The History of the Quantitative Methods in Finance Conference Series. 1992-2007

This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.

Financial globalization and the Russian crisis of 1998

Russia had more-or-less completed the privatization of its manufacturing and natural resource sectors by the end of 1997. And in February 1998, the annual inflation rate at last dipped into the single digits. Privatization should have helped with stronger micro-foundations for growth. The conquest of inflation should have cemented macroeconomic credibility, lowered real interest rates, and spurred investment. Instead, Russia suffered a massivepublic debt-exchange rate-banking crisis just six months later, in August 1998. In showing how this turn of events unfolded, the authors focus on the interaction among Russia's deteriorating fiscal fundamentals, its weak micro-foundations of growth and financial globalization. They argue that the expectation of a large official bailout in the final 10 weeks before the meltdown played an important role, with Russia's external debt increasing by $16 billion or 8 percent of post-crisis gross domestic product during this time. The lessons and insights extracted from the 1998 Russian crisis are of general applicability, oil and geopolitics notwithstanding. These include a discussion of when financial globalization might actually hurt and a cutoff in market access might actually help; circumstances in which an official bailout could backfire; and why financial engineering tends to fail when fiscal solvency problems are present.Debt Markets,Emerging Markets,Banks&Banking Reform,Access to Finance,Currencies and Exchange Rates

Derivatives, the Shape of International Capital Flows and the Virtues of Prudential Regulation

derivatives, capital flows, risk management, international finance

A Compendium of Policy Instruments to Enhance Financial Stability and Debt Management in Emerging Market Economies

Drawing on available theory and evidence, this paper attempts to identify some key factors contributing to international financial instability to develop ataxonomy of policy instruments to enhance financial stability and debt management in emerging market economies. The purpose is to relate each instrument to particular aspects of the broader policy challenge,thus clarifying differences and/or similarities among instruments and proposals. The analysissuggests instruments that could help increase the efficiency of risk management strategies(such as growth- or GDP-indexed bonds) and enhance the effectiveness of debt management,growth and development policies (such as a stability and social investment facility).debt sustainability, debt trap, emerging markets, financial stability

The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development

Over the last decade interest in the role of finance in economic growth has revived. Building from the pioneering work of Goldsmith (1965) and the insights of Shaw (1973) and McKinnon (1973), the more recent work examines the role of financial institutions and financial markets in corporate governance and the consequent implications for economic growth and development. Levine (1997) and Stulz (2000) have provided excellent reviews of this literature and Allen and Gale (2000) have extended it by developing a framework for comparing bank-based financial systems with market-based financial systems. Although the literature addresses "capital markets," on closer inspection the main focus is really equity markets. Bond markets are almost completely overlooked. Although the omission of the bond market is not defended in the literature, one could argue that it does little violence to reality. As Table 1 shows, in most emerging economies in Asia, bond markets are very small relative to the banking system or equity markets. Moreover, the most striking theoretical results flow from a comparison of debt contracts with equity contracts and at a high level of abstraction bank lending can proxy for all debt. In any event, data are much more readily available for equity markets and the banking system than for bond markets, even in the United States.

How Sovereign is Sovereign Credit Risk?

We study the nature of sovereign credit risk using an extensive sample of CDS spreads for 26 developed and emerging-market countries. Sovereign credit spreads are surprisingly highly correlated, with just three principal components accounting for more than 50 percent of their variation. Sovereign credit spreads are generally more related to the U.S. stock and high-yield bond markets, global risk premia, and capital flows than they are to their own local economic measures. We find that the excess returns from investing in sovereign credit are largely compensation for bearing global risk, and that there is little or no country-specific credit risk premium. A significant amount of the variation in sovereign credit returns can be forecast using U.S. equity, volatility, and bond market risk premia.

UP FROM SIN: A PORTFOLIO APPROACH TO FINANCIAL SALVATION

In this paper, we develop a proposal with the potential to greatly improve the ability of developing countries to reduce their exposure to other countries´ interest rate and exchange rate volatility and to lower their cost of raising capital abroad. The key to achieving these goals is for developing countries to borrow in their own currencies and for investors to lend by creating portfolios of local-currency government debt securities that employ the risk management technique of diversification to generate a return-to-risk that competes favourably with other major capital market security indices. We show, based on data from the early 1990s, that a portfolio of emerging market local currency debt can generate rates of return relative to risk that compete with those of major securities indices in international capital markets. It bears noting that the early 1990s witnessed several severe shocks to international capital markets, including the crises in East Asia, the Russian Federation and Brazil, and the failure of Long-Term Capital Management. We also analyse the implications of deploying such a policy for attracting capital to developing countries, the impact on the stability of their financial systems and on their costs of borrowing, and the implications for future development of local capital markets.

An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals

Russia, macroeconomics, 1998, market signals

Asset Management in Volatile Markets

The 27th SUERF Colloquium in Munich in June 2008: New Trends in Asset Management: Exploring the Implications was already topical in the Summer of 2008. The subsequent dramatic events in the Autumn of 2008 made the presentations in Munich even more relevant to investors and bankers that want to understand what happens in their investment universe. In the present SUERF Study, we have collected a sample of outstanding colloquium contributions under the fitting headline: Asset Management in Volatile Markets.derivatives, financial innovation, asset management, finance-growth-nexus; Relative Value Strategy, Pair Trading, Slippage, Implementation Shortfall, Asset Management, Fin4Cast