Review of Development Finance - latest Issue
Volume 6, Issue 1, 2016
Source: Review of Development Finance 6, pp 1 –15 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.05.002More Less
In the last decade there has been a new wave of sovereign bond issuances in Africa. What determines the ability of developing countries to issue bonds in international capital and what explains the spreads on these bonds? This paper examines these questions using a data set that includes 105 developing countries during the period 1995-2014. We find that a country is more likely to issue a bond when, in comparison with non-issuing peers, it is larger in economic size, has higher per capita GDP, a lower public debt, and a more effective government. Spreads on sovereign bonds are lower for countries with strong external and fiscal positions, as well as robust economic growth and government effectiveness. We also find that primary spreads for the average Sub-Saharan African issuer are higher than in other regions. With regard to global factors, our results confirm the existing evidence that issuances are more likely during periods of global liquidity and high commodity prices, especially for Sub-Saharan African countries, and spreads are higher in periods of higher market volatility.
Author Ting LiSource: Review of Development Finance 6, pp 16 –25 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.02.001More Less
This paper examines the relationship between product market competition and intra-industry momentum returns. Based on 12,982 firm observations from 19 developed markets for the period of 1990-2010, I find that buying winners and selling losers in competitive industries generates significantly higher momentum profits than that in concentrated industries. The higher the intensity of product market competition, the larger are the intra-industry momentum returns. The results are robust to sub-samples (periods) of the U.S., non-U.S. countries, the G7 countries, 1990-2000, and 2001-2010. I further employ the nearness of a stock's price to the 52-week high to determine past winners and losers and find stronger results. I also compare intra-industry momentum returns with Jegadeesh and Titman (1993) individual stock momentum and Moskowitz and Grinblatt (1999) inter-industry momentum strategies. My results suggest that intra-industry momentum strategy outperforms the latter two strategies in most cases. The overall results are consistent with the notion that severe product market competition induces managers to improve financial performance.
Modeling Latin-American stock markets volatility : varying probabilities and mean reversion in a random level shift modelAuthor Gabriel RodriguezSource: Review of Development Finance 6, pp 26 –45 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2015.11.002More Less
Following Xu and Perron (2014), I applied the extended RLS model to the daily stock market returns of Argentina, Brazil, Chile, Mexico and Peru. This model replaces the constant probability of level shifts for the entire sample with varying probabilities that record periods with extremely negative returns. Furthermore, it incorporates a mean reversion mechanism with which the magnitude and the sign of the level shift component vary in accordance with past level shifts that deviate from the long-term mean. Therefore, four RLS models are estimated: the Basic RLS, the RLS with varying probabilities, the RLS with mean reversion, and a combined RLS model with mean reversion and varying probabilities. The results show that the estimated parameters are highly significant, especially that of the mean reversion model. An analysis of ARFIMA and GARCH models is also performed in the presence of level shifts, which shows that once these shifts are taken into account in the modeling, the long memory characteristics and GARCH effects disappear. Also, I find that the performance prediction of the RLS models is superior to the classic models involving long memory as the ARFIMA (p,d,q) models, the GARCH and the FIGARCH models. The evidence indicates that except in rare exceptions, the RLS models (in all its variants) are showing the best performance or belong to the 10% of the Model Confidence Set (MCS). On rare occasions the GARCH and the ARFIMA models appear to dominate but they are rare exceptions. When the volatility is measured by the squared returns, the great exception is Argentina where a dominance of GARCH and FIGARCH models is appreciated.
Source: Review of Development Finance 6, pp 46 –57 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.05.001More Less
The objective of this paper is to examine the determinants of financial inclusion in Africa. We use the World Bank's Global Findex database on 37 African countries to perform probit estimations. We find that being a man, richer, more educated and older favor financial inclusion with a higher influence of education and income. Mobile banking is driven by the same determinants than traditional banking. We observe that the determinants of informal finance differ from those of formal finance. Our work therefore contains findings to design policies to foster financial inclusion in African countries.
Banking sector globalization and bank performance : a comparative analysis of low income countries with emerging markets and advanced economiesAuthor Amit GhoshSource: Review of Development Finance 6, pp 58 –70 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.05.003More Less
A key feature of financial services liberalization is the increasing presence of foreign banks in a nation. This study examines the impact of banking sector globalization on bank profits and cost efficiency by using a panel of 169 nations spanning 1998-2013. Employing both fixed-effects and GMM estimations, and including banking-industry and macroeconomic controls, I find greater banking-sector globalization to reduce both profits and cost inefficiency, thereby reflecting increased competitiveness and informational asymmetries in host markets, as well as assimilation of better technology, managerial practices by domestic banks. The results are further examined for nations across different levels of economic development and with different degrees of foreign bank presence. Only in emerging markets and in nations with more than 50% foreign banks, greater banking sector globalization positively affects profits. From a policy perspective, the findings call for banking regulatory authorities to implement polices to reduce informational asymmetries in host markets.
Source: Review of Development Finance 6, pp 71 –81 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.05.004More Less
We extend the conventional approach to the construction of financial stress indices (FSI) for emerging economies proposed by Balakrishnan et al. (2011). Based on the principal component analysis, our index accounts for developments in the residential real estate market, adopts distinctive indicators for the banking sector and sovereign debt risks, covering the period from February 2008 to September 2015 for 14 emerging economies. The FSIs accurately capture the periods of impaired financial intermediation. The hierarchical cluster analysis identifies five country groups, revealing similarities in the national structures of financial stress. We find an adverse impact of financial stress on economic activity in 9 countries. A Bayesian VAR model is also specified to test for cross-country spillovers of financial stress.
Financial development and poverty reduction in developing countries : new evidence from banks and microfinance institutionsSource: Review of Development Finance 6, pp 82 –90 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.06.002More Less
The literature on financial development and growth has received a lot of attention over the past two decades. Unlike growth, not much of consideration has been given to poverty reduction. Moreover, most of the past studies focus on bank and stock market development. The advent of microfinance institutions (MFIs) lets to think about the potential role MFIs can play in a countrywide economy. In this study, we consider to what extent banks and MFIs reduce poverty. We apply the instrumental variables approach, namely the fixed-effects two-stage least squares, to a panel of 71 developing countries over the period 2002-2011. Using credit to GDP as the main financial development indicator, the results indicate that banks reduce poverty when poverty is measured by the headcount ratio and poverty gap. As for the squared poverty gap, there is no significant effect of banks. On the other hand, MFIs do not appear to have any impact on poverty regardless of the measure of poverty employed. These result simply that while banks have some ability to reduce poverty, MFIs do not, at least at the aggregate level. Our results are robust to the use of assets to GDP as an alternative measure of financial development.
Source: Review of Development Finance 6, pp 91 –104 (2016) http://dx.doi.org/http://dx.doi.org/10.1016/j.rdf.2016.06.001More Less
This study investigates whether remittances entail extra risk for macroeconomic policy management and examines the role (if any) that the financial system can play in the interaction between remittances and monetary policy. Employing panel data for 106 developing countries from 1970 to 2013, the results from our panel vector auto-regressive (PVAR) model reveal that remittance volatility reduces macroeconomic risk in developing countries while simultaneously stimulating a reduction in domestic interest rates. This finding remains robust to alternative specifications of remittance volatility and monetary policy risk and to variations in the degree of financial development. The key lesson from this study is that developing countries can leverage the positive impact of remittances in reducing macroeconomic instability by implementing policies that induce remittances.