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Business and Economics > Investments: Stocks

You are looking at 1 - 10 of 50 items for :

  • Type: Journal Issue x
  • General Financial Markets: Government Policy and Regulation x
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Cover IMF Working Papers
From Extreme Events to Extreme Seasons: Financial Stability Risks of Climate Change in Mexico
Michaela Dolk
,
Mr. Dimitrios Laliotis
, and
Sujan Lamichhane
This paper explores the financial stability implications of acute physical climate change risks using a novel approach that focuses on a severe season associated with a sequence of tropical cyclone and flood events. Our approach was recently applied to study physical risks in the Mexican financial sector, but the framework is applicable to other countries as well. We show that even if the scale of individual climate events may not be material at an aggregate national scale, considering a sequence of events could lead to potentially significant macro-financial impacts in the short term. This could occur even if none of the individual events affect the particular region(s) with highest concentrations of banking sector exposures. Our results indicate potential for even greater effects in the future given the increasing severity and frequency of extreme events from climate change. Thus, this paper highlights the importance of considering sequences of extreme physical risk events driven by climate change, rather than just individual extreme events, to better understand financial stability implications and design effective policies.
Keywords:
Climate change; physical risk; disasters; extreme seasons; financial stability; stress testing; climate change risk; risk event; IMF working paper No. 23/176; damage estimate; climate change condition; Natural disasters; Stocks; Financial sector; Global
Cover IMF Working Papers
Carbon Policy and Stock Returns: Signals from Financial Markets
Martina Hengge
,
Ugo Panizza
, and
Richard Varghese
Understanding the impact of climate mitigation policies is key to designing effective carbon pricing tools. We use institutional features of the EU Emissions Trading System (ETS) and high-frequency data on more than 2,000 publicly listed European firms over 2011-21 to study the impact of carbon policies on stock returns. After extracting the surprise component of regulatory actions, we show that events resulting in higher carbon prices lead to negative abnormal returns which increase with a firm's carbon intensity. This negative relationship is even stronger for firms in sectors which do not participate in the EU ETS suggesting that investors price in transition risk stemming from the shift towards a low-carbon economy. We conclude that policies which increase carbon prices are effective in raising the cost of capital for emission-intensive firms.
Keywords:
Carbon Emissions; Carbon Prices: Climate Change; Transition Risk; Stock Returns; carbon Policy surprise; investors price; carbon intensity; climate mitigation policy; EU ETS; Greenhouse gas emissions; Stocks; Asset prices; Climate change; Europe; Global; Emissions trading; stock return; carbon policy; EU Emissions Trading System; Climate policy
Cover IMF Staff Country Reports
People’s Republic of China–Hong Kong Special Administrative Region: Financial Sector Assessment Program-Technical Note-Regulation and Supervision of Secondary Markets
International Monetary Fund. Monetary and Capital Markets Department
Hong Kong SAR has, over the recent years, become an equity trading hub catering to domestic and foreign investors, including increasingly to investors from Mainland China. Most trading is conducted on markets operated by recognized exchange companies, with limited domestic trading happening via automated trading services (ATS) providers in the form of alternative liquidity pools. The introduction of Stock Connect in 2014 enabled investors from Hong Kong (including domestic and foreign) to directly invest in the Shanghai and later Shenzhen markets and investors from the Mainland to directly access the Hong Kong market. Trading via Stock Connect has seen a steady rise over the last few years, increasing the linkages between Hong Kong SAR and the Mainland. Mainland companies currently account for over 60 per cent of market capitalization of the equities traded on the Stock Exchange of Hong Kong (SEHK).
