Emerging Market Countries Research Articles

Interest Rate Momentum Everywhere Across Global Yield Curves

This paper explores time series momentum in interest rates across developed and emerging market countries and various interest rate maturities. With a one-year lookback window, almost all countries in our sample of G10 developed countries and 18 emerging market countries strategies have statistically significant positive time series momentum strategy returns. Shorter tenor (2-year) interest rate swaps have greater momentum returns compared to longer tenor (5-year and 10-year) interest rate swaps which arguably is a result of investor underreaction to monetary policy cycles. A significantly greater share of the positive momentum returns across all tenors comes from falling rate environments versus rising rate environments as a result of the secular decline in interest rates in recent decades. This suggests that if low interest rates continue to persist, future interest rate time series momentum strategy returns could be lower.

CORPORATE GOVERNANCE IN EMERGING MARKET ECONOMIES: THE THEORY BEHIND CORPORATE GOVERNANCE AND ITS PRACTICAL APPLICATION IN THE BRICS COUNTRIES –ANALYSIS OF THE BRAZIL EXAMPLE

This article examines the role of corporate governance regulations in the emerging market economies giving a critical analysis of the example of a BRICs country - Brazil. The article presents a study of the theoretical aspects of corporate governance regulations, how they work and what effect they have on the economy of a developing country. The study is motivated by the question how corporate governance can benefit foreign investment into an emerging market country. The findings of the study are illustrated by the Brazilian example of how the corporate governance regulations were introduced into company practice in the country and what effect they had on the economic situation. This analysed example shows what problems were identified in the process and various ways to overcome them to provide more confidence to the foreign capital investment into the country.

Forecasting local currency bond risk premia of emerging markets: The role of cross‐country macrofinancial linkages

AbstractIn this paper, we forecast local currency debt of five major emerging market countries (Brazil, Indonesia, Mexico, South Africa, and Turkey) over the period January 2010 to January 2019 (with an in‐sample period: March 2005 to December 2009). We exploit information from a large set of economic and financial time series to assess the importance not only of “own‐country” factors (derived from principal component and partial least squares approaches), but also create “global” predictors by combining the country‐specific variables across the five emerging economies. We find that, while information on own‐country factors can outperform the historical average model, global factors tend to produce not only greater statistical and economic gains, but also enhance market timing ability of investors, especially when we use the target variable (bond premium) approach under the partial least squares method to extract our factors. Our results have important implications not only for fund managers but also for policymakers.

Credit constraints, currency depreciation and international trade

We document multi-sector exporters’ heterogeneous responses to home currency depreciation. Following currency depreciation, firms tend to export relatively less in sectors that depend more on external financing, to avoid adverse impacts of potentially binding credit constraints. More specifically, credit-constrained exporters respond to currency depreciation by increasing production first in sectors with less external financing dependence, then in sectors that are more dependent on outside funds, until they exhaust their limited financial resources. These findings are consistent with our prior that exporters’ needs for external financing are greater when their home currencies depreciate. Upon home currency depreciation, exporters react by expanding production or by entering new destination markets, incurring significant upfront costs. The results survive a series of robustness checks, and are stronger for low-performance firms and for firms engaged in ordinary trade. The results have important policy implications for emerging market countries that rely heavily on exports but have weak financial institutions.

A Comparison of Global Factor Models

I compare commonly employed factor models across 50 non-U.S. developed and emerging market countries by ranking them based on their maximum Sharpe ratios. Consistent with the U.S. evidence presented in Barillas, Kan, Robotti, and Shanken (2019), I find that the factor models of Fama and French (2015, 2018), Hou, Xue, and Zhang (2015), and Stambaugh and Yuan (2017) are dominated by a six-factor model that includes cash-based profitability and momentum factors, as well as a value factor that is updated monthly. The result is robust in out-of-sample tests, across subperiods, across global regions, and to methodological changes. The main problem for the dominated factors models is that they do not explain the monthly updated value factor. Hence, I conclude that the value factor is not redundant.

How connected is the global sovereign credit risk network?

