US Investment Research Articles

Dynamism of US Trade and Investment Policy and the Accrual of Economic Benefits for Sub-Saharan Africa Development

US trade and investment policy has consistently sought, although with nuances, to promote American and partners’ economic growth and competitiveness by advancing a transparent, open and non-discriminatory trading system, as well as reducing barriers to investment and global trade. This paradigm applied equally to the US-Sub-Saharan Africa trade and investment relationship. In this context, many have strived to explain with supporting and convincing evidence that US economic interests drive this country trade and investment policy towards Sub-Saharan Africa. However, the current body of literature is silent about the long-run trend of the economic benefits for Sub-Saharan Africa (SSA) development resulting from the dynamism of this US policy. This paper addresses this issue. In this sense, the paper argues that since President Bill Clinton came to power still now, the dynamism of US trade and investment policy towards Sub-Saharan Africa led relentlessly to the accrual of economic benefits deemed capable of paving the way for this region development so much sought after by many. The paper came up with the above claim after analysing a set of interview data on the exercise of US trade and investment policy towards Sub-Saharan Africa (SSA) and by exploring an array of flagship business platforms through which successive US governments engaged for a more re-balancing economic partnership in favour of this Africa’s region. Keywords: US trade and investment, accrual of economic benefits, Sub-Saharan Africa development . DOI: 10.7176/JESD/12-18-08 Publication date: September 30 th 2021

The conditional volatility premium on currency portfolios

Our paper examines conditional risk-return relations in a number of currency investment strategies, while modeling economic states using a large number of underlying risk factors. We identify a time-varying relationship between currency returns and volatility risk for most currency portfolios. In particular, value and momentum portfolios present risk-return relationships which switch sign, depending upon economic states. The positive relationship for the value portfolio is associated with “flight to quality” periods and the mean reversion for nominal exchange rates during financial crises. The positive relationship for the momentum portfolio is linked to the US and global business cycles and investors require positive compensation for risk in recessions.

Investigating dynamic interdependencies between traditional and digital assets during the COVID-19 outbreak: Implications for G7 and Chinese financial investors

This paper discusses the relationship between the volatilities of traditional and digital assets before and during the COVID-19 pandemic. Using daily data relevant to the period ranging from January 4, 2016, to April 15, 2020, the results of the DCC-MVGARCH model indicate that the stock markets responded to the Coronavirus outbreak as the crypto market with worrying volatility. Before this outbreak, Bitcoin and gold are considered as a hedge for US, English, French, German, and Italian financial investors. The conditional correlation between stock indices and other assets was skyrocketing during this pandemic, except for the couple SSE-Ripple.

Promprylad.Renovation: impact investing in emerging markets

Learning outcomes The learning outcomes of this paper is as follows: to structure the impact investing phenomenon and distinguish it from traditional investing or philanthropy, including the motivation of investors in impact investing projects; to analyse stakeholders in impact investing projects according to four main categories; to structure the implementation model of the theory of change in the context of impact investing; to build managerial decisions concerning the development of impact investing projects in crisis situations. Case overview/synopsis The case describes the development path of the Promprylad.Renovation project from its concept to the critical moment at the end of 2018. Yuriy Fyliuk – the case protagonist, acts as the main ideologist and leader of the project, the essence of which is the establishment of an innovation centre on the area of the old Promprylad plant in Ivano-Frankivsk. Impact investing was selected as the main project development tool, as it allows for attracting investors who share the aspiration for positive change of the city and potential financial benefit. The project is implemented in several stages as follows: partner involvement (Insha Osvita, MitOst, Pact Ukraine and LvBS), vision finalisation and research (together with Stanford Research Institute, Zotov & Co, FORMA Architects, Moris Group, etc.), the launch of the pilot floor (attracting more than $683,000 from allocated grants and more than $590,000 of private investments). Open equity crowdfunding and the purchase of the entire plant, with its subsequent renovation, should be the next stage. As of 2017, agreements have been reached to pay fully for the purchase of the plant by the end of 2019. After a successful pilot and lengthy negotiations, it was agreed that $1,000,000 should be paid by the end of 2018 and $2,000,000 by the end of 2019 to complete the buyout. However, as of the end of 2018, martial law was proclaimed in Ukraine. Hence, considering the risks, a major US investor refuses to contribute. The main dilemma is either to find a suitable solution to complete the buyout of the plant or to stop the project. Complexity academic level This case can be used in the master’s programmes of business schools (MBA, Executive MBA, Entrepreneurship, etc.), as well as in training programmes for public and state sector managers. The case study will be particularly useful for mixed groups with representatives from different sectors of the economy. This case study might be taught in the following disciplines: social entrepreneurship, social investing, leadership and crisis management. The subject of impact investing allows recognition of the benefits of combined cross-sectoral efforts over joint projects. Supplementary materials Teaching notes are available for educators only. Subject code CSS 7: Management science.

