International Asset Research Articles

Towards More Responsible International Asset Recovery: The European Union Should Lead the Way

Towards More Responsible International Asset Recovery: The European Union Should Lead the Way

Dual Role of the Country Factors in International Asset Pricing: The Local Factors and Proxies for the Global Factors

Dual Role of the Country Factors in International Asset Pricing: The Local Factors and Proxies for the Global Factors

Financial globalization and monetary transmission

AbstractThis article studies the way in which international financial integration affects the domestic transmission of monetary policy in a standard New Keynesian open economy model. It extends Woodford's (2010) model to a framework, in which not only a global integration of goods and factor markets, but also financial markets might matter for the monetary transmission mechanism. The article considers two broad types of experiments meant to capture financial integration, a decrease in the costs of international asset trading and an increase in the level of gross foreign asset holdings. The main finding is that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. On the contrary, under a wide array of parameterizations, and even in an environment where the exchange rate pass‐through elasticity is very low and the Home country's traded goods sector is very small compared to world markets, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. Monetary policy is most effective in simulations interacting the highest degrees of the two forms of financial integration.

New evidence on Bayesian tests of global factor pricing models

To identify the best global factor pricing model is crucial in international asset pricing literature. This study adopts the Bayesian methods of Chib et al. (2020b) and Chib and Zeng (2020) to estimate and compare 14,322 Gaussian and Student-t distributed global factor pricing models. We find strong evidence that Student-t distributed models significantly outperform Gaussian distributed models in both in-sample and out-of-sample tests. This finding highlights the importance of using the Student-t distributions to model the fat tails in global risk factor data. Analysis reveals that the best global factor pricing model is a Student-t distributed factor model with three degrees of freedom and seven risk factors including the six factors of Fama and French (2018) and the betting against beta (BAB) factor of Frazzini and Pedersen (2014). Our results are robust for different estimation samples and in both relative and absolute pricing performance tests.

Asset pricing in global scenario: a bibliometric analysis

PurposeThis study aims to organise and present the development of asset pricing models in the international environment. The stock market integration and cross-listing lead us to another objective of bibliometric analysis for “International Asset Pricing” to provide a complete overview and give scope and directions for future research.Design/methodology/approachWeb of Science database is used to search with “International Asset Pricing.” Of 3,438 articles, 2,487 articles are selected for the final bibliometric analysis. Various research such as citation analysis, keyword analysis, author’s and corresponding author's analysis have been conducted.FindingsThe bibliometric analysis finds that the USA comes out to be the country where the maximum research was conducted on the topic. The keyword analysis was also analysed to evaluate the significant areas of the research. Risk, return and international asset pricing are the most frequently used keywords. The year 2020 has the maximum number of published research articles and citations due to the change in the market structure worldwide and the effect of Covid-19 across the world.Originality/valueThe present paper provides the collection, classification and comprehensive analysis of “International Asset pricing,” which may help the academicians, researchers and practitioners for future research for the relevant subject area.

Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment

To ensure the success of a pension plan under a self-contained defined contribution (DC) retirement plan, the inclusion of foreign assets in a local pension portfolio could be beneficial for risk diversification and the efficient improvement of a fund’s investment performance during its accumulation phase. This study focuses on developing international asset allocation criteria for a DC pension plan; accordingly, we consider risk exposure relative to stochastic interest rates and ex- change rates with minimum guarantees. An arbitrage-free framework, namely, the cross-currency Heath–Jarrow–Morton interest rate model, is introduced in dynamic optimization programming for the DC pension fund. The proposed solution based on the generalized stochastic framework provides tractable and appropriate criteria for the dynamic allocation of a DC pension fund. The constituents of the optimal solution can reflect changes in investment lifecycles and shifts in risk preferences during the accumulation phase of a DC pension plan.