Abstract This paper estimates the global network structure of sovereign credit risk by applying the Diebold-Yilmaz connectedness methodology on sovereign credit default swaps (SCDSs). The level of credit risk connectedness among sovereigns, which is quite high, is comparable to the connectedness among stock markets and foreign exchange markets. In the aftermath of the recent financial crises that originated in developed countries, emerging market countries have played a crucial role in the transmission of sovereign credit risk, while developed countries and debt-ridden developing countries have played marginal roles. Secondary regressions show that both trade and capital flows are important determinants of pairwise connectedness across countries. The capital flows became increasingly important after 2013, while the effect of trade flows decreased during the crisis and did not recover afterwards.

Covered Interest Rate Parity Deviations in External Emerging Market Sovereign Debt

Non-US dollar denominated external emerging market debt issuance in euros, yen, and sterling has grown substantially in recent years. This article is the first study to explore how non-dollar external emerging market bonds violate covered interest rate parity relative to their dollar-denominated external emerging market debt counterpart bonds for a given country. Such mispricing in the post-Great Recession era creates arbitrage opportunities for investors and suggests that emerging market country policymakers could create fiscal savings by instead issuing external sovereign debt in dollars more cheaply (versus non-dollar developed world currencies like euro, yen, and sterling) and swapping the proceeds to non-dollar currencies with currency forward and spot transactions. Such hypothetical fiscal savings from switching to dollar funding collectively are estimated to be more than $1 billion annually. TOPICS:Fixed income and structured finance, exchanges/markets/clearinghouses, emerging markets Key Findings • This article is the first study to explore how non-dollar external emerging market bonds violate covered interest rate parity relative to their dollar-denominated external emerging market debt counterpart bonds for a given country. • Such mispricing creates investment opportunities and suggests that by instead more cheaply issuing external sovereign debt in dollars (versus non-dollar developed world currencies like euro, yen, and sterling) and swapping the proceeds to non-dollar currencies, emerging market country policymakers could create substantial fiscal savings from switching to dollar funding.

Epidemiological shift of hepatitis A in EAGLE countries – a projection

PurposeMany world regions are developing quickly and experiencing increasing levels of sanitation, causing an epidemiological shift of hepatitis A in these areas. The shift occurs when children avoid being infected with the disease until a later age due to cleaner water sources, food, and hygiene practices in their environment; but if they are infected at later age, the disease is much more severe and lost productivity costs are higher. The purpose of this paper is to examine what could occur if an epidemiological shift of the disease continues in these regions, and what type of future burden hepatitis A may have in a hypothetical rapidly developing country.Design/methodology/approachInitially, annual hepatitis A mortality was regressed on the Human Development Index (HDI) for each country classified as an emerging and growth-leading economy (EAGLE) to provide an overview of how economic development and hepatitis A mortality related. Data from the various EAGLE countries were also fit to a model of hepatitis A mortality rates in relation to HDI, which were both weighted by each country’s 1995–2010 population of available data, in order to create a model for a hypothetical emerging market country. A second regression model was fit for the weighted average annual hepatitis A mortality rate of all EAGLE countries from the years 1995 to 2010. Additionally, hepatitis A mortality rate was regressed on year.FindingsRegression results show a constant decline of mortality as HDI increased. For each increase of one in HDI value in this hypothetical country, mortality rate declined by 2.3016 deaths per 100,000 people. The hypothetical country showed the HDI value increasing by 0.0073 each year. Also, results displayed a decrease in hepatitis A mortality rate of 0.0168 per 100,000 people per year. Finally, the mortality rate for hepatitis A in this hypothetical country is projected to be down to 0.11299 deaths per 100,000 people by 2030 and its economic status will fall just below the HDI criteria for a developed country by 2025.Originality/valueThe hypothetical country as a prototype model was created from the results of regressed data from EAGLE countries. It is aimed to display an example of the health and economic changes occurring in these rapidly developing regions in order to help understand potential hepatitis A trends, while underscoring the importance of informed and regular policy updates in the coming years. The author believes this regression provides insight into the patterns of hepatitis A mortality and HDI as these EAGLE countries undergo rapid development.

