STRENGTHENING THE GLOBAL FINANCIAL SYSTEM: ASSESSING THE CRISIS AND THE POLICY RESPONSE

The financial crisis that began with Thailand's devaluation in the summer of 1997 exposed significant weaknesses both in the structure of markets in emerging countries and in the crisis-prevention and crisis-management mechanisms built into the international financial system. Since then numerous efforts have been made to assess the causes of the crisis, and official institutions such as the Group of 7, the IMF, and the World Bank have laid out an agenda for reform.
This article discusses the four cornerstones of the reform program:

• 1

   Encouraging the development of sound, well-structured banking sectors subject to well-designed systems of bank regulation and supervision.
• 2

   Ensuring that private institutions have the incentives, governance structures, and internal controls in place to avoid inappropriate risks.
• 3

   Strengthening disclosure requirements to ensure that global lenders and investors have the quantity and quality of information they need to make informed judgments about risks and returns.
• 4

   Ensuring that monetary, fiscal, and exchange rate policies are appropriate and resilient enough to permit emerging market governments to withstand a crisis.

As recommended in the article on Indonesia, the author encourages the private sector to make greater use of innovative financing arrangements to manage their risk exposures—for example, through standby lines of credit or pre-negotiated options that would allow a debtor to automatically restructure its obligations under certain conditions.     

“点”的脆裂与“面”的恶化

“春风不解禁杨花,乱扑行人面”,还没来得及既然雀跃于溅溅新绿,迎面而来的危机第二波絮风就撩拨得人愁情无依,一寸还成千万缕。刹那间,金融市场中忧如芳草,萋萋划尽还生,宏微观经济主体尽皆小楼听春雨,狐疑着第二波的些许端倪。     

GLOBALIZATION OF CAPITAL MARKETS AND THE ASIAN FINANCIAL CRISIS

This article has three basic aims: (1) to analyze the impact of the opening of their capital markets on the economies of host countries; (2) to investigate the causes of the Asian financial crisis; and (3) to evaluate the likely effects of the South Korean government's recent attempts to restructure its corporate sector. Although the recent Asian financial crisis has led some to question the merits of open capital markets and to call for regulatory restraints on capital flows across international borders, the scientific evidence suggests that the opening of stock markets to foreign investors has been largely beneficial for emerging economies. On average, stock market liberalization has been accompanied by increases in stock prices and reductions in stock return volatility, reductions in inflation, and reductions in the rate of currency depreciation. Much of the blame for the Asian currency crises is assigned to Asian policymakers' futile attempts to defy market forces by trying to maintain their currencies at artificially high levels. But a more fundamental cause of Asia's economic problems has been the widespread value destruction by Asian corporations, which has led to a lower value for the overall economy and weakened the banking sector. The government-directed banking systems and weak corporate governance structures (including managerial incentives to increase size and market share at the expense of shareholders) that characterize most Asian economies have resulted in systematic overinvestment, bloated payrolls, and sharp declines in corporate profitability. While applauding most of the Korean government's recent measures to reform the economy, the article expresses skepticism about the government-mandated restructuring of the chaebol known as the “big deal.” Rather than trying to direct the process of restructuring, Korean policymakers should limit their efforts to improving the market mechanism by increasing competition in the markets for capital, corporate control, and goods and services. The Korean market for corporate control transactions could be greatly improved by increasing the efficiency of bankruptcy proceedings and by allowing hostile takeovers by foreign as well as domestic investors. To increase the productivity of capital, Asian companies should seek to realign managerial with shareholder interests by tying compensation to measures of value creation like EVA.     

DIVERGENT EXPECTATIONS AND THE ASIAN FINANCIAL CRISIS OF 1997

An important question concerning integration of global financial markets is whether local investors in an equity market react differently from international investors, particularly during periods of financial crisis. Considering local investors are closer to information, they might turn pessimistic before foreign investors before a crisis. We examine whether local investors in each of the six Asian stock markets—Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand—reacted differently from international investors during the 1997 Asian financial crisis. Our empirical results indicate that, in general, closed‐end country fund share prices (mainly driven by foreign investors) Granger‐cause the respective net asset values (NAVs, mainly driven by local investors). Moreover, this one‐way Granger‐causality effect from share prices to NAVs becomes much stronger during the crisis period after controlling for U.S. stock returns. Our results suggest international investors turned pessimistic before local investors. JEL classification: G15     

BOND RISK PREMIUMS, FINANCIAL DATA, AND THE EFFECT OF MARKET SEGMENTATION

The main question which this empirical study addresses is: Are the fmancial determinants of bond risk premiums different for industrial versus utility bonds (i.e. market segmentation)? First, a multiple discriminant analysis of eight financial variables is conducted to verify an underlying argument that divergent operational characteristics lead to different financial profiles. Linear regression analyses are then performed cross-sectionally for the years 1975 to 1979. The results indicate that (1) the market segmentation effect materially affects the determination of bond premiums, (2) the business cycle is an important factor, and (3) utility premiums are less sensitive to fmancial risk than industrial bond premiums.     

