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Consumption-wealth ratio and expected stock returns: evidence from panel data

Castro, Andressa Souza Campos Monteiro
Fonte: Fundação Getúlio Vargas Publicador: Fundação Getúlio Vargas
Tipo: Dissertação
Português
Relevância na Pesquisa
36.990103%
This paper investigates the role of consumption-wealth ratio on predicting future stock returns through a panel approach. We follow the theoretical framework proposed by Lettau and Ludvigson (2001), in which a model derived from a nonlinear consumer’s budget constraint is used to settle the link between consumption-wealth ratio and stock returns. Using G7’s quarterly aggregate and financial data ranging from the first quarter of 1981 to the first quarter of 2014, we set an unbalanced panel that we use for both estimating the parameters of the cointegrating residual from the shared trend among consumption, asset wealth and labor income, cay, and performing in and out-of-sample forecasting regressions. Due to the panel structure, we propose different methodologies of estimating cay and making forecasts from the one applied by Lettau and Ludvigson (2001). The results indicate that cay is in fact a strong and robust predictor of future stock return at intermediate and long horizons, but presents a poor performance on predicting one or two-quarter-ahead stock returns.

Initial cash/asset ratio and asset prices: An experimental study

Caginalp, Gunduz; Porter, David; Smith, Vernon
Fonte: The National Academy of Sciences Publicador: The National Academy of Sciences
Tipo: Artigo de Revista Científica
Publicado em 20/01/1998 Português
Relevância na Pesquisa
37.475186%
A series of experiments, in which nine participants trade an asset over 15 periods, test the hypothesis that an initial imbalance of asset/cash will influence the trading price over an extended time. Participants know at the outset that the asset or “stock” pays a single dividend with fixed expectation value at the end of the 15th period. In experiments with a greater total value of cash at the start, the mean prices during the trading periods are higher, compared with those with greater amount of asset, with a high degree of statistical significance. The difference is most significant at the outset and gradually tapers near the end of the experiment. The results are very surprising from a rational expectations and classical game theory perspective, because the possession of a large amount of cash does not lead to a simple motivation for a trader to bid excessively on a financial instrument. The gradual erosion of the difference toward the end of trading, however, suggests that fundamental value is approached belatedly, offering some consolation to the rational expectations theory. It also suggests that there is a time scale on which an evolution toward fundamental value occurs. The experimental results are qualitatively compatible with the price dynamics predicted by a system of differential equations based on asset flow. The results have broad implications for the marketing of securities...

Essays on Asset Pricing and Econometrics

Jin, Tao
Fonte: Harvard University Publicador: Harvard University
Tipo: Thesis or Dissertation
Português
Relevância na Pesquisa
37.370356%
This dissertation presents three essays on asset pricing and econometrics. The first chapter identifies rare events and long-run risks simultaneously from a rich data set (the Barro-Ursua macroeconomic data set) and evaluates their contributions to asset pricing in a unified framework. The proposed model of rare events and long-run risks is estimated using a Bayesian Markov-chain Monte-Carlo method, and the estimates for the disaster process are closer to the data than those in the previous studies. Major evaluation results in asset pricing include: (1) for the unleveraged annual equity premium, the predicted values are 4.8%, 4.2%, and 1.0%, respectively; (2) for the Sharpe ratio, the values are 0.72, 0.66, and 0.15, respectively.; Economics

Islamic vs. Conventional Banking : Business Model, Efficiency and Stability

Beck, Thorsten; Demirgüç-Kunt, Asli; Merrouche, Ouarda
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
37.77156%
This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.

Bank Capital : Lessons from the Financial Crisis

Demirguc-Kunt, Asli; Detragiache, Enrica; Merrouche, Ouarda
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
38.039634%
Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the common equity ratio. They find several results: (i) before the crisis, differences in capital did not affect subsequent stock returns; (ii) during the crisis, higher capital resulted in better stock performance, most markedly for larger banks and less well-capitalized banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) there is evidence that higher quality forms of capital, such as Tier 1 capital, were more relevant. They also examine the relationship between bank capitalization and credit default swap (CDS) spreads.

Natural Disasters and the Dynamics of Intangible Assets

López, Ramón
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
37.370356%
Empirical evidence suggests that the higher-order effects of natural disasters, which affect intangible assets, may be even more important than the material inter-industry effects. However, most existing general equilibrium models ignore higher order effects concerning human capital. Moreover, it is recognized that natural resource dependence increases vulnerability to natural disasters. Recent studies have indeed shown the potential importance of subsistence traps caused by asset losses in low-income economies from a partial equilibrium perspective. This paper presents an analysis that allows for endogenous investments in real assets (physical capital) as well as in human capital, explicitly considering the potential for subsistence traps arising from minimum consumption and minimum natural resource irreversibility thresholds. The general equilibrium ramifications of subsistence traps are developed. The main issue is that the economy may be subject to hysteresis: A temporary shock such as a natural disaster may leave permanent consequences for the economy. An obvious permanent effect of a one-time disaster shock is that physical man-made and natural assets owned especially by poor households may end up completely wiped out. The disaster may not be the direct cause; it may be that poor households would have to obtain minimum subsistence consumption out of depleted assets. However...

Assessing Asset Indices

Filmer, Deon; Scott, Kinnon
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
37.51051%
This paper compares how results using various methods to construct asset indices match results using per capita expenditures. The analysis shows that inferences about inequalities in education, health care use, fertility, child mortality, as well as labor market outcomes are quite robust to the specific economic status measure used. The measures-most significantly per capita expenditures versus the class of asset indices-do not, however, yield identical household rankings. Two factors stand out in predicting the degree of congruence in rankings between per capita expenditures and an asset index. First is the extent to which per capita expenditures can be explained by observed household and community characteristics. In settings with small transitory shocks to expenditure, or with little measurement error in expenditure, the rankings yielded by the alternative approaches are most similar. Second is the extent to which expenditures are dominated by individually consumed goods such as food. Asset indices are typically derived from indicators of goods which are effectively public at the household level...

Are Microcredit Borrowers in Bangladesh Over-indebted ?

Khandker, Shahidur R.; Faruqee, Rashid; Samad, Hussain A.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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47.618853%
Microcredit programs in Bangladesh have experienced spectacular growth in recent years, