245 research outputs found
Sources of pro-cyclicality in east Asian financial systems
Procyclicality is a normal feature of economic systems, but financial sector
weaknesses can exacerbate it sufficiently to pose a threat to macroeconomic and financial
stability. These include shortcomings in bank risk management and governance, in
supervision and in terms of dependence on volatile sources of funds. The paper tests
econometrically for the importance of such features leading to pro-cyclicality in the financial
systems of 11 East Asian countries. This analysis makes it possible to identify specific policy
measures for East Asian countries that could limit the extent to which financial systems
exacerbate pro-cyclicality
Reversal of fortune: Macroeconomic policy, International Finance, and Banking in Japan
This essay provides an introduction and overview for a symposium on macroeconomic policy, international finance and banking in Japan. The symposium consists of thirteen papers. Nine of the papers including most of those on macroeconomic policy and international finance appear in this issue. The remaining papers including one on macroeconomic relations within the Asia-Pacific region and three on Japan's banking system will appear in a special section of the next issue of this journal.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47955/1/10368_2005_Article_42.pd
The US stock market leads the Federal funds rate and Treasury bond yields
Using a recently introduced method to quantify the time varying lead-lag
dependencies between pairs of economic time series (the thermal optimal path
method), we test two fundamental tenets of the theory of fixed income: (i) the
stock market variations and the yield changes should be anti-correlated; (ii)
the change in central bank rates, as a proxy of the monetary policy of the
central bank, should be a predictor of the future stock market direction. Using
both monthly and weekly data, we found very similar lead-lag dependence between
the S&P500 stock market index and the yields of bonds inside two groups: bond
yields of short-term maturities (Federal funds rate (FFR), 3M, 6M, 1Y, 2Y, and
3Y) and bond yields of long-term maturities (5Y, 7Y, 10Y, and 20Y). In all
cases, we observe the opposite of (i) and (ii). First, the stock market and
yields move in the same direction. Second, the stock market leads the yields,
including and especially the FFR. Moreover, we find that the short-term yields
in the first group lead the long-term yields in the second group before the
financial crisis that started mid-2007 and the inverse relationship holds
afterwards. These results suggest that the Federal Reserve is increasingly
mindful of the stock market behavior, seen at key to the recovery and health of
the economy. Long-term investors seem also to have been more reactive and
mindful of the signals provided by the financial stock markets than the Federal
Reserve itself after the start of the financial crisis. The lead of the S&P500
stock market index over the bond yields of all maturities is confirmed by the
traditional lagged cross-correlation analysis.Comment: 12 pages, 7 figures, 1 tabl
Strategies used as spectroscopy of financial markets reveal new stylized facts
We propose a new set of stylized facts quantifying the structure of financial
markets. The key idea is to study the combined structure of both investment
strategies and prices in order to open a qualitatively new level of
understanding of financial and economic markets. We study the detailed order
flow on the Shenzhen Stock Exchange of China for the whole year of 2003. This
enormous dataset allows us to compare (i) a closed national market (A-shares)
with an international market (B-shares), (ii) individuals and institutions and
(iii) real investors to random strategies with respect to timing that share
otherwise all other characteristics. We find that more trading results in
smaller net return due to trading frictions. We unveiled quantitative power
laws with non-trivial exponents, that quantify the deterioration of performance
with frequency and with holding period of the strategies used by investors.
Random strategies are found to perform much better than real ones, both for
winners and losers. Surprising large arbitrage opportunities exist, especially
when using zero-intelligence strategies. This is a diagnostic of possible
inefficiencies of these financial markets.Comment: 13 pages including 5 figures and 1 tabl
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Identification of monetary policy in SVAR models: A data-oriented perspective
In the literature using short-run timing restrictions to identify monetary policy shocks in vector-auto-regressions (VAR) there is a debate on whether (i) contemporaneous real activity and prices or (ii) only data typically observed with high frequency should be assumed to be in the information set of the central bank when the interest rate decision is taken. This paper applies graphical modeling theory, a data-based tool, in a small-scale VAR of the US economy to shed light on this issue. Results corroborate the second type of assumption
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