Short-term Securities Research Articles

COVID-19 and redemptions from Irish-resident bond funds

This paper examines net redemptions from bond funds domiciled in Ireland at the onset of the COVID-19 pandemic. We analyse various empirical specifications to determine whether factors such as fund leverage, measures of liquidity, portfolio risk and portfolio concentration, among others, explain outflows from Irish-domiciled bond funds in March 2020. The findings indicate that funds with a larger share of short-term securities and riskier bond portfolios experienced higher redemptions. Our analysis also suggests that fund size and age are significant factors affecting outflows. When examining various sub-samples, we find evidence of more reactive behaviour among investors in actively managed funds compared to passively managed funds. We also find that retail bond funds demonstrate greater sensitivity to risk and leverage, while professional funds show evidence of lower risk aversion. These results provide insights that can help inform policymakers’ view of regulatory tools for market-based finance, a key priority internationally.

Short-term Securities Market Surveillance Measures and Market Performance– An Empirical Analysis

Regulators use securities market surveillance as an essential tool to guard against market manipulation, safeguard investors, and maintain the effectiveness of the markets. In an effort to thwart open market manipulation SEBI in consultation with the exchanges has put in place a unique surveillance mechanism known as Additional Surveillance Measures (ASM). The short-term impact of this surveillance measure on stock prices and trading volume is examined in this study, using event study methodology. The sample data consists of 245 instances, where companies were subject to ASM surveillance actions for a brief period. The results of the study show that the Cumulative Abnormal Return (CAR) on the stocks decreased after inclusion into STASM and the same persisted after exclusion also. However, the average abnormal volume (AAV) changed significantly in the pre- and post-event period.

Comparative Performance Analysis of Conventional and Islamic Banks in Nigeria Using Camel Rating Model

This study examines financial performance of Conventional and Islamic banking in Nigeria using CAMEL rating model covering the period of 2012-2022. Secondary sources of data were collected from the bank’s financial statements. The study adopted an ex-post facto research design and purposive sampling technique to select the sampled banks for the study. Two banks Jaiz Bank Plc and Unity Bank Plc (both from Conventional and Islamic banks) were drowned to serve as the study sample. Descriptive and inferential statistics was used as tool of analysis to show the trends of performance (CAMEL) between the two banks using mean, minimum, maximum and standard deviation and also to check the relationship between the variables. Further, in inferential statistics, t-test was used to compare and test the significant variation between CAMEL components of the banks. The results showed the existence of low and negative trends in the quality of earnings of both banks. It also showed trends of performance between the two banks are significantly affected by all the CAMEL components. Moreover, results from t-tests showed a significant variation of three CAMEL components and the acceptance of alternative hypothesis. The study recommended the management of both bank should put more effort to mitigate the negative return volatility of the banks. Both bank need to have strong liquid-based or near liquid e.g., short-term securities (government bonds). A lot more effort needs to be made to create value-based products.

MONEY MARKET INSTRUMENTS AND ECONOMIC GROWTH IN NIGERIA

<p>This paper examined the effect of money market instruments on economic growth in Nigeria from 1980 to 2020. To achieve the above objective, secondary data on real gross domestic product, treasury bills, commercial papers, bankers’ acceptances and monetary policy rate were sourced from the statistical bulletin of Nigeria’s apex bank. The Error Correction Mechanism (ECM) was used as the main analytical tool. The result revealed that all the instruments of money market – treasury bills, commercial papers and bankers’ acceptances have positive effect on economic growth in Nigeria during the period of study. This means that money market instruments – treasury bills, commercial papers and bankers acceptances enhanced economic growth in Nigeria during the period of study. However, only bankers’ acceptances significantly (meaningfully) influenced economic growth in Nigeria during the period of study. What this suggests is that though treasury bills and commercial papers have contributed to economic growth in Nigeria from 1980 to 2020, but their contribution is very low to trigger a meaningful increase in economic growth. At the same time, Monetary Policy Rate has negative and insignificant relationship with economic growth in Nigeria during the period considered in this study. The study concluded that money market instruments - treasury bills, commercial papers and bankers’ acceptances have impacted on economic growth in Nigeria. Therefore, recommended that government should put in place policies that will increase the operations of money market in Nigeria in order to make short-term securities and loans available for investment. Deposit money banks and other operators in the money market should be encouraged to possess sufficient approved securities for trading in the money market. Government should ensure easy and effective communication between the operators in the money market. At the same time, there should be a downward review of the cost of raising funds in the Nigerian money market so as to enhance competitiveness and improve the attractiveness of the market as one of the major sources of raising funds for investment which in turn will increase economic growth in Nigeria.</p><p><strong>JEL</strong>: E44; G14</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0214/a.php" alt="Hit counter" /></p>

