrawal of nonmain banks is more likely to force the main bank to perform efficiently in handling troubled loans, thereby preventing problems with zombie firms, if the potential cash flow (liquidation value) of the firm decreases (increases) relative to the amount funded by nonmain banks. The theoretical results provide both efficiency evaluations for the renewal of the main bank relation in Japan after the end of the 1990s and empirical implications for the renewed main bank system.     

The Korean stock market volatility during the currency crisis and the credit crisis

This paper studies the volatility of the Korean stock market during the Asian currency crisis of 1997–1998 and the global credit crisis of 2008–2009. We use a fad model with Markov switching heteroskedasticity, which was first proposed by Kim and Kim (1996). Using the monthly data from January 1980 to October 2009, we find that the volatility of the transitory component of the stock return, or fads, increased during the currency crisis, but did not rise much during the credit crisis. It implies that the stock price fluctuations were not driven by irrational sentiments during the recent global crisis as much as during the former crisis. However, when we consider the dollar value of the Korean stock index in order to estimate the volatility that foreign investors confront, we find that the volatility of the transitory component was raised during the credit crisis as well as during the currency crisis. That is, foreign investors experienced greater volatility than domestic investors in the recent financial market turmoil. This asymmetric volatility that domestic and foreign investors face is one of the characteristics of the credit crisis.For more detailed analysis, the same model was applied to the weekly data from January 2005 to October 2009 and provided the result that the data measured by won–dollar exchange rates were more increased than the raw data. It holds that foreign investors confronted much greater volatility than domestic investors while the stock volatility was relatively lower in the credit crisis state than in the currency crisis state.     

Usury ceilings and bank lending behavior: Evidence from nineteenth century New York

Few pieces of economic regulation are ubiquitous as usury limits. Similarly, few economic principles are as widely accepted as the belief that interference with freely contracted prices leads to market distortions, and many studies of financial markets find that usury limits negatively affect credit availability. This study shows that when no regulatory authority monitors and stands ready to punish violators of the usury limit when intermediaries and borrowers form long-term relationships, banks and borrowers regularly contract for interest rates in excess of the usury ceiling. Time-series analysis reveals limited effects on credit availability when market rates exceed the usury ceiling. Cross-sectional analysis of individual loan contracts also shows that the positive effect of a long-term relationship offsets the negative effect of the usury limit on credit availability.     

Land fragmentation and farm productivity in China in the 1990s

The main objective of this study is to examine the effects of fragmentation on farm productivity in China and to discuss policy implications. Some earlier work has questioned the importance of the economic costs of land fragmentation in developing economies. It has been argued that policymakers should focus instead on reducing the root causes of fragmentation: inefficiencies in land, labour, credit, and food markets. Our results, using a more recent and larger dataset from a household survey in China, find that fragmentation does have an economic cost in China. Production functions are estimated for each of the major grain crops in the sample provinces. We also argue that to reduce the economic costs, land consolidation in China should be undertaken with less government intervention. More attention should be given to the establishment of markets for land (or land use rights) and improvements in rural credit and grain markets.     

Cross‐border Mergers and Acquisitions and Financial Development: Evidence from Emerging Asia

This paper examines the relationship between cross‐border mergers and acquisitions (M&A) and financial development in emerging Asian economies. Bilateral cross‐border M&A data for nine emerging Asian economies covering 2000–2009 are analyzed with a sample selection model and a panel data model. The estimation results show that although the banking sector still plays a crucial role in facilitating cross‐border M&A, the role of equity markets has increased in importance because, in addition to cash, the issuance of common stock and the exchange of stocks have become popular forms of payment for M&A deals. Because of the relatively thin market, the primary corporate bond market plays a limited role in supporting cross‐border M&A, which is in contrast to the primary public bond market. However, for the secondary market, the corporate bond market is more effective in facilitating cross‐border M&A. The results also show that financial development in terms of stock and bond markets in their home countries tends to become more important when the target firms reside in more developed countries. In addition to financial development, the paper shows that most cross‐border M&A are invested in technology‐related and resource‐based industries while cheap labor industries are relatively less attractive.     

