For the purpose of this research, of particular importance is the following lite- rature. Papers by John C. Hull (2009) and Eichengreen et al. (2012) are representa- tive of the literature on the causes and development of the 2007/2008financialcrisis. Essential for this research are a large number of official G20 Summit communiqués and leaders’ declarations (G20 2009a, b, 2013), as well as FSB progress reports, re- ports to the G20 and consultation documents (Financial Stability Board (FSB) 2014a, b, c, d; International Organization of Securities Commissions (IOSCO) 2014a, b). Also relevant is literature on the EU Banking Union. A paper by Jean Pisani-Ferry (2012) has clearly underlined the necessity of the creation of the EU Banking Union if eurozone bank-sovereign interdependency is to be dismantled. Pisani-Ferry et al. (2012) thoroughly analyze seven open issues in the creation of the Banking Union. Franziska Bremus and Claudia Lambert (2014) have analyzed EU Banking Union accomplishments so far, but also stress the need to do more in order to disentangle bank-sovereign interdependence. Niamh Moloney (2014) estimates the robustness of the Banking Union given the complex political, institutional and EU Treaty environ- ment. Official EU regulation enacted as part of the realization of the global reform agenda are an additional important source (European Parliament and European Council 2013, 2014a, b). A paper by Mark Carney (2013) discusses progress in the area of over-the-counter (OTC) derivatives market regulation, and a paper by Nicolas Véron (2014) analyzes the achievements of the G20 agenda five years on.
fiscal policies that became inevitable when the interest rate reached the liquidity trap zone; and, fourth, to re-regulate the financial system, domestically and internationally. These four responses were in the right direction. They showed that politicians and policymakers soon relearned what was “forgotten”. They realized that modern capitalism does not require deregulation but regulation; that regulation does not hamper but enable market coordination of the economy; that the more complex a national economy is, the more regulated it must be if we want to benefit from the advantages of market resource allocation or coordination; that economic policy is supposed to stimulate investment and keep the economy stable, not to conform to ideological tenets; and that the financial system is supposed to finance productive investments, not to feed speculation. Thus, their reaction to the crisis was strong and decisive. As expected, it was immediate in expanding the money supply, relatively short-term in fiscal policy, and medium-term in regulation, which is still (in September 2009) being designed and implemented. For sure, mistakes have been made. The most famous was the decision to allow a great bank like Lehman Brothers to go bankrupt. The October 2008 panic stemmed directly from this decision. It should be noted also that the Europeans reacted too conservatively in monetary and in fiscal terms in comparison with the United States and China – probably because each individual country does not have a central bank. As a trade-off, Europeans seem more engaged in re-regulating their financial systems than are the United States or Britain.
With low returns on public equity as a result of low interest rates, investors began to look to other more lucrative alternative asset classes in which to place their money such as PE and hedge funds. In addition, there was an explosion in liquidity in the credit markets from 2003 onwards fuelled by increased levels of investment in petrodollars, huge government surpluses as well as pension, foundation, and private wealth (Acharya, Franks, & Servaes, 2007). This drove an unprecedented supply of leverage throughout the globalfinancial system and huge amounts of cheap debt were available to finance LBO operations. The banks’ ‘originate to distribute strategy’ plus the recourse to securitisation technology resulted in the development of structured products that gave management companies access to an endless supply of debt. This coupled with a deterioration in the level of protection of covenants and less stringent borrowing conditions for borrowers impacted the size and nature of transactions in the market (Mahieux, 2013). The industry became focused on megadeals where acquisitions in excess of $1 billion dollars were commonplace. In 2007 in the US, this segment represented three quarters of the value of total PE investments which had grown more than 15x in value since 2003 (ibid). The record transaction of the time was the acquisition of Texas Utilities for $44.4 billion in June 2007 by KKR and TPG (Rizzi, 2009). The industry was enjoying a renaissance never seen before by investors where fund sizes, returns and distributions were at record highs (Wadecki & Cendrowski, 2012). This all however was to come to an abrupt end in the summer of 2007 with the onset of the subprime crisis to which our attention now turns before examining the impact of the crisis on PE activity.