China's Corporate Governance Development and ESG Evaluation

As the past few decades have seen China become the world’s second-largest economy and Chinese multinationals take leading roles in various sectors, China’s corporate governance (CG) has evolved and brought about new methods of Environmental, Social and Governance (ESG) evaluation. This paper examines China’s CG development status through case studies of notable China companies, looks at current Chinese ESG evaluation systems designed by MSCI and local Chinese institutes, and suggests four unique factors that should be integrated into future Chinese ESG evaluation system development. This is the first of a series of papers by Lyndsey Zhang that reviews current Chinese CG development and ESG implementation, identifies opportunities and challenges through case studies, and suggests areas for improvement for Chinese companies looking to accomplish the following: become more sustainable by increasing focus on corporate purpose and ESG considerations, and position themselves as industrial leaders in both the emerging market and global economy in the next few decades. This series also looks at other emerging market countries’ economic development and CG models, and explores how China’ success can be replicated by other emerging market countries to facilitate their economic growth and CG development.

Oil Price Shocks in Major Emerging Economies

As the world economic power shifts from the advanced G7 countries — Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — to the seven largest emerging market countries (EM7) — Brazil, China, India, Indonesia, Mexico, Russia, and Turkey — the vulnerability of these emerging market countries to exogenous shocks is becoming of growing importance. This paper presents a comprehensive examination of the effects of oil price shocks on real economic activity in the EM7 economies in the context of two classes of empirical models. In general, we find that oil price uncertainty has statistically significant effects on the real output of the EM7 economies and that the relationship between oil prices and economic activity is in general symmetric. We also find that oil price uncertainty has in general a negative effect on world crude oil production.

Internationalization of state-owned enterprises from emerging markets: Overview of theoretical approaches

The article presents the analysis of the theoretical and empirical research on the phenomenon of the internationalization of state-owned enterprises from emerging market countries. Contemporary internationalized state-owned enterprises are far from the uncompetitive and ineffective firms of the 20th century that mostly operated domestically and give examples of truly exciting international strategies. However the question stays open, namely how exactly state ownership shapes their international strategies. The existing studies are vast and lack systematization, and the purpose of this article is to analyze the most widely used theoretical approaches that investigate internationalization of emerging markets of stateowned enterprises. The most popular theoretical approach to study the internationalization of emerging markets of state-owned enterprises is the institutional perspective that studies how the interplay of state ownership of companies and institutional environment shapes their international strategies. Nevertheless, the synergy of theoretical approaches is needed in order to extend knowledge on the internationalization of the state-owned enterprises. Examples of such a synergy are presented in this paper. It also offers prospects for future research and further topics to study. Analysis of theoretical approaches that study internationalization of emerging markets of state-owned enterprises helps map the research field and show where it is moving. The paper has value for both academia and practitioners that deal with the global expansion of state-owned enterprises from emerging markets.

Could Short Selling Improve the Quality of Emerging Stock Markets? – Review of Some Theoretical and Empirical Evidence Presented in Literature

Short selling is a common practice in many developed markets. However, due to the lack of a suitable regulatory, institutional and market infrastructure, short selling cannot be practiced in many emerging market countries. Furthermore, the regulators who were concerned about potential adverse effects of short selling during various episodes of crises decided to place some constraints on short selling at different points in time and for different periods of time. Based on the experience with the short selling practices and the bans on short selling in different countries around the world and by respecting the assumption that there is at least a basic regulatory, institutional and market infrastructure, the author will try to answer the question: Could short selling improve the quality of emerging stock markets? According to the author’s findings, short selling could improve the quality of emerging stock markets, under the determined condition. Additionally, as the regulatory, institutional and market infrastructure becomes more and more developed, the possibility of the market quality to be improved to a higher degree by short selling will increase.

Corporate mergers, announcement returns and post-merger financial performance: a literature review in the Indian context

The rise of corporate mergers and acquisitions in emerging market countries has received the growing interest of several researchers from diverse fields in business management. In this paper, we review from the past to recent published papers in mergers and acquisitions research in the Indian context, particularly since the economic policy reforms initiated in 1991. Literature review' insights from more than 70 research articles in the Indian setting was well summarised - announcement returns around the domestic mergers and acquisitions; post-merger financial performance; banking and financial sector mergers; and comparative studies with reference to local vs. international mergers in and to the Indian context. Finally, we recommend some potential areas and knowledge gaps in local and international mergers and acquisitions for future research in the Indian business scenario.

