Post-global Financial Crisis Period Research Articles

Bank competition, interest rate pass-through and the impact of the global financial crisis: evidence from Hong Kong and Macao

PurposeThe authors examine the interest rate pass-through in Hong Kong (HK) and Macao both in the long term and short term.Design/methodology/approachThe authors use time series methodology, i.e. unit root, cointegration and error correction models.FindingsThe results show that in the post-global financial crisis (GFC) period, both the long-run and short-run interest rate pass-through from policy rates to prime rates have disappeared in Macao and are weakened significantly in Hong Kong. The long-term relationship between deposit rates and policy rates no longer exists in either market while the short-term relationship has been reduced significantly.Research limitations/implicationsThe results indicate that the effectiveness of monetary policy in HK and Macao has been seriously undermined in the post-GFC period. New tools are needed in both regions.Practical implicationsMonetary policy transmission via bank interest rates in both HK and Macao are no longer effective after the outbreak of the GFC.Social implicationsEffort to stimulate the economy and/or control inflation will be hampered.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the impact of the GFC on the effectiveness of monetary policy transmission in HK and Macao.

The impact of expectations on the co-integration relationship between the stock and REIT markets

This paper examines if expectations have a significant impact on the co-integration relationship between stock and real estate investment trust markets. We use two widely followed expectation indicators which are the US yield spread and the expected US stock market volatility (VIX) to test this hypothesis. The US yield spread is decomposed into two components which are the expected short-term interest rate (EF) and a variable term premium (TP) using Hamilton-Kim algorithm. A dataset covering ten developed markets is used. Using co-integration score analysis our findings indicate that expected US short-term interest rates and expected US stock market volatility have a statistically significant and positive impact on the global co-integrations of different countries. This effect is especially valid in the post-global financial crisis period. The expectation-based indicators EF and VIX, however, do not seem to have a significant impact on co-integration at regional and local levels.

GAS and GARCH based value-at-risk modeling of precious metals

We employ 38 VaR model specifications (32 GARCH and - 6 GAS), assuming Gaussian and non-Gaussian distributional innovations. Using the elicitability property of VaR, we further use the Model Confidence Set (MCS) technique, which creates superior set models (SSMs) and ranks them based predictive ability of the VaR forecasts. We employ 4580 daily log-returns of Gold, Palladium, Platinum, and Silver, which span January 01, 2000, to April 04, 2018, which covers turbulent (Eurozone and Global Financial crises periods) and tranquil (post-Global Financial crisis period) market conditions. We find that, for both 1% and 5% VaR forecasts, Platinum exhibits a higher level of heterogeneity among models in contrast with Silver, Gold, and Palladium. Hence, Platinum has the smallest number of models in the SSM. Empirically, the homogeneity in the SSM is suggestive of well-diversified portfolios for the respective metals. Except for a few models, both DQ and CC tests support adequate forecast abilities of the respective 1% and 5% VaR models. This suggests the strength of the MCS procedure to select superior set models as compared to the initial set of 38 models. Our study is important for internal risk modelling, regulatory oversight and may bolster confidence in global investors concerning investments in precious metals.

Underwriter reputation and IPO underpricing: The role of institutional investors in the Chinese growth enterprise market

This paper investigates the effects of underwriter reputation on initial public offering (IPO) underpricing in the Chinese Growth Enterprise Market, in light of the conflicting evidence in the literature on IPO underpricing. Using data during the post global financial crisis period, we find that IPO firms with prestigious underwriters have lower market-adjusted initial returns on average. We further find that prestigious underwriters reduce IPO underpricing by minimizing the time gap between the offering and listing, choosing high-quality firms to underwrite, and reducing information asymmetry between issuers and investors. In the presence of institutional investors, however, we find that more underpricing occurs, as these investors tend to obtain access to IPO shares at a higher price discount via private placements. This new finding suggests that the institutional investors have a role to play in the case of high under-pricing, which partly gets corrected via underwriter reputation.