In addition, I redid these sample splits and regressions considering the crisis years as 2007-2009 (appendix 5) and 2008-2009 (appendix 6), but the results are the same as in analysis 1 for the crisis years from 2007 to 2008 (table 10). In the latter analysis, the rated coefficient is no longer significant in the post-crisis period, which reinforces the composition effect argument. Henceforth, the conclusion driven from these analyses is that, on average, there is a positive association between investment grade levels and less diversification discount. In addition, when one inserts the financialcrisis into the prob- lematic, then the results remain unaltered for before the crisis, but are not verified for the period after the crisis. Thereby, this leads to question the informational role of the credit ratings after the crisis since these results lead to believe that some of their reputation was undermined.
This article aims to identify the determinants of the capital structure of Brazilian companies and compare it with financial theories. In addition, the normality periods (2007, 2009–2014) and financialcrisis periods (2008 and 2015) will be considered in the analysis. The sample has 114 Brazilian public companies in the pe- riods from 2007 to 2015. The methodology used for data analysis was multiple regression for panel data. The results showed that there are differences between the determinants of the capital structure in periods of crisis and of normality. Some of the hypotheses tested were accepted. These hypotheses relate financial theory to empirical analysis. Finally, the research contributed by demonstrating the main determinants of the capital structure in the analyzed periods, showing changes between such determinants.
The main goal of this work is to analyze the role of financial openness in the incidence and recovery of the globalfinancialcrisis in the period 2008-2009. Chapter 1 reviews the theoretical literature on the possible effects of financial openness. The potential risks of financial openness are increased macroeconomic instability and financial crises, the possible benefits are consumption smoothing and economic growth. Chapter 2 presents the globalfinancialcrisis, origin, spread and the main channels of transmission. In addition, the chapter analyzes, through descriptive statistics, some of the stylized facts associated with the crisis and the behavior of financial openness. The results suggest that: i) the crisis severity was greater for the advanced economies than for developing economies; ii) the advanced economies presented higher financial openness than developing economies; ii) advanced economies showed better post-crisis recovery than developing economies. Chapter 3 conducts an econometric investigation about the effects of financial openness on incidence and recovery of the globalfinancialcrisis for a dataset of up to 148 economies, 34 advanced and 114 developing in the period 1990-2010, to measure the incidence and recovery of the financialcrisis this work uses linear regression models OLS for cross-section data and to test the joint significance of the variables, the Bayesian Model Averaging (BMA) model with MCMC algorithm, Monte Carlo via Markov Chains (MC3) is used. The results show the following pattern: i) There is systematic statistical evidence for the facto index LMF, that the crisis was less severe in countries with greater financial openness; ii) There is systematic statistical evidence for Schindler Fernandez's de jure openness index, that the crisis was less severe in countries with greater financial openness. The results for crisis recovery suggest: i) there is significant statistical evidence for the LMF index of financial openness that the recovery was slower in countries with greater financial openness; ii) there is no statistically significant relationship between de jure openness indices and the recovery of the financialcrisis. The paper contributes to the literature in three dimensions: i) a systematic study of the effect of financial openness on the incidence and recovery of the globalfinancialcrisis; ii) a wide range of financial, de jure and de facto open indexes are used, including the index with the new methodology adopted by the IMF; iii) Bayesian Model Averaging is used to test the joint significance of a broad and diverse set of explanatory variables.
