Financial integration of six former Yugoslavian equity markets : evidence from the financial crisis

This thesis investigates the financial integration of former Yugoslavian countries’ equity markets into developed markets with respect to the financial crisis of late 2000s. The purpose of the study is to investigate whether the former Yugoslavian countries became integrated globally before the financial crisis and if the integration process increased or decreased during the crisis. The sample includes six former Yugoslavian equity markets, specifically Serbia, Slovenia, Croatia, Bosnia & Herzegovina, Montenegro and FYR Macedonia as well as the US and German equity markets. Financial integration and dynamic linkages are tested with vector autoregressive framework, specifically cointegration vectors as the unit root tests, Johansen procedure, Granger causality test and exclusion test are employed. The empirical findings indicate that Croatia and Slovenia represent markets with considerable financial integration towards developed markets of US and Germany. Serbia, Bosnia, Montenegro and Macedonia only showed the short-run cointegration with mature markets during the financial crisis period. The financial integration among the former Yugoslavian countries increased during the financial crisis. Croatia represents a dominant market in the region of former Yugoslavia affecting the returns of every other market in the region significantly. The role of Serbian market in the region increased during the financial crisis period. Due to the level of financial integration, superior portfolio returns for international investors are rather limited in case of Croatia and Slovenia as these markets’ returns are in the long-run equilibrium with mature markets. However, diversification benefits can be pursued by investing in other former Yugoslavian countries.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format

Essays on emerging market finance

Väitöskirjan tavoitteena on tutkia kehittyvien markkinoiden tärkeimpien omaisuusluokkien ominaisuuksia. Neljässä erillisessä esseessä tarkastellaan kehittyvien markkinoiden osake- ja joukkovelkakirjamarkkinoiden ominaispiirteitä. Ensimmäisessä esseessä tutkitaan kehittyvien markkinoiden osakkeiden ja joukkovelkakirjalainojen välistä korrelaatiota. Tulokset osoittavat, että osakkeiden ja joukkovelkakirjalainojen väliseen korrelaatioon vaikuttaa merkittävästi valittu aikaperiodi. Lyhyen aikavälin korrelaatio voi muuttua nopeasti, ollen negatiivinen suurimman osan ajasta, kun taas pitkän aikavälin korrelaatio pysyy positiivisena suurimman osan ajasta. Tärkeimmät selittävät tekijät osakkeiden ja joukkovelkakirjalainojen väliselle korrelaatiolle ovat keskuspankkien rahapolitiikka, inflaatio ja osakemarkkinoiden epävarmuus. Toisessa esseessä tutkitaan sijoituspäätösten ajoittamista kehittyvien markkinoiden osakkeiden ja joukkovelkakirjalainojen hintasuhteita hyödyntämällä. Tulokset osoittavat, että kehittyvien markkinoiden joukkovelkakirjalainoilla on osakkeille tyypillisiä piirteitä, eikä niitä siitä syystä tulisi pitää turvallisina sijoituksina suhteessa kehittyvien markkinoiden osakkeisiin. Väitöskirjan kolmas essee keskittyy erityisesti analysoimaan poliittisen riskitekijän vaikutusta osaketuottoihin kehittyneissä, kehittyvissä sekä reunamarkkinoihin kuuluvissa maissa. Tulokset osoittavat, että poliittinen riskitekijä on hinnoiteltu osakkeisiin kaikilla tutkituilla osakemarkkinoilla, mutta myös eroavaisuuksia löytyy markkinoiden välillä. Neljäs essee laajentaa väitöskirjan ulottuvuutta ja tarkastelee yritysten kansainvälistä velkarahoitusta. Tulokset osoittavat, että yhdysvaltalaisten yritysten kansainvälistymisestä saamat hyödyt eroavat merkitsevästi riippuen siitä, mihin maahan ne kansainvälistyvät. Joukkovelkakirjojen liikkeellelasku kehittyvissä maissa vaikuttaa haitallisesti yritysten markkina-arvoon, kun taas kehittyneistä maista haettu velkarahoitus nostaa markkina-arvoa.This thesis studies various aspects of major financial asset classes in emerging markets. Four interrelated essays explore the attributes and investigate the risk characteristics of equity and debt markets in emerging countries. The first essay examines the relationship between the emerging market stocks and bonds. The results show that time-varying stock-bond correlation patterns vary significantly between time horizons. In the short horizon, the correlation changes the sign rapidly showing sustainable negative episodes, while in the long horizon the correlation stays positive most of the time. Important factors influencing stock-bond correlation are monetary policy stance, inflation and stock market uncertainty. The second essay studies the characteristics of emerging market stocks and bonds by using their relative yields as a foundation for various market timing investment strategies. The findings demonstrate that emerging market bonds have equity-like characteristics and should not be assigned the properties of a safe investment relative to emerging market stocks. The third essay focuses specifically on risk characteristics of emerging equity markets by investigating how determinants of political risk factor affect stock returns of developed, emerging and frontier markets. The results show that composite political risk is priced in all three stock market categories, but the effect of individual components varies across different markets. The fourth essay extends the scope of the dissertation and examines the issues surrounding the cross-border raising of debt capital in developed and emerging market environments. The results reveal that the benefits of internationalization for US firms differ sharply depending on the specific market into which they internationalize. Firms that issue debt to emerging markets experience a negative valuation effect while internationalization improves valuation for firms issuing debt in developed markets.fi=vertaisarvioitu|en=peerReviewed

Bond-equity yield ratio investing in Emerging markets

his article investigates the market timing ability of the bond–equity yield ratio (BEYR) from an international investor perspective. Consolidating data on emerging markets, we document no major international evidence that BEYR-based investing strategies, namely extreme values, thresholds and moving averages, provide higher risk-adjusted returns than benchmark buy-and-hold portfolios. However, we develop new augmented BEYR indicators by introducing the notion of US bonds as a safe investment relative to emerging market stocks and bonds. Dynamic strategies based on our augmented BEYR indicators produce significant gains in risk-adjusted returns compared with traditional BEYR and buy-and-hold benchmark strategies.© 2019 Sage Publications. The article is protected by copyright and reuse is restricted to non-commercial and no derivative uses. Users may also download and save a local copy of an article accessed in an institutional repository for the user's personal reference.fi=vertaisarvioitu|en=peerReviewed

First offshore bond issuances and firm valuation

Does the first offshore bond initial public offering (BIPO) affect firm valuation? By using a sample of US firms we document the dynamics of the firm valuation in response to initial offshore bond issuance. We find that offshore BIPOs have a positive short-term effect on US firms' valuations. The effect varies in firm characteristics, timing, and the location of the issue. Positive valuation effect is further confirmed by using difference-in-differences analysis approach, where offshore bond issuers are compared with their domestic counterparts. Additionally, firms with a strong need for external funds and growth prospects accelerate their offshore public debt market entry.© 2022 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).fi=vertaisarvioitu|en=peerReviewed

The structure and degree of dependence in government bond markets

Our study provides new evidence on asymmetric dependencies in international government bond markets, by examining bonds from developed, emerging, and frontier countries, using a quantile regression methodology. We find that the dependence structure for emerging and frontier markets significantly changes during financial crisis periods, which we show has important implications for international diversification of investment strategies. Moreover, we also examine in detail stock–bond correlations and uncover several instances of decoupling. In contrast, developed markets exhibit a more stable dependence pattern. In addition, we document that the degree and structure of dependence vary when foreign currencies are hedged or unhedged, and across bond maturity segments.© 2021 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY licence (http://creativecommons.org/licenses/by/4.0/).fi=vertaisarvioitu|en=peerReviewed

Future directions in international financial integration research. A crowdsourced perspective

This paper is the result of a crowdsourced effort to surface perspectives on the present and future direction of international finance. The authors are researchers in financial economics who attended the INFINITI 2017 conference in the University of Valencia in June 2017 and who participated in the crowdsourcing via the Overleaf platform. This paper highlights the actual state of scientific knowledge in a multitude of fields in finance and proposes different directions for future research

Oil Price Uncertainty and IPOs

We examine the impact of oil price uncertainty on IPO volume in the oil and gas sector. By using the implied volatility of oil options, a forward-looking uncertainty measure, we identify the effect of uncertainty on the going-public decision. Oil price uncertainty exhibits a strong negative relation to IPO volume. A one standard deviation decrease in the implied volatility results in a 29% increase in the number of quarterly IPOs. The effect is concentrated among the price-sensitive upstream producers. We further report that uncertainty positively impacts the IPO withdrawal decision and increases the value of postponing the offering.© 2023 by the IAEE. All rights reserved.fi=vertaisarvioitu|en=peerReviewed

Corporate Social Responsibility and Bank Credit Ratings

This paper examines the association between bank credit ratings and corporate social responsibility (CSR). The sample includes large publicly listed banks in the United States during fiscal years 2000–2016. Our findings indicate that CSR policies positively affect banks’ credit ratings. We further test each dimension of the MSCI KLD database’s ESG ratings and find that the CSR components measuring diversity and employee relations are particularly relevant in the credit rating context.© 2023 Springer. This is a post-peer-review, pre-copyedit version of an article published in Green Finance Instruments, FinTech, and Investment Strategies: Sustainable Portfolio Management in the Post-COVID Era. The final authenticated version is available online at: http://dx.doi.org/10.1007/978-3-031-29031-2_3fi=vertaisarvioitu|en=peerReviewed

Oil Price Uncertainty and M&A Activity

This study examines the impact of oil price uncertainty on mergers and acquisition (M&A) activity in the oil and gas sector. Analyzing this industry enables us to construct a natural forward-looking measure of oil price uncertainty, namely the implied crude oil volatility. Using a sample of U.S. firms in the oil and gas sector from 1994-2018 containing 4,323 announced transactions, we document that oil price uncertainty is negatively related to future M&A activity. Uncertainty is mainly a driver of horizontal and vertical M&A activity, where upstream firms are more affected by this uncertainty than downstream firms. Our results lend support to a real options explanation of investment under uncertainty where firms choose to defer investments as a response to increased uncertainty.© 2023 by the IAEE. All rights reserved.fi=vertaisarvioitu|en=peerReviewed

Unconventional monetary policy and international equity capital flows to emerging markets

This paper examines the relationship between monetary policies pursued by three major central banks (U.S. Federal Reserve, European Central Bank and Bank of Japan) and net equity capital flows to emerging markets (EMs) by global investment funds. We focus on two aspects of central bank policy: The growth of central bank assets and the surprise element of asset growth. We find, first, positive, economically large and statistically significant spillovers from the U.S. Federal Reserve asset growth to EM equity inflows following the adoption of unconventional monetary policies. Second, U.S. Federal Reserve and (to a lesser extent) European Central Bank asset growth surprises are negatively related to EM capital flows