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Business and Economics > Investments: Stocks

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Cover IMF Working Papers
Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa: What Room for Policy?
Mr. Francois Boutin-Dufresne
,
Santiago Peña
,
Mr. Oral Williams
, and
Mr. Tomasz A. Zawisza
This paper examines the determinants of net interest margins in four regional blocks in Sub-Saharan Africa and one comparator block in the Eastern Caribbean. Using bank-level data, we find that countries with a high level of operating costs, a high ratio of equity to total assets and high treasury bill interest rates have higher net interest margins. Moreover, high operating costs are associated with low measures of institutional quality and a small size of bank operations. We find support for the view that market structure is also partly responsible for high net interest margins in Sub-Saharan Africa. If interpreted causally, high operating costs and a high ratio of equity to total assets and, indirectly, institutional factors such as the rule of law, are the most important factors in accounting for high interest margins in the East African Community, relative to other regions.
Keywords:
WP; market structure; bank; operating cost; loan; Financial intermediation efficiency; net interest margins; economies of scale; institutions.; interest margin; bank characteristic; system GMM; SSA bank; bank equity; Estimation techniques; Loans; Treasury bills and bonds; Loan loss provisions; Stocks; Sub-Saharan Africa
Cover IMF Working Papers
Global Bonding: Do U.S. Bond and Equity Spillovers Dominate Global Financial Markets?
Mr. Tamim Bayoumi
and
Mr. Trung T Bui
This paper uses a novel variant of identification through hetroscedacity to estimate spillovers across U.S., Euro area, Japanese, and UK government bond and equity markets in a vector autoregression. The results suggest that U.S. financial shocks reverberate around the world much more strongly than shocks from other regions, including the Euro area, while inward spillovers to the U.S. from elsewhere are minimal. There is also evidence of two-way spillovers between the UK and Euro area financial markets and spillovers from Europe to Japan. The results also suggest that the uncertainty about the direction of causality of contemporaneous correlations—an issue that other techniques cannot tackle—is the dominant source of uncertainty in the estimated impulse response functions.
Keywords:
WP; market; bond yield; bond market; coefficient; Identification; international financial linkages; UK bond yield shock; equity price; market closing; impulse response function; government bond market; spillover coefficient; Stock markets; Bond yields; Spillovers; Securities markets; Stocks; Global
Cover IMF Working Papers
Efficiency-Adjusted Public Capital and Growth
Mr. Sanjeev Gupta
,
Mr. Alvar Kangur
,
Mr. Abdoul A Wane
, and
Mr. Chris Papageorgiou
This paper constructs an efficiency-adjusted public capital stock series and re-examines the public capital and growth relationship for 52 developing countries. The results show that public capital is a significant contributor to economic growth. Although the estimated coefficient for the income share of public capital is larger in middle- than in low-income countries, the opposite is true for the marginal product of public capital. The quality of public investment, as measured by variables capturing the adequacy of project selection and implementation, are statistically significant in explaining variations in economic growth, a result mainly driven by low-income countries.
Keywords:
WP; production function; public capital; Public capital stock; public investment efficiency; appraisal; selection; implementation; evaluation of public investment; growth accounting; investment process; ICRG investment profile; process carry; investment effort; management process; Public investment spending; Stocks; Capital productivity; Estimation techniques
Cover IMF Working Papers
Estimating a Structural Model of Herd Behavior in Financial Markets
Antonio Guarino
and
Marco Cipriani
We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using data on a NYSE stock (Ashland Inc.) during 1995. Herding often arises and is particularly pervasive on some days. The proportion of herd buyers (sellers) is 2 percent (4 percent) and is greater than 10 percent in 7 percent (11 percent) of information-event days. Herding causes important informational inefficiencies, amounting, on average, to 4 percent of the expected asset value.
Keywords:
WP; market maker
Cover IMF Working Papers
International Pricing of Emerging Market Corporate Debt: Does the Corporate Matter?
Ms. Sonja Keller
and
Mr. Ashoka Mody
We examine risk spreads charged on corporate bonds placed by emerging market borrowers on international exchanges. While global developments have an important effect on spreads, changes in firm-level default risk also matter significantly in a way consistent with theory and experience in mature markets. In contrast, except during periods of financial crisis, country factors play a limited role. These findings go against the supposition that limited information on emerging market firms or significant agency problems prevent firm-level credit discrimination by international investors. The firm-level information capitalization into spreads possibly reflects protection afforded by the exchange listing on international markets.
