Climate Policy and International Capital Reallocation
Marius Fourné, Xiang Li
IWH Discussion Papers,
No. 20,
2024
Abstract
This study employs bilateral data on external assets to examine the impact of climate policies on the reallocation of international capital. We find that the stringency of climate policy in the destination country is significantly and positively associated with an increase in the allocation of portfolio equity and banking investment to that country. However, it does not show significant effects on the allocation of foreign direct investment and portfolio debt. Our findings are not driven by valuation effects, and we present evidence that suggests diversification, suasion, and uncertainty mitigation as possible underlying mechanisms.
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Should Banks Diversify or Focus? Know Thyself: The Role of Abilities
Bill Francis, Iftekhar Hasan, A. Melih Küllü, Mingming Zhou
Economic Systems,
No. 1,
2018
Abstract
The paper investigates whether diversification/focus across assets, industries and borrowers affects bank performance when banks’ abilities (screening and monitoring) are considered. The initial results show that diversification (focus) at the asset, industry and borrower levels is expected to decrease (increase) returns. However, once banks’ screening and monitoring abilities are controlled for, the effect of diversification/focus either gets weaker or disappears. Further, in some cases, these abilities enhance banks’ long-run performance, but in others they prove to be costly, at least, in the short run. Thus, the level of monitoring and screening abilities should be taken into consideration in understanding, planning and implementing diversification/focus strategies.
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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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