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Emerging market stock returns have been characterized as having higher volatility than returns in the more developed markets. But previous studies give little attention to the fundamentals driving the reported levels of volatility. This paper investigates whether dynamics in key macroeconomic indicators like exchange rates, interest rates, industrial production and money supply in four Latin American countries significantly explain market returns. The MSCI world index and the U.S. 3-month T-bill yield are also included to proxy the effects of global variables. Using a six-variable vector autoregressive (VAR) model, the study finds that the global factors are consistently significant in explaining returns in all the markets. The country variables are found to impact the markets at varying significance and magnitudes. These findings may have important implications for decision-making by investors and national policymakers. © 2006 Elsevier Inc. All rights reserved.

In this study, we investigate whether the performance of emerging market hedge funds (EMHFs) follow a pattern similar to that reported for advanced market hedge funds. In contrast to the pre-2007 period, our results for the post-2006 period showthat EMHFs exhibit performance patterns similar to those reported for hedge funds that focus on the developed markets. Unlike in the pre-2007 period, EMHFs in general do not exhibit significant exposure to specific asset classes in the post-2006 period. On a risk-adjusted basis, we find that EMHFs do not consistently outperform the benchmarks. The reported performance patterns may provide useful insights to both academics and portfolio managers.

This study uses a multifactor REIT-specific model to estimate and compare REIT idiosyncratic volatility vis-A-vis the same from the Fama-French three-factor model. Estimates of conditional idiosyncratic volatility and conditional betas obtained from a multifactor REIT-returns model and a bivariate EGARCH model respectively are found to be positively and significantly related with REIT returns. Consistent with Merton's (1987) predictions, we observe that larger REITs post higher average returns when idiosyncratic risk is introduced in cross-sectional regressions. Persistence of past market-risk does not appear to be short-lived and seems to have a lasting impact on future idiosyncratic volatility. We also observe mild evidence of persistence of past idiosyncratic risk, albeit short-lived, thereby suggesting that past idiosyncratic risk has a short-term impact on future idiosyncratic risk. Published by Elsevier Inc.

In this study, we investigate whether the performance of emerging market hedge funds (EMHFs) follow a pattern similar to that reported for advanced market hedge funds. In contrast to the pre-2007 period, our results for the post-2006 period show that EMHFs exhibit performance patterns similar to those reported for hedge funds that focus on the developed markets. Unlike in the pre-2007 period, EMHFs in general do not exhibit significant exposure to specific asset classes in the post-2006 period. On a risk-adjusted basis, we find that EMHFs do not consistently outperform the benchmarks. The reported performance patterns may provide useful insights to both academics and portfolio managers.

Following the 2007–2008 financial crisis, there is widespread interest in understanding how derivative use drives bank lending behavior. Our paper examines the impact of bank ownership structure on the relationship between derivative use and lending activities of U.S. banks. We find that lending recovered faster in larger banks than smaller banks post-crisis and in line with Diamond’s (Diamond DW 1984 Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414) systemic risk reduction theory, derivative use is positively associated with lending growth. Ownership is significant in explaining the magnitude of the relationship even after controlling for alternative specifications of the derivative use variable. In both normal and crisis periods, the speed of adjustment of lending to derivatives use by stock banks lags that of mutual banks. We suggest that speculative trading in derivatives substitutes for lending growth to a larger extent for stock banks compared to mutual banks. These findings may have important implications for investors and bank regulators. © 2020, Academy of Economics and Finance.

This paper examines the characteristics of banks and their lending behavior in relation to Paycheck Protection Program (PPP) loans and commercial and industrial (C&I) loans to small businesses during the COVID-19 pandemic. Our findings show that lenders facing greater risk tended to lend more PPP loans, consistent with the risk-aversion theory. Specifically, banks with a higher loan–deposit ratio, lower overall profitability, poorer loan quality, and higher exposure to risks in business (C&I) loans are characterized by higher PPP loans. C&I loans to all businesses are negatively related to the loan–deposit ratio and loan loss allowance ratio, but are positively linked with the capital ratio. However, we find important differences in C&I lending to small businesses versus large businesses. Furthermore, there is evidence regarding the success of targeting PPP loans towards more productive sectors of the US economy. Using FDIC-defined banks’ lending specializations, we show that banks focused on international lending had a limited role in PPP lending.