was associated with financialization is to say that credit ceased to principally be based on loans from banks to business enterprises in the context of the regular financial market, but was increasingly based on securities traded by financial investors (pension funds, hedge funds, mutual funds) in over-the-counter markets. The adoption of complex and obscure “financial innovations” combined with an enormous increase in credit in the form of securities led to what Henri Bourguinat and Eric Brys (2009: 45) have called “a general malfunction of the genome of finance” insofar as the packaging of financial innovations obscured and increased the risk involved in each innovation. Such packaging, combined with classical speculation, led the price of financial assets to increase, artificially bolstering financial wealth or fictitious capital, which increased at a much higher rate than production or real wealth. In this speculative process, banks played an active role, because, as Robert Guttmann (2008: 11) underlies, “the phenomenal expansion of fictitious capital has thus been sustained by banks directing a lot of credit towards asset buyers to finance their speculative trading with a high degree of leverage and thus on a much enlarged scale”. Given the competition represented by institutional investors whose share of total credit did not stop growing, commercial banks decided to participate in the process and to use the shadow bank system that was being developed to “cleanse” their balance sheets of the risks involved in new contracts: they did so by transferring to financial investors the risky financial innovations, the securitizations, the credit default swaps, and the special investment vehicles (Macedo Cintra and Farhi 2008: 36). The incredible rapidity that characterized the calculation and the transactions of these complex contracts being traded worldwide was naturally made possible only by the information technology revolution supported by powerful computers and smart software. In other words, financialization was powered by technological progress. Adam Smith’s major contribution of economics was in distinguishing real wealth, based on production, from fictitious wealth. Marx, in Volume III of Capital, emphasized this distinction with his concept of “fictitious capital”, which broadly corresponds to what I call the creation of fictitious wealth and associate with financialization: the artificial increase in the price of assets as a consequence of the increase in leverage. Marx referred to the increase in credit that, even in his time, made capital seem to duplicate or even triplicate. 8 Now the multiplication is much bigger:
A presente Tese Doutoral abarca três ensaios académicos empíricos que analisam a Crise Financeira Global de 2007 – 2008. Estes ensaios analisam questões científicas distintas, mas interligadas entre si, relativamente a este fundamental tópico de investigação. O primeiro ensaio investiga cuidadosamente a hipótese segundo a qual a Crise ‘Subprime’ nos E.U.A. poderia ter sido adequadamente prevista por recurso a dados publicamente disponíveis. Esta hipótese é verificada por recurso a duas metodologias alternativas, devidamente aplicadas a um conjunto de indicadores estritamente financeiros, sendo confirmada a previsibilidade do dito choque financeiro. O segundo ensaio investiga, no seguimento da Crise Financeira Global, o grau de heterogeneidade dos comportamentos de instituições financeiras em quarenta e dois países. Utilizando uma inovadora metodologia – intitulada Heterogeneous Regime- Switching Model (HRSM) –, constata-se que os distintos sistemas financeiros nacionais reagiram de forma diferenciada e heterogénea ao choque financeiro global sob estudo, sendo estas respostas passíveis de serem agrupadas em certas categorias. O terceiro ensaio investiga o impacto económico da Crise Financeira Global sobre a Zona Euro e, em particular, sobre a dinâmica da respectiva dívida soberana. Primeiramente, é elaborado um survey académico actualizado relativamente ao tópico do excessivo endividamento público e respectivo impacto sobre o produto económico, prestando-se particular atenção ao contexto do choque sistémico sob análise. Este survey académico é seguido de uma aplicação empírica envolvendo especificações econométricas quadráticas que atestam que a excessiva acumulação de dívida soberana na Zona Euro está associada a um processo de decrescimento económico da dita Zona, e que níveis óptimos associados a rácios de dívida pública em determinados Estados Membros foram imprudentemente ultrapassados.
On the banking market from Romania during last autumn it was seen a change concerning the products which were promoted by the credit institutions. Thus, till the summer of 2008 we witnessed a fierce promotion of loans in general and of those of refinancing, in particular, starting from the autumn of 2008 the banks replaced their offers concerning credits with those created to attract deposits. This change in strategy is because local banks have not received funding from their "mothers", who are faced with a lack of liquidity on international markets, and the excess of the national currency on the local monetary market has disappeared.
But there are new characteristics turning the role play of the ‘character masks’ into an absurd one. Since the liberalization of the global ! nancial markets in the 1970s and the collapse of the ! xed currency system of Bretton Woods, exchange rates, a central value in global economy, have no longer been determined by central banks and governments or international organizations, such as the International Monetary Fund already mentioned. They are also no longer tied to the gold standard as it was in Marx’s times, but they are determined by private agents in markets. This can be interpreted as a process of privatization of public goods as suggested by Egon Matzner. This tendency was encouraged by the liberalization of another crucial price regulating the global economy, i.e. the interest rates. It is no longer the central banks that determine the discount and prime rate"the agents in the ! nancial markets have to take this as their guide"but the rate of interest is determined spontaneously by the private exchanges of large global banks, insurance companies and other ! nancial institutions involved in the global market. The ‘sovereignty of determining the interest rates’ is thus lost to private agents operating in global ! nancial markets. To make this work without a hitch the international capital markets are liberalized. This liberalization took a long time until it was nearly perfect in the early 1990s. Liberal economists see therein an increase in the ef! ciency of the ! nancial system. Again, the ef! ciency of the ! nancial system is seen as a precondition and basis for the ef! cient functioning of the economy as a whole, which eventually allows for the increase in the wealth of nations. Whoever opposes the liberalization of the ! nancial markets opposes the increase in the wealth of the populace and is thus a reactionary. This, at least, was the generally accepted opinion prior to the occurrence of the ! nancial crisis.