Socially responsible investment behavior: a study of individual investors from India

PurposeSocially responsible investment (SRI) is a niche and upcoming investment strategy in India. Very few researches have been conducted on SRI in the Indian context. This study identifies the SRI awareness level, attitude towards the importance of environmental, social, and governance (ESG) issues, willingness to invest in SRI avenues and obstacles in SRI investment decision-making by Indian retail investors. The second objective was among the awareness, attitude, willingness, obstacle, and demographic constructs to identify the most significant variables that impact an individual investor's SRI decision in India. .Design/methodology/approachData for the study have been collected through a self-structured questionnaire. Descriptive statistics are used to identify the importance of variables for individual investors. This paper used the theory of planned behavior (TPB) to understand the factors impacting individual investors' SRI behavior. Binary logistics regression analysis is used to recognize the variables that affect an individual investor's SRI decision.FindingsThe descriptive statistics indicate a low level of SRI awareness; the majority of the investors agreed that ESG issues are significant in investing and showed a willingness to invest in SRI avenues. However, the investors were not willing to accept lower returns from SRI. The majority of investors found, lower returns on SRIs, no tax benefit, lack of information about SRIs, and low liquidity as important obstacles in SRI investing. Binary logistics regression results indicated that awareness about SR/ESG indices, awareness about SR/ESG funds, and willingness to invest in SRI avenues significantly impact investors' SRI decisions but demographic variables have no significant impact on SRI decision-making.Practical implicationsThis study has implications for the ethical/SR mutual funds managers, policymakers, government, and international asset management companies. The study finds an urgent need for increasing awareness about SRI among individual investors in India. The study suggests that the issuers must provide adequate information about SRI avenues and probable risk and returns involved in these, while the regulators must make efforts to educate investors in India.Originality/valueThe context of the present study is original because hardly any of the earlier studies conducted in India have tried to find out the individual investors' SRI awareness level, investors' willingness towards SRI, investors' attitude towards ESG issues, and obstacles faced by investors in socially responsible investing.

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

AbstractWe study the implications of macroprudential policies across countries on the transmission of shocks when international investment activities are allowed. In a two‐country dynamic stochastic general equilibrium (DSGE) model in which international investors are borrowing constrained and pledge international assets, we introduce a time‐varying loan‐to‐value (LTV) ratio that adjusts to the variation of three different financial vulnerability indicators. We examine the effect of these policies on negative productivity and borrowing capacity shocks. Although time‐varying LTV ratios reduce the international propagation of the productivity shock, their response to the shock depends on the financial vulnerability indicator with which the LTV ratio changes. With a productivity shock, the adjustment of the LTV ratio to the deviation of credit or asset price helps to reverse the negative impact of the shock. With a financial shock, LTV ratios varying with a deviation of credit‐to‐GDP ratio or aggregate credit can mitigate the impact of a negative financial shock. Adjustment of the LTV ratios reduces the fluctuation of international investors' balance sheets, investment, and productivity. We find that countries improve their welfare when time‐varying LTV ratios are in place. The magnitude of the welfare gain differs with both the financial vulnerability indicator and the shock.

Analisis Determinan Cadangan Devisa Indonesia Tahun 1991-2020

Foreign exchange reserves are the total value of international assets controlled by the government as the monetary authority. Foreign exchange reserves can be used to finance balance of payments imbalances or achieve monetary stabilization by intervening in the foreign exchange market. The position of Indonesia's foreign exchange reserves fluctuates greatly, there are many factors that can influence it, both from within and outside the country. This study will analyze the effect of the exchange rate, composite stock price index, world oil prices, net exports, and foreign debt on the position of Indonesia's foreign exchange reserves from 1991 to 2020 using Ordinary Least Square regression analysis. The regression results show that world oil prices, net exports, and foreign debt have a positive effect on foreign exchange reserves, while the exchange rate has a negative effect on foreign exchange reserves. Meanwhile, the composite stock price index was found to have no effect on the position of Indonesia's foreign exchange reserves.

International Fund Allocation under Economic Policy Uncertainty Shock

Abstract This paper focuses on the impact of economic policy uncertainty on international asset allocation and international capital flows. Our results show that economic policy uncertainty shocks have a negative impact on the international asset allocation, which can be explained from the real economic activity channel and the expectation channel. We also explore a full fledge of country level heterogeneities about the economic policy uncertainty shocks on international asset allocation. Specifically, good institutional quality, transparent information, good information access to the international financial market and bilateral informational link help to alleviate the negative effect that economic policy uncertainty shock does to asset allocation. And a healthy public and external sector also help to alleviate the negative effect. While the importance of government in the economy amplifies the negative effect of economic policy uncertainty shocks to asset allocation. JEL classification numbers: E44, G11, G15. Keywords: Economic policy uncertainty, Global fund allocation, Institutional quality, Global imbalance.