Interest Rate Uncertainty as a Policy Tool?

We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external accounts between short-term securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate pass-through. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Impact of Insurance Companies Investment on Bank Liquidity and Economic Growth of Nigeria

The study examined the impact of insurance companies’ investment on bank liquidity and economic growth of Nigeria. This is basically to determine the extent of insurance companies contribution to liquidity formation in the banking sector which has being the major cause of bank failures as a financial intermediary and a dealer in short-term securities thereby mobilizing resources for real economic sector. The population of the study is made up of the fifty-nine Nigeria (59) insurance companies in Nigeria. Time series data from the central bank statistical bulletin on total insurance business investment was the source for secondary data. The study employed both inferential and Descriptive Statistics. The E-view statistical package was used for data analysis and test for three (3) hypotheses. The study reveals that there is no significant relationship between short-term investments of insurance companies and banks liquidity, that there exist no significant relationship between short term investment of insurance companies and liquidity formation of the Nigerian money market. The study also reveals that there exist a positive but not significant relation between insurance premium and Gross Domestic product in Nigeria. The study concludes that insurance companies in Nigeria do not impact significantly on the liquidity of banks, money market and economic growth in Nigeria. The study recommends that insurance companies be recapitalized to afford them more resources to expand their investment portfolios to stimulate liquidity formation. That the insurance companies should be more innovative and provide more services to courte public attention and participation to close the insurance gap. The National Insurance Commission (NAICOM) should also ensure compliance and adherence to regulations in the industry.

Fund Share Gains Lead to Borrower Pains: Investor Competition and the Cost of Capital

I provide evidence that investor size matters in the market for short-term securities. Between January 2011 and November 2020, the largest asset management families obtained significantly higher promised returns from their money market securities than smaller families. Furthermore, I show that the enactment of Money Market Mutual Fund reforms on October 2016 decreased measures of competition in several categories of Money Market Mutual Funds. Consistent with improving market power, the largest fund families raised their lending rates (by 8 basis points) on their existing borrowers. These results highlight the trade-off in enacting macro-prudential policies and encouraging capital market efficiency.

Short-term debt catering

Focusing on investments by US money market mutual funds (MMFs) in nonfinancial commercial paper, this study shows that the demand for corporate short-term securities by preferred-habitat investors is positively associated with the use of short-term debt by firms. Consistent results are found when using a longitudinal dataset with a monthly frequency and a firm-quarter panel dataset; instrumenting the demand by MMFs; measuring the demand by MMFs at the level of individual issuers; and exploiting an exogenous change in regulation for identification. These findings support the idea that corporations cater to investors' preferences in choosing their debt maturity structure.

Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing*

Abstract From January 2011 through March 2018, the Bank of Japan purchased equity index exchange-traded funds (ETFs) worth about 3.5% of GDP. Identification of the effect of central bank ETF purchases on stock valuations and corporate responses is via differently-weighted and changing stock indices. BOJ purchases lift valuations, increase share issuances, and increase total assets. On average, the latter increase is due to cash and short-term securities rather than capital investment. However, firms with worse corporate governance do increase capital investment. These findings suggest central bank equity purchases are a problematic tool for stimulating economic growth through high broad-based private-sector corporate investment.

