International asset prices and portfolio choices under Bayesian learning

We calculate equilibrium asset prices and portfolio choices from a two-country OLG international asset pricing model under the assumption that investors are on a Bayesian learning path. Investors from both countries receive identical information flows, but domestic investors start off with less precise priors concerning foreign fundamentals. Learning is shown to produce first-order effects on the properties of asset prices, in the form of increased equity returns, volatility clustering, and time-varying correlations across national stock markets. Moreover, on a learning path, estimation risk generates portfolio biases similar to those observed empirically, i.e. a strong preference towards domestic securities and excessive turnover in foreign securities. These findings are robust to changes in prior beliefs, the calibration of initial information asymmetries, and the parameterization of the model. We use real GDP data for the US and Europe to calibrate the model and show that in the event of a financial liberalization during the 1970s, high excess returns, time-varying volatility, substantial home bias, and excess turnover should have been observed.     

Discount between H Share and A Share from the Perspective of China

The effect of strict segmentation on pricing in the context of the Chinese stock markets was investigated. As an effective complementary to domestic A share market, H share market has played an important role in attracting foreign capital flows into mainland and as an open window for foreign investors to know Chinese enterprises. However, H share has received little attention by researchers. Considered that H share market enjoys relatively more free information and has a greater and faster access to global news sources, The discount between H share and A share is mainly studied in this paper. By constructing the model and based on proposed hypotheses, the empirical test confirms information asymmetry between foreign investors and domestic investors, liquidity effects, diversification effects are significant factors in explaining discounts on H share from the cross-section data.     

THE POLITICS OF FDI EXPROPRIATION

I examine the role of political instability and fractionalization as potential explanations for the lack of capital flows from rich countries to poor countries (i.e., the Lucas Paradox). Using panel data from 1984 to 2014, I document that (i) developed countries exhibit larger inflows of foreign direct investment (FDI), (ii) countries subject to high investment risk (IR) receive low FDI inflows, and (iii) IR is higher in fractionalized and politically unstable economies. These findings suggest a negative relationship between political instability and FDI through the IR channel. I inspect the theoretical mechanism using a dynamic political economy model of redistribution, wherein policymakers can expropriate resources from foreign investors. The proceeds are used to finance group‐specific transfers to domestic workers but hinder economic growth by discouraging FDI. I show that the political equilibrium exhibits overexpropriation and underinvestment.     

Tariff,Growth, and Welfare

We develop a two‐country (Home and Foreign) by two‐good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between an import tariff and economic growth and welfare. First, unlike the past literature, we do not need to make an assumption such that the growth rates between countries are identical in a balanced growth path (BGP). Second, we show that there exists a unique and saddle‐point BGP with both countries being incompletely specialized. Third, a higher import tariff on the consumption good in the domestic country may boost (reduce) the rate of economic growth when the foreign (domestic) country has an absolute advantage in the investment good. Finally, a rise in the tariff rate by one country may improve world welfare under some parameter spaces.     

The capital gain lock-in effect and perfect substitutes

This paper analyses the effect of investors' accrued capital gains on optimal portfolio composition and equilibrium returns under the assumption that investors are able to re-balance with perfect substitute securities. No-dominance arguments are used to show that pricing differences because of accrued capital gains do not arise among securities which are perfect substitutes. These arguments are insufficient, however, to prevent pricing differences because of accrued capital gains among securities which are not perfect substitutes. Trading rules are developed which outline the conditions necessary for the realisation of accrued capital gains and the deferral of capital losses. These trading rules also provide guidance on which securities investors should sell, given their tax basis, when re-balancing their portfolios.     

Has the Asian crisis changed the role of foreign investors in emerging equity markets: Taiwan's experience

This paper examines whether the 1997 Asian crisis changed the trading behaviors of foreign investors and of local institutional investors in Taiwan's stock market. There is little evidence that the Asian crisis changed the relationship between equity flows and market returns in Taiwan's stock market but there is evidence that volatility effects and volatility spillover were strengthened after the crisis. The general findings are (i) feedback trading arguments are much stronger than information arguments; (ii) relationships between returns and sale changes are the weakest but volatility effects using sale measures are the strongest; (iii) strong volatility effects and volatility spillover are found after the crisis; and (iv) the results for domestic institutional investors are slightly stronger than those for foreign investors.     

Taxation of International Private Capital Flows and Securities Transactions in Developing Countries: Do Public Finance Considerations Augment the Macroeconomic Dividends?

This paper examines policies to tax international private capital flows and securities transactions in developing countries. Many recent studies focus on the macroeconomic dividends associated with these policies (namely, their contribution to macroeconomic and financial stability and lengthened investor time horizons). In this paper I explore whether the potential of these policies to raise much‐needed tax revenues in developing countries augments their well‐known macroeconomic benefits. To my knowledge, there has been no effort to examine systematically the public finance issues related to the taxation of international private capital flows or securities transactions in the developing country context. I conclude that the public finance implications of these policies in middle‐income developing countries offers additional support to the macroeconomic case for them. To different degrees, taxation of international private capital flows and securities transactions has the potential to raise modest revenues in middle‐income countries. However, far more important is the potential of these policies to offer valuable macroeconomic dividends on the national level. These national macroeconomic dividends have the potential to bear fruit globally. This is because experiences with financial contagion over the last decade suggest that global financial stability can be enhanced via the promotion of domestic financial stability in developing countries.     