Surfing the waves of globalization: Asia and financial globalization in the context of the trilemma

Using the “trilemma indexes” developed by Aizenman et al. (2010) that measure the extent of achievement in each of the three policy goals in the trilemma—monetary independence, exchange rate stability, and financial openness—we examine how policy configurations affect macroeconomic performances, with focus on the Asian economies. We find that the three policy choices matter for output volatility and the medium-term level of inflation. Greater monetary independence is associated with lower output volatility while greater exchange rate stability implies greater output volatility, which can be mitigated if a country holds international reserves (IR) at a level higher than a threshold (about 20% of GDP). Greater monetary autonomy is associated with a higher level of inflation while greater exchange rate stability and greater financial openness could lower the inflation rate. We find that trilemma policy configurations affect output volatility through the investment or trade channel depending on the openness of the economies. Our results indicate that policy makers in a more open economy would prefer pursuing greater exchange rate stability while holding a massive amount of IR. Asian emerging market economies are found to be equipped with macroeconomic policy configurations that help the economies to dampen the volatility of the real exchange rate. These economies’ sizeable amount of IR holding appears to enhance the stabilizing effect of the trilemma policy choices, and this may help explain the recent phenomenal buildup of IR in the region.     

CHANGE IN VOLATILITY REGIMES AND DIVERSIFICATION IN EMERGING STOCK MARKETS

A multivariate Markov-switching ARCH (MVSWARCH) model in which variance/correlations for stock returns is controlled by a state-varying mechanism is introduced and used to design a state-varying US-EM (emerging market) portfolio establishment strategy. Additionally, a conventional random-variance framework, the MVGARCH (multivariate GARCH) model, in which a time-varying technique is involved is employed and subjected to comparative analysis. The empirical results are consistent with the following notions: First, as being consistent with a study conducted by Ramchand and Susmel , the US-EM market correlations are higher when the US market is more volatile. However, this study further indicates that the US-EM market correlations increase relatively more when both the US and EM markets simultaneously experience a high variance condition. Moreover, the situation of both the US and EM stock markets at a high volatility state is associated with a minimum risk reduction benefit and a maximum cross-market correlation. Second, the state-varying portfolio loadings established by the MVSWARCH model could effectively enhance asset allocation effectiveness; however, this benefit arises more as a result of risk reduction than an increase in mean returns.     

新世纪中亚国家能源地位变化的实证分析

鉴于中亚国家在世界能源市场中竞争地位的凸显,本文采用聚类分析法,选取了12个主要经济体作为样本,对新世纪中亚国家的能源生产、消费及出口在世界能源市场中的地位予以分析。分析得出：从生产地位来看,中亚国家与世界主要能源生产国同属一类;从消费地位来看,中亚国家不属于世界主要的能源消费国;从出口地位来看,其生产地位和消费地位共同决定了中亚国家在世界能源市场中的出口地位越来越重要;综合能源生产、消费和出口地位来看,中亚国家在世界能源市场中的竞争地位凸显,与美国、俄罗斯、伊朗、埃及和印度同属一类。同时,分析还显示,与拥有丰富能源资源的中亚国家开展合作应该有利于解决我国能源短缺问题。     

Four‐G Episode and the elevated risks

Complacency and a false perception that markets will correct imbalances during two decades of ‘Great Moderation’ led to ‘Global Imbalances’. The low interest rates and a lack of proper oversight, combined with a perception that housing prices will always move north, brought the sub‐prime crisis in the USA and the subsequent ‘Global Financial Crisis’ and European crisis. The Quantitative Easing policy in advanced economies (AE) created an even more permissive global liquidity. The externality affecting emerging markets (EM) took the form of massive capital inflows, first channelled through banks where the global banks‐mostly headquartered in Europe‐played a significant role and then through capital market with fund managers being the protagonist. The augmented liquidity spurred growth in EM but also elevated the risk of financial instability. Capital flows reversal, slower growth and less benign external conditions have put EM in a quandary. The uncertainty is heightened by a non‐synchronised monetary policy in AE (‘Great Divergence’). To the extent that standard policies have become ineffective, and to defend from externality caused by AE's unilateral policy (financial nationalism), it is argued that EM can put a damper on the dangerous component of capital inflows. As part of macroprudential policy, such a measure is equivalent with discouraging risky behaviour to prevent financial instability and worsening income inequality.