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Business and Economics > Investments: Stocks

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Cover IMF Working Papers
Drivers of Cross-Border Banking in Sub-Saharan Africa
Mr. Paul Henri Mathieu
,
Mr. Marco Pani
,
Shiyuan Chen
, and
Mr. Rodolfo Maino
Using data collected from pan-African banks’ (PABs), balance sheets and other sources (Orbis, Fitch), this study identifies some key patterns of cross-border investment in bank subsidiaries by key banking groups in sub-Saharan Africa (SSA) and discusses some of the determinants of this investment. Using a gravity model relating the annual value of a banking group’s investment in the net equity of its subsidiaries to a set of explanatory variables, the analysis finds that cross-border banking is in part driven by a search for yield, diversification, and expansion for strategic reasons.
Keywords:
WP; break; center; exchange rate; Cross-border banking flows; Bank leverage; Global banks; Group profitability; banking group variable; Group size; vis-à-vis intra-group; net equity; host country pair; bank subsidiary; pan-African banking groups; Exchange rates; Cross-border banking; Inflation; Stocks; Gravity models; Africa; Sub-Saharan Africa; Global; West Africa; North Africa
Cover IMF Working Papers
Does the Stock Market Boost Firm Innovation?: Evidence from Chinese Firms
Hui He
,
Hanya Li
, and
Jinfan Zhang
The paper analyses the effect of the stock market on firm innovation through the lens of initial public offering (IPO) using uniquely matched Chinese firm-level data. We find that IPOs lead to an increase in both the quantity and quality of firm innovation activity. In addition, IPOs expand a firm’s scope of innovation beyond its core business. The impact of IPOs on firm innovation varies across financial constraints, corporate governance, and ownership structures. Our results further illustrate that IPOs induce a firm to increase the number of inventors and enable better retention of existing inventors after the IPO. Finally, we show that the enhanced innovation activity resulting from IPOs increases a firm’s Tobin’s Q in the long run.
Keywords:
WP; IPO firm; natural logarithm; external finance; IPO; Innovation; Financial Constraint; Corporate Governance; State Ownership; China; IPO year; IPO event; IPO decision; IPO benefit; innovation performance; Initial public offering; Stock markets; Stocks; Public enterprises; Probit models
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
Data-Rich DSGE and Dynamic Factor Models
Mr. Maxym Kryshko
Dynamic factor models and dynamic stochastic general equilibrium (DSGE) models are widely used for empirical research in macroeconomics. The empirical factor literature argues that the co-movement of large panels of macroeconomic and financial data can be captured by relatively few common unobserved factors. Similarly, the dynamics in DSGE models are often governed by a handful of state variables and exogenous processes such as preference and/or technology shocks. Boivin and Giannoni(2006) combine a DSGE and a factor model into a data-rich DSGE model, in which DSGE states are factors and factor dynamics are subject to DSGE model implied restrictions. We compare a data-richDSGE model with a standard New Keynesian core to an empirical dynamic factor model by estimating both on a rich panel of U.S. macroeconomic and financial data compiled by Stock and Watson (2008).We find that the spaces spanned by the empirical factors and by the data-rich DSGE model states are very close. This proximity allows us to propagate monetary policy and technology innovations in an otherwise non-structural dynamic factor model to obtain predictions for many more series than just a handful of traditional macro variables, including measures of real activity, price indices, labor market indicators, interest rate spreads, money and credit stocks, and exchange rates.
Keywords:
WP; interest rate; monetary policy; DSGE model; Data-rich DSGE models; dynamic factor models; Bayesian estimation; DFM model; DSGE state; investment deflator inflation; model state; GDP deflator; Dynamic stochastic general equilibrium models; Factor models; Inflation; Stocks; Consumption
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
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
Regional Financial Spillovers Across Europe: A Global VAR Analysis
Ms. Silvia Sgherri
and
Mr. Alessandro Galesi
The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which-in the short run-financial shocks are transmitted internationally, while the contribution of other variables-like the cost and quantity of credit-becomes more important over longer horizons.
Keywords:
WP; rate of growth; Global VAR; Macro-Financial Linkages; International Financial Spillovers; equity price; foreign variable; coefficient estimate; estimation procedure; price growth; Vector autoregression; Stocks; Interbank rates; Credit; Foreign banks; Western Europe; Baltics; Global; Europe
Cover IMF Staff Country Reports
Spain: Financial Sector Assessment Program: Technical Note: Nonfinancial Equity Investments of Spanish Credit Institutions
International Monetary Fund
This note assesses the risk profile of the nonfinancial equity investments of Spanish credit institutions (CIs), based on a market-risk approach. It assesses the main features of the situation and indicates the problems of CIs’ nonfinancial equity investments. It presents the evolution of nonfinancial equity investments, and their importance for the economy. It analyzes using the value-at-risk (VaR) approach and recommends enhancing of risk management practices and surveillance with regard to CIs with a significant nonfinancial equity investment, and encourages those CIs to adopt the market-based approach.
Keywords:
ISCR; CR; equity; equity investment; credit institution; savings bank; merchant banking activity; equity method; equity volatility; capital absorption; equity exposure; Basel II; Stocks; Commercial banks; Vector autoregression; Stock markets; Europe
Cover IMF Working Papers
Habit Formation and Persistence in Individual Asset Portfolio Holdings: The Case of Italy
Ms. Sònia Muñoz
This paper uses six waves of the Bank of Italy Survey of Households Income and Wealth to explore the dynamics of asset portfolio ownership. The household asset portfolio decision is a choice among discrete alternatives, and I model the problem in a multinomial framework. I focus on a particularly important feature of household portfolio behavior: the infrequency of portfolio allocation changes. I find evidence of strong unobserved heterogeneity through time-varying error components, which I interpret as taste persistence in both the risky and safe asset participation decisions. I estimate the model using the method of maximum smoothly simulated likelihood.
Keywords:
WP; dependent variable; Portfolio Allocations; Incomplete Markets; Stockholding Puzzle; Habits; Multiperiod Multinomial Probit; risky assets; safe assets; financial asset allocation decision; covariance matrix; simulation estimation method; portfolio decision; Stocks; Bonds; Asset allocation; Stock markets; Logit models
Cover IMF Working Papers
Why is Micro Evidenceon the Effects of Uncertainty Not Replicated in Macro Data?
Domenico Lombardi
and
Stephen Bond
This study investigates the relationship between uncertainty and investment using U.K. data at different levels of aggregation. Motivated by a comparative econometric analysis using a firm-level panel and aggregate time-series data, we analyze the implications of aggregating nonlinear microeconomic processes. Replicating firm-level evidence that uncertainty influences investment dynamics proves to be challenging. Even using perfectly consistent data sources, this requires both exact aggregation of the underlying micro equations, and controlling for the unobserved influences on investment that are commonly subsumed into time dummies in panel studies. These conditions are unlikely to be satisfied in most aggregate econometric studies.
Keywords:
WP; time series; Aggregation; Investment; Uncertainty; investment equation; investment dynamics; error correction term; investment decision; investment data; Manufacturing; Stocks; Time series analysis; Production growth; Bonds; Global