DOES THE CLARITY OF CENTRAL BANK COMMUNICATION AFFECT VOLATILITY IN FINANCIAL MARKETS? EVIDENCE FROM HUMPHREY‐HAWKINS TESTIMONIES

By applying readability statistics to the Humphrey‐Hawkins testimonies given by the Federal Reserve Chairman, it is tested whether the clarity of central bank communication affects volatility in financial markets. There are three results. First, when clarity matters, it has a diminishing effect on volatility. Second, clarity of communication matters mostly for volatility of medium‐term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's Chairmanship. Overall, the analysis illustrates the importance of transparent communication on monetary policy. (JEL E44, E52, E58)     

DO STOCK MARKETS VALUE EFFICIENCY?

An empirical model determining the relationship between changes in firm-level productivity and changes in firm value is estimated using an unbalanced panel of 706 public limited companies observed over the period 1996–2002. We find a positive relationship between efficiency and the market value of manufacturing sector firms controlling for traditional accounting measures of performance such as earnings per share and the return on capital employed. This evidence is consistent with the stock market valuing the adoption of better management practices that lead to better resource utilisation. By contrast, we find no such evidence for service sector firms.     

DOES CULTURE AFFECT ELECTORAL OUTCOMES? EVIDENCE FROM TRANSITION COUNTRIES

Why do some societies fail to adopt “good” economic institutions? Recent literature points to the role of complementarities between social norms and proposed formal rules in advancing institutional change. To shed light on one potential mechanism, we track election performance of executive parties in up to 18 post‐communist democracies over 1991–2015 to test whether cultural attitudes influenced voters' response to market reform. We show that in more individualistic cultures, reform is associated with greater reward for the incumbent in the next election. The implication is that in democracies, voters select policies and institutions that are in line with prevailing culture. (JEL O17, P35, Z1)     

HAVE INSTITUTIONAL INVESTORS DESTABILIZED EMERGING MARKETS?

In the past few years, there has been a large increase in portfolio capital flows into emerging markets, mostly fueled by mutual funds and other institutional investors. Based on a simple variance ratio test, this paper finds that emerging stock markets as a group experienced a sharp increase in autocorrelation in total returns at a time when institutional investors began to expand significantly their holdings in these markets. These results are consistent with the view that institutional investor sentiment toward emerging markets as an asset class can at times play a critical role in determining asset prices, with shifts in sentiment resulting in periods of bubble-like booms and busts and asset price overshooting.     

HOW DID THE ASIAN STOCK MARKETS REACT TO BANK MERGERS AFTER THE 1997 FINANCIAL CRISIS?

Abstract.  The objective of this paper is to empirically assess the stock market reaction to the announcement of bank mergers and acquisitions (M&As) in eight East Asian countries over the 1997–2003 period. M&As are classified according to the status of entity, the time period of the deal and the maturity of the banking system. A bivariate GARCH model is used to estimate abnormal returns taking beta conditional variability into account. We find that the market reacted negatively to M&As during the crisis period (1997–2000) and also in the less mature banking systems (Indonesia, Malaysia, the Philippines, South Korea and Thailand).     

DOES MONOPOLISTIC COMPETITION EXIST IN THE MENA REGION? EVIDENCE FROM THE BANKING SECTOR

The goal of this paper is to empirically assess the level of banking competition in selected Middle East and Northern African (MENA) countries. The analysis employs the estimation of a non‐structural indicator (H‐statistic) introduced by Panzar and Rosse and draws upon a panel dataset of eight MENA countries (Algeria, Egypt, Israel, Jordan, Morocco, Oman, Saudi Arabia, and United Arab Emirates) over the period 1997–2012. The empirical findings are robust towards three different panel data econometric techniques (Ordinary Least Squares, Pooled Generalized Least Squares with Fixed Effects, and Generalized Method of Moments) and consistent with other similar studies, providing sufficient evidence in favour of a banking monopolistic competition regime. Furthermore, the estimation of three other alternative measures of competition (Lerner index, adjusted Lerner index, and conduct parameter) provides similar results, revealing that the banking sector in the MENA region is characterized by a low level of Significant Market Power (SMP). Overall, the analysis shows that, despite similarities in the process of financial regulatory reforms undertaken in the eight MENA countries, the observed competition levels of banks vary substantially, with Algeria and Morocco consistently outperforming the rest of the region.     

