How do Financial Institutions in China Mitigate Risks in Securitization Markets?

Asset securitization as the essential financial tool has increased the liquidity of underlying assets and promoted rapid economic development. In 2008, the outbreak of Subprime Mortgage Crisis that brought by the collapse of securitization triggered the U.S. securitization market to realize the risks involved in structured financial products, and thus facilitated the development of risk controlling tools. Through the analysis of securitization process, drivers, and credit rating agencies, the study concentrates on the formation of risks and modeling evaluation with evidence in both China and the U.S. markets. Statistical analysis was conducted on Chinese securitized products combining with risk management models built in the U.S. market. The results not only show risk evaluation tools that could improve the market maturity but also reveals the lack of information disclosure in China with the limited access to historical data. The paper attempts to address policy recommendations on mitigating potential risks and promoting financial developments in the China securitization market

Pricing, liquidity and the control of dynamic systems in finance and economics

The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to economics in general. The paper also discuses the consequences of the endogenous creation of liquidity and the role of liquidity as a state variable. On the practical side, proposals are made for reducing chaotic behaviour in both housing markets and stock markets.dynamic, chaotic, liquidity, market-microstructure, post-keynesian

Recurrence quantification analysis of global stock markets

This study investigates the presence of deterministic dependencies in international stock markets using recurrence plots and recurrence quantification analysis (RQA). The results are based on a large set of free float-adjusted market capitalization stock indices, covering a period of 15 years. The statistical tests suggest that the dynamics of stock prices in emerging markets is characterized by higher values of RQA measures when compared to their developed counterparts. The behavior of stock markets during critical financial events, such as the burst of the technology bubble, the Asian currency crisis, and the recent subprime mortgage crisis, is analyzed by performing RQA in sliding windows. It is shown that during these events stock markets exhibit a distinctive behavior that is characterized by temporary decreases in the fraction of recurrence points contained in diagonal and vertical structures.Recurrence plot, Recurrence quantification analysis, Nonlinear dynamics, International stock markets

Stock Market Development and Economic Growth

financial markets development, economic growth, economic development, stock markets development

Model of Financial Development: A cluster analysis

This article is a contribution to the analysis of financial development diversity in developing countries and lies within model of capitalism’s framework. By taking into account the degree of control of banking system and securities markets, our empirical analysis produces a three-group typology identifying an embryonic financial system, an intermediate financial system bank oriented and a financial system in maturity. Moreover, this typology cannot support the hypothesis of a model specific to emerging countries but a model for LDC countries and a model for developed countries.Financial development, growth, models of capitalism, factorial analysis, and cluster analysis.

Does the Equity Market affect Economic Growth?

This paper examines the impact of the stock market primarily on economic growth using panel data from 1990-2010. I apply Generalized Least Squares techniques for fixed effects with the exclusion of the subgroup 2005-2010 which uses random effects. The effect of the stock market on growth is based on country-specific effects and varies in different time periods

Illiquidity and all its Friends

The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macro-prudential policies.Liquidity, Contagion, Bailouts, Regulation

RMB exchange rate reform and cross listed stock price disparity

A growing number of Chinese corporations have been listing their shares on foreign stock markets. Hong Kong Stock Exchange (HKEX) and New York Stock Exchange (NYSE) are their major targets. Taking China’s exchange rate system reform as a unique event, I examine the price disparity between A-share and H-share (or ADR) using a sample of 28 Chinese companies listed in Shenzhen, Shanghai, Hong Kong, and New York. I conduct a panel-data investigation to examine the price disparity before and after the transition from the pegged to the managed floating exchange rate. I have obtained several important findings in this study. First, RMB exchange rate reform in 2005 has significant effect on price disparity between A-shares and H-shares and also between A-share and ADR, which shows that relaxation of the exchange rate control brings about a clear convergence of A-share price with foreign share price. This result is robust with different models. Second, we also found that currency factor has significant effect on price premium between A-shares and foreign shares. Appreciation in RMB would lead to a decrease in price premium. In addition, exchange rate reform exerts its effect whether or not we take into account the impact from the Split-share structure reform