Mind the rent gap: Blackstone, housing investment and the reordering of urban rent surfaces

Recent years have seen a burst of new writing on the opening and closing of urban rent gaps. Such studies generally consider individual cases. Rarely does the opportunity arise to readily compare and contrast rent gaps across multiple cities and territories, least of all within the context of a single developer or investor portfolio. Such an opportunity has arisen in the past decade, however, as the US investment firm Blackstone has pursued a multi-territory housing-investment strategy specifically of identifying and closing rent gaps, which it styles ‘buy it, fix it, sell it’. This article examines that strategy and the varying nature of its implementation in Danish, German, Swedish and US cities. It argues that the rent gap is a paradoxical phenomenon: vast gaps, promising vast profits, frequently open up and frequently remain open for long periods before being closed – if they are closed at all. A primary reason is that successful and profitable closure requires not just favourable local political-economic conditions but a singularly well-funded, determined and aggressive investor – an investor, that is, such as Blackstone.

On resolving exchange rate exposure puzzle: evidence from Chinese stock market

PurposeIt has been increasingly recognized that exchange rate changes affect the cash flow and the value of firms. Existing studies on exchange rate exposure do not have much success in finding significant exposure, and the failure to find this relationship empirically has been termed “exposure puzzle”. Motivated by the limited success in detecting significant exchange rate exposure in the extant literature, China's exchange rate regime reform in 2005, the increasing role of China's stock market played in the global financial market and its attractiveness in international portfolio diversification, the purpose of this paper is to resolve the so-called “exposure puzzle” and thus make a contribution to the literature by investigating whether the renminbi (RMB) exchange rate movements have any significant impact on China's stock market from the perspective of US investors who may want to diversify their portfolios with Chinese stocks.Design/methodology/approachSince previous studies which rely heavily on the standard Ordinary Least Squares (OLS) or seemingly unrelated regression (SUR) method of estimation with the assumption of constant variance of firm's or industry's returns do not have much success in detecting significant exchange rate exposure, in this study, we apply an asymmetric GARCH(1,1) with generalized error distribution (GED) model which takes conditional heteroscedasticity and leptokurtosis of asset returns into account in the estimation of first- and second-moment exchange rate exposure.FindingsUsing weekly data over the period August 10, 2005–January 1, 2020 on 40 Chinese sector stock returns, the authors find strong evidence of first-moment exchange rate exposure. In particular, 65% (26 out of 40) of sectors examined have significant first-moment exposures and 73.08% (19 out of 26) of these significant first-moment exposures are asymmetric. For the second-moment exchange rate exposures, they are less frequently detected with 20% (8 out of 40) significant cases. These results are robust to whether an unorthogonalized or orthogonalized bilateral US dollar (USD)/Chinese Yuan (CNY) exchange rate is used in the estimation.Research limitations/implicationsBecause this study concerns only with whether exchange rate movements affect ex post returns as opposed to expected (ex ante) returns, and given the significant exposures with respect to different risk factors found in the study, it is interesting to see if any of these risk factors commands a risk premium. In other words, a natural extension of this study is to test whether any of these risk factors is priced in China's stock market.Practical implicationsThe findings of the study have interesting implications for US investors who would like to diversify their portfolios with Chinese stocks and are concerned about whether the unexpected movements in CNY will affect their portfolio returns in addition to its local and world market risk exposures.Originality/valueThe study extends previous research on the first- and second-moment exchange rate exposure of Chinese stock returns by utilizing an asymmetric GARCH(1,1) with generalized error distribution (GED) model, which has not been fully exploited in the literature.