Keywords:
People's Republic of China-Hong Kong Special Administrative Region; China securities regulatory commission; Hong Kong exchange; ATS provider; market risk monitoring; Financial Sector Assessment Program; Trade systems; Securities; Stocks; Stock markets; Global
Cover IMF Working Papers
Government Insurance Against Natural Disasters: An Application to the ECCU
Mr. Alejandro D Guerson
This paper estimates insurance requirements against natural disasters (NDs) in the Eastern Caribbean Currency Union (ECCU) using an insurance layering framework. The layers include a government saving fund, as well as market instruments. Each layer is calibrated to cover estimated fiscal cost of NDs according to intensity and expected damage. The results indicate that ECCU countries could target saving fund stocks for relativelly smaller and more frequent events in the range of 6-12 percent of GDP, enough to cover 95 percent of NDs’ fiscal costs. To ensure financially-sustainable saving funds with a low probability of depletion, this requires annual budget savings in the range os 0.5 to 1.9 percent of GDP per year. Additional coverage could be obtained with market instruments for large and less frequent events, albeit at a significant cost.The results are based on a Monte-Carlo experiment that simulates natural disaster shocks and their impact on output and government finances.
Keywords:
ECCU; fiscal cycles; Monte Carlo experiment; debt sustainability.; WP; SF stock; ECCU country; CCRIF payout; financing flow; annual budget; cost composition; insurance cost; Natural disasters; debt sustainability; payout amount; rate of return; Insurance; Standing facilities; Stocks; Caribbean
Cover IMF Working Papers
Expected Credit Loss Modeling from a Top-Down Stress Testing Perspective
Mr. Marco Gross
,
Mindaugas Leika
, and
Pavel Lukyantsau
The objective of this paper is to present an integrated tool suite for IFRS 9- and CECL-compatible estimation in top-down solvency stress tests. The tool suite serves as an illustration for institutions wishing to include accounting-based approaches for credit risk modeling in top-down stress tests. The tool suite is made available online along with this paper.
Keywords:
WP; transition matrix; financial asset; balance sheet; accounting regime; interest rate; provision stock; bank portfolio model; modeling choice; bank-portfolio level; Lt-ECL ratio; provision flow; International Financial Reporting Standards; Stress testing; Stocks; Loans; Loan loss provisions; Global; Credit risk; IFRS 9; CECL; lifetime probability of default; LGD modeling; Distressed assets
Cover IMF Working Papers
Can Contingent Convertibles Help Private Asset Managers Fund Their Acquisition of Non-Performing Loans from Portuguese Banks?
Mr. Andre O Santos
This paper analyzes the capital structure of private asset managers in which the acquisition of nonperforming loans (NPLs) is funded with Contingent Convertibles (CoCos) placed with investors. The paper develops a model based on NPL transfer prices and residual recovery rates to assess capital structures consisting of CoCos and equity. The CoCos would contain put and call options to write down losses and write up profits, respectively, arising from liquidation and restructuring procedures. The paper concludes that the protection mechanism provided by debt write-downs embedded in CoCos and the incentives to investors provided by debt write-ups could help bridge the gap between Portuguese banks’ NPL bid prices and private equity firms’ ask prices.
Keywords:
WP; coupon rate; capital structure; book value; maturity date; Asset managers; contingent convertibles; asset pricing; nonperforming loans; recovery rate; NPL sale; debt write-up; portfolio acquisition; NPL securitization; Loans; Transfer pricing; Contingent convertible capital; Stocks; Global
Cover IMF Working Papers
Banking in a Steady State of Low Growth and Interest Rates
Qianying Chen
,
Mitsuru Katagiri
, and
Jay Surti
A prolonged low-interest-rate environment presents a significant challenge to banks and is likely to entail major changes to their business models over the long-run. Lower returns to maturity transformation in the face of flatter yield curves and an inability to offer deposit rates significantly below zero combine to compress bank earnings in this environment. Smaller, deposit-funded, less diversified banks are hurt most, increasing consolidation pressures and reach-for-yield incentives, presenting new financial stability challenges.To the extent that such an economic environment reflects a new, steady-state with lower equilibrium growth driven by population aging and slower productivity growth, lower credit demand is likely to drive banking toward provision of fee-based, utility services.
