Global Financial Indices Research Articles

Global liquidity, market sentiment, and financial stability indices

This paper investigates the determinants of global liquidity, measured using BIS data on cross-border claims of banks (bank flows) in a sample of 149 countries. The paper identifies links between global liquidity and a variety of market sentiment and financial stability indices. Using panel regressions incorporating country fixed effects, I find that the CBOE Volatility Index (VIX), FRED and Bloomberg financial stability indices, the U.S. Conference Board Leading Economic Index, the U.S. IDB/TIPP Economic Optimism Index, and KBW indices all appear relevant in capturing the magnitude of changes in cross-border global liquidity. Additionally, I corroborate previous empirical evidence that bank conditions and monetary policy in important financial centers, and in particular in the U.S., remain highly significant in determining cross-border bank flows. The results are robust to changes in the estimation methodology and varying sets of the control variables.

Do Global Financial, Oil and Gold Volatility Shocks Affect the GCC Stock Markets?

This study employed the non-structural VAR econometrics approach to examine the impact of Global Oil (OVX), Financial (VIX), and Gold (GVZ) volatility indices on GCC stock markets using a daily data set spanning from January 5, 2009 to August 16, 2018. From the VAR result obtained, disequilibrium in the global financial volatility (VIX) was able to significantly transmit negative shock to Bahrain and Kuwait stock markets and positive shock on GVZ. While the global Gold volatility was capable of transmitting fairly positive shock to the UAE and VIX market. The OLS also revealed more to the result obtained from VAR as it shows that OVX and VIX can have impact on the GCC stock markets. The causality test revealed that there is a unidirectional causality running from Qatar and UAE to OVX; none of the variables was able to granger cause VIX, while unidirectional causality exist from VIX and UAE to GVZ and VIX and Qatar to Bahrain. VIX and Qatar can granger cause Kuwait stock market, and only Saudi Arabia and Oman have bidirectional causality. Unidirectional causality exists from Saudi Arabia to Qatar, and Qatar is the only stock market capable of causing UAE unidirectionally. Hence, the study concludes that VIX and GVZ are capable of transmitting shocks to three of the six GCC stock markets—(Bahrain, Kuwait and The UAE) negatively (Bahrain and Kuwait) and positively (The UAE). And on this note, the study recommends that appropriate financial and gold transaction policies should be institutionalized so as to mitigate the transmission of shocks into the markets. Also, financial and gold experts who regulate the stock and gold markets especially in Bahrain and Kuwait should watch for any abnormality changes in the volatility movement of the financial and gold markets.

Financial and Institutional Determinants of Cash Holdings in the Oil and Gas Industry

At the same time that a dramatic plunge in energy commodities pressured companies in the energy sector to initiate a down-cycle drill by cutting capital expenditures, selling non-core assets, and laying off personnel, the world’s top producers still maintained over half a trillion dollars in liquid assets. The reasons for phenomena such as this in the global oil and gas sector are manifold. The research question for this composition is: What are the determinants, both financial and institutional, which drive oil and gas companies to hold a certain amount of cash on their balances? This paper aims to analyse these determinants in various geographical markets of the European continent over the period of 2010-2014, using models derived from both the ‘tradeoff’ theory and the ‘pecking order’ theory. The empirical results from 800 firms were acquired with panel data regression analyses. They suggest that cash holdings in the sector are negatively affected by the net working capital, leverage, collateral, and firm size, while cash flows and capital expenditures have a positive influence on cash reserves. Besides the financial determinants, we also studied the institutional determinants for the cash levels. Our findings offer evidence that firms in countries with strong governance (as measured by the World Governance Index) hold more liquidity. Furthermore, the state of financial market development (as measured by the Global Financial Centers Index) is also positively related to cash holdings with the consequence that the financial market effect dominates the influence of governance. Our empirical evaluation will be of concern to managers in the oil and gas sector, who should take into consideration the settings of their companies when making corporate cash policy choices.