Do Green Bonds Act as a Hedge or a Safe Haven against Economic Policy Uncertainty? Evidence from the USA and China

Economic policy uncertainty and particularly COVID-19 has stimulated the need to investigate alternative avenues for policy risk management. In this context, this study examines the dynamic association among economic policy uncertainty, green bonds, clean energy stocks, and global rare earth elements. A dynamic conditional correlation-multivariate generalized autoregressive conditional heteroscedasticity (DCC-MGARCH) model was used to gauge the time-varying co-movements among these indices. The analysis finds that green bonds act more as a hedge than a safe haven against economic policy uncertainty (EPU). In the case of diversification, green bonds work as diversifiers with clean energy stocks and rare earth elements during COVID-19 and in the whole sample period. Additionally, clean energy stocks and rare earth elements show safe haven properties against EPUs. This study contributes to the hedging and safe haven literature with some new insight considering the role of green bonds and clean energy stocks. Additionally, the outcomes of the research contribute toward the literature of portfolio diversification theory. These findings pave the way for not only US investors to hedge long-term economic policy risk by investing in green bonds, but also for China and the UK, as these financial assets (green bonds, clean energy stocks, and rare earth metals) and EPU are long-term financial and economic variables.

Chinese and Global ADRs: The US Investor Experience

We study outcomes to ADR (American Depositary Receipt) investments between August 1954 and September 2020, with particular attention to ADRs associated with Chinese firms. Overall, ADRs improved investors’ wealth by $1.03 trillion, with more than a third of this amount attributable to ADRs associated with Chinese firms. A value-weighted portfolio of ADRs associated with Chinese firms earned 14.1% per year since the first Chinese ADR was created in 1993, as compared with 9.9% per year for the overall US stock market over the same period. These data are relevant to current policy discussions focused on Chinese firms listed in the United States.

Designing international tax reform: lessons from TCJA.

The Tax Cuts & Jobs Act (TCJA) introduced the most significant changes to the US international tax system in decades. The law changes have been criticized for reducing equity, benefiting wealthier business owners at the expense of individuals in the long term (while also increasing the deficit) adding to complexity, and creating incentives for shifting profits and activities offshore. These critiques give rise to the question of how best, and under what criteria, to evaluate the changes to the international tax system brought about by the US tax reform. This paper analyzes the tax law changes adopted in the TCJA that impact cross-border investment within the context of several decades of policy proposals that recognized the flaws and deficiencies of the prior system and attempted to develop proposals that balanced creating incentives for the efficient use of capital and the benefits of US investment overseas while minimizing incentives for profit shifting. Reviewing the various provisions of the law in the context of a series of reform proposals made over the previous decade shows the extent to which most of the international law changes introduced by the TCJA closely followed these well-developed ideas. And yet, there appears to be a disconnect between the goals of the law change and the extent to which the laws as enacted have effectuated that change. The divergence provides a cautionary tale for public finance economists wishing to engage in international tax regime change.

Imposing versus Enacting Commitments for the Long‐Term Energy Transition: Perspectives from the Firm

Imposing versus Enacting Commitments for the Long‐Term Energy Transition: Perspectives from the Firm

Recovering “Lay Ignorance” in the Stanford Financial Group Ponzi Scheme

AbstractThe Stanford Financial Group’s 2009 collapse devastated more than 20,000 depositors across the Americas. News stories portrayed the $7.2 billion fraud as an elaborate production of ignorance, and its middle-class marks as silent dupes. Media accounts thus differed little from dominant schools of ignorance scholarship, which have emphasized how powerful organizations use their expertise to foist ignorance on passive publics. However, the notion that laypeople are voiceless in such processes is empirically and theoretically untenable. Drawing on interviews with 103 defrauded Stanford clients in the US and Venezuela, this article shows that laypeople play an active interpretive and storytelling role in producing “lay ignorance” in the course of transacting with institutions, personnel, technologies, or products they lack the means to comprehend. Repurposing the concept of “jurisdiction,” I frame “layperson” as a role marked by its distance from the forms of authority that comprise expertise. As my comparison of US and Venezuelan investors reveals, laypeople nonetheless stitch surrogate forms of normative and epistemic authority from inapposite sources to produce their “lay ignorance.” The resulting accounts, I demonstrate, draw opportunistically from laypeople’s institutional, cultural, and political contexts.

