Stock Market Firm-Level Information and Real Economic Activity
Filippo di Mauro, Fabio Fornari, Dario Mannucci
ECB Working Paper,
Nr. 1366,
2011
Abstract
We provide evidence that changes in the equity price and volatility of individual firms (measures that approximate the definition of 'granular shock' given in Gabaix, 2010) are key to improve the predictability of aggregate business cycle fluctuations in a number of countries. Specifically, adding the return and the volatility of firm-level equity prices to aggregate financial information leads to a significant improvement in forecasting business cycle developments in four economic areas, at various horizons. Importantly, not only domestic firms but also foreign firms improve business cycle predictability for a given economic area. This is not immediately visible when one takes an unconditional standpoint (i.e. an average across the sample). However, conditioning on the business cycle position of the domestic economy, the relative importance of the two sets of firms - foreign and domestic - exhibits noticeable swings across time. Analogously, the sectoral classification of the firms that in a given month retain the highest predictive power for future IP changes also varies significantly over time as a function of the business cycle position of the domestic economy. Limited to the United States, predictive ability is found to be related to selected balance sheet items, suggesting that structural features differentiate the firms that can anticipate aggregate fluctuations from those that do not help to this aim. Beyond the purely forecasting application, this finding may enhance our understanding of the underlying origins of aggregate fluctuations. We also propose to use the cross sectional stock market information to macro-prudential aims through an economic Value at Risk.
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Environmental Protection and the Private Provision of International Public Goods
Martin Altemeyer-Bartscher, Dirk T. G. Rübbelke, E. Sheshinski
Economica,
2010
Abstract
International environmental protection like the combat of global warming exhibits properties of public goods. In the international arena, no coercive authority exists that can enforce measures to overcome free-rider incentives. Therefore decentralized negotiations between individual regions serve as an approach to pursue efficient international environmental protection. We propose a scheme which is based on the ideas of Coasean negotiations and Pigouvian taxes. The negotiating entities offer side-payments to counterparts in order to influence their taxation of polluting consumption. Side-payments, in turn, are self-financed by means of externality-correcting taxes. As we show, a Pareto-efficient outcome can be attained.
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Deriving the Term Structure of Banking Crisis Risk with a Compound Option Approach: The Case of Kazakhstan
Stefan Eichler, Alexander Karmann, Dominik Maltritz
Discussion paper, Series 2: Banking and financial studies, No. 01/2010,
Nr. 1,
2010
Abstract
We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term default risk to each maturity. Applying the Duan (1994) maximum likelihood approach, we find for Kazakhstan that the overall crisis probability was mainly driven by short-term risk, which increased from 25% in March 2007 to 80% in December 2008. Concurrently, the long-term default risk increased from 20% to only 25% during the same period.
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Bank Credit Standards, Demand, Pro-cyclicality and the Business Cycle: A Comment
Á. Maddaloni, J. L. Peydró Alcalde, J. Suárez, Reint E. Gropp
Moneda y crédito,
Nr. 230,
2010
Abstract
We analyze the determinants fo standards and demand for loans to firms and house-holds over the last business cycle using the comprehensive and confidential Bank Lending Survery from the Euro area. There is significant variation of standards and demand over the cycle. Standards for business loans vary more during the business cycle than the lending standards for households, whereas credit demand from households varies more than demand from firms. Lending standards vary mainly due to charges in perception of borrower risk, bank balance sheet positions and competitive pressures. In particular, we find that higher GDP growth softens lending standards for all loans, i. e. lending standards are pro-cyclical. However, we also find pro-cyclicality in credit demand.
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Keeping the Bubble Alive! The Effects of Urban Renewal and Demolition Subsidies in the East German Housing Market
Dominik Weiß
IWH Discussion Papers,
Nr. 11,
2009
Abstract
German urban renewal programs are favoring the cities in the Eastern part since the re-unification in 1990. This was accompanied additionally by attractive tax incentives, designed as an accelerated declining balance method of depreciation for housing investments during the late 1990s. The accumulated needs for comfortable housing after 40 years of a disastrous housing policy of the GDR era were generally accepted as justification for the subvention policy. But various subsidies and tax incentives caused a construction boom, false allocations, and a price bubble in Eastern Germany. After recognizing that the expansion of housing supply was not in line with the demographic development and that high vacancy rates were jeopardizing housing companies and their financial backers, policy changed in 2001. Up to now, the government provides demolition grants to reduce the vast oversupply. By means of a real option approach, it is ex-plained how different available forms of subsidies and economic incentives for landlords lift real estate values. The option value representing growth expectations and opportunities is calculated as an observable market value less an estimated fundamental value. Empirical results disclose higher option premiums for cities in Eastern Germany and a strong correlation of the option premium with urban renewal spending.
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Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations
Elena Loutskina, Philip E. Strahan
Journal of Finance,
Nr. 2,
2009
Abstract
Low‐cost deposits and increased balance sheet liquidity raise banks' supply of illiquid loans more than loans easily sold or securitized. We exploit the inability of Fannie Mae and Freddie Mac to purchase jumbo mortgages to identify an exogenous change in liquidity. The volume of jumbo mortgage originations relative to nonjumbo originations increases with bank holdings of liquid assets and decreases with bank deposit costs. This result suggests that the increasing depth of the mortgage secondary market fostered by securitization has reduced the effect of lender's financial condition on credit supply.
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Determinants of Female Migration – The Case of German NUTS 3 Regions
Alexander Kubis, Lutz Schneider
IWH Discussion Papers,
Nr. 12,
2007
Abstract
Our study examines the regional patterns and determinants of migration flows of young women. At the NUTS-3 regional level, i.e. the district level (Kreise), the German internal migration flows of the year 2005 are explored. From descriptive statistics it can be seen that peripheral regions in East Germany face the strongest migration deficit with respect to young women, whereas agglomerations in West Germany but also in the East benefit from an intense migration surplus within this group. An econometric analysis of determinants of regional migration flows gives evidence of the importance of labour market, family-related and educational migration motives. Generally speaking, young women tend to choose regions with good income and job opportunities, in addition they seem to be attracted by regions enabling an appropriate balance between family and career. Furthermore the existence of excellent educational facilities is a significant influence for young women’s migration. This educationally motivated type of migration generates a long lasting effect on the regional migration balance, especially when the educational opportunities in the destination region are associated with adequate career perspectives for high qualified female graduates. In view of considerable losses due to migration, the study shows various options for action. An important course of action is to incorporate policy measures improving regional employment and income opportunities. Secondly, extending vocational and academic offers addressed to women seems to be a suitable way to stimulate women’s immigration. Moreover, enhancing the social infrastructure, which contributes to a satisfactory work life balance, might attract young women or at least reduce the number of them leaving a region.
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Excess Volatility in European Equity Style Indices - New Evidence
Marian Berneburg
IWH Discussion Papers,
Nr. 16,
2006
Abstract
Are financial markets efficient? One proposition that seems to contradict this is Shiller’s finding of excess volatility in asset prices and its resulting rejection of the discounted cash flow model. This paper replicates Shiller’s approach for a different data set and extends his analysis by testing for a long-run relationship by means of a cointegration analysis. Contrary to previous studies, monthly data for an integrated European stock market is being used, with special attention to equity style investment strategies. On the basis of this analysis’ results, Shiller’s findings seem questionable. While a long-run relationship between prices and dividends can be observed for all equity styles, a certain degree, but to a much smaller extent than in Shiller’s approach, of excess volatility cannot be rejected. But it seems that a further relaxation of Shiller’s assumptions would completely eliminate the finding of an overly strong reaction of prices to changes in dividends. Two interesting side results are, that all three investment styles seem to have equal performance when adjusting for risk, which by itself is an indication for efficiency and that market participants seem to use current dividend payments from one company as an indication for future dividend payments by other firms. Overall the results of this paper lead to the conclusion that efficiency cannot be rejected for an integrated European equity market.
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A Strategy View on Knowledge in the MNE - Integrating Subsidiary Roles and Knowledge Flows
Björn Jindra
East-West Journal of Economics and Business,
1 & 2
2005
Abstract
We assume knowledge inflows endogenous to subsidiary roles. Integrating organisational and knowledge-based views we propose a new subsidiary typology based on MNE integration-subsidiary capability. We hypothesise that both dimensions are positively associated with knowledge inflows into the focal subsidiary. This prediction is tested with data for 425 subsidiaries. The key findings were: (a) the extent for knowledge inflows differs significantly across all subsidiary roles; (c) it diminishes in a anti-clockwise direction starting in the high integration-high capability quadrant of the IC taxonomy; thus (b) both MNE integration and subsidiary capability drive knowledge inflows, although, the balance shifts more towards integration.
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