Exchange Rate Expectations and the Pricing of Chinese Cross-listed Stocks
Stefan Eichler
Journal of Banking and Finance,
No. 2,
2011
Abstract
I show that the price discounts of Chinese cross-listed stocks (American Depositary Receipts (ADRs) and H-shares) to their underlying A-shares indicate the expected yuan/US dollar exchange rate. The forecasting models reveal that ADR and H-share discounts predict exchange rate changes more accurately than the random walk and forward exchange rates, particularly at long forecast horizons. Using panel estimations, I find that ADR and H-share investors form their exchange rate expectations according to standard exchange rate theories such as the Harrod–Balassa–Samuelson effect, the risk of competitive devaluations, relative purchasing power parity, uncovered interest rate parity, and the risk of currency crisis.
Read article
Interest Rate Convergence in the Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields
Hubert Gabrisch, Lucjan T. Orlowski
Emerging Markets Finance and Trade,
2010
Abstract
We argue that a “static“ specification of the Maastricht criterion for long-term bond yields is not conducive to assessing stability of financial systems in euro-candidate countries. Instead, we advocate a dynamic approach to assessing interest rate convergence to a common currency that is based on the analysis of financial system stability. Accordingly, we empirically test volatility dynamics of the ten-year sovereign bond yields of the 2004 EU accession countries in relation to the eurozone yields during the January 2, 2001-January 22, 2009, sample period. Our results show a varied degree of the relationship between domestic and eurozone sovereign bond yields, the most pronounced for the Czech Republic, Slovenia, and Poland, and weaker for Hungary and Slovakia. We find some divergence of relative bond yields since the EU accession.
Read article
Works Councils and Separations: Voice, Monopoly, and Insurance Effects
Boris Hirsch, Thorsten Schank, Claus Schnabel
Industrial Relations,
No. 4,
2010
Abstract
Using a large linked employer–employee data set for Germany, we find that the existence of a works council is associated with a lower separation rate to employment, in particular for workers with low tenure. While works council monopoly effects show up in all specifications, clear voice effects are only visible for low tenured workers. Works councils also reduce separations to nonemployment, and this impact is more pronounced for men. Insurance effects only show up for workers with tenure of more than 2 years. Our results indicate that works councils to some extent represent the interests of a specific clientele.
Read article
International Bank Portfolios: Short- and Long-Run Responses to Macroeconomic Conditions
S. Blank, Claudia M. Buch
Review of International Economics,
No. 2,
2010
Abstract
International bank portfolios constitute a large component of international country portfolios. Yet, banks’ response to international macroeconomic conditions remains largely unexplored.We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration?We find that, in the long-run, market size has a positive impact on foreign assets and liabilities. An increase in the interest differential between the home and the foreign economy lowers foreign assets and increases foreign liabilities. Foreign trade has a positive impact on international bank portfolios, which is independent from the effect of other macroeconomic variables. Short-run dynamics show heterogeneity across countries, but these dynamics can partly be explained with gravity-type variables.
Read article
A First Look on the New Halle Economic Projection Model
Sebastian Giesen, Oliver Holtemöller, Juliane Scharff, Rolf Scheufele
Abstract
In this paper we develop a small open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model – the Halle Economic Projection Model (HEPM) – is closely related to studies recently published by the International
Monetary Fund (global projection model). Our main contribution is that we model the Euro area countries separately. In this version we consider Germany and France, which represent together about 50 percent of Euro area GDP. The model allows for country specific heterogeneity in the sense that we capture different adjustment patterns to economic shocks. The model is estimated using Bayesian techniques. Out-of-sample and pseudo out-of-sample forecasts are presented.
Read article
Macroeconomic Shocks and Banks' Foreign Assets
Claudia M. Buch, K. Carstensen, A. Schertler
Journal of Money, Credit and Banking,
No. 1,
2010
Abstract
Recent developments in international financial markets have highlighted the role of banks in the transmission of shocks across borders. We employ dynamic panel methods for a sample of OECD countries to analyze whether banks' foreign assets react to macroeconomic shocks at home and abroad. We find that banks reduce their foreign assets in response to a relative increase in domestic interest rates, and they increase their foreign assets when the growth rate of world energy prices rises. The responses are characterized by a temporal overshooting and a dynamic adjustment process that extends over several quarters.
Read article