КОНКУРЕНТОСПРОМОЖНІСТЬ БАНКІВСЬКОГО СЕКТОРУ УКРАЇНИ: СУТНІСТЬ ТА МЕХАНІЗМ ФОРМУВАННЯ

КОНКУРЕНТОСПРОМОЖНІСТЬ БАНКІВСЬКОГО СЕКТОРУ УКРАЇНИ: СУТНІСТЬ ТА МЕХАНІЗМ ФОРМУВАННЯ

EMEs and COVID-19 Shutting Down in a World of Informal and Tiny Firms

Emerging economies are characterized by an extremely high prevalence of informality, small-firm employment and jobs not fit for working from home. These features factor into how the COVID-19 crisis has affected the economy. We develop a framework that, based on accounting identities and actual data, quantifies potential job and income losses during the crisis and recovery for economies with different economic organization structures. Our analysis incorporates differential exposure of jobs across categories of firm-size and formality status, as well as sectors and occupations. We account for the direct supply shock caused by lockdowns, the idiosyncratic demand shock suffered by sectors that rely on high contact with their costumers, the transmission of both shocks through IO linkages, and the overall aggregate demand effect derived from these shocks. Applying our framework to data for Colombia, which exhibits an employment distribution similar to that of other emerging market countries, in particular Latin America, we find that well over 50% of jobs are at risk in the initial stages of the crisis. Because informal jobs and those not fit for telework are at higher risk, this number goes down to 33% if the US employment distribution is imposed on the Colombian data. As the crisis deepens, the risk of unemployment grows. However, informality rebounds quickly in the recovery, an employment at risk is quickly reduced to 20% of the baseline, all concentrated in formal jobs. Our findings point to the importance of action to maintain formal matches from dissolving, given their scarcity and rebuilding difficulty, while protecting the poor and the informal via income transfers.

How GVC division affects cross-border M&A of Chinese Firms？

With the political development and deepening trade liberation, many emerging market countries have been deeply involved in global value chains (GVCs). Emerging market multinational enterprises (EM MNEs) and their cross-border mergers and acquisitions (MA (2) Heterogeneity is found in the above relationship. Compared with the cross-border MA (3) Capability, competitivity and the need of acquiring strategic assets have a mediate effect on the above relationship.

Varieties of capitalist relations in foreign emerging market countries: The problems of typology and research methodology

Until the end of the 20th century, studies on causes and consequences of the emergence of cross-country differences in the organization of capitalist society mainly relied on experiences of developed countries. The current trend in the evolution of theories of comparative capitalism is a shift in the research focus to states with emerging markets as characterized by a variety of types of institutional complementarity. One key issue is the validity of adapting the “varieties of capitalism” binary theory designed for developed countries (liberal and coordinated market economies in this framework) to analyze capitalist relations in states of the periphery and semi-periphery of world economy. This paper examines methodological problems of explaining processes of cross-country institutional divergence, with a focus on emerging market countries. The authors pay special attention to types of capitalism in post-socialist countries, distinguishing four directions of comparative analysis based on assumptions about the universality of the dichotomy of the VoC approach or on its “metamorphism,” “hybridization” of traditional capitalist models, and inconsistency with realities of development in former socialist states. Within each of the selected approaches to the typology of capitalist relations in European and Asian post-socialist countries, the characteristics of their respective basic models are compared (for example, “dependent” and “patrimonial capitalism,” “embedded neoliberalism,“neocorporatism,” “neoliberal capitalism,” etc.). In addition, the authors conduct a comparative analysis of types of capitalism that are differentiated for developing countries of Asia, Africa, and Latin America (in particular, “hierarchical market economies”). It is noteworthy that the accumulation of theoretical and practical knowledge in comparative capitalism is increasingly dependent on the expansion of its geographical coverage on account of Asian countries. In this paper we distinguish several approaches to the formation of Asian capitalist societies: the spread of “state capitalism,” the emergence of an Asian “hybrid capitalism” (a combination of local and incorporated Western institutional norms), and the development of divergent forms of capitalism bounded by national borders. A promising research direction (which we call a multi-scale approach in comparative capitalism) is the differentiation of subnational models of capitalist relations, especially in countries characterized by significant spatial heterogeneity.

