: A literature survey

Document de travail du CEPII, n°2010-24 de novembre 2010. ISSN : 1293-2574. Publié dans Economie Internationale 123 (2010) 67-90.International audienceSince the 1970s, the financial system has undergone deep structural changes. Innovation has been a key driver of these changes and most economists acknowledge that the impact has been positive overall. However, each time a financial crisis arises, the debate is on. Derivatives especially, which are among the major innovations in the past thirty years, cause deep concerns. In this paper, we propose a survey of the academic literature that has addressed the threats posed by derivatives. An initial issue is the impact of derivatives on the volatility of the underlying assets, but empirical findings do not suggest any significant effect. The recent literature on the dangers of derivatives is more concerned by systemic risks. Several studies suggest that the sophistication of the products and the concentration of risks are potential sources of instability because of the increasing uncertainty, the repeated occurrence of extreme losses, and finally the greater possibility of global crisis. Among the solutions that have been proposed to mitigate risk, beyond strengthening internal control, putting clearinghouses into general use and limiting naked-transactions seem to be the most promising avenues.Depuis le début des années 1970-1980, la sphère financière connaît un flot intense d'innovations et il existe un certain consensus aujourd'hui pour affirmer qu'elles ont globalement une incidence positive. Malgré tout, à chaque crise financière le débat est relancé. En particulier, les produits dérivés, qui sont certainement les innovations financières les plus importantes des trente dernières années, suscitent de vives inquiétudes : les qualificatifs de " bête sauvage " ou d'" armes de destruction massive " leur collent à la peau. Cet article a pour objectif de synthétiser les résultats de la littérature académique sur les dangers que font peser les produits dérivés. On a d'abord craint que les produits dérivés favorisent la volatilité, mais les études empiriques ne semblent pas valider ces soupçons. Les études récentes portent davantage sur le risque systémique. La complexité des produits et la concentration des risques conduisent à une augmentation de l'incertitude, de la fréquence et de l'ampleur des risques extrêmes. Parmi les solutions envisagées pour limiter les risques, outre évidemment le renforcement du contrôle interne, la généralisation des chambres de compensation et la limitation des transactions à nu semble être les voies les plus prometteuses

The Location of Financial Activities: The Impact of New Technologies and the Financial Crisis

The location of financial activities is traditionally characterized by a great deal of inertia. However, the boom in new information and communication technologies, the globalization of economies and the 2007-08 financial crisis have considerably modified the geography of finance. Financial globalization has, first of all, had a heavy impact on the level of spatial concentration / dispersion of activities. The dynamics have not acted in a uniform way – schematically speaking three levels can be distinguished. On the urban scale, financial activities have been spread out (suburbanization), while on the regional scale or the national scale, due to financial globalization, financial activities have been more tightly grouped. Lastly, on the international scale, a movement of dispersion has mainly been observed, along with a specialization of financial centers. The 2007-08 financial crisis might well accentuate this last effect and cause an upheaval in world hierarchy. Actually, the financial centers that are most elastic to the economic situation – London, New York and tax havens – are massively losing jobs, while the stock markets in Shanghai, Hong Kong and Bombay are now upstaging them as major players.Financial Geography, International Financial Centers, Globalization, Informational Externalities

What drives the market value of firms in the Defense industry ?

This paper investigates the relative importance of different types of news in driving significant stock price changes of firms in the defense industry. We implement a systematic event study with a sample of the 58 largest publicly listed companies in the defense industry, over the time period 1995-2005. We first identify, for each firm, the statistically significant abnormal returns over the time period, and then we look for information releases likely to cause such stock price movements. We find that stock price movements in the defense industry are, in many ways, influenced by the same events as in other industries (key role of formal earnings announcements or analysts' recommendations) but this industry also has some specific features, in particular the influence of geopolitical events and the relevance and frequency of bids and contracts on stock prices.Event study, financial markets, defense industry, information releases, GARCH models.

How Does the Stock Market Respond to Chemical Disasters?

In this paper, we examine the stock market reaction to industrial disasters. We consider an original sample of 64 explosions in chemical plants and refineries worldwide over the period 1990-2005. A quarter of the accidents resulted in a toxic release, and half of them caused at least one death or serious injury. On average, petrochemical firms in our sample experience a drop in their market value of 1.3% over the two days immediately following the disaster. Using multivariate analysis, we show that this loss is significantly related to the seriousness of the accident as measured by the number of casualties and by chemical pollution: each casualty corresponds to a loss of $164 million and a toxic release to a loss of$1 billion.Technological risk; Event study; Environmental liability; Disclosure; Insurance

What drives the market value of firms in the defense industry?

