Journal of Banking & Finance

Published by Elsevier
Online ISSN: 0378-4266
Publications
Article
Health risk is increasingly viewed as an important form of background risk that affects household portfolio decisions. However, its role might be mediated by the presence of a protective full-coverage national health service that could reduce households' probability of incurring current and future out-of-pocket medical expenditures. We use SHARE data to study the influence of current health status and future health risk on the decision to hold risky assets, across ten European countries with different health systems, each offering a different degree of protection against out-of-pocket medical expenditures. We find robust empirical evidence that perceived health status matters more than objective health status and, consistent with the theory of background risk, health risk affects portfolio choices only in countries with less protective health care systems. Furthermore, portfolio decisions consistent with background risk models are observed only with respect to middle-aged and highly-educated investors.
 
Comparisons between the two samples. 
Growth rates varying by region. 
Additional control variables. 
Analysing financial development. 
Analysing finance and regional interactions. 
Article
I examine whether or not the incomes of the poor systematically grow with average incomes, and whether financial development enhances the incomes of the poorest quintile. Following the methodology of Dollar and Kraay (2002), I find, once extending Dollar and Kraay's data, their findings are robust to the Lucas critique and economic growth is important for poverty reduction universally. However, in comparison to other authors' work I show financial development aids the incomes of the poor in certain regions, whilst it may be detrimental in others. This proposes evidence against a "one size fits all" model adding a further contribution to the literature on financial development and poverty.
 
Article
While the vast majority of underwriters charge a gross spread of exactly 7%, as documented in Chen and Ritter (2000), more than a third charge something other than 7%. Among offerings of $50 million and below where underwriters charge the firm other than 7%, two-thirds of issuers pay more than published NASD1 compensation guidelines. When underwriters charge less than expected, they do not trade-off IPO compensation with underpricing. However, our evidence suggests a trade-off between IPO compensation and future SEO business among underwriters that charge something other than 7% and less than expected. Underwriters that overcharge may provide a signal to investors about future underperformance.
 
Article
The corporation is often viewed as a nexus of contracts. That view is slightly altered here. The corporation is viewed as a nexus of risks. The management of the corporation may then be thought of as the selection and management of the risks in a way that creates value. This I perspective is applied in a discussion of the three articles presented in this session.
 
Article
This paper investigates the spillover effects of money market turbulence in 2007–08 on the short-term covered interest parity (CIP) condition between the US dollar and the euro through the foreign exchange (FX) swap market. Sharp and persistent deviations from the CIP condition observed during the turmoil are found to be significantly associated with differences in the counterparty risk between European and US financial institutions. Furthermore, evidence is found that US dollar term funding auctions by the ECB, supported by US dollar swap lines with the Federal Reserve, alleviated the level of dislocations, as well as the instability, of the FX swap market.
 
Article
Between 1992 and 1997, Indian firms were the most frequent issuers of equity-backed Global Depositary Receipts (GDRs) governed by the SEC's Rule 144A and Regulation S. They also accounted for the highest dollar volume. Home-market stock price responses to these issues are consistent with the hypotheses that GDRs enable firms to resolve two forms of information asymmetry: (1) an asymmetry between issuing firms and international investors that results from market segmentation and (2) an asymmetry between Indian firms and home-market investors that resembles asymmetries that help explain abnormal returns in equity private placements by US firms. Our evidence suggests that GDR issuance can increase investors' recognition of underlying shares even if there are no liquidity enhancements and even if disclosure requirements are not as demanding as those imposed on foreign firms whose depositary receipts trade in public US markets.
 
Article
Stochastic linear programming is a suitable numerical approach for solving practical asset-liability management problems. In this paper, we consider a multi-stage setting under time-varying investment opportunities and propose a decomposition of the benefits in dynamic re-allocation and predictability effects. We use a first-order unrestricted vector autoregressive process to model asset returns and state variables and include, in addition to equity returns and dividend-price ratios, Nelson/Siegel parameters to account for the evolution of the yield curve. The objective is to minimize the Conditional Value at Risk of shareholder value, i.e., the difference between the mark-to-market value of (financial) assets and the present value of future liabilities.
 
Article
This paper examines how the US financial crisis of 1893 affected state output growth between 1900 and 1930. The results indicate that a 1% increase in bank instability reduced output growth by 2-5%. A comparison of Nebraska, which had one of the highest bank failure rates, with West Virginia, which did not experience a single bank failure, reveals that disintermediation affected growth through a portfolio change among savers: people simply stopped trusting banks. Time series evidence from newspapers indicates that articles containing the words "money hidden" significantly increase after banking crises, then slowly die out.
 
Article
This study investigates bank consolidation and safety-net support provision in Canada, the UK and the US over a 100-year historical period, and the impact of these policy variables on bank capital and risk-taking choices. The study finds that consolidation and strengthened safety nets have largely supplanted the historical role of high bank capital levels in providing protection to risk-adverse depositors. Furthermore, despite strengthened safety-net guarantees, the study finds that bank asset-risk choices in the 1980s are comparable to those observed in the 1890s, while bank equity volatilities have shown approximately a 10-fold increase over this period. Finally, the study finds that bank capital ratios are as asset-risk sensitive in the 1980s as those in the 1890s, perhaps reflecting residual market discipline or regulatory moral-suasion effects.
 
Measures of Informal Political Instability  
Measures of Formal Political Instability
Article
This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.
 
Article
This paper tests the random walk hypothesis on a new set of monthly data for the Swedish stock market, 1919–1990. We use both the variance ratio test and the test of autoregressions of multiperiod returns. Our results suggest that Swedish stock prices have not followed a random walk in the past 72 years. For short investment horizons, one to twelve months, we find strong evidence of positively autocorrelated returns. For longer horizons, two years or more, we find indications of negative autocorrelation, so called ‘mean reversion’. Our results are in line with recent research on the U.S. stock market and may have several implications for the practical investor. They point in particular towards a larger proportion of stocks in the portfolio for long term investors.
 
Article
This paper compares the returns to three distinct sets of approaches to industry rotation in the U.S. stock market: passive, semi-passive, and active. Using the 12-industry breakdown of Breeden, Gibbons, and Litzenberger (1989), the passive strategies are based on the up- and down-levered value-weighted industry indices and the semi-passive strategies are similarly constructed from the equal-weighted industry indices. The active strategies are based on multiperiod investment theory and the empirical probability assessment approach applied to past realized returns. The semi-passive and active strategies performed well in both the full 1934–1986 period and in the 1966–1986 subperiod, achieving statistically significant excess returns in several instances.
 
Article
Brock et al. (1992) found technical trading rules to have predictive ability with regards to the Dow Jones Index. The current paper considers whether this result can be replicated on UK data. The paper also considers whether investors could earn excess returns from technical analysis in a costly trading environment. The paper concludes that although the technical trading rules examined do have predictive ability in terms of UK data, their use would not allow investors to make excess returns in the presence of costly trading.
 
Top-cited authors
Asli Demirguc-Kunt
Loretta J. Mester
  • Federal Reserve Bank of Cleveland
Edward Altman
  • New York University
Gregory F. Udell
  • Indiana University Bloomington
Philip Molyneux
  • University of Sharjah