Currency substitution represents a shift from domestic currency to foreign currency and is often related to times of high and variable inflation. In this paper, we investigate the extent of currency substitution in Argentina, Brazil and Mexico using a vector error correction (VEC) model. We empirically test this hypothesis by introducing artificial shocks to the system of equations and find that M1 response to a one standard deviation increase in that country's interest rate is negative and significant for Argentina and Brazil but not for Mexico. An artificially introduced one standard deviation increase in nominal exchange rate results in a statistically significant increase in M1 in Argentina and Brazil but again not for Mexico. Based on the patterns of the impulse response functions (IRFs) and the magnitude of the coefficients, we conclude that currency substitution occurs to a greater extent in Argentina and Brazil than Mexico. This is reflective of the implementation of relatively more credible macroeconomic policies in Mexico after the December 1994 crisis. Thus from a policymaking perspective, it is important to consider that the greater the degree of currency substitution, the more sensitive a country's monetary aggregates are to sudden movements in exchange rates, productivity and interest rates. (C) 2003 Society for Policy Modeling. Published by Elsevier Science Inc. All rights reserved.

This study investigates the relationship between bank ownership structure, non-interest income and risk in an emerging market setting. Our analysis shows that the relationship between product diversification and bank risk is significantly influenced by asset size and ownership structure. In contrast to large banks, small banks are exposed to higher risk when the income share of non-traditional banking activities rise. We also find strong evidence of differences in risk exposure of banks to non-interest income after controlling for ownership structure. Private domestic and private foreign banks experience lower risk with higher non-interest income while the converse is true for public domestic banks. Furthermore, we show that the speed with which risk adjust to non-income activities is faster for domestic private banks than for foreign banks. These results could provide useful information to investors and regulators of banking institutions as they seek to reconcile the important issues of bank ownership structure, income diversification and size on the one hand with the level of risk exposure on the other hand. © 2016, Banking and Finance Review.

Purpose – This paper aims to examine the link between financing patterns, information asymmetry and legal traditions in 37 countries during the 1990-2004 period. Design/methodology/approach – The analysis is based on three theories: the trade-off theory, pecking order hypothesis and market timing hypothesis. The authors test the predictions of these theories/hypotheses using regression analysis. The econometric method used is panel data with firm and country fixed effects. The authors develop a modified pecking order model which controls for short- and long-term debt level changes and simultaneously test the predictions of all theories. Findings – Consistent with studies for US firms, the results show that firms across all countries adjust toward the target leverage, but with significantly different rate. The long-term debt contribution in the rate of adjustment is 64 percent in common law countries and 51 percent in civil law countries. The ability of the model to explain changes in leverage ratios is higher in common law countries. The authors find support for market timing hypothesis but no support for pecking order of financing. These results support their conjecture that stronger investor protection, higher transparency and well-developed financial markets in common law countries reduce the cost of recapitalization. Research limitations/implications – The limitation of this study comes from lack of data availability to measure contract enforcement, transparency, and corporate governance variables. Future research can incorporate these variables to explain the differences in capital structure decisions across countries with different legal systems. Practical implications – The findings show that firms' capital structure decisions are not only a function of their own characteristics but also the result of legal and financial market development in which they operate. Originality/value – This is the first study that sheds light about rate of adjustment to optimal capital structure and pecking order of financing in 37 countries with different legal traditions and financial market developments. The authors are not aware of any other study that uses a modified pecking order model in an international context. © 2011, © Emerald Group Publishing Limited.

In this paper, we examine the differences in information asymmetry and financing patterns and a generalized version of the trade-off theory across countries with different institutional environments. We find that firms in Civil law countries have higher information asymmetry, rely more on internally generated funds, and use more short-term debt to finance their financing deficit, relative to those in Common law countries. In both Civil law and Common law countries, factors suggested by the trade-off theory explain the financing deficit coefficient in the generalized version of the trade-off model. Overall, the generalized version of the trade-off theory provides a better explanation for the changes in capital structure relative to the pecking order theory, even in countries with higher information asymmetry.

Purpose This study aims to compare the impact of board characteristics on the performance of listed non-financial firms to the impact of board characteristics on the performance of listed financial firms (commercial banks) in Ghana. Design/methodology/approach The fixed and random effects models with generalized least square specifications are used in estimating regressions to correct for heteroscedasticity and serial correlation. Additionally, this study uses lagged models of the board variables to address the possibility of the presence of endogeneity and to generate robust estimates. Findings The empirical results show some similarities and differences on the impact of board characteristics on the performance of listed non-financial firms and banks. On similarities, for both non-financial firms and banks, board size is seen to have a significant non-linear impact on Tobin’s q. Also, the proportion of foreign board members shows a positively significant relationship with firm performance for both listed non-financial firms and banks. The effect of the proportion of board members with higher educational qualifications on firm performance appears to be negative and statistically significant for both sample of firms. On the other hand, the impact of board composition and board gender diversity on firm performance differs from listed banks and non-financial firms. Research limitations/implications The panel regressions for the listed banks were run on 63 observations because of the small sample size for the listed banks. Though enough for estimation purposes, inferences from results should be made with caution. Originality/value This paper, unlike most corporate governance – firm performance studies, focuses not only on listed non-financial firms but also on listed banks. From a multi-theoretical perspective, this paper provides a comparative analysis on the impact of board characteristics on financial performance of listed non-financial firms and banks.