What Drives the Commodity-Sovereign Risk Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Journal of International Money and Finance,
March
2021
Abstract
Using daily data for 34 emerging markets in the period 1994–2016, we find robust evidence that higher export commodity prices are associated with lower sovereign default risk, as measured by lower EMBI spreads. The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find that, first, commodity dependence is higher for countries that export large volumes of commodities, whereas other portfolio characteristics like volatility or concentration are less important. Second, commodity-sovereign risk dependence increases in times of recessions and expansionary U.S. monetary policy. Third, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Fourth, the country’s government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity dependence.
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Banking Deregulation and Household Consumption of Durables
H. Evren Damar, Ian Lange, Caitlin McKennie, Mirko Moro
Abstract
We exploit the spatial and temporal variation of the staggered introduction of interstate banking deregulation across the U.S. to study the relationship between credit constraints and consumption of durables. Using the American Housing Survey from 1981 to 1993, we link the timing of these reforms with evidence of a credit expansion and household responses on many margins. We find robust evidence that households are more likely to purchase new appliances and invest in home renovations and modifications after the deregulation. These durable goods allowed households to consume less electricity and spend less time in domestic activities after the reforms.
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Dynamic Equity Slope
Matthijs Breugem, Stefano Colonnello, Roberto Marfè, Francesca Zucchi
University of Venice Ca' Foscari Department of Economics Working Papers,
Nr. 21,
2020
Abstract
The term structure of equity and its cyclicality are key to understand the risks drivingequilibrium asset prices. We propose a general equilibrium model that jointly explainsfour important features of the term structure of equity: (i) a negative unconditionalterm premium, (ii) countercyclical term premia, (iii) procyclical equity yields, and (iv)premia to value and growth claims respectively increasing and decreasing with thehorizon. The economic mechanism hinges on the interaction between heteroskedasticlong-run growth — which helps price long-term cash flows and leads to countercyclicalrisk premia — and homoskedastic short-term shocks in the presence of limited marketparticipation — which produce sizeable risk premia to short-term cash flows. The slopedynamics hold irrespective of the sign of its unconditional average. We provide empirical support to our model assumptions and predictions.
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The Economic Record of the Government and Sovereign Bond and Stock Returns Around National Elections
Stefan Eichler, Timo Plaga
Journal of Banking and Finance,
September
2020
Abstract
This paper investigates the role of the fiscal and economic record of the incumbent government in shaping the price response of sovereign bonds and stocks to the election outcome in emerging markets and developed countries. For sovereign bonds in emerging markets, we find robust evidence for higher cumulative abnormal returns (CARs) if a government associated with a relatively low primary fiscal balance is voted out of office compared to elections where the fiscal balance was relatively high. This effect of the incumbent government's fiscal record is significantly more pronounced in the presence of high sovereign default risk and strong political veto players, whereas the quality of institutions does not explain differences in effects for different events. We do not find robust effects of the government's fiscal record for developed countries and stocks.
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Investor Relations and IPO Performance
Salim Chahine, Gonul Colak, Iftekhar Hasan, Mohamad Mazboudi
Review of Accounting Studies,
Nr. 2,
2020
Abstract
We analyze the value of investor relations (IR) strategies to IPO firms. We find that firms that are less visible and have inexperienced management tend to hire IR consultants prior to the issue date. IR consultants help create positive news coverage before an IPO, as reflected in a more optimistic tone of published media. Their presence is associated with higher underpricing at the IPO date but with lower long-run returns. IR-backed IPOs also exhibit disproportionately higher insider-related agency problems, as IR-induced higher underpricing tends to occur primarily in IPOs where underwriter and venture capitalist agency conflicts are more severe. These findings suggest that the IR programs of IPO firm are mostly short-term oriented and facilitate the ulterior motives of some insiders (underwriters and venture capitalists) targeting higher first-day returns.
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How to Talk Down Your Stock Performance
Andreas Barth, Sasan Mansouri, Fabian Wöbbeking, Severin Zörgiebel
SSRN Discussion Papers,
2020
Abstract
We process the natural language of verbal firm disclosures in order to study the use of context specific language or jargon and its impact on financial performance. We observe that, within the Q&A of earnings conference calls, managers use less jargon in responses to tougher questions, and after a quarter of bad economic success. Moreover, markets interpret the lack of precise information as a bad signal: we find lower cumulative abnormal returns and a higher implied volatility following earnings calls where managers use less jargon. These results support the argument that context specific language or jargon helps to efficiently and precisely transfer information.
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What Drives the Commodity-Sovereign-Risk-Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Abstract
Using daily data for 34 emerging markets in the period 1994-2016, we find robust evidence that higher export commodity prices are associated with higher sovereign bond returns (indicating lower sovereign risk). The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find, first, that commodity-dependence is higher for countries that export large volumes of volatile commodities and that the effect increases in times of recessions, high inflation, and expansionary U.S. monetary policy. Second, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Third, the concentration of commodities within a country’s portfolio, its government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity-dependence.
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Corporate Misconduct and the Cost of Private Debt: Evidence from China
Xian Gu, Iftekhar Hasan, Haitian Lu
Comparative Economic Studies,
Nr. 3,
2019
Abstract
Using a comprehensive dataset of corporate lawsuits in China, we investigate the implications of corporate misconduct on the cost of private debt. Evidence reveals that firms involved in litigations obtain subsequent loans with stricter pricing terms, 15.1 percent higher loan spreads, than non-litigated borrowers. Strong political connection and repeated relationship help to flatten the sensitivity of loan pricing to litigation. Nonbank financial institutions react in stronger manner to corporate misconduct than traditional banks in pricing loans. Overall, we show that private debt holders care about borrowers’ wrongdoing in the past.
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Pricing Sin Stocks: Ethical Preference vs. Risk Aversion
Stefano Colonnello, Giuliano Curatola, Alessandro Gioffré
European Economic Review,
2019
Abstract
We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model’s predictions. Taken together, our results point to the importance of ethical preferences for investors’ portfolio choices and asset prices.
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