Emerald | Journal of Financial Economic Policy | Table of Contents

Short-sell moratorium effects on regional bank performance

literatinetwork@emeraldinsight.com (Michael Devaney, William L. Weber) — Fri, 24 May 2013 00:00:00 +0100

Abstract

Purpose – The purpose of this paper is to investigate the effects of the 2008 SEC short-sell moratorium on regional bank risk and return. The paper also examines the decline in “failures to deliver” securities in the wake of SEC short-sell moratorium. Design/methodology/approach – In total, six regional bank portfolios are derived and the beta coefficients from a CAPM model are estimated using the integrated generalized autoregressive conditional heteroskedasticity (IGARCH) method accounting for the short-sell moratorium. Data on 110 regional banks in six US regions from January 2002 to December 30, 2011 are used to estimate the model. Findings – The ban on naked short selling and the SEC short-sell moratorium significantly increased individual bank risk for a majority of banks in six geographic regions, but also increased return in three of three regions. There was also reduced naked short selling as failures to deliver securities declined sharply after the September 2008 moratorium took effect. Originality/value – Regional banks have generally not achieved the size needed to be deemed “too big to fail” by policy-makers. Thus, policy changes such as the SEC short-sell moratorium might be expected to have larger effects on regional banks than on larger banks, which might be shielded from the policy change by having achieved “too big to fail” status. The authors' results are consistent with research that has shown that short-sell restrictions increase risk by reducing liquidity and trading volume.

Bank regulation and supervision in 180 countries from 1999 to 2011

Fri, 24 May 2013 00:00:00 +0100

Abstract

Purpose – The purpose of this paper is to discuss and provide new data and measures of bank regulatory and supervisory policies in 180 countries from 1999 to 2011. Design/methodology/approach – The authors' approach is based upon the quantification of hundreds of questions, including information on permissible bank activities, capital requirements, the powers of official supervisory agencies, information disclosure requirements, external governance mechanisms, deposit insurance, barriers to entry, and loan provisioning, to form indices of key bank regulatory and supervisory policies. Findings – It is found that the regulation and supervision of banks varies widely across countries in many different dimensions. Furthermore, there has not been a convergence in bank regulatory regimes over the past decade despite the worst global financial crisis since the Great Depression. Research limitations/implications – The data are based on survey responses and this requires that the answers be accurate. To better ensure this is the case, several checks were made to ensure greater accuracy in all the answers. Using this database one can perform various statistical analyses in attempt to determine which bank regulatory regimes work best to promote well-functioning banking systems. Originality/value – The authors' data and measures are new and unique so as enable policy makers and researchers to examine cross-country comparisons and analyses of changes in banking policies over time.

Dynamic interdependence between US and Asian markets: an empirical study

Fri, 24 May 2013 00:00:00 +0100

Abstract

Purpose – The purpose of this paper is to examine the short-term stock market interactions between US and six major Asian markets – China, India, Hong Kong, Singapore, South Korea and Taiwan. These six economies along with Japan and Australia have the largest stock exchanges in the Asia-Pacific region. The importance of the US market to the Asian economies is the prime motivation for a quantitative assessment of its role in this region. The objective of this study is to measure the dynamic stock market interdependence of US and Asian newly industrialized economies (NIEs) (Hong Kong, Singapore, South Korea and Taiwan) and emerging market economies (EMEs) (China and India) post Asian crisis of 1997 and also to capture the market interactions during the sub-prime crisis. Design/methodology/approach – The study has employed Granger causality tests and generalized forecast error variance decomposition (FEVD) analysis to analyze the fluctuations in and the extent of short-term interdependence between the US and Asian economies. VAR model was estimated to run the simulations for FEVD analysis. Findings – The empirical results from FEVD analysis revealed the dominance of US stock market on Asian markets; the USA being a large economy of the world, an important trading partner and major supplier of capital to Asian region. Stock markets of Asia are not immune to the shocks originating in the USA although the effects of shocks vary considerably across markets. Further, an important implication is that major crisis events can influence the relationship among stock markets. Originality/value – This is one of the first papers in the Asian context examining the interdependence with the US markets. Hence, even though most of the Asian economies went through liberalization, the macroeconomic and financial circumstances were very different before, after and during the process. This motivated the examination of the interactions between US and other Asian markets.

Exchange rate flexibility in Latin America

literatinetwork@emeraldinsight.com (Amit Ghosh) — Fri, 24 May 2013 00:00:00 +0100

Abstract

Purpose – Exchange rate regime decisively impacts key policy objectives such as financial stability, inflation control, etc. The purpose of this paper is to overview the evolution of exchange rate regimes spanning 12 nations in the Latin American region over the last two decades and estimate the degrees of influence of other major currencies on each nation. Design/methodology/approach – Using the methodology developed by Frankel and Wei, the de facto extent of exchange rate flexibility is discerned for these nations and put into perspective with that of the IMF exchange rate regime classifications. Findings – An increase in flexibility is found from the 1990s to the 2000s, especially for inflation targeting nations. However, the results reveal these nations adopt a policy of “guarded caution” and follow more of a de facto managed floating regime that is far from pure floats. The smaller economies of the region still pursue more fixed regimes. While the results correlate, to an extent, with the IMF's classifications, several areas of discrepancy are noted. The findings are robust to several sensitivity analyses. Originality/value – A discrepancy between the IMF regime categorization and the true regime a country actually follows may cause IMF financial assistance programs to be less effective. Do countries follow regimes they are classified into? The present study gleans deeper into the issue and discerns this. The comparative analysis includes the relatively larger economies of the region as well as the seldom researched smaller ones.