DOES FOREIGN DIRECT INVESTMENT PROMOTE ECONOMIC GROWTH? EVIDENCE FROM EAST ASIA AND LATIN AMERICA

Although there is considerable evidence on the link between foreign direct investment (FDI) and economic growth in developing countries, causal patterns of the two variables has not been investigated yet with a reliable procedure. This article provides an empirical assessment of the issue by using data for 11 economies in East Asia and Latin America. Although FDI is expected to boost host economic growth, it is shown that the extent to which FDI is growth-enhancing appears to depend on country-specific characteristics. Particularly, FDI tends to be more likely to promote economic growth when host countries adopt liberalized trade regime, improve education and thereby human capital conditions, encourage export-oriented FDI, and maintain macroeconomic stability.     

HAS INTERNATIONAL CAPITAL MOBILITY INCREASED IN ASIA? EVIDENCE FROM THE POST‐1997 FINANCIAL CRISIS PERIOD

This paper examines whether international capital mobility in Asia has increased after the 1997 Asian financial crisis by estimating the Feldstein‐Horioka (FH) coefficients using panel cointegration and dynamic OLS regressions. In the benchmark estimation, we find that the FH coefficients of ten Asian economies decrease significantly from 0.65 during the pre‐crisis period to 0.32 during the post‐crisis period. Furthermore, the coefficient for the post‐crisis period is less statistically significant than that for the pre‐crisis period. The extended model estimations with additional control variables controlling for the business cycle, different foreign exchange rate systems, and capital control also show the results which are consistent with the benchmark estimation results. Rolling regressions show a consistently declining trend of the FH coefficients in Asia during our sample period. These results provide consistent evidence, according to the FH proposition, of increasing international capital mobility in Asia during the post‐1997 Asian financial crisis period. (JEL F36, F37, F21)     

DOES NEOCLASSICAL THEORY ACCOUNT FOR THE EFFECTS OF BIG FISCAL SHOCKS? EVIDENCE FROM WORLD WAR II*

Much debate surrounds the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks. We test the theory using data from World War II, which is by far the largest fiscal shock in the history of the United States. We take observed changes in fiscal policy during the war as inputs into a parameterized, dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data. Our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock.     

DOES INITIAL ACCESS TO BANK LOANS PREDICT START‐UPS' FUTURE DEFAULT PROBABILITY? EVIDENCE FROM ITALY

In Europe, several countries have established public loan guarantee funds throughout direct/indirect loan programs to facilitate the access of SMEs and start‐ups to bank credit. This paper investigates whether start‐ups' level of access to bank loans during the early stage represents an imprinting factor with effects on the likelihood of survival once the firm reaches maturity. We rely on a firm‐level longitudinal data set of 49,111 Italian startups born from 2003 to 2005. Implementing a 2SLS regression analysis we show that the initial level of start‐up bank debt negatively influences the probability of default controlling for firm characteristics and performance. (JEL G21, M20, H32)     

DOES CHINA'S RURAL COOPERATIVE MEDICAL SYSTEM ACHIEVE ITS GOALS? EVIDENCE FROM THE CHINA HEALTH SURVEILLANCE BASELINE SURVEY IN 2001

The Chinese government is in the process of providing health insurance to the uninsured rural population by expanding the rural Cooperative Medical System (CMS) to every rural county. Using the China Health Surveillance Baseline Survey in 2001, we conducted a case study on two CMS pilot programs and investigated whether or not enrolling in these CMS pilot programs has led to an increase in health care utilization and a decrease in the likelihood of catastrophic health spending for rural residents. Matched data sets are produced using propensity score and the instrumental variable (IV) method is used. We have found that the CMS pilot programs have had a significant and positive effect on the probability of seeking medical care and the number of visits. However, the CMS programs did not seem to have had a significant impact on households' out‐of‐pocket health expenditure and on reducing catastrophic spending. The findings generated from the matched data are consistent with those obtained from the full set of data and those obtained from the IV method. (JEL I18)     

REMITTANCES AND FINANCIAL DEVELOPMENT: SUBSTITUTES OR COMPLEMENTS IN ECONOMIC GROWTH?