Money Market: A Study with Reference to India

A well regulated financial sector is essential in globalize economy. Financial innovation has contributed in the economic development. A financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government. The definition of money for money market purposes is not confined to bank notes but includes a range of assets that can be turned into cash at short notice, such as short-term government securities, bills of exchange, and bankers’ acceptances This paper analyses the real effects of financial markets subsequent to financial liberalization in an economy with risk averse savers and learning by lending. Transition from full financial repression to full financial liberalization might initially slow down the growth process or even induce a recession, whenever the initial level of valuable investments known by the financial intuitions is sufficiently scanty. However, lending activity leads to accumulation of information (learning by lending) regarding valuable investments. The purpose of this paper is to advocate and encourage financial markets in the overall development of the economy.

The Determinants of Liquidity Risk in Islamic Banks: A Case of Sudanese Banking Sector

Liquidity risk either due to a surplus or serious shortage in liquidity has a significant impact to the performance and sustainability of Islamic banks. Nevertheless, there are still no common agreement on specific factors that determine the liquidity risk in Islamic banking. This study investigates the determinant factors that affect the liquidity risk of Sudanese Islamic banks. A sample of 11 banks has been selected for a period of 7 years (2012 – 2018). The study is based on secondary data that analysed using Pearson correlation and multiple regression analysis for hypotheses tests. It investigated the explanatory variables of the bank’s cash position (CASH), investment in short-term securities (SECA), degree of financing the assets from customers’ deposits (DPAS) and bad financing and credit risk (NPL) as representatives of banks’ specific factors plus one microeconomic factor which is Gross Domestic Product (GDP). The analysis found a significant and negative relation of CASH and SECA with the liquidity risk in Islamic banks. On the other hand, the results reveal that the DPAS and NPL variables have a positive relation and significant, while the GDP seen to be irrelevant to liquidity risk in Islamic bank. The importance of the study is that it touches the most significant type of risk that most of Sudanese Islamic banks face, and the data analysed covers a relatively longer period of time than similar studies for a single country. We target that the study contributes in providing decision-makers with reasonable ground for prediction and managing the liquidity risk.
 JEL Classification: G21, G17, G32.

Liquidity Risk Management in Full-Fledged Islamic Banking System

This study aims to assess the determinants of liquidity risk in the full-fledged Islamic banking system of Sudan, using panel data regression. The dependent variable in this research is the liquidity risk, which is determined as the extreme excess or extreme shortage of liquidity in each bank, based on the VaR approach, and the independent variables are bank size, investment, profit, and the budget deficit during the period 2012-2016. The authors’ findings indicate the bankspecific variables such as the size, investment, and profit are statistically significant, whereas the budget deficit variable is negatively associated with liquidity risk but is insignificant. The insignificance of the budget deficit variable is an indication of the government reliance on its deficit financing on debt financing, i.e., excessive money creation, as contrary to equity financing. Also indicated in the paper is that the investment variable has a positive and significant effect on liquidity risk, indicating that Islamic banks’ investment portfolios are dominated by short-term securities (sikook). This result supports the findings in the literature that investment portfolios in Islamic banks are likely to be dominated by short-term investment securities as a result of the absence of risk-hedging tools in the Islamic banking system, in general. The finding in the paper also indicates a positive and significant sign of profit coefficient with liquidity risk, which is similar to the positive association between higher risk and higher earnings relationships portrayed in the literature of corporate finance. The effect of the size indicator on liquidity risk reveals a positive and significant association, implying that larger banks are more likely to face liquidity risks of shortage as well as excess liquidity.