The Global Determinants of International Equity Risk Premiums

<ns2:p>We examine the commonality in international equity risk premiums by linking empirical evidence for the international stock return predictability of US downside and upside variance risk premiums (DVP and UVP, respectively) with implications from an international asset pricing framework, which takes the perspective of a US/global investor and features asymmetric global macroeconomic, financial market, and risk aversion shocks. We find that DVP and UVP predict international stock returns through different global equity risk premium determinants: bad and good macroeconomic uncertainties, respectively. Across countries, US investors demand lower macroeconomic risk compensation but higher financial market risk compensation for more-integrated countries.</ns2:p>

Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire; good news travels slow

In this paper, we decompose attention allocation into two components – the familiar and the surprising – with opposite implications for US purchases of foreign stocks. On the one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand, surprise-induced attention is associated with net selling of foreign stocks because US investors tend to pay more attention to negative than to positive economic surprises from foreign countries. Our findings suggest that information asymmetries between locals and non-locals are more pronounced when it comes to good news, with information regarding bad news being relatively symmetric.

Should Index Providers Be Regulated as Investment Advisers under the US Investment Advisers Act of 1940

The increasing importance of the index industry to the financial marketplace has drawn the attention of the US Securities and Exchange Commission (SEC). The use of custom, foreign, and narrow-based indexes and self-indexing has generated regulatory concerns, including possibilities of improper index selection procedures, misleading index descriptions, inadequate or misleading custom index disclosures, and self-dealing. Suggested remedies include requiring index providers to register with the SEC as investment advisers under the Investment Advisers Act of 1940 (act). Historically, index providers have relied on an exclusion from registration under the act; this proposal queries their entitlement to rely on the exclusion. If index providers are required to register, it is unlikely that regulation under the act would prove useful. Rather, enhanced disclosure and the application of existing securities laws, including those dealing with disclosure and antifraud concerns, and current SEC investigative and enforcement activities in appropriate cases should be sufficient to deal with the SEC’s concerns. <b>TOPICS:</b>Mutual funds/passive investing/indexing, information providers/credit ratings, legal/regulatory/public policy <b>Key Findings</b> ▪ Regulatory concerns are focused on possible abuses occurring in connection with custom, foreign, and narrow-based financial indexes, as well as self-indexing procedures, used by ETFs. These abuses include improper index component selection procedures, index manipulation, misleading index descriptions, inadequate or misleading custom index disclosures, self-dealing and blurred functions between ETF advisers and third-party index providers when creating custom indexes. ▪ One suggested remedy is to deem index providers “investment advisers” under the Investment Advisers Act of 1940 (act). This result would deprive index providers of their current ability to rely on the act’s “Publisher’s Exclusion” and, therefore, require their registration with the US Securities and Exchange Commission (SEC), as well as subject them to the act’s regulatory provisions, including its fiduciary duties and obligations. ▪ It is likely that index provider regulation under the act would not provide satisfactory solutions to the SEC’s concerns but, instead, would cause disruptive effects in the current financial index ecosystem, such as increased investor costs and diminished product innovation. Rather, the application and enforcement of existing securities laws, especially those dealing with disclosure and antifraud concerns and current SEC investigative and enforcement activities, where warranted, should be sufficient to deal with the SEC’s concerns.

Systemic risk and financial contagion across top global energy companies

This study seeks to explore the firm-level interconnections in the fast changing and integrating global energy market. We investigate the risk connectedness using a Value-at-Risk (VaR) measure within a network composed of the top 20 global energy companies recognized by the Platts global energy company rankings, using the Diebold and Yilmaz's (2014) approach. We manage to identify the top risk contributors to the system across companies, regions and industries, and construct a total systemic risk index (TSRI) of the energy system. We further investigate which risk factors play a role in driving the evolution of the TSRI, again from a network perspective. The results show that its dynamics are mainly driven by the US stock market volatility and investors' sentiment in the financial market over the full sample, while energy market risks and exchange rate movements exert significant but short-term influences.

Has China Won?: The Chinese Challenge to American Primacy. By Kishore Mahbubani. New York: Hachette Book Group, 2020. 320 pp. $38 (cloth).