An Analysis of the Literature on International Unconventional Monetary Policy

This paper evaluates the literature on international unconventional monetary policies (UMPs). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMPs influenced international asset prices and tail risk in the desired manner. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies also improved macroeconomic outcomes. We assess the recent debate on the empirical evidence and discuss central bank assessments of UMP. Despite qualified successes, we recommend that UMP be reserved for crises and/or when the zero bound constrains conventional monetary policy. (JEL E31, E43, E44, E52, E58, G12, G21)

Exploring a Three-Factor Dependence Structure of Conditional Volatilities: Some Quantile Regression Evidence from Real Estate Investment Trusts

We propose a simple three-factor pricing model, consisting of a local stock market index, a global REIT market index, and a global stock market index, to examine the dependence structure of conditional volatilities in the real estate investment trust (REIT) market from 11 countries over the sample period from 1 June 2008 to 30 April 2021. The main quantile regression results reveal that a simultaneous dependence structure exists between each REIT market and local stock, global REIT market, and global stock market. There is a positive and significant dependence between REITs and three factors for every part of the quantiles. Across each quantile, Asia-Pacific REIT markets have a consistently higher average degree of dependence with their local stock markets than with the global stock and global REIT markets, whereas European REIT markets are generally more globally integrated. Furthermore, the lower and upper quantile estimates for over half of the REIT-quantiles for the three market factors are statistically different. Additionally, some REIT markets display asymmetric co-movement with at least one of the three factors as the degree of dependence increases when these markets are booming, but the dependence level declines when the markets are bearish. This evidence of dependence across the three influential factors and REIT markets provides meaningful insights into REIT market growth, international asset pricing, risk management, and dynamic linkages in the global economy.

The Relationship between Asia Pacific Markets during the Financial Crisis: VAR-Granger Causality Analysis

Introduction/Main Objectives: This study investigates the relationships between equity markets during the Asian financial crisis and the subprime mortgage crisis in Asia-Pacific. Background Problems: The advantages of market integration are under scrutiny in the midst of global financial crises, which have many implications for international asset pricing and regulators to develop strategies to protect economies. During the crises, the equity markets responded with different patterns, and it is important to understand in more detail the market relations during each crisis, especially for the less and more integrated markets. Novelty: We provide in-depth analysis to compare the market relationships during two extremely different financial crises originating from less integrated markets (i.e., emerging ones) and more integrated markets (i.e., developed ones), based on the prices which give a direct measurement and clear interpretation. This research provides a significant contribution by showing new findings in the form of a comparison of market relations during two extremely different crises in the Asia-Pacific region. Research Methods: This study employs time-series data from economic territories based on the Morgan Stanley Capital International (MSCI) Asia-Pacific classification and the United States. We conducted analysis using the vector autoregressive, Granger causality test, and impulse response, to point out the market relationships during the crises or turmoil periods. Finding/Results: The results show that the Asian financial crisis affected the emerging markets more and this indicates the unidirectional causality relationships among them. Meanwhile, the subprime mortgage crisis affected all the markets, but more indicated the bidirectional relationships, especially the developed markets. Conclusion: Although these two financial crises were global in nature, the effects on the region were different. The origin of the shock and the level of market integration affected the market relationships differently during the crises.

A tale of two global monetary policies

We compare the macroeconomic and financial spillovers of the unconventional monetary policies of the Fed and the ECB. Monetary policy tightenings in the two areas are followed by a contraction in global activity and trade, a retrenchment in global capital flows, a fall in global stock markets, and a rise in risk aversion. Bilateral spillovers in both directions are also powerful. We find that Fed and ECB monetary policies propagate internationally through the same channels – trade and risk-taking. While the magnitude of ECB spillovers to global aggregates is smaller, proxies for global risk aversion respond in the same way and to the same degree to ECB and Fed unconventional monetary policy shocks, pointing to an equally powerful risk-taking channel for their international transmission that operates through global financial markets. Spillovers of the unconventional policies of the two central banks to international asset prices are equivalent to a very large extent.

Home bias and expected returns: A structural approach

We study the effect of the home bias on international asset pricing by extending the core-satellite approach of active asset allocation to an equilibrium analysis. In this framework, investors combine a common core portfolio with an active investment in their home asset. In equilibrium, the core portfolio will deviate from the global market portfolio in characteristic ways, which we exploit to propose a new test of the home premium in expected returns. Unlike previous findings, our evidence suggests that the premium is almost negligible even though the home bias is substantial. This result is mainly driven by the generally high correlation of index returns and the distribution of the relative level of the home bias across countries.