Financial stability, competitiveness and banks' innovation capacity: Evidence from the Global Financial Crisis

This paper provides nuanced evidence on the effect of competitiveness and financial stability on banks' innovation-capacity (technological-change) levels during the Global Financial Crisis (GFC) in 2007–2008. We applied contemporary developments in non-parametric frontier analysis, employing a new index, the Global Financial Centres Index, to measure the business competitiveness of 45 financial centres. Our findings indicated a nonlinear and positive relationship between financial centres' competitiveness, banks' stability and innovation-capacity levels. This suggests that banks' ability to increase stability alongside financial centres' stability in a highly competitive environment acts as a protective measure against the GFC's negative effects.

An analysis of constructing global financial inclusion indices

Following the steps of OECD's handbook on constructing the composite indices, this study aims to measure the extent of financial access by constructing a broader multidimensional financial inclusion indices which contain aggregate information of the extent of the financial system by using both demand and supply side information. Adding the survey data of Demirguc-Kunt et al. 2015 and Beck et al. (2006a), which provides not only household based but also the individual usage of financial services, this paper extends the previous studies by exploring broader cross-country, time-series analysis.

Bitcoin and global financial stress: A copula-based approach to dependence and causality in the quantiles

We apply different techniques and uncover the quantile conditional dependence between the global financial stress index and Bitcoin returns from July 18, 2010, to December 29, 2017. The results from the copula-based dependence show evidence of right-tail dependence between the global financial stress index and Bitcoin returns. We focus on the conditional quantile dependence and indicate that the global financial stress index strongly Granger-causes Bitcoin returns at the left and right tail of the distribution of the Bitcoin returns, conditional on the global financial stress index. Finally, we use a bivariate cross-quantilogram approach and show only limited directional predictability from the global financial stress index to Bitcoin returns in the medium term, for which Bitcoin can act as a safe-haven against global financial stress.

The Rise of Patient Capital: The Political Economy of Chinese Global Finance

As the United States has retreated from its lead role in globalization – first because of the 2008 financial crisis, and now under President Donald Trump’s leadership – China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. What are the implications? I contend that China’s state-led capitalism is an important form of patient capital, characterized by a longerterm horizon. While technically classified as mobile capital, its higher risk tolerance and geopolitical shrewdness make state-owned capital less likely to swiftly exit debtor countries. Compared to traditional mobile capital, debtor governments thus gain more policy freedom, particularly during hard times when Western creditors might otherwise impose austerity and other onerous policy conditions. Employing an originally constructed dataset, the China Global Financial Index, I conduct an econometric test across 15 Latin American countries from 1990-2015. I find that Chinese state-to-state lending reduces governments’ reliance on conditionality-linked Western financing, giving them more autonomy to use budget deficits to intervene in their economies. This effect is also contingent on partisanship, with extreme, or populist left governments being most likely to enhance their budgetary discretion. These results suggest that Chinese financing could be a development opportunity, but only if governments invest wisely. Otherwise, by lending without policy conditions, China may be encouraging developing country governments to spend without bounds, sowing the seeds for future debt problems.

Global financial indices and twitter sentiment: A random matrix theory approach

Abstract We use Random Matrix Theory (RMT) approach to analyze the correlation matrix structure of a collection of public tweets and the corresponding return time series associated to 20 global financial indices along 7 trading months of 2014. In order to quantify the collection of tweets, we constructed daily polarity time series from public tweets via sentiment analysis. The results from RMT analysis support the fact of the existence of true correlations between financial indices, polarities, and the mixture of them. Moreover, we found a good agreement between the temporal behavior of the extreme eigenvalues of both empirical data, and similar results were found when computing the inverse participation ratio, which provides an evidence about the emergence of common factors in global financial information whether we use the return or polarity data as a source. In addition, we found a very strong presumption that polarity Granger causes returns of an Indonesian index for a long range of lag trading days, whereas for Israel, South Korea, Australia, and Japan, the predictive information of returns is also presented but with less presumption. Our results suggest that incorporating polarity as a financial indicator may open up new insights to understand the collective and even individual behavior of global financial indices.

