Cross-border Diversification in Bank Asset Portfolios
Claudia M. Buch, J.C. Driscoll, C. Ostergaard
International Finance,
forthcoming
Abstract
We compute optimally diversified international asset portfolios for banks located in France, Germany, Italy, the United Kingdom and the United States using the mean–variance portfolio model with currency hedging. We compare these benchmark portfolios with the actual cross-border asset positions of banks from 1995 to 2003 and ask whether the differences are best explained by regulations, institutions, cultural conditions or other financial frictions. Our results suggest that both culture and regulations affect the probability of a country's being overweighted in banks' portfolios: countries whose residents score higher on a survey measure of trust are more likely to be overweighted, while countries that have tighter capital controls are less likely to be overweighted. From a policy standpoint, the importance of culture suggests a limit to the degree of financial integration that may be achievable by the removal of formal economic barriers.
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Exports Versus FDI Revisited: Does Finance Matter?
Claudia M. Buch
Bundesbank Discussion Paper 03/2010,
2010
Abstract
This paper explores the impact of financial constraints on the internationalization
strategies of firms. It contributes to the literature by focusing on three aspects: First, the paper studies the impact of financial constraints on exporting relative to FDI. Consistent with theory, the empirical results confirm that the impact of financial constraints is stronger for FDI than for exporting. Second, the paper analyzes the extensive and the intensive margins and finds that financial frictions matter for both. Third, the paper explores the impact on manufacturing as compared to service industries and shows that firms in service industries are affected more than firms in manufacturing. The paper also identifies a threshold effect: Financial constraints do not matter for small firms whose productivity seems to be too low to consider international expansions.
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The integration of imperfect financial markets: Implications for business cycle volatility
Claudia M. Buch, C. Pierdzioch
Journal of Policy Modeling,
No. 7,
2005
Abstract
During the last two decades, the degree of openness of national financial systems has increased substantially. At the same time, asymmetries in information and other financial market frictions have remained prevalent. We study the implications of the opening up of national financial systems in the presence of financial market frictions for business cycle volatility. In our empirical analysis, we show that countries with more developed financial systems have lower business cycle volatility. Financial openness has no strong impact on business cycle volatility, in contrast. In our theoretical analysis, we study the implications of the opening up of national financial markets and of financial market frictions for business cycle volatility using a dynamic macroeconomic model of an open economy. We find that the implications of opening up national financial markets for business cycle volatility are largely unaffected by the presence of financial market frictions.
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