International tourism and economic growth in Africa: A post-global financial crisis analysis

Unlike the extant literature, this study revisited the tourism-growth relationship in Africa and accounted for the moderating effects of climatic factors, infrastructural development and political risk on this relationship. The study used the system GMM technique, the panel Granger causality framework, and annual panel data of 41 African countries from 2009 to 2018. Contrary to the tourism-led growth hypothesis, we find that the role of tourism as a driver of economic growth in Africa is predominantly negligible, which in turn suggests that Africa is yet to exploit its tourism potentials to drive growth during the post-Global Financial Crisis period. The study concludes that there is need for African leaders to coordinate policy efforts towards harnessing the tourism potentials on the continent in order to diversify their economies, counter instability in global commodity markets, drive sustainable growth, and fight the twin evils of poverty and unemployment.

A test for the contributions of urban and rural inflation to inflation persistence in Nigeria

ABSTRACT This study tests the contributions of urban and rural inflation to inflation persistence in Nigeria using the fractional cointegration VAR model and the univariate fractional integration approaches. The results indicate a high contribution of urban and rural inflation to the overall inflation persistence in Nigeria albeit with contrasting evidence for the pre-and post-Global Financial Crisis (GFC) periods. While the urban inflation contributed more than the rural inflation to the persistence of the overall inflation during the pre-GFC, the converse holds during the post-GFC. Although, the empirical analysis of the factors underlying this outcome is reserved for future research, bridging the gap between the two inflation subsamples would be a plausible policy action.

On the Elicitability and Risk Model Comparison of Emerging Markets Equities

The need for comparative backtesting in the Basel III framework presents the challenge for ranking of internal value-at-risk (VaR) and expected shortfall (ES) models. We use a joint loss function to score the elicitable joint VaR and ES models to select competing tail risk models for the top 9 emerging markets equities and the emerging markets composite index. We achieve this with the model confidence set (MCS) procedure. Our analysis span two sub-sample periods representing turbulent (Eurozone and Global Financial crises periods) and tranquil (post-Global Financial crisis period) market conditions. We find that many of the markets risk models are time-invariant and independent of market conditions. But for China and South Africa this is not true because their risk models are time-varying, market conditions-dependent, percentile-dependent and heterogeneous. Tail risk modelling may be difficult compared to other markets. The resemblance between China and South Africa can stem from the closeness between their equities composition. However, generally, there is evidence of more homogeneity than heterogeneity in risk models. This is indicated by a minimum of three models (out of six) per equity in most of the countries. This may ease the burden for risk managers to find the optimal set of models. Our study is important for internal risk modelling, regulatory oversight, reduce regulatory arbitrage and may bolster confidence in international investors with respect to emerging markets equities.

Productive Efficiency and Non-performing Assets of Indian Banks in the Post-global Financial Crisis Period

This study endeavours to augment the existing literature on the productive efficiency of Indian domestic banks in the presence of non-performing assets (NPAs), by employing the Weighted Russell Directional Distance Model (WRDDM). Following the intermediation approach, the banking technology set includes three inputs, three desirable outputs and one undesirable output, namely NPAs. Due to their inherent technological heterogeneity, public sector banks (PSBs) and private banks (PVBs) have been analysed as separate groups. Balanced panels of 26 PSBs and 18 PVBs are constructed from 2010-2011 to 2016-2017. The results indicate a considerable scope of improvement in the productive performance of both categories of banks. The break-up of overall inefficiency into input- and output-specific components reveals some stimulating information. For PSBs, the inefficiencies primarily result due to physical capital, while for PVBs they emerge mainly from other incomes. However, NPAs are also a key contributor to inefficiency for both the categories of banks. The inefficiency scores also indicate that, across ownership categories, medium-sized banks are poorer performers than their smaller and larger counterparts.JEL: C14, C61, D24, G21

Cross-stock market spillovers through variance risk premiums and equity flows

We estimate variance risk premiums (VRPs) in stock markets of selected major advanced economies (AEs) and emerging market economies (EMEs) over 2007–2015, and decompose the VRP into variance-diffusive risk premium (DRP) and variance-jump risk premium (JRP). Daily VAR analysis reveals significant spillovers from US and developed Eurozone’s VRPs to the other economies’ VRPs, especially during the post-Global Financial Crisis (GFC) period. We also find that during the post-GFC period, shocks on the DRPs of the United States and the developed Eurozone have relatively strong and long-lived positive effects on other economies’ VRPs, whereas shocks on their JRPs have relatively weak and short-lived positive effects. In addition, we show that increases in the size of US VRP, DRP and JRP tend to significantly reduce weekly equity fund flows to all other AEs and some EMEs during the post-GFC period, while the impacts are limited during the GFC period. Finally, US DRP plays a more important role than US JRP in the determination of equity fund flows to other AEs during the post-GFC period. Such results indicate the possibility of equity fund flows working as a channel of cross-stock market VRP spillovers.