Turkish Currency Crisis of 2000–2001, Revisited

Turkey’s exchange rate based stabilization programme had collapsed within just 11 months of its implementation in the midst of a liquidity crunch in November 2000 caused by a reversal in the capital inflow. The onset of the stabilization programme created ample opportunities for speculative investors to make relatively safe one‐sided bets, and the initial success of the programme in bringing down interest rates implied substantial capital gains over securities obtained in 1999 and early stages of the programme. It was only natural that speculative investors would take the opportunity to realize these gains while the firm exchange rate commitment was still in place. The programme failed to deal with this contingency effectively, assuming that as long as it was implemented faithfully, long‐term investors would be forthcoming to takeover positions speculators would want to unload. That assumption proved disastrously wrong.     

Corporate transparency, cream-skimming and FDI

We develop a simple information-based model of Foreign direct investment (FDI) flows. On the one hand, the relative abundance of “intangible” capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country relative corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI. The model also demonstrates that the gains for the host country from FDI [over foreign portfolio investment (FPI)] are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors. We provide also some evidence on the effects of corporate transparency indicators, such as accounting standards, on bilateral FDI flows from a panel of 24 OECD countries over the period of 1981-1998.     

我国证券侵权诉讼形式的构建

新修改的《证券法》对内幕交易、操纵证券市场以及欺诈客户的侵权行为都规定了民事赔偿责任,无疑是在立法上的重大进步,而我国现行立法对证券侵权民事诉讼中诉讼形式的规定根本不能适应我国证券侵权纠纷诉讼的现状.本文通过对国外相关制度的分析,以期推动我国证券侵权诉讼形式的合理构建,有效保护广大投资者的利益,培育出更加稳定、成熟的证券市场.     

FDI Flows and Domestic Investment: Overview

The paper surveys theories of FDI and supporting evidence. Anew theory flashes out a unique feature of FDI: hands on managementstyle that enables investors to react in real time to changingeconomic environments. Equipped with superior intangible knowhow in screening firms, foreign direct investors can out bidportfolio equity investors for the top productivity firms. Theimplications of the theory are that investment is both moreefficient (namely, made dependent on the firm-specific productivity)and, in plausible cases, also larger. The theory can explainboth two way flows of FDI among developed economies, and oneway flows between developed and developing economies. Thesepredictions of the theory are consistent with panel data: largerFDI coefficients in domestic investment and output growth regressions,than those of the debt and portfolio equity coefficients. Theyare also consistent with gravity equations which explain FDIinflows by informational variables and degree of corporate transparencyin the host country.(JEL F2)     

THE IMPACT OF FOREIGN CAPITAL ON MACROECONOMIC PERFORMANCE IN CENTRAL ASIA

This paper investigates the short‐run impact of shocks in international capital flows channeled through foreign direct investment (FDI) and foreign aid on national output and export performance in five Central Asian economies under a dynamic multivariate structural vector autoregressive (SVAR) framework. The identification of structural shocks is implemented by AB model based on IS‐LM‐BP postulates. The main message is that external capital shocks are persistent and small open economies are weak to absorb them. Overall, the aid shocks reduce national outputs, while FDI increase it, on average. The expansion of global demand (G20) leads to an increase in domestic GDPs, notably in Kazakhstan, Kyrgyzstan and Uzbekistan. The impact is augmented by a positive effect of FDI on export channel (and net exports) that shift the IS curve upwards. We cannot find any significant aid‐FDI nexus in the region, except in Kazakhstan. The structural variance decomposition (SFEVD) results suggest that external flows and foreign demand together explain the bigger part of variability in domestic GDP and exports. Finally, variations in foreign capital, aid and FDI, are mainly explained by series themselves. The role of domestic activities is found to be weaker for aid and greater for FDI. The results could be attributed to rigid exchange rates, high trade dependence, and necessity for foreign capital to explore natural resources in Central Asian region. Our results provide some valuable suggestions to improve an investment climate for boosting economic growth.     

Current Account Adjustment and Capital Flows*

We examine episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizable growth slowdown and a large exchange rate depreciation. There was no discernible change in the nature of capital flows just prior to an adjustment. Hence, adjustments may be responding to the resolution of domestic imbalances rather than being an exogenous event. We show that global developments triggered the adjustment, possibly by triggering the unwinding of the domestic imbalances. Most of the ex post adjustment of the financial account was in private sector flows, primarily by foreign investors.     

