Although a lot has been written on the link between debt maturity and financial crises, it remains puzzling why the private sector in emerging market economies holds such a large share of short-term debt in the presence of substantial macroeconomic risk. To understand this phenomenon, we propose a simple model in which debt maturity depends on economic uncertainty about investment returns. We show in particular that if lenders are risk averse, higher uncertainty can (i) lower the total debt level a country is able to borrow and (ii) tilt the debt profile towards short-term debt. We take these model implications to the data using a panel of 28 emerging market economies and various indicators for macroeconomic uncertainty. We find substantial empirical support for the model's predictions.
We examine how bank funding and securitization activity affect the currency denomination of business loans. We analyze a unique dataset that for more than hundred thousand loans granted by one Bulgarian bank to over sixty thousand different firms in the period 2003-2007 includes information on the requested and granted currency of the loans. Our findings confirm the conjecture that foreign currency borrowing in Eastern Europe is at least partially driven by banks hesitant to lend long-term in local currency and eager to match the current currency structure of their assets and liabilities as well as of their securitization activities.
We study the effect of culture on financial literacy by comparing secondary-school students along the German-French language border within Switzerland. We find that students in the Frenchspeaking
area have a lower level of financial literacy than students in the German-speaking area. The difference in financial literacy across the language groups is mainly observed for native students and less among bilingual or immigrant students. This supports the hypothesis that cultural differences rather than differences in school curricula or school quality are driving the observed effect. A mediation Analysis suggests that the cultural divide in financial literacy is mainly related to systematic differences in financial socialisation across the language groups. Students in the German speaking region are more likely to receive pocket money at an early age, more likely to have a bank account and are more likely to have independent access to a bank account.
We exploit variation in consumer price inflation across seventy-one Russian regions to examine the relationship between the perceived stability of the domestic currency and financial dollarization. Our results show that regions with higher inflation experience an increase in the dollarization of household deposits and a decrease in the dollarization of loans. The impact of inflation on credit dollarization is weaker in regions with less integrated banking markets. This suggests that the currency-portfolio choices of households and firms are constrained by the asset-liability management of banks.
Not available in German. We show that the Generalized Method of Moments methodology is a useful tool to obtain the asymptotic properties of some existing estimators for non-linear panel data models as well as to construct new ones. Many non-linear panel data models imply conditional moments, which do not depend on parameters from the off-diagonal part of the intertemporal covariance matrix of the error terms. Methods based on these moments sacrifice some efficiency compared to FIML but are much easier to compute since they do not require multivariate integration. The pooled maximum likelihood estimator, the sequential ML estimator, based on minimum distance estimation in the second step, and previously suggested alternative GMM estimators are based on these moments. Although the pooled ML estimator is asymptotically the least efficient of the estimators considered, the Monte Carlo study indicates that it may have superior small sample properties. We use a low dimensional approximation of the optimal instrument matrix to obtain an estimator, which apeared to be nearly as efficient as FIML. However, GMM estimators are easier to compute and also possess desirable small sample properties.
Not available in German. Frühere Version: Breitung, J. and M. Lechner (1998), Altenative GMM Methods for Nonlinear Panel Data models, discussion paper 81, SFB 373 Humbold-Universität zu Berlin. Download Volltext: (pdf, 263 kb)
Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance.
This article aims to determine whether the information ratio (IR) is a useful and reliable performance measure to evaluate mutual fund managers. The authors use a dataset of nearly 10,000 mutual funds for the January 1998 to December 2008 period. The empirical results show that the IR varies over time and across different fund categories. The article finds that representing the true volatility in the return-generating process within a calendar year requires data with a higher frequency than monthly. This reference index or basket needs to capture a large proportion of the investment universe of the respective fund. Because the IR induces managers to hug the benchmark, it should be supplemented with, for example, the Active Share measure to control for the activity level in the portfolio. Finally, in order to separate lucky managers from skilled ones, the long-term track record is an important measure, because luck is generally not persistent over time.