CO-MOVEMENTS OF THE PRIME RATE,CD RATE,AND THE S&P FINANCIAL STOCK INDEX

We examine the relation among the prime lending rate, certificate of deposit rate, and the S&P Financial Stock Index using cointegration and error correction modeling techniques. We find that these three financial time series share a long-run cointegrating relation. Subsequent vector autoregressive error correction results imply that the movement of these stock prices toward eliminating disequilibrium is about 1 percent within the first month. Impulse response functions indicate that changes in the deposit rate have a larger effect on changes in the price index of financial service sector stocks than do changes in the lending rate.     

THE NONPARALLEL WEEKEND EFFECT IN THE STOCK AND BOND MARKETS

Explanations for the day-of-the-week effect are either market-specific conventions (timing delays in settlement and clearing, dividend payout arrangements) or cross-market events (bad news delayed until the weekend). Although a market-specific rational is confined to one market, cross-market events affect at least two markets. In this research we investigate the weekend effect in the stock and Treasury markets. Our findings suggest the weekend effect is nonparallel across financial markets. Thus, the weekend effect is more likely due to unique features of the individual markets than to events affecting both stock and Treasury markets simultaneously.     

THE EFFECT OF THE WPPSS CRISIS ON THE TAX-EXEMPT BOND MARKET

The 1983 default of the Washington Public Power Supply System (WPPSS) was the largest municipal default. Some writers contend that the default affected the entire municipal bond market. This study examines the effect of key WPPSS-related events on the general municipal market, tax-exempt public power district bonds, and WPPSS bonds, respectively. The results show that although certain events significantly affected all WPPSS bonds, these events did not affect the general municipal bond market or non-WPPSS public power bonds. The use of a standard event-time methodology with daily bond prices (as opposed to monthly yields) appears to provide a more powerful test of the effect of a municipal crisis on the tax-exempt bond market.     

AN EMPIRICAL EXAMINATION OF FINANCIAL LIBERALIZATION AND THE EFFICIENCY OF EMERGING MARKET STOCK PRICES

The efficient markets hypothesis in finance suggests that as equity markets are liberalized and made more open to the public, equity prices should reflect the increased availability of information and be more efficiently priced. In this paper, we examine whether emerging market equity prices have become more efficient after financial liberalization. Using two sets of financial liberalization dates, a battery of econometric tests, and data from sixteen countries and three composite portfolios, we find that in spite of theory suggesting the opposite, liberalization does not seem to have improved the efficiency of emerging markets. In fact, most of our statistical tests indicate that the markets were already efficient before the actual liberalization.     

THE RELATIONSHIP BETWEEN FINANCIAL PERFORMANCE AND STOCK MARKET BASED MEASURES OF CORPORATE DIVERSIFICATION

This study examines the relationship between corporate diversification and financial performance. The use of a stock market based measure of diversification allowed a much larger database than in previous studies and overcame the subjective nature of measuring internal diversification. Because previous researchers found that firm size affected performance, size was controlled in this analysis. The authors conclude that there is no statistically significant relationship between the degree of internal diversification and financial performance.     

世界经济周期逆转与金融扩张

有人对人类文明的轨迹进行研究发现,人类文明是以亚欧大陆为起点一直沿着向西的方向延伸.目前人类文明的中心处于太平洋西岸的北美,按照这个轨迹,下一个中心应该是处于太平洋西岸的东亚.实际上,早在一个半世纪前,马克思就预见到"太平洋两岸很快就会像现在从波士顿到新奥尔良的海岸地区那样人口密集,贸易方便、工业发达.这样,太平洋就会像大西洋在现代、地中海在古代和中世纪一样,起着伟大的世界交通线的作用;大西洋的作用将会降低,而像现在的地中海一样成为内海."[1]