Global Financial Crisis and Islamic Bank Efficiency: Are Efficiencies Stable or Impacted? Evidence From Malaysian Islamic Banks

In examining the impact of the global financial crisis on loan and deposit efficiencies, Data Development Analysis (DEA) is applied in estimating the technical efficiency of loans and deposits of the Islamic of Malaysia during 2008-2013. This study found that the average loan efficiency was 0.83., 0.88, 0.87, 0.95, 1.0, and 0.94 and the deposit efficiency was 0.87, 0.94, 0.94, 0.96, 0.92, and 0.96 during 2008-213 respectively. A comparison of two efficiencies found deposit efficiency dominated the loan efficiency. Second, in testing stability of the efficiencies, this paper used both parametric and the non-parametric tests, as suggested by Jarque Bera Test. Results of parametric test,( ANOVA F-test, t-test, and Welch F-test, and the non-parametric tests, Wicoxon/Mann-Whitney, Median Chi-square, performed on loans and deposits between the global financial crisis period and the post global financial crisis period, found no significant differences between efficiencies of the two period. The failure to reject the null hypothesis of the equality of the mean and median efficiencies between the global financial crisis and the post global financial crisis period suggests that the efficiencies of the Islamic banks of Malaysia are stable. The global financial crisis had no impact on the technical efficiencies of the Islamic banks of Malaysia.

Bank capital and monetary policy transmission in India

ABSTRACT This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital-to-risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Recapitalization to raise CRAR can improve transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence the credit supply of banks depending on their capital position.

Sovereign credit ratings, relative risk ratings and private capital flows: evidence from emerging and frontier markets

PurposeRelative risk ratings measure the degree by which a country’s sovereign rating is better or worse than other countries (Basu et al., 2013). However, the literature on the impacts of sovereign ratings on capital flows has not covered the role of relative risk ratings. This paper aims to examine the effect of relative risk ratings on private capital flows to emerging and frontier market economies is filled. In the analysis, the effect of relative risk ratings to that of absolute sovereign ratings in influencing private capital flows are compared.Design/methodology/approachThis paper examines the influence of sovereign credit ratings and relative risk ratings on private capital flows to 26 emerging and frontier market economies using quarterly data for a 20-year period between 1998 and 2017. A dynamic panel regression model is used to estimate the relationship between ratings and capital flows after controlling for other factors that can influence capital flows such as growth and interest rate differentials and global risk conditions.FindingsThe analysis finds that while absolute sovereign credit ratings were an important determinant of net capital inflows prior to the global financial crisis in 2008, the influence of relative risk ratings increased in the post-crisis period. The post-crisis effect of relative ratings appears to be driven mostly by portfolio flows. The main results are robust to an alternate measure of capital flows (gross capital flows instead of net capital flows), to the use of fixed gross domestic product weights in calculating relative risk ratings and to the potential endogeneity of absolute and relative ratings.Originality/valueThis study advances the literature on being the first attempt to understand the impact of relative risk ratings on capital flows and also comparing the impact of absolute sovereign ratings and relative risk ratings on capital flows in the pre- and post-global financial crisis periods. The findings imply that emerging and frontier markets need to pay greater attention to their relative economic performance and not just their sovereign ratings.

