Finance

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    Untied to economic fluctuations, insurers are less likely to generate systemic risks

Untied to economic fluctuations, insurers are less likely to generate systemic risks

In a nutshell, macroprudential regulation is made up of two building blocks: surveillance and supervision. Surveillance is concerned with identifying, assessing and monitoring the build-up of systemic risks, i.e., those regarding the financial stability of a country or region. Supervision is aimed at preventing, mitigating and managing systemic risks.

A key lesson from the recent global financial crisis is that […]

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    New evidence shows the characteristics of financial cycles

New evidence shows the characteristics of financial cycles

Financial cycles are on average twice as long as business cycles. At the same time, there is substantial heterogeneity of national cycles across G-7 countries, ranging from very similar financial and business cycles in Germany to markedly different cycles in the United States and Italy.

We conclude that policies targeting financial cycles (such as countercyclical macroprudential policies) can act as […]

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    ECB money and credit data releases help markets improve rate expectations

ECB money and credit data releases help markets improve rate expectations

Monetary and credit data released by the European Central Bank (ECB), not just official communications and inflation and output projections, help markets to predict future interest rate moves. The ECB is one of the few central banks to emphasise the importance of its monetary analysis as a cross-check of its economic analysis. With the exception of the early years […]

Low volatility makes a financial crisis more likely

Received wisdom maintains that financial market volatility has a direct impact on the likelihood of a financial crisis. Perhaps the best expression of this is Hyman Minsky’s (1992) hypothesis that economic agents observing low financial risk are induced to increase risk-taking, which in turn may lead to a crisis. This is the foundation of his famous statement that ‘stability […]

Rush to emerging-markets debt is wiring a time bomb

The explosion of debt in troubled developing countries like Brazil may be a problem at some point in the future. For now, investors are stepping over one another to buy more of such bonds.

They’re so eager for a chance to lend to Brazil in particular that the nation is about to sell at least $500 million of notes maturing […]

Is Europe spending too much?

The eurozone crisis, the rise of nationalist parties across Europe and the Brexit vote have all pointed to significant vulnerabilities in the European social model. Europe is home to only 8 per cent of the world’s population, yet it produces 50 per cent of global social payments (public pensions, healthcare benefits, maternity leave and associated benefits, public education and […]

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    The Italian banking crisis: where it comes from and where it’s going

The Italian banking crisis: where it comes from and where it’s going

The Italian banking crisis is the outcome of two factors. First, a deep recession that caused many borrowers to become insolvent during the last five years. Second, the mismanagement of some banks, mostly regional banks (with the exception of MPS, which is the third bank in the country), that did not follow sound practices and in some cases made […]

Repos: the missing piece in financial market reform

We all remember the hectic summer and fall of 2008 when the financial system was at the brink of the collapse. Since that time, policymakers have enacted structural reforms to the financial system, but what about the repurchase agreements (repo) market?

A repo is the sale of financial assets coupled with a promise to repurchase the same assets at a […]

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    Ahead of Fed decisions, markets are more forward-looking than we thought

Ahead of Fed decisions, markets are more forward-looking than we thought

Much of the literature related to Federal Open Market Committee (FOMC) decisions focuses on their post-announcement effects. There is ample evidence that asset prices and volatilities only respond to “surprises” – that is, when the actual target decision differs from the market’s expectation mirroring the findings of a substantial body of work considering the effects of macroeconomic announcements.