By the present paper, we propose to underline the behaviour of the main institutional investors (mutual funds, pension funds and hedge funds) under the impact of the current globalfinancialcrisis, the modifications which intervened in asset assignment and investment relocation, showing that the instability generated in the globalfinancial system had immediate effects on all the portfolios of institutional investors, regardless of their classification category.Under conditions of capital flow increase, adjusted by the globalfinancialcrisis, the presented analysis and empirical proofs show a tendency of institutional investo rs’ asset reallocation on developed markets and the withdrawal from the emergent ones.
Figure 1, in the appendix, shows the series of daily returns of the seven indices in the full period. The analysis of returns shows that volatility is concentrated in certain periods. The second sub- period, running from 2003 to 2007, was relatively calm, compared to the other sub-periods. However, the remaining sub-periods showed great turbulence and volatility, suggesting that the returns are grouped in clusters of volatility. In the analyzed full period, the year 2008 showed greater volatility as a result of the globalfinancialcrisis. The existence of conditional heteroskedasticity (ARCH effects) in the series of returns was confirmed by the Lagrange multiplier (LM) test for ARCH, proposed by Engle (1982), which was applied to a first-order autoregressive process. The results of these tests are presented in tables 1 and 2 (the second in the appendix). The use of the DCC-GARCH model is justified by the presence of conditional heteroskedasticity in the return data, to analyze the possible significant increase in correlation between markets.
Financial system crises can arise from the failure of one or more institutions, whose effects then spread through a variety of contagion mechanisms to affect the whole system. The original shock that caused the failure is likely to be external or exogenous to the institution. Indeed, prudential supervision supports efforts to identify potential vulnerabilities in individual institutions before they become severe, and if they do become serious to inform actions that limit their systemic consequences. Systemic crises can also arise from the exposure of a financial system to common risk factors. Under these circumstances, systemic stability is determined by behavior considered internal or endogenous to the system. In other words, financial crises arise when the collective actions of individual agents make the system itself vulnerable to shocks. The buildup of these vulnerabilities and risks tends to occur over time, such as during an economic upswing when confidence is high, before materializing in recessions. In this sense, IMF’s GlobalFinancial Stability Report (2019) shows that environmental, social, and governance (ESG) principles are becoming increasingly important for borrowers and investors. ESG factors could have a material impact on corporate performance and may give rise to financial stability risks, particularly through climate-related losses.
Portugal has faced an economic and financialcrisis that began circa FY2009 and whose effects are still ongoing. In FY2011, the Portuguese state and the European triumvirate – composed of the European Commission, the International Monetary Fund, and the European Central Bank – signed the Memoranda of Understanding. This troika agreement aimed to improve the operational efficiency of public services. This crisis had a considerable impact on the Portuguese citizens’ life and productivity, as well as on the public health care system. Cuts over public expenditures have been made to reduce the risk of noncompliance with budgetary targets, despite their potential impact on quality and access to health care services. We analyzed the main policies and measures undertaken by the Portuguese Ministry of Health with respect to the bailout program associated with the troika agreement. Then, we focused on the budgetary cuts–related risks over the social performance of the care system. Evidence suggests that structural reforms in the health care sector in the troika period had positive effects in terms of drugs administration and consump- tion, on the one hand, and secondary care expenditures reduction, on the other hand. Nonetheless, we observed some divestitures on infrastructures and the wors- ening of access to health care services.
13 A number of papers included in this special issue attempt to improve our modelling and understanding of the behavior of financial markets. A widely acknowledged fact in finance is that investor preferences do take into account the existence of skewed returns (see, e.g. Martellini and Ziemann, 2010). The paper by Alexandra Dias in this special issue makes an important contribution to the literature by investigating the out-of-sample economic value of introducing the risk of very large losses in portfolio selection, by combining mean-variance analysis with conditional Value-at-Risk. Interestingly, she shows that strategies that account both for the variance and probability of large losses significantly outperform efﬁcient mean- variance portfolios, especially during and after the global ﬁnancial crisis. The implications of these results cannot be overlooked: when building risky portfolios if investors correctly take into account tail risks, asset prices will reflect more appropriately potential market tail events, which could help with hedging strategies, therefore reducing their overall impact on the economy.