The Impact of GDP and Its Expenditure Components on Unemployment Within BRICS Countries: Evidence of Okun’s Law From Aggregate and Disaggregated Approaches

This article examines the responsiveness of changes in the unemployment rate to changes in output for Brazil, Russia, India, China, and South Africa (BRICS) using aggregate and disaggregated data from 1991 to 2018. We also split the entire sample period into two subsamples (from 1991 to 2008 and 2009 to 2018) to see the responsiveness of changes in the unemployment rate to changes in the GDP in pre and post global financial crisis period of 2007–2008. Three different econometric methods were employed for conducting the analysis. Results obtained from aggregated and disaggregated data for the entire sample and two subsamples confirm the validity of the Okun law for BRICS. The postcrisis period Okun’s law estimates are larger than those from the full sample and precrisis period. Disaggregated data results show private consumption is the main determinant of the unemployment rate and its estimate is negative and significant. Along with consumption expenditures, other variables that have relevancy in determining changes in the unemployment rate are government expenditures, exports, and imports. Based on aggregated and disaggregated data results, it is recommended that the relevant authorities must focus sustainable economic growth for reducing unemployment rate in the country. Particularly, they must incentivize consumption and government expenditures, boost exports, and curtail imports for reducing the unemployment rate.

Global Financial Crisis, Working Capital Management, and Firm Performance: Evidence From an Islamic Market Index

This research investigates the impact of working capital management (WCM) on the profitability and market performance of firms that constitute an Islamic market index (Karachi Meezan Index [KMI-30]) in Pakistan during 2002–2013. The data have been divided into three parts, that is, preglobal (2002–2007), during (2007–2008), and postglobal financial crisis period (2008–2013), to examine the proposed relationship in different macroeconomic settings. Net trade cycle (NTC) and its components are used to measure the WCM efficiency, while NTC square is used to proxy the impact of excessive holdings of working capital on corporate performance. The econometric models are calculated in a generalized method of moments (GMMs)-based regression environment to ensure the robustness of empirical outcome. The results reveal that, as opposed to conventional businesses, KMI-30 firms are more ethical in their short-term financial management. Besides, such firms adopted a conservative WCM policy during the global financial crisis of 2007–2008. Furthermore, we confirm the presence of a concave relationship between working capital levels and firm performance as NTC is positively, whereas NTC square is negatively, related to firm performance. This article makes a significant contribution to the extant literature as it evaluates the impact of WCM on the profitability and market performance of Islamic market indexed firms under varying macroeconomic conditions.

Equity Market Integration and Portfolio Decisions: A Study of NASDAQ USA and MSCI Emerging Markets Asia Indexes

This article studies market integration among the MSCI Emerging Markets Asia Index and the NASDAQ Composite Index for the United States of America (USA) with respect to the 2008 Global Financial Crisis. The study uses a three-level methodology based on short-term integration, long-term integration, and portfolio decisions. The correlation and Granger causality find short-term integration among the majority of the markets. According to the results of the cointegration test and value-at-risk (VAR) analysis, long-term integration exists among the markets in the post–Global Financial Crisis period. The outcome of the portfolio risk-return analysis indicates that investors have many portfolio options where investment diversification can yield better returns and lower levels of risk compared to investing only in the Indian market. Investors can make portfolio diversification decisions based on the integration among markets. Investors can generate better Sharpe ratios with diversification in both the pre-crisis and post-crisis periods. The government and policymakers can apply this information to draft decisions on monetary and economic policies. In addition, multinational companies can design their investment policies after considering integration among their markets. <b>TOPICS:</b>Mutual funds/passive investing/indexing, statistical methods, emerging markets, VAR and use of alternative risk measures of trading risk <b>Key Findings</b> ▪ The markets have become more integrated after the Global Financial Crisis. ▪ Investment in an international market is better than investing only in the home market. ▪ Investors can diversify their funds to other markets as the diversification can result in a better Sharpe ratio.

Shifts in global credit and corporate access to finance

Employing a dataset of 1,160 Indian firms, we study the impact of global financing conditions on firms’ borrowings abroad across different phases of global credit. While the abundant credit in the post global financial crisis period allowed firms to take advantage of relatively cheap financing abroad, we show that firms’ access to external finance has declined since 2013. We find that since 2013, lenders are differentiating across borrowers and it is specifically the less risky and more profitable firms that are increasing their foreign borrowings even at the times of higher global risk. We do not find evidence of regional and domestic credit offsetting this global effect. Furthermore, we find that the reduced access to external finance in the post-2013 period is associated with a decline in firms’ real investment activities, highlighting the real effects of global credit dynamics.

South African Unemployment in the Post-Financial Crisis Era: What are the Determinants?

Abstract Research background: High unemployment rates are one of the greatest economic challenges facing the post-apartheid South African government over the past two decades and this problem has become more worrisome in the post-global financial crisis period. Purpose: Our study examines the determinants of unemployment for the South African economy in the post-crisis period over a quarterly frequency period of 2009:Q1 to 2018:Q4. The determinants are examined for four classes of unemployment rates (total, male, female and youth) and we further partition possible unemployment determinants into fiscal, monetary and macroeconomic variables. Research methodology: We employ the autoregressive distributive lag (ARDL) models. Results: We find income tax, repo rates, economic growth, trade, investment, household debt and savings to be significant determinants of unemployment in the post-crisis South African economy and yet we note discrepancies of the significance of these determinants amongst different unemployment categories. Novelty: No study has examined the determinants of unemployment in South Africa in the post-financial crisis era.

A Network Analysis of the Asia-Pacific and Other Developed Stock Markets: Pre and Post Global Financial Crisis

This paper examines the volatility spillover and connectedness between Asia-Pacific, US, UK, and eurozone stock markets. A spillover index is built using forecast error variance decomposition in a vector autoregression framework and the spillover index is used to build network diagrams. It shows evidence of how the increase in risk transfer (volatility spillover) between the markets led to the global financial crisis and of the higher level of connectedness since. Network diagrams show the direction and strength of the connectedness. The network strength estimation enables us to understand the risk associated with connectedness across the markets in the event of a trigger and its influence in portfolio management decisions of international funds. The Chinese market appears to be the most insulated, while the South Korean, Hong Kong, and Singapore stock markets dominate in terms of risk transfer. The US, UK, EU, Singapore and Hong Kong are the top five volatility spillover recipient markets, both during pre and post global financial crisis periods. We find the market size to be irrelevant in the determination of the level of connectedness, whereas the role of geographical proximity cannot be ruled out. The findings are relevant to multinational investment strategies and in understanding the relative risk of investment in the Asia-Pacific region.

Bank lending: The bank ownership focus in the pre- and post-global financial crisis periods

The objective of this research is to examine the impact of bank ownership on the composition of working capital, investment, and consumption loan types before and after the global financial crisis (GFC). The data has been grouped into pre-GFC and post-GFC sub-periods. The pre-GFC period encompasses the post-Asian crisis time period until 2006, just before the start of the GFC. The post-GFC period comprises the time period 2009 until 2016. Data were obtained from the Indonesian Banking Directory of the Indonesian Central Bank, commercial bank annual reports provided by Infobank magazine, and the Indonesian Banking Development Institute. The findings reveal the differences and changes in the composition of loan types for the different forms of bank ownership. Government-owned banks tend to focus on consumption loans, whereas foreign-owned banks outpace domestic-owned banks in the financing of working capital loans. After the GFC, government-owned banks increased their consumption loans significantly. This research augments the knowledge about loan portfolio compositions and trends pertaining to different bank types. It can serve as a benchmark and can be applied to enhance decision-making in the banking industry. Furthermore, Indonesian regulating authorities can utilize the information from a strategic and policy perspective to monitor, manage and control financial intermediation from a macroprudential perspective.

The impacts of structural oil shocks on macroeconomic uncertainty: Evidence from a large panel of 45 countries

Using local projection methods, this paper employs monthly panel data from 1989 to 2017 to examine both linear and nonlinear impulse responses of macroeconomic uncertainty to structural shocks to global oil production, aggregate demand, oil-market-specific demand and speculative demand in a large group of 45 economies. We find that both oil supply and demand shocks are important drivers of uncertainty. There is strong evidence that the impacts of oil price shocks on macroeconomic uncertainty are regime-dependent and contingent on the states of investor sentiments and perceived volatility in financial markets. The responses of economic uncertainty to oil shocks, especially demand-side shocks, appear to experience a dramatic change in the post-Global Financial Crisis period. • This paper examines the impacts of oil shocks on uncertainties in a large group of 45 economies. • A local projection method is used and linear and nonlinear impulse responses are identified. • The impacts of oil shocks on macroeconomic uncertainty are regime-dependent. • Macroeconomic uncertainty reacts positively to oil supply shocks during high-volatility periods. • The impacts of oil shocks on uncertainties experience dramatic changes in the post-GFC period.