Global Financial Stability Index

We develop a monthly Global Financial Stability Index (GFSX) that incorporates the global stock market outlook, momentum, and overall risk. Refining the financial stability concept presents challenges because of the many different approaches researchers have pursued, as well as the availability of periodic data. The stock market is the nervous system for the overall economy that anticipates key issues with a precision of some months to the future, especially pitfalls in the financial system, so we use time series data of 23 countries to form global financial market portfolios and create a measure of risk adjusted financial stability (risk adjusted stationary probability for a good state) that predicts future stability. The intuition behind our GFSX model is that we view financial stability as the likelihood that the financial market will operate in a steady state that reflects global risk and momentum. We also develop regional financial stability indexes, including Europe and Asia, and we examine the cross sectional sensitivity of industry sectors to the GFSX. Our results show that the regional financial stability indexes are highly correlated with GFSX, furthermore, our GFSX provides information that existing indexes do not (such as VIX). We also demonstrate that there is significant variation in conditional GFSX sensitivity across some sectors: specifically, sectors Toys, Recreation, Smoke Tobacco Products, and Mines Non-Metallic are positively sensitive to financial stability; while sectors Soda, Candy, Coal, and Gold and Precious Metals are industries that are negatively sensitive to financial stability.

Global Liquidity and Financial Stress: Evidence from Major Emerging Economies

ABSTRACTWe examine the relationship between financial stress and global liquidity for the so-called fragile five emerging economies (Brazil, India, Indonesia, South Africa, and Turkey). By using an extensive set of variables that take into account the structural characteristics of these economies, we construct a financial stress index. We then use a Markov regime switching model to identify the high financial stress episodes. We examine periods of heightened financial stress and its relationship to high incidence of domestic and global disturbances. Finally, we construct a global financial liquidity index and assess the relationship between financial stress and global liquidity. Using a bivariate Markov regime switching VAR model, we find a regime-dependent relation between global liquidity and financial stress. Moreover, global liquidity shocks seem to strain these emerging economies in such a way that global illiquidity heightens financial stress.

State and group dynamics of world stock market by principal component analysis

We study the dynamic interactions and structural changes by a principal component analysis (PCA) to cross-correlation coefficients of global financial indices in the years 1998–2012. The variances explained by the first PC increase with time and show a drastic change during the crisis. A sharp change in PC coefficient implies a transition of market state, a situation which occurs frequently in the American and Asian indices. However, the European indices remain stable over time. Using the first two PC coefficients, we identify indices that are similar and more strongly correlated than the others. We observe that the European indices form a robust group over the observation period. The dynamics of the individual indices within the group increase in similarity with time, and the dynamics of indices are more similar during the crises. Furthermore, the group formation of indices changes position in two-dimensional spaces due to crises. Finally, after a financial crisis, the difference of PCs between the European and American indices narrows.

РЕФОРМИРОВАНИЕ ФИНАНСОВЫХ РЫНКОВ: ФАКТОРЫ УСПЕХА

Modern financial markets are global and strenuously competing for global investment. Tightening of global competition between national financial sectors predetermines their conversion into a form of international financial centers (IFC). We classified the IFC into “traditional” and “off-shore”, and identified “traditional” markets/centers that are developing in accordance with the government programs aimed at improving global competitiveness of national financial markets, including programs of national financial markets transformation into IFC. The paper contains a short description of successive reforms of the financial markets in such countries as China, Hong Kong, Republic of Korea and India which are the biggest competitors to Russia in the global financial market. Based on the analysis of these programs, we formulated the success factors of financial sector reforms. The success of the reform was evaluated according to three groups of parameters: a) achievement of the stated objectives (if they had been clearly stated); b) increase in global rankings of the national financial market (Global Financial Centres Index of the Z/Yen Group Limited, Financial Development Index Rankings of the World Economic Forum and International Financial Centers Development Index of the alliance between Xinhua and Dow Jones); c) substantial increase of the studied countries’ role within some sectors of the global financial market. In such terms, there are signs of reforms’ success in Hong Kong, China, Republic of Korea and India, and, conversely, of the failure of similar programs in Russia and Kazakhstan. The principal conclusion is that the primary factor of success is the general quality of work of the state as an institution. Special governmental policies and measures aimed at the development of the national financial market may be productive and may become a potential competitive advantage if the application of the recommendations of international financial institutions is based on full consideration of national specifics and characteristics of the respective markets.