Exchange Rate Fluctuations and Firm Leverage

We quantify the effect of exchange rate fluctuations on firm leverage. When home currency appreciates, firms who hold foreign currency debt and local currency assets observe higher net worth as appreciation lowers the value of their foreign currency debt. These firms can borrow more as a result and increase their leverage. When home currency depreciates, the reverse happens as firms have to de-lever with a negative shock to their balance sheets. Using firm-level data for leverage from 10 emerging market economies during the period from 2002 to 2015, we show that firms operating in countries whose non-financial sectors hold more of the debt in foreign currency, increase (decrease) their leverage relatively more after home currency appreciations (depreciations). Combining the leverage data with firm-level FX debt data for 4 emerging market countries, we further show that our results hold at the most granular level. Our quantitative results are asymmetric: the effects of depre-ciations, that are generally associated with sudden stops, are quantitatively larger than those of appreciations, which take place at a slower pace over time during capital inflow episodes. As our exercise compares depreciations and appreciations of similar size, these results are suggestive of financial frictions being more binding during depreciations than a possible relaxation of such frictions during appreciations.

Revisiting Momentum Profits in Emerging Markets

This study investigates the cross-sectional and time-series properties of momentum returns in 19 emerging market countries. In general, consistent with previous studies, momentum strategies in emerging markets underperform those in the U.S. and other developed markets. To help reconcile these differences, we show that momentum profits are negatively exposed to market and liquidity factors, which is more important in down market states. Given higher market returns and lower liquidity in emerging markets, this negative exposure tends to increase momentum crashes when market rebounds after depressed market conditions and, in turn, lower momentum returns in emerging market countries. Finally, risk management of momentum reduces exposure to market and liquidity factors, thereby boosting returns, Sharpe ratios, and asset pricing model alphas.

ГРОШОВО-КРЕДИТНА ПОЛІТИКА В КРИЗОВИХ УМОВАХ

The article is devoted to the study of conditions of application and influence of non-traditional monetary policy of central banks of developed countries on national economies and economies of emerging market countries. Based on critical analysis and systematization of basic research on the analysis of non-traditional monetary policy and its impact on the economies of different countries, it is substantiated that non-traditional monetary policy is a set of measures aimed at restoring the transmission mechanism and eliminating financial market imbalances. The main tools of non-traditional monetary policy are - previous management, quantitative easing; credit easing; negative interest rates, qualitative mitigation. Relevant areas of research on the financial performance of economies were also justified, as monetary policy directly affects interest rates, money supply, exchange rates, availability of credit, and through the financial sector to other sectors of the economy. During the aggravation of the economic and debt crisis, which had a negative impact on the Eurozone countries, investors' interest in CEE countries increased due to higher interest rates and the opportunity to make more profits. The study of the impact of the ECB's monetary policy on the financial indicators of Central and Eastern Europe revealed that the ECB's unconventional policy, including quantitative easing aimed at lowering long-term interest rates, affected the yield on government bonds of almost all EU countries, not only member states. euro area, which generally declined after 2014. Non-traditional monetary policy and an increase in the ECB's balance sheet also affect investment flows to CEE countries, but are mainly debt instruments in both direct and portfolio investment. The opposite situation is observed in the Eurozone countries with a high debt burden, especially in Greece and Italy. Despite the fact that the ECB's policy has led the euro area countries with a high level of debt to reduce the debt-to-GDP ratio, there is a tendency to increase the share of public debt payments to GDP. In this situation, the ECB simply cannot significantly change the purpose of its monetary policy, because any, even small, increase in the discount rate will lead to a new debt crisis in the Eurozone with its epicenter in Italy and Greece. The study of the impact of non-traditional policies of the Bank of Japan, the Fed and the ECB on the economy of Ukraine confirms the hypothesis that the actions of the ECB have the greatest impact on the financial performance of Ukraine. The analysis shows the impact of non-traditional monetary policy on the exchange rate of the Ukrainian hryvnia to the euro, US dollar and Japanese yen, but it was not significant. This is due to the fact that monetary policy in Ukraine only in 2015 actually moved from a fixed exchange rate to a floating exchange rate and began to apply inflation targeting. Announcements of non-traditional monetary policy have also affected government bond yields and stock indices, but the Ukrainian stock market is underdeveloped and has little effect. The main influence was the first programs of non-traditional monetary policy of the ECB, the USA and the Bank of Japan. In times when non-traditional measures were just being introduced and difficult to regulate and predict. Thus, it was proved that, on the one hand, unconventional monetary policy can stimulate economic growth, and on the other hand, create significant risks for further monetary policy opportunities to counter future crises.