Recent studies indicate that the effect of migrants’ remittances on the economic growth of receiving countries depends negatively on the level of development of the domestic financial sector. In this paper, we introduce a new indicator of financial development to measure the efficiency of the domestic banking system, and find the existence of complementarity between remittances and bank efficiency in economic growth, such that remittances promote growth only in countries whose banks function well. This result is robust to controls for other traditional measures of financial depth and institutional quality indicators.     

ARE SURVEYS OF EXPERTS UNBIASED? EVIDENCE FROM COLLEGE FOOTBALL RANKINGS

Policymakers are frequently interested in soliciting unbiased information regarding alternative policies, and expert surveys can be influential. As ranking policies is an often subjective process, there is always the concern of bias, both intentional and not. Expert bias is difficult to discern in the policy world, but surveys of expert opinion are compiled and “tested” for accuracy weekly in college football, allowing for hypothesis testing. Although previous research has used college football rankings to determine the ability of surveys to incorporate relevant information, this article examines the Associated Press and American Football Coaches' Association rankings for evidence of systematic bias. Specifically, more than 1,300 games from the 2003 to 2008 regular seasons are tested for factors that are systematically correlated with upsets. Both polls predict the winner nearly 80% of the time, and although there is evidence of systematic conference bias, correcting the rankings would only improve the accuracy of the polls by about 1%. There is no evidence of a bias favoring “big market” teams, nor teams that have strong journalism programs or are from the East Coast. (JEL D4, L8)     

DO GAMBLERS THINK THAT TEAMS TANK? EVIDENCE FROM THE NBA

A growing body of literature indicates that sports teams face incentives to lose games at the end of the season. This incentive arises from a league's entry draft policy. We use data from betting markets to confirm the existence of tanking, or the perception of tanking, in the National Basketball Association (NBA). Results from a Seemingly Unrelated Regression (SUR) model of point spreads and point differences in NBA games indicate that betting markets believe that tanking takes place in the NBA, even though the evidence that tanking actually exists is mixed. Other NBA policy changes also affect betting market outcomes. (JEL D0, L0)     

WHAT DETERMINES RELIGIOUS SCHOOL CHOICE? THEORY AND EVIDENCE FROM RURAL BANGLADESH

This paper looks at the determinants of school selection in rural Bangladesh, focusing on the choice between registered Islamic and non‐religious schools. Using a unique dataset on secondary school‐age children from rural Bangladesh, we find that madrasah enrolment falls as household income increases. At the same time, more religious households, and those that live further away from a non‐religious school are more likely to send their children to madrasahs. However, in contrast to the theory, we find that Islamic school demand does not respond to the average quality of schools in the locality.     

CAN INFORMATION AND COMMUNICATION TECHNOLOGY IMPROVE STOCK MARKET EFFICIENCY? A CROSS‐COUNTRY STUDY

The rapid advance of information and communication technology (ICT) has revolutionized the dissemination of stock market information. Based on the noise trading theory, this study discusses whether the changes brought by ICT have promoted the transparency of stock market information or instead flooded the stock market with misinformation. A cross‐country panel dataset of 71 countries from 2002 to 2014 was established. The empirical methodologies include panel unit root tests, panel variance ratio tests, and panel multiple regressions. The results of panel unit root tests and panel variance ratio tests show that stock markets in countries with high ICT diffusion are efficient while stock markets in countries with low or medium ICT diffusion are not all efficient. The results of panel regressions further show that the effect of ICT diffusion in reducing market noises was more significant than its effect in magnifying the noises.     

DOES ATHLETIC SUCCESS INFLUENCE PERSISTENCE AT HIGHER EDUCATION INSTITUTIONS? NEW EVIDENCE USING PANEL DATA

This study examines the relationship between athletic success and student persistence toward a degree. We build an updated panel of National Collegiate Athletic Association (NCAA) Division I institutions and utilize within‐institution variation to identify the effects of athletic success. Using a ranking of all institutions, we find that having more successful men's basketball and football teams has a significant positive effect on first‐year retention rates. We also find some evidence that improved basketball rankings increase graduation rates, and that success in the NCAA tournament may have a sizable impact on retention. Although the estimated effects are generally modest in scale, we find rather limited evidence of other institutional factors affecting persistence, suggesting that athletics can be one avenue for institutions of higher education to engage and retain students. (JEL I23, Z20, L83)