Determinants of the Status of an International Financial Centre

AbstractIn March 2014, New York overtook London as the number one financial centre in the world as ranked by the global financial centre index (GFCI). This move has raised questions as to what has actually happened to justify such a change in ranking. Some questions are also raised such as why Mauritius is ranked higher than Helsinki. Notwithstanding the problems associated with the GFCI as a measure of the status of an international financial centre, an attempt is made to identify the determinants of the status of 53 financial centres using 24 potential explanatory variables and the technique of extreme bounds analysis (EBA). The results show that the important determinants include, among others, the corporate tax rate, global competitiveness, global credit rating, occupancy cost and property rights. A policy implication of the results is that attention should be paid to these determinants if a financial centre is to consolidate its position.

Hong Kong and Shanghai: current and/or future international financial centres?

Purpose – This paper publishes summary results for the first time of a major survey of senior financial practitioners undertaken in Hong Kong and Shanghai in 2005, and compares these with the Global Financial Centre Index first created in 2007 to determine the extent to which both are consistent. Design/methodology/approach – The research is based on a detailed survey and utilizes principal-components analysis to determine the primary factors relevant to the development of both cities as international financial centres (IFCs) and those which the respondents consider will be relevant in the future. Findings – The paper demonstrates that the key “success factors” for both cities in 2005 remain very important in the global financial centres index (GFCI) analysis ten years later but not necessarily by the same ranking. We also found that a number of the “primary” factors change when respondents are asked to consider future success factors. Research limitations/implications – The survey was conducted ten years ago; however, the results continue to have significant reliability and validity - especially when compared with the results of the GFCI report of 2014. Practical implications – The paper should enable policy makers and practitioners to better understand the future policy environment needed for extending the financial centre status of both Hong Kong and Shanghai. Originality/value – This is the first time (some) of the survey findings that have ever been published, and they represent a rich source of information – however, the authors will be examining the survey data for future publications.

Sanctuary in the Midst of Crisis? A Look into Shariah Indices using Multivariate GARCH DCC

Islamic Finance has evolved over the past few decades, and stands at over a trilliondollars today. At the foundations of Islamic finance lay the concept of risk sharing, and the purest forms of it in the modern day finance is equity investments. The evidence of Islamic investors pursing equity investments in reality is thin. Multitude of reasons are attributed to this low participation, mainly revolving around lack of empirical proof of Islamic investments being a reliable and steady return alternative. This study is an attempt to study the volatilities and correlations with the conventional global equity indices utilizing Multivariate GARCH Dynamic Conditional Correlations (MGARCH DCC) method. The findings provide an interesting angleto our study, where there is a significant downwards trend in the correlations during the crisis era. This provides substance to the argument that Islamic investors would experience lesser downside in economic crisis. This study further dwells into the linkage of Islamic indices with global financial indices to study if financial sector exclusion from Islamic indices benefits theinvestors. The findings are positive, with lower correlations and that to reducing in the recent global crisis. Islamic finances core philosophy is equity based investments and this study is a humble attempt to empirically substantiate its benefits.

Information transfer network of global market indices

We study the topological properties of the information transfer networks (ITN) of the global financial market indices for six different periods. ITN is a directed weighted network, in which the direction and weight are determined by the transfer entropy between market indices. By applying the threshold method, it is found that ITN undergoes a crossover from the complete graph to a small-world (SW) network. SW regime of ITN for a global crisis is found to be much more enhanced than that for ordinary periods. Furthermore, when ITN is in SW regime, the average clustering coefficient is found to be synchronized with average volatility of markets. We also compare the results with the topological properties of correlation networks.

Analysing correlations after the financial crisis of 2008 and multifractality in global financial time series

We apply random matrix theory (RMT) to investigate the structure of cross-correlation in 20 global financial time series after the global financial crisis of 2008. We find that the largest eigenvalue deviates from the RMT prediction and is sensitive to the financial crisis. We find that the components of eigenvectors corresponding to the second largest eigenvalue changes sign in response to the crisis. We show that 20 global financial indices exhibit multifractality. We find that the origin of multifractality is due to the long-range correlations as well as broad probability function in the financial indices, with the exception of the index of Taiwan, as in all other indices the multifractal degree for shuffled and surrogate series is weaker than the original series. We fit the binomial multifractal model to the global financial indices.