Keywords:
WP; equity return; market equity; GMM estimator; firm equity; country risk; GMM-system estimator; Corporate bonds; bond spreads; Fama-French factors; equity data; risk arbitrage; U.S. dollar; market volatility; Fixed-Effects estimator; Emerging and frontier financial markets; Stock markets; Stocks; Estimation techniques; Bonds; Global
Cover IMF Working Papers
Valuation of Unlisted Direct Investment Equity
Thomas Elkjaer
,
Jannick Damgaard
, and
Emmanuel O. Kumah
This paper analyzes the seven valuation methods for unlisted direct investment equity included in the recently adopted IMF Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). Based on publicly available Danish data, we test the three methods that are generally applicable and find that the choice of valuation method and estimation technique can have a highly significant impact on the international investment position, pointing to the need for further harmonization. The results show that the price-to-book value method generates more robust market value estimates than the price-to-earnings method. This finding suggests that the valuation basis for the forthcoming Coordinated Direct Investment Survey - own funds at book value -will provide useful information for compiling the international investment position.
Keywords:
WP; accounting data; earnings before interest and taxes; risk premium; valuation model
Cover IMF Working Papers
To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data
Domenico Lombardi
and
Stephen Bond
This study tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data. The approach recognizes that firm-level investment spending may, itself, be aggregated over multiple investment decisions in separate types of capital goods and emphasizes effects of uncertainty on short-run investment dynamics. Using a survey-based measure of uncertainty related to the assessment of managers responsible for the firms' investment plans, the study finds evidence of heterogeneous and nonlinear dynamics pointing to a slower adjustment of investment in response to demand shocks at higher levels of uncertainty. The results also point to an additional source of nonlinearity originating from a convex response of investment to demand shocks.
Keywords:
WP; capital stock; Investment; Real Options; Panel Data; forecast error; investment series; low-uncertainty firm; firm level; investment behavior; demand shock; Stocks; Estimation techniques; Bonds; Manufacturing; Capital accumulation; Africa
Cover IMF Working Papers
The Determinants of International Portfolio Holdings and Home Bias
Shujing Li
,
Mr. Hamid Faruqee
, and
Isabel K. Yan
Despite the liberalization of foreign portfolio investment around the globe since the early 1980s, the home-bias phenomenon is still found to exist. Using a relatively new IMF survey dataset of cross-border equity holdings, this paper tests new structural equations from a consumption-based asset-pricing model on international portfolio holdings. Using of stock data allows us to provide new and clear-cut evidence on the determinants of international portfolio holdings.
Keywords:
WP; information asymmetry; market portfolio
Cover IMF Working Papers
Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies
Yuko Kinoshita
and
Nauro F. Campos
This paper examines the importance of agglomeration economies and institutions vis-a-vis initial conditions and factor endowments in explaining the locational choice of foreign investors. Using a unique panel data set for 25 transition economies between 1990 and 1998, we find that the main determinants are institutions, agglomeration, and trade openness. We find important differences between the Eastern European and Baltic countries, on the one hand, and the CIS countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.
Keywords:
WP; CIS country; FDI inflow; country FDI flow; FDI stock; FDI motive; natural resource; foreign direct investment; transition economies; FDI flow; Natural resources; Labor costs; Estimation techniques; Stocks; Eastern Europe; Asia and Pacific
Cover IMF Working Papers
Agents’ Preferences, the Equity Premium, and the Consumption-Saving Trade-Off: An Application to French Data
Ms. Aude Pommeret
and
Ms. Anne Epaulard
This paper aims to measure the risk premium on French equities during 1960-92 and to evaluate how well theoretical models based on various representations of agents' preferences can explain it. Aside from the standard, time-additive utility function with constant relative risk aversion, three other utility functions are reviewed: a recursive utility function, a habit formation utility function, and a utility function that accounts for the interdependence of preferences. Both calibration and econometric estimations show that none of the studied marginal changes in the representation of agents' preferences are sufficient to solve both the equity premium puzzle and the risk-free rate puzzle.
Keywords:
WP; utility function; growth rate; rate of return; Equity premium puzzle; risk-free rate puzzle; Euler equation; equity premium; econometric estimation; consumption-saving trade-off equation; consumption-risk aversion; Consumption; Stocks; Tax allowances; Estimation techniques; Treasury bills and bonds