Testing for speculative bubbles in stock prices

A modification of Kenneth West's method for investigating speculative bubbles in stock prices, in which a direct test of the "no bubble" hypothesis is applied to long-term annual U.S. stock-market data.Stock - Prices

Modeling large commercial-bank failures: a simultaneous-equation analysis

The development of a model of large-bank failures that studies insolvency and failure simultaneously and that recognizes economic, political, and bureaucratic constraints faced by regulators.Bank failures

Using SMVAM as a linear approximation to a nonlinear function: a note

A study contending that the linear statistical market-value accounting model (SMVAM) is a reasonable approximation of the relationship between market and book equity for firms with positive balance sheets, but that the linear approximation is inadequate when the data sample includes firms whose balance sheets show a low or negative liquidation value.Corporate profits

The 2007 Meltdown in Structured Securitization: Searching for Lessons not Scapegoats

The intensity of recent turbulence in financial markets has surprised nearly everyone. This paper searches out the root causes of the crisis, distinguishing them from scapegoating explanations that have been used in policy circles to divert attention from the underlying breakdown of incentives. Incentive conflicts explain how securitization went wrong, why credit ratings proved so inaccurate, and why it is superficial to blame the crisis on mark-to-market accounting, an unexpected loss of liquidity or trends in globalization and deregulation in financial markets. Our analysis finds disturbing implications of the crisis for Basel II and its implementation. We argue that the principal source of financial instability lies in contradictory political and bureaucratic incentives that undermine the effectiveness of financial regulation and supervision in every country in the world. We conclude the paper by identifying reforms that would improve incentives by increasing transparency and accountability in government and industry alike.Financial crisis, Securitization, Regulation and Supervision, Safety Nets

Determinants of Saving for Old Age around the World

Countries around the world face a retirement crisis brought on by ageing populations, declining birthrates, and fiscal shortfalls. As a result, policymakers increasingly seek to understand retirement savings patterns—a crucial component of the safety net for the elderly. Drawing on the 2014 Global Findex database, which provides individual-level data on the use of financial products in more than 140 countries, we examine how adults save for old age. We find that about 25% of adults worldwide save for old age, with rates exceeding 35% in high-income OECD economies and the East Asia and Pacific region. On average, men are slightly more likely than women to save for this purpose, but the gender gap is deeper in developing countries. Worldwide, saving for old age is more common among older adults, more educated adults, and adults who own accounts. Adults in countries with English or German legal origin, and with high savings rates, are also more likely to save for old age. We also find that measures to increase trust in the financial system—such as deposit insurance—lead to higher rates of saving for old age. Finally, we find no evidence of substitution between pension system provisions and contribution rates with saving for old age

Islamic vs. conventional banking: Business model, efficiency and stability

How different are Islamic banks from conventional banks? Does the recent crisis justify a closer look at the Sharia-compliant business model for banking? When comparing conventional and Islamic banks, controlling for time-variant country-fixed effects, we find few significant differences in business orientation. There is evidence however, that Islamic banks are less cost-effective, but have a higher intermediation ratio, higher asset quality and are better capitalized. We also find large cross-country variation in the differences between conventional and Islamic banks as well as across Islamic banks of different sizes. Furthermore, we find that Islamic banks are better capitalized, have higher asset quality and are less likely to disintermediate during crises. The better stock performance of listed Islamic banks during the recent crisis is also due to their higher capitalization and better asset quality