Volatility and Long Memory Modeling of Exchange Rate Case of Algerian Interbank Market

In this paper we will try to identify and modeling the phenomenon of dependence of short and long term exchange rate volatility through a well-founded approach on the long memory process. The reform of the interbank market is part of the economic recovery program launched by the authorities in 1988. The reorganization of the money market which served to supplement the liquidity needs of banks after exhaustion of refinancing possibilities "counter rediscount ", has undergone significant changes since its reorganization from 1989 to date, in particular, with new players. This note identifies its organization and prospects, as well as the new methods of intervention by the Bank of Algeria. Besides the interbank market, a market for negotiable debt securities will be set up and will thus form a new money market, in the broad sense., the market for negotiable debt securities presents itself as a hinge between the short and long term capital markets where a range of short and medium term securities are offered to agents with financing capacity, such as treasury bills, cash and certificates of deposit. Our empirical study concerns a sample covering average prices GBP, USD and EUR during the overall period of market functioning Algerian interbank exchange rates (March 2008- March 2018). the results obtained testify the presence of a certain phenomenon of long-term persistence in the volatility of exchange rate. FIGARCH-type processes seem to surround this phenomenon.

Medium-Term Debt Management Strategy: Analytical Tool Manual

This report provides guidance on using the Analytical Tool of the Medium-Term Debt Management Strategy (MTDS). The MTDS framework consists of a methodology, published as the ‘Guidance Note for Developing a Medium-Term Debt Management Strategy’, and an associated analytical tool (AT) that can be used to assess the cost-risk trade-offs of alternative strategies to help identify the preferred strategy. The MTDS framework supported by the AT quantitative analysis helps to determine the financing strategy. The chosen debt management strategy sets out the financing composition path to meet the debt management objective(s). The profile of future interest payments and the amortizations of new debt are driven by the debt management strategy. The MTDS AT is based on annual cash flow. Although this assumption is enough for analyzing alternative debt management strategies, in some cases, particularly for countries that are heavily dependent on short-term securities with maturities of less than a year, it would be helpful to work with cash flows with higher frequency.

THE IMPORTANCE OF PUBLIC DEBT IN THE ECONOMY- THE CASE OF THE REPUBLIC OF MACEDONIA

The issue of public finance stability is one of the many issues for which many analyzes are made whether high budget deficits are causing them or not. Also, the sustainability of the state debt is presented as a global political and economic challenge. In the long run, public debt impacts on economic growth, lowering the tax rate, promoting macroeconomic income savings, and facilitating equality between layers in society. Public debt is different from private debt, which makes it even more important to analyze its effects. Public debt in general is a disturbing term. Public debt represents the accumulated loan value that the state has taken to finance past deficits. Huge part of the public debt is in short-term securities such as government bonds that carry interest. Public debt poses a burden on the economy because it must also return, reducing national incomes. It may be external and internal debt. Domestic debt represents the share of public debt that the state owes to its businesses and citizens. Domestic debt arises from the state's need for money, for boosting economic or social infrastructure.

Medium-Term Debt Management Strategy: Analytical Tool Manual

This report provides guidance on using the Analytical Tool of the Medium-Term Debt Management Strategy (MTDS). The MTDS framework consists of a methodology, published as the ‘Guidance Note for Developing a Medium-Term Debt Management Strategy’, and an associated analytical tool (AT) that can be used to assess the cost-risk trade-offs of alternative strategies to help identify the preferred strategy. The MTDS framework supported by the AT quantitative analysis helps to determine the financing strategy. The chosen debt management strategy sets out the financing composition path to meet the debt management objective(s). The profile of future interest payments and the amortizations of new debt are driven by the debt management strategy. The MTDS AT is based on annual cash flow. Although this assumption is enough for analyzing alternative debt management strategies, in some cases, particularly for countries that are heavily dependent on short-term securities with maturities of less than a year, it would be helpful to work with cash flows with higher frequency.