Private Credit and Unequal Access

The newly released Global Financial Inclusion Index database is the first disaggregated cross-country dataset providing key indicators of financial inclusion. These data allow for the creation an inequality of access index, whereby I argue that countries with higher levels of financial inequality will have less efficient capital allocation. The paper is the first to utilize this novel dataset to evaluate the impact of inclusive access on financial development. The econometric results are straightforward — I find significant evidence that inclusive financial systems are associated with increasing private credit ratios. These results hold controlling for other institutional and market factors.

Reshaping Attitudes, Beliefs, and Opinions: The Key to Emiratization in the Private Sector

"The fastest growing economy in the Middle East, the United Arab Emirates (UAE)—with Dubai ranked 29th in 2011 in the Global Financial Centers Index worldwide—has a private sector capable of creating tens of thousands of new jobs every year (Al Ali, 2013). Yet, many Emiratis prefer to remain unemployed rather than work in the private sector, contributing to an unemployment rate of nearly 12% (Sharif, 2013). Many Emiratis prefer to remain unemployed rather than work in the private sector because private sector salaries are perceived to be lower than public sector salaries. Sharif (2013), supported by Toledo (2013), adds that unemployment will increase as an estimated 13,000 Emirati college graduates enter the workforce each year and raise to the number of first- time Emirati job seekers to over 200,000 (nearly 25% of the entire Emirati population) within 10 years. This paper uses the findings of a recent study on family involvement in Emirati college student education to show how families contribute to the development of the attitudes, beliefs, and opinions of young people, some of which prove counter-productive in the workplace. According to Al Ali (2013), through the mid-2000s, Emiratis entering the workforce had little difficulty securing positions in the public sector, which paid high salaries and required only a basic education. However, by the late 2000s through the time of this paper, Al Ali, along with Sharif (2013) and Toledo (2013), found that in order to enter the workforce, Emiratis needed at least a college education and that there were few opportunities to work in the public sector. This paper explores the social and cultural factors that influence many young Emiratis to avoid considering positions in the private sector. The paper gives recommendations on how educational institutions and labor policy makers can join forces to reshape young Emiratis’ attitudes, opinions, and values by raising their awareness of their need to obtain higher education credentials and to work in the private sector. These institutions and policy makers can also initiate programs in the workplace and throughout the educational environment of post-secondary institutions and schools."

Financial Service Penetration, Consumer Characteristic and Urban-Rural Difference — Empirical Evidence on Indonesia Financial Service Access

By believing that financial inclusion (ownership of formal account) will increase economics resiliencies, in the middle of 2012, Worldbank Group had released 2011 Global Financial Inclusion Index (Global Findex) that measures financial service/product penetration and usage within 123 countries, which include Indonesia.Since Global Findex Report emphasize on national score, regional/continental comparison and assume that there is no significant socio-cultural difference within a country, there are no sufficient discussions toward consumer characteristics, cultures and urban-rural contexts within the reports. Our research approach is trying to fill the gap by focusing on consumer characteristic (psychographic), provincial-urban-rural difference and ownership of formal account (which include credit, insurance and investment penetration). The approach is taken in order to get better understanding toward the demand-side of Indonesia financial service sectors, several groups of consumers which come from multicultural background and social values difference.Data is covering 17 Indonesia provincial areas (Bali, Banten, Jakarta, Yogyakarta, West Java, Central Java, East Java, West Kalimantan, South Kalimantan, East Kalimantan, Lampung, Riau, South Sulawesi, West Sumatra, South Sumatra, North Sumatra and North Sulawesi) as proxy of 17 different socio-cultural characteristic. Data is gathered from Roy Morgan single source database, January-December 2009-2010 period, and processed through Asteroid 5 software. As predicted, financial service penetration and usage level are different, within provincial area and within psychographic classifications.