Keywords:
WP; rate of interest; economic growth; balance sheet; bond yield; business line; monetary policy; Banking; Growth; Interest Rates; Low-for-Long; Prolonged Low Interest Rates; bank characteristic; bank equity; adaptation strategy; transaction service; bank NIMs; bank leverage; bank profits; market rate; interest rate cut; bank business; interest rate shock; Deposit rates; Market interest rates; Zero lower bound; Stocks; Bank soundness; Global
Cover IMF Working Papers
Evolution of the Global Financial Network and Contagion: A New Approach
Ms. Yevgeniya Korniyenko
,
Manasa Patnam
,
Rita Maria del Rio-Chanon
, and
Mason A. Porter
This paper studies the interconnectedness of the global financial system and its susceptibility to shocks. A novel multilayer network framework is applied to link debt and equity exposures across countries. Use of this approach—that examines simultaneously multiple channels of transmission and their important higher order effects—shows that ignoring the heterogeneity of financial exposures, and simply aggregating all claims, as often done in other studies, can underestimate the extent and effects of financial contagion.The structure of the global financial network has changed since the global financial crisis, impacted by European bank’s deleveraging and higher corporate debt issuance. Still, we find that the structure of the system and contagion remain similar in that network is highly susceptible to shocks from central countries and those with large financial systems (e.g., the USA and the UK). While, individual European countries (excluding the UK) have relatively low impact on shock propagation, the network is highly susceptible to the shocks from the entire euro area. Another important development is the rising role of the Asian countries and the noticeable increase in network susceptibility to shocks from China and Hong Kong SAR economies.
Keywords:
WP; UK shock; equity; FDI equity; FDI-equity layer; USA banking shock; Financial contagion; spillovers; network analysis; PageRank centrality measure; bank funding; Foreign direct investment; Stocks; Portfolio investment; Commercial banks; Global; Europe
Cover IMF Working Papers
Bank Consolidation, Efficiency, and Profitability in Italy
This paper examines the case for efficiency-driven banking sector consolidation in Italy, evaluates its potential effects on profitability, and discusses policy options to facilitate a consolidation process that is as effective as possible. A bottom-up analysis of 386 Italian banks suggests that while profitability is expected to improve as the economy gradually recovers, operational efficiency gains are nonetheless needed to restore large parts of the banking system to healthy profitability. Banking system consolidation can play a role in facilitating such efficiency gains, but its effectiveness is likely to be most as part of a comprehensive strategy that includes complementary reforms to clean up bank balance sheets. Cross-country experience indicates that efficiency gains are more likely to follow consolidations where careful viability analyses are conducted of the synergies and operational improvements that can be achieved.
Keywords:
WP; bank consolidation; banking system; joint stock; popolare bank; bank reform; banks; profitability; return on equity; Commercial banks; Nonperforming loans; Credit; Cooperative banks; Stocks; Global
Cover IMF Staff Country Reports
Ireland: Financial Sector Assessment Program: Technical Note-Nonbank Sector Stability Analyses
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note discusses the findings and recommendations made in the Financial Sector Assessment Program for Ireland in the areas of nonbank sector stability. Both nonparametric and parametric methods suggest that the residential real estate market in Ireland is close to or moderately below its equilibrium level. Two standard metrics of price-to-income and price-to-rent ratios show that following a protracted period of overvaluation prior to the crisis and a correction afterward, the market has been close to its equilibrium level in recent quarters. Households have deleveraged, but are still highly indebted. The stability analysis results also suggest that vulnerabilities among nonfinancial firms have moderated in recent years.
Keywords:
ISCR; CR; interest rate; banking sector; sensitivity analysis; investment funds; negative equity; interest rate shock; long-term debt; household financial assets; primary sector; CRE price; current ratio; Loans; Mortgages; Housing prices; Stocks; Corporate sector; Global; Europe; Markov regime; balance sheet composition of financial assets; Household indebtedness; loss forecasting; liabilities of household; real estate investment trust; evaluation of REE price; Tier 1