Diferentemente do estouro dos créditos subprimes, os eventos anteriores ficaram restritos a mercados — como a bolha de ações nos EUA em 2001 — ou a países — a exemplo do Japão em 1989. Apesar de quase todos terem tido alguma reper- cussão geral, nenhum tinha antes provocado taxas negativas de crescimento e uma ;esaceleração prolongada na economia mundial (FMI, 2012), acompanhado por uma ampla fragilização das contas dos governos das principais economias centrais. Ao colocar os grandes bancos americanos em uma situação falimentar, a crise de 2008 afetou o funcionamento do núcleo central do sistema financeiro globali- zado contemporâneo. Provocou a reversão de um processo de expansão e diversi- ficação de ativos que se sustentou de forma quase ininterrupta desde os anos 1980 1 .
Even on this account, however, five to ten years from now, China will have moved decisively up the global technology rankings, contributing a far higher share of sophisticated value-added. The main credit for this, though, will be the investment in
Dentre as estratégias visando a desenvolver o mercado interno, pode- mos citar as medidas que incluem a redução da taxa de juros básica pelo Banco Central, tais como: medidas para estimular o crédito; pos- tergação do recolhimento de impostos para aumentar a capitalização das empresas e evitar problemas de liquidez das unidades produtivas; redução de impostos para estimular o consumo; fortalecimento do PAC como indutor aos investimentos públicos no setor produtivo (com os recursos dos fundos de pensão); ampliação das funções do BNDES, que antes emprestava dinheiro somente para as grandes em- presas, e passou a emprestar para as pequenas e médias empresas; am- pliação do Conselho Monetário Nacional (CMN); e alteração da regu- lamentação do sistema financeiro de caráter preventivo. Da mesma forma, os programas sociais, tais como o Programa Bolsa Família, fo- ram mantidos e houve ampliação do número de beneficiários do pro- grama (no final de 2009, tínhamos 11 milhões de famílias).
tipo GARCH e à teoria dos valores extremos, para perceber se uma estratégia de diversificação internacional minimiza o risco de mercado, assim como para verificar se a metodologia VaR capta adequadamente esse mesmo risco, aplicando testes de validação de performance. Para o efeito, foram selecionados 12 índices bolsistas internacionais, representativos de cerca de 62% da capitalização bolsista mundial, e escolhido o período compreendido entre a crise Dot-Com e a atual crise financeira global. Os resultados obtidos mostram que a proposta metodológica é uma boa alternativa na acomodação da elevada turbulência dos mercados, podendo ser considerada como uma ferramenta válida na gestão do risco de carteiras de investimento.
The financialcrisis of 2007/2008 is considered one of the most important event in the history of financial markets, leading to a significant change in the perspective of investors. Since then, investors look to mitigate their exposure to credit risk, given preferences for instruments like exchange traded funds (ETF) which are characterized by low credit risk. Therefore, ETF markets have been growing significantly since the financialcrisis. Together with this growth, increases the relevance of studying the price dynamics experienced by this market. With this study, we intend to make an additional contribution in this topic through the analysis of the equity and fixed income ETF market in the US. More specifically, we study the patterns of overreaction of the equity and fixed income ETF markets in the period 2007-2014. Moreover, as far as we know there are not studies approaching overreaction on fixed income ETF market. In a complementary basis, we also analyse financialcrisis and recovery periods as well as bull and bear market periods, separately. Overall, we found higher degree of overreaction during the periods in which the market is closed (after-hours periods) than during market sessions which could be justified by the lower liquidity level and the proportion of informed traders to noise traders in after-hours periods. We also found significant differences between financial and recovery periods as well as between bull and bear market periods. However, it is important to point out that such results could be influenced by the unique period on financial market history approached. On the other hand, overreaction is inferred based on the first 24 hours following the extreme price movements occur, longer reversals are not captured by this study. Regarding fixed income market, a low development level could also influence the results obtained. Forthcoming analysis using other time range and other regional markets could be relevant for this topic.