Which financial stocks did short sellers target in the subprime crisis?

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subprime assets exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also be seen as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.     

High-frequency credit spread information and macroeconomic forecast revision

We examine whether professional forecasters incorporate high-frequency information about credit conditions when revising their economic forecasts. Using a mixed data sampling regression approach, we find that daily credit spreads have significant predictive ability for monthly forecast revisions of output growth, at both the aggregate and individual forecast levels. The relationships are shown to be notably strong during ‘bad’ economic conditions, which suggests that forecasters anticipate more pronounced effects of credit tightening during economic downturns, indicating an amplification effect of financial developments on macroeconomic aggregates. The forecasts do not incorporate all financial information received in equal measures, implying the presence of information rigidities in the incorporation of credit spread information.     

The dynamics of ex-ante weighted spread: an empirical analysis

We model the evolution of the ex-ante weighted spread (EWS) embedded in an open Limit Order Book (LOB) and investigate the impact of observed market-related variables on the spread. Our modeling involves decomposing the joint distribution of the weighted spread into simple and interpretable distributions. Our main results have several implications: (i) EWS features high persistence in autocorrelation; (ii) lower-level LOB remains liquid even after a high trade imbalance; (iii) lower- and higher-level LOB react to temporal spread change and trade imbalance in different ways; and (iv) both trade durations and quote durations have seasonality effects. We also show, through a simple high frequency trading exercise, that the use of the model can be economically important. Further, our model provides an estimation of market resilience.     

Seeking causality between liquidity risk and credit risk: TED-OIS spreads and CDS indexes

Since the Global Financial Crisis, credit risk and its management have become one of the most appealing topics in finance literature. In this study, we investigate the interaction of credit risk and liquidity risk through the TED and the OIS spreads and various credit default swap indexes from the CDX and the iTraxx family (CDXIG, CDXHY, ITEEU, and ITEXO). The empirical analysis is conducted through the Kapetanios unit root test, the EGARCH model, the Bootstrap Toda-Yamamoto modified Wald test and the asymmetric causality analysis. The results of symmetric and asymmetric causality methods reveal that liquidity risk appears to play an important role in credit risk, and in most cases, the TED and the OIS spreads dominate the CDS indexes. It can, thus, be concluded that the TED and the OIS spreads are superior to the CDS indexes as an early warning indicator in the credit market.     

Threshold effect of economic openness on bank risk-taking: Evidence from emerging markets

This paper investigates the non-linear effects of two aspects of economic openness, namely, trade openness and financial openness, on banking system stability. We use a panel of 42 emerging markets from 2000 to 2014 to test whether bank risk-taking behaviour varies with the level of openness. We find that a higher degree of trade openness promotes bank stability linearly. Conversely, the non-linear effect of financial openness on bank risk-taking is evident. When the financial system is not sufficiently open, the impact of financial openness on bank stability is insignificant. However, as the domestic financial market becomes more open, financial openness can help discipline the behaviour of banks, making them more stable. We also find evidence that these effects are transmitted through the market discipline channel. Our findings highlight the importance of strengthening the domestic regulatory framework and transparency as the economy becomes more integrated.     

Bank business models and liquidity creation

Using a large panel of US bank holding companies from 2001 to 2015, this study investigates the association between functional diversification and bank liquidity creation. I document evidence of lower liquidity creation for higher diversification. The effect of moving into nontraditional activities on liquidity creation is more apparent with large banks and less pronounced with small banks. The impact of diversification on liquidity creation is less significant during the late stage of crisis and is more clearly observed in small and medium-sized banks. Low liquidity creation banks, leveraged by a higher share of non-interest income, are more likely to further decrease their liquidity creation. The study is of interest to regulators and policymakers who are concerned about bank business models.     

中国邮储银行大连分行网点转型下客户服务模式创新研究

随着社会大众对金融服务的要求不断增多,银行网点转型已经成为一个必然趋势。信息时代背景下,银行网点的转型大多向智能化的方向转变,而随着网点转型,其客户服务模式也在不断创新。论文以邮储银行大连分行为例,对银行网点智能化转型的影响进行了分析,探究了邮储银行大连分行网点智能化转型存在的问题,并且提出了相关的转型建议,最后对邮储银行大连分行智能化网点转型下客户服务模式的创新情况进行了研究,希望能够在银行网点智能化转型的背景下,促进其客户服务水平的不断提升。     

Independence in bank governance structure: Empirical evidence of effects on bank risk and performance

We investigate how different governance arrangements affect risk and return in banks. Using a new data set for UK banks over the period 2003–2012, we employ a simultaneous equations framework to control for the reciprocal relationship between risk and return. We show that separation of the roles of CEO and Chairman increases bank risk without causing a concurrent increase in return. We also find that oversight by a Remuneration Committee and Non-Executive Directors (NEDs) lowers the probability of bank failure, indicating that empowering an independent Chairman has different effects from empowering independent NEDs. Overall, our results underline the importance of accounting for the heterogeneity in corporate governance arrangements within banks.     

News-driven international credit cycles

How does news about future economic fundamentals affect within-country and cross-country credit allocation? How effective is unconventional policy when financial crises are driven by unfulfilled favorable news? I study these questions by employing a two-sector, two-country macroeconomic model with a banking sector in which financial crises are associated with occasionally binding leverage constraints. In response to positive news on the valuation of non-traded sector capital which turns out to be incorrect at a later date, the model captures the patterns of financial flows and current account dynamics in Spain between 2000–2010, including the changes in the sectoral allocation of bank credit and movements in cross-country borrowing during the boom and the bust. When there are unconventional policies by a common authority in response to unfulfilled favorable news, liquidity injections perform better in ameliorating the downturn than direct assets purchases from the non-traded sector.