Trade wars and asset prices

We study the effects of the trade war between the US and China since 2018 on international asset markets, including bonds, stocks, and exchange rates for a sample of 36 developed and emerging economies. Our main methodology relies on event studies, based on a daily indicator of trade-war news. We find that the typical negative news significantly and persistently compresses 10-y yields in the US and other developed economies, leading to cumulative effects close to −67 bp and −32 bp over the sample period, respectively. These episodes also significantly reduce stock markets in the US and other developed economies, with cumulative effects close to 23 and 14% for developed and emerging economies, respectively. For emerging countries, we also find significant currency depreciations against the USD. These results are confirmed with an alternative identification based on time-varying volatility. Given the relatively larger impacts on long-term yields, as well as the differential effects across developed and emerging markets, we conclude that the dominant channel behind the effects are increases in global risk aversion, as opposed to worsening perspectives about global growth prospects.

Intermediação e inovação financeiras: ligando agentes internacionais e investidores locais

Abstract The purpose of this paper is to analyze the financial intermediation market practiced by Autonomous Investment Agents (AIAs) and to identify links between large international asset managers and investors from inland regions of the country. The research is linked to studies of economic sociology and finance that deal with financialization, a process in which financial groups have organized economies and explored innovations such as Exchange Traded Funds – ETFs, contributed to the expansion of asset loans and stock buyback programs, leading to implications for companies and societies. This is an exploratory study that combines historical perspectives, documental analysis, content analysis and a case study. Interviews were conducted with representatives of AIAs companies and the Brazilian Association of Autonomous Investment Agents (ABAAI in Portuguese). In inland municipalities, AIAs aim to reach local elites, "private" customers of traditional banks, expanding the provision of financial services on digital platforms. Considering the proposal to offer Financial Education to clients, AIAs spread the dominant financial culture and innovations such as ETFs. Professionals and AIAs offices in the inland municipalities complement the necessary resources to AIAs companies and partner brokers to access these markets.

Новые направления использования инструментов зеленого финансирования как фактор развития рынка

The subject of the study is the use of green finance instruments in the context of sustainable development priorities to increase their liquidity and develop relevant markets. The purpose of the work is to identify the possibilities of using Green bonds as investment and reserve assets by conservative investors. The article analyzes the state and trends in the development of green finance markets and proposes a solution to the problem of increasing the liquidity of Green bonds based on new directions of their use, supported by general scientific research methods in the framework of comparative, logical and statistical analysis, as well as graphical visualization and interpretation of data. The conducted research has shown that the interest in green financing instruments is due to the transformation of the goals and priorities of private and public investors and reflects the need for sustainable development and environmental conservation. In terms of profitability and reliability, Green bonds meet the criteria set for asset placement by conservative investors, such as banks and insurance companies. The use of Green bonds provides the necessary diversification of the securities portfolio, improvement of its structure, reduction of risks, increases the confidence of investors and creditors. It is concluded that Green bonds denominated in Euros should be used to improve the structure and quality of international assets of central banks in conditions of falling confidence in the US dollar.

Can Return Forecasts Enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach

Can Return Forecasts Enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach

Contesting the financialization of student accommodation: campaigns for the right to housing in Dublin, Ireland

Financialized student accommodation has emerged as an international asset class and is a more visible and politically contentious feature of Irish cities. In this paper, I focus on Dublin which has seen the construction of for-profit Purpose Built Student Accommodation, and rent increases, skyrocket. Contributing to, as well as advancing, debates on rental market financialization, I present changes to student housing provision tied to financialization and explore the consequences for students’ right to housing. I build my argument around qualitative research undertaken between 2019-2021, namely documentary analysis, focus groups, and key informant interviews. I explore how financialization is contested through engagement with the student housing campaign ‘Shanowen Shakedown’. I present the political outcomes of this campaign and demonstrate that whilst it achieved greater housing rights for students, students continue to battle the uneven geographies of financialization. The paper argues student accommodation is implicated in wider transformations of Dublin’s urban housing system and the ongoing financialization of the private rental sector.