Herding by foreign investors and emerging market equity returns: Evidence from Korea

This paper studies the effect of herding by foreign investors on stock returns in the Korean market. We conduct both pre and post-liberalization analyses and utilize a three-stage least squares analysis in order to control for the simultaneous relationship. We find evidence of a significant impact of foreign investor herding on stock returns in addition to intra-year positive feedback trading by foreign investors. However, changes in domestic institutional ownership do not have any significant effect on stock returns. In addition, foreign investors tend to buy/sell shares that domestic institutions sell/buy in the herding year.     

Financial integration and exchange rate determination: a Brazilian case study

This paper investigates the impact on exchange rate determination of two recent changes in developing and emerging countries’ financial integration: first, the rising volume and heterogeneity of short-term portfolio flows; second, foreign investors’ increased exposure to domestic rather than foreign currency assets. In its analysis of Brazil, the paper shows that both changes have potentially destabilizing implications for the exchange rate and may create the risk of self-feeding bubble dynamics leading to large and sudden swings in exchange rates. The results have important implications for the regulation of international capital movements and choice of exchange rate regime.     

国际投资组合选择理论研究进展

国际投资组合选择理论研究的是在一定的假设条件下,当经济实现均衡时,投资者所应持有的本国与外国金融资产的比例。它的发展有5个特征:从追求金融市场的局部均衡到追求经济的一般均衡;从不考虑投资者的存在到考虑投资者个人效用的最大化;从单纯的理论模型构建到结合现实数据进行实证检验;从假设金融市场完全到考虑金融市场不完全的情况;从假设金融市场一体化到考虑金融市场存在分割的情况。     

Risk‐Off Episodes and Swiss Franc Appreciation: The Role of Capital Flows

During episodes of increased global risk aversion, or risk‐off episodes, safe haven currencies such as the Swiss franc tend to appreciate. The immediate impact of a risk‐off shock is an increase in net private inflows to Switzerland, mostly driven by a reduction in Swiss residents’ net purchases of foreign debt securities and reduced foreign exposure by Swiss banks. Given that the bulk of capital movements related to risk‐off episodes is driven by decisions of Swiss residents, capital flow management policies that discriminate based on the residency of the investor (capital controls) are not likely to be effective at reducing the impact of risk‐off episodes. However, prudential policies that limit leveraging or foreign exposure by Swiss banks may diminish the volatility of capital flows during risk‐off episodes.     

POST‐PRIVATIZATION OWNERSHIP AND FIRM PERFORMANCE: A LARGE META‐ANALYSIS OF THE TRANSITION LITERATURE

This paper aims to perform a large‐scale meta‐analysis of the relationship between post‐privatization ownership and firm performance in Central and Eastern Europe and the former Soviet Union. Baseline estimation of a meta‐regression model that employs a total of 2,894 estimates drawn from 121 previous studies indicated the superior impact of foreign ownership on firm performance in comparison with state and domestic private entities. Furthermore, the estimation of an extended meta‐regression model that explicitly controls for the idiosyncrasies of transition economies and privatization policies strongly suggested that differences between countries in location, privatization method, and speed of policy implementation strongly influence the link between post‐privatization ownership structure and firm performance. We also found that these factors not only cause a remarkable gap between countries in terms of ex post improvement in firm performance but also significantly affect the interrelationship between foreign investors, domestic outsider owners, and firm managers, and the relative superiority of various domestic outsiders. Conclusive evidence of the harm caused to ex post firm performance by voucher privatization is one of the most noteworthy empirical findings in this paper.     

Manias,Panics and Crashes in Emerging Markets: An Empirical Investigation of the Post-2008 Crisis Period

ABSTRACT

Because of their economic importance, international bond markets are thought to be the likely location for the operation of financial market pressures on emerging market (EM) government policy. An important but unresolved debate that runs through the literature is the relative importance of domestic factors specific to the country receiving the capital flows (pull factors), versus push factors exogenous to the receiving country, in driving portfolio flows to EMs. Through extensive interviews with financial market participants, and analysis of the financial press between January 2008 and 2013, this paper argues that not only were market participants fully aware of the importance of push factors over the cycle, but that their perceptions of the domestic fundamentals themselves were influenced by these push factors. The paper provides evidence on the micro-foundations of investment decision making that make investors susceptible to influence by the push factors, and adds to a growing body of evidence that financial market borrowing costs are even less in the control of emerging market governments than previously assumed, because even when investors pay attention to domestic fundamentals, their assessments can be divorced from reality. This means that government efforts to attract foreign capital through implementing investors' preferred policies may be ultimately futile.     

中国银行业引进境外战略投资者的绩效分析

引进境外战略投资者是近几年中国银行业改革的一项重要措施。自2001年加入世界贸易组织后,已先后有十几家中资银行引入了境外战略投资者。中国银行业引进境外战略投资者这一改革措施的选取是正确的,但外资持股比例与银行绩效没有必然联系的实证检验结果提示我们,银行绩效的提升不一定非要以外资控股为前提。对于中国这样一个大国来说,保持国内力量的银行控股权应该具有重要战略意义。