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSE Voir aussi l'article basé sur ce document de travail parru dans "Review of Financial Economics", Elsevier, 2008, 17 (1), pp.14-32Cahiers de la Maison des Sciences Economiques 2006.37 - ISSN 1624-0340This paper investigates the relative importance of different types of news in driving significant stock price changes of firms in the defense industry. We implement a systematic event study with a sample of the 58 largest publicly listed companies in the defense industry, over the time period 1995-2005. We first identify, for each firm, the statistically significant abnormal returns over the time period, and then we look for information releases likely to cause such stock price movements. We find that stock price movements in the defense industry are, in many ways, influenced by the same events as in other industries (key role of formal earnings announcements or analysts' recommendations) but this industry also has some specific features, in particular the influence of geopolitical events and the relevance and frequency of bids and contracts on stock prices.Cet article vise à mesurer l'influence relative de différents types d'informations sur le cours boursiers d'entreprises du secteur de la Défense, au moyen d'une étude d'évènements systématique sur 58 grandes entreprises de la Défense, sur la période 1995-2005. Dans un premier temps, nous identifions les rendements boursiers anormaux statistiquement significatifs pour chaque entreprise. Dans un second temps, nous procédons à une recherche d'informations susceptibles d'expliquer ces rendements anormaux. Nos résultats montrent que les cours boursiers des entreprises de la Défense sont affectés, comme ceux des autres secteurs, par les annonces de bénéfices et de résultats, par la publication de recommandations d'analystes, etc. Le secteur de la Défense possède toutefois plusieurs spécificités, puisque les évènements géopolitiques, les informations liées aux contrats, et celles liées aux opérations de fusion-acquisitions pèsent d'un poids particulier sur les cours de ces entreprises

The measurement of financial intermediation in Japan

In this paper, we compute financial intermediation ratios for Japan (1970-2003) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. However, this stability is the result of two opposing trends : a decrease in credits and an increase in financial securities owned by financial (mostly, non banking) institutions. These two opposing trends would not have appeared if we had used traditional indicators computed as a fraction on GDP, or that build on a narrow definition of intermediation or use market value data. Fundamentally, our results provide evidence for a very close relation between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system.Disintermediation, financial system, intermediaries, capital markets.

The measurement of financial intermediation in Japan

In this paper, we examine the evolution of the Japanese financial structure, in order to challenge the expected incidences of the financial liberalization. We compute financial intermediation ratios for Japan (1979-2004) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. This stability is the result of two opposite trends: a decrease in credits and an increase in financial securities owned by financial (mostly, non-banking) institutions. These two trends are partly the consequence of the heavier weight of the Government in domestic external financing, which is traditionally less financed by credits than companies are. Besides, these two trends would not have appeared if we had used intermediation ratios in market value or other traditional indicators (Deposits/GDP, Loans to private sector/GDP, stock market capitalization/GDP, etc.). Our results provide evidence for a very close relationship between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system.Disintermediation, financial system, intermediaries, capital markets

How Does the Stock Market Respond to Chemical Disasters?

International audienceIn this paper, we examine the stock market reaction to industrial disasters. We consider an original sample of 64 explosions in chemical plants and refineries worldwide over the period 1990-2005. A quarter of the accidents resulted in a toxic release, and half of them caused at least one death or serious injury. On average, petrochemical firms in our sample experience a drop in their market value of 1.3% over the two days immediately following the disaster. Using multivariate analysis, we show that this loss is significantly related to the seriousness of the accident as measured by the number of casualties and by chemical pollution: each casualty corresponds to a loss of $164 million and a toxic release to a loss of$1 billion

The measurement of financial intermediation in Japan

International audienceIn this paper, we examine the evolution of the Japanese financial structure, in order to challenge the expected incidences of the financial liberalization. We compute financial intermediation ratios for Japan (1979-2004) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. This stability is the result of two opposite trends: a decrease in credits and an increase in financial securities owned by financial (mostly, non-banking) institutions. These two trends are partly the consequence of the heavier weight of the Government in domestic external financing, which is traditionally less financed by credits than companies are. Besides, these two trends would not have appeared if we had used intermediation ratios in market value or other traditional indicators (Deposits/GDP, Loans to private sector/GDP, stock market capitalization/GDP, etc.). Our results provide evidence for a very close relationship between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system's convergence toward a capital market-based system