In addition, […]

Mixed fortunes for private equity

Private equity is at a crossroads. A once carefree industry, it is increasingly assailed by regulators and investors demanding lower fees, higher returns and greater financial transparency. Valuations, having risen sharply, may have peaked; the average price paid for assets by US buyout firms in 2015 was 22.4 times earnings, according to data from Bloomberg. The buyout industry had […]

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    InsureTech firms look to disrupt, but not to overtake incumbents

InsureTech firms look to disrupt, but not to overtake incumbents

The insurance industry is rarely credited with innovations we now take for granted. The idea for a fire service was brewed up in 17th century coffee houses to insure against arson, pension funds came from the desire to protect the wives of clergymen in the 18th century, and the blueprint for the modern welfare state ultimately emerged from Bismarck’s […]

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    A trusted analyst’s opinion is worth gold for a company’s investors

A trusted analyst’s opinion is worth gold for a company’s investors

Whose reputation do investors pay attention to when determining how to value a firm? Is it the reputation of the stock analyst who covers the firm, or is it the company’s reputation? What about the reputation of the CEO?

For instance, when Matthew Boss (a J.P. Morgan professional who has been rated as a star analyst by Institutional Investor magazine) […]

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    Banks’ cautious approach to financial startups has matured

Banks’ cautious approach to financial startups has matured

Financial Technology (FinTech) has been one of the fastest growing tech sectors during the past two years. Interest in the sector has led banks, investors, regulators and policymakers alike to interact with FinTech start-ups to better understand what drives their success. This has emerged as an on-going process – the difficulty comes from the fact that similarly to the […]

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    Most countries in the ’10 most likely’ to adopt bitcoin are in the developing world

Most countries in the ’10 most likely’ to adopt bitcoin are in the developing world

Which markets have the greatest potential for bitcoin adoption?

With over $250m of venture capital invested in bitcoin startups to date, much is at stake in understanding which markets will prove most fertile for bitcoin. In addition, many governments and regulatory agencies are seeking to better understand the economic opportunities presented by bitcoin along with the perceived risks.

The new Bitcoin Market Potential Index […]

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    Shareholders’ votes on CEO pay focus mostly on top-line figures

Shareholders’ votes on CEO pay focus mostly on top-line figures

We examine the impact of enhanced executive remuneration disclosure rules on the voting pattern of shareholders under UK regulations. The key findings are that shareholders guide their vote by top line salary only, and appear to disregard the remaining – substantial – body of information provided to them.

Our paper can be seen against a backdrop of numerous policy initiatives […]

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    Startups working with venture capital firms perform the best

Startups working with venture capital firms perform the best

It’s a familiar idea that venture capitalists, or VCs, are the “money of invention” and fund firms with high growth potential, helping bring their products to market. However, entrepreneurs have many options when considering funding. There are corporate venture capitalists (CVC), which typically work within a larger corporate structure and seek to acquire innovative startups that would blend well […]

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    Some mutual funds do business with firms whose shares they own

Some mutual funds do business with firms whose shares they own

Major decisions in public corporations are subject to a democratic process: Proposals for change are presented at annual general meetings (AGMs), company managers indicate their preferred outcome, and shareholders then vote. Mutual funds have significant voting power by virtue of their extensive shareholdings. They also often have business ties with firms held in their portfolios because they manage company […]

CEOs strategically time news releases for their own benefit

More and more firms seek to set long-term incentives for their managers. One way to do so is to restrict executives from selling stock and options for a certain period, typically three years. When such stock and options finally become available (“vesting”), many executives are eager to sell.

One easy way to boost short-term stock prices is to release news. Even […]

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    Institutions that settle market transactions need strong corporate governance

Institutions that settle market transactions need strong corporate governance

There have been a variety of systemically important banking issues making the headlines since the global recession of 2008, but the challenge to mitigating credit risk during settlement seems to be a constant frontrunner. This article discusses the importance of effective liquidity management, particularly from the sphere of timely payment settlement via financial market utilities (FMUs), defined as “multilateral systems that […]

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    Company news affects the way in which a stock’s returns co-move with those of other firms

Company news affects the way in which a stock’s returns co-move with those of other firms

It is well known that the release of new information about a firm affects its stock price, as investors update their expectations about the firm’s fundamentals and future profitability. For example, unexpectedly good earnings news cause price increases, while negative surprises cause drops in prices. However, little is known about the impact of news on the co-variance structure of […]