[...]Mahbubani argues that the US–China clash is paradoxically both inevitable and avoidable, but it is ultimately up to both superpowers to employ measures in the coming decades to determine the outcome. [...]to the portrayal by several Western media outlets and prominent American politicians, Mahbubani argues that it is the US, rather than China, that remains the biggest global militaristic threat, pointing to the colossal annual increases of US military defense spending as well as its large nuclear stockpiles in comparison with those of China. While Mahbubani focuses largely on the hesitation of Chinese businessmen to open up to the US and other foreign investment, the four years of “America First” policies, trade war antagonisms, and hubristic sanctions have certainly damaged the still-fragile economic superpower coupling. [...]it is clear that Trump's relentless and racially charged sentiments towards China throughout the pandemic—disturbingly echoing colonial-era “Yellow Peril” discourse—has dangerously provoked Sinophobia among the US population.

An Exorbitant Privilege in the First Age of International Financial Integration

The exorbitant privilege literature analyses the positive returns differential on net foreign assets enjoyed by the United States in the last quarter of the twentieth century as the issuer of the global reserve currency. In the first age of international financial integration (1871–1914), the global reserve currency was the British pound sterling. Whether the United Kingdom enjoyed a similar privilege is analysed with a new dataset, encompassing microdata on railroad and government financial securities. The use of microdata avoids the flaws that have plagued the US studies, particularly the use of incompatible aggregate variables. A monthly proxy for the British international investment position is constructed and estimates for capital gains and dividend yields obtained. The estimation points to an average privilege of 8.3% of GDP, with high variation. The finding supports the claim that in part exorbitant privilege is a general characteristic of the issuer of the global reserve currency and not unique to the late twentieth century US. Nonetheless, a decomposition of returns shows that there were fundamental differences between pre-war Britain and the late twentieth century US investment patterns and their response to the advantage presented by exorbitant privilege.

Can home-biased investors diversify interregionally in the long run?

We examine the case of long-term home-biased equity investors seeking international diversification opportunities in their region of Asia, Central and Eastern Europe (CEE), Latin America, or the Middle East and North Africa (MENA). Our study employs panel cointegration tests and vector autoregressive error-correction (VECM) models to examine region-wise long-run relationships over the period January 3, 2000 to December 30, 2016. Our analysis allows for US investor sentiment, the global financial crisis, movements in the S&P 500, and oil prices. Our main findings suggest that for home-biased Asian investors, investment within Asia is somewhat attractive because a stable long-run relationship between Asian markets has been absent, even after controlling for certain economic and financial conditions. For other investors, there are limited long-term diversification benefits within their regions. An examination of long-run correlations between the markets implies that regional diversification opportunities for MENA investors exceed those for CEE and Latin American investors.

Investigating the relationship between volatilities of cryptocurrencies and other financial assets

This paper analyzes the relationships between volatilities of five cryptocurrencies, American indices (S&P500, Nasdaq, and VIX), oil, and gold. The results of the BEKK-GARCH model show evidence of a higher volatility spillover between cryptocurrencies and lower volatility spillover between cryptocurrencies and financial assets. The results of the DCC-GARCH model identify an important effect of the launch of Bitcoin futures. During the stability period, the overarching implications of the results are that there is a persistence of correlation between cryptocurrencies in high positive value and low dynamic conditional correlations between cryptocurrencies and financial assets. Also, we find that Bitcoin and gold are considered hedges for the US investors before the coronavirus crisis. Our results show that cryptocurrencies may offer diversification benefits for investors and are diversifiers during the stability period. At the beginning of 2020, we observe that the conditional correlation increased between cryptocurrencies, stock indexes, and oil which confirm the effect of the coronavirus contagion between them. Unlike gold, digital assets are not a safe haven for US investors during the coronavirus crisis.

Analysis of dependence structure among investor sentiment, policy uncertainty and international oil prices

The behavioural aspect of finance and economics has an embedded importance in the literature. This paper provides an evidence of the interrelationship of international oil prices with economic policy uncertainty, consumer sentiments and US investor sentiment proxies. To test the underlying dependence structure, we employ time invariant and time-varying copula methods due to dynamic return patterns of our sampled indices. Our analysis reveals an underlying relationship of investor sentiments and economic policy uncertainty with international oil prices not only during normal periods but also in the periods of financial turmoil. Results of our nonlinear causality highlight potential of bidirectional spillover between oil prices and investor sentiment indices across all quantiles. This helps in understanding that a volatile international oil market may have significant impact on investor sentiments and economic policy uncertainty and vice versa. [Received: December 20, 2019; Accepted: June 17, 2020]