THE FINANCIAL MARKET AS THE BASIS OF ECONOMIC CORPORATE DEVELOPMENT

The article examines the role and importance of the financial market in the modern economic system. It is determined that the financial market is one of the spheres of market economic relations, the specificity of which is that the object of sale is financial funds. It was found that in the early stages of financial relationship development, financial asset purchase and sale agreements were concluded directly between the owner and the consumer of capital. However, as the world's wealth and scale of production grows, the volume of such agreements has increased substantially, and the conditions for their implementation have become more difficult. It is noted that the financial market consists of two fundamentally different areas - the securities market and the bank loan market. It has been investigated that corporations are one of the subjects of the financial market. They act on it as large issuers, sellers of their securities and large investors who invest their temporarily free funds in financial assets. As an issuer, the corporation acts on the financial market as a debtor-borrower as an investor - a lender-lender. In the financial market, the corporation functions as a net borrower. It is established that the corporation is active in all spheres and segments of the financial market: in the money and stock markets, in the market of bank loans, in the primary and secondary markets, in the stock and over-the-counter markets. Market choice is determined by the operational and strategic goals that corporate financial managers set for themselves. In the money market, the corporation acts as an issuer of short-term securities, in the market of bank loans - a borrower of short-term capital in order to mobilize short-term funds to finance working (working) capital. In the stock market, it issues long-term securities in order to finance long-term development projects. It is noted that the main advantage of a large corporation as a form of business organization is the ease of transferring ownership rights and the relatively quick receipt of additional cash through the issue of new shares. This advantage is realized in the financial (stock) market, which plays an important role in corporate financing of economically developed countries. The conclusions about the role and importance of the corporation's activity in the financial market have been made.

VOLATILITY MEASURES, LIQUIDITY AND CREDIT LOSS PROVISIONS DURING PERIODS OF FINANCIAL DISTRESS

In this paper, we investigate the role of liquidity in banks lending activity and how liquidity provision is related to bank’s credit risk and others market-based risk measures, such as bank’s implied volatility skew from options traded on the market and realized volatility from futures contract on LIBOR, during periods of global financial distress. Credit risk is given by the ratio between loan loss reserves and total assets and we find that losses from lending activity force banks to build up new liquidity provisions only during the period of financial distress. Liquidity ratio is given by the sum of cash and short-term assets over total assets and we discovered that credit risk reduces liquidity ratio only in bad times, as this demand for liquid asset is suddenly switched on and the more reserves from loan losses the bank has, the more it cleans its balance sheet from long-term commitments in order to replenish its cash and short-term securities. When we control for market-based risk measures, we evidence that both implied volatility skew and LIBOR’s realized volatility are negatively related with the liquidity ratio and are useful in predicting a distress in bank’s liquidity holdings.

The explosive growth of the ABCP market between 2004 and 2007: A “search for yield” story

The years immediately preceding the financial crisis of 2007 witnessed an explosive growth in the supplies both of the long-term securities issued by the shadow banking entities, the asset-backed securities (ABSs) and collateralized debt obligations (CDOs), and of the short-term securities issued by these entities, notably asset-backed commercial paper (ABCP). Although there is now some acknowledgment that the search for yield was the major driver of ABS and CDO growth in the United States, the same is not true of the U.S. ABCP market where other factors such as regulatory arbitrage on the part of banks or the safety and liquidity concerns of institutional investors are seen as having been the more important growth driving force. This article argues that the search for yield did play a crucial role in U.S. ABCP growth between 2004 and 2007. To back up this argument, the article points to four variables that were closely correlated with this growth: the federal funds rate; U.S. money market mutual funds asset holdings; the change in the geographical breakdown of the institutions supplying ABCP; and, finally, the change in the program breakdown of the ABCP market.

Impact of Operating Liquidity on Profitability of Pharmaceutical Firms in Nigeria

Operating liquidity involves the most liquid resources of the firm which includes cash and cash equivalents, inventories, trade debtors and other receivables. Most firms do not ensure optimal level of operating liquidity and this has been a major obstacle to their overall profitability. The study examined the impact of operating liquidity on the profitability of Pharmaceutical firms listed on the Nigerian Stock Exchange. Correlation and expost facto research design were used in a sample of 5 Pharmaceutical firms. Secondary data for a period of 10 years (2002-2011) was used, and Ordinary Least Squares (OLS) multiple regression was employed in data analysis. The study found that operating liquidity (account receivables collection, accounts payables management) has a significant impact on the profitability of listed pharmaceutical firms in Nigeria. It is therefore recommended among others that managers should, collect receivable as soon as possible because it is better to receive inflows sooner than later, and delay payment of creditors in order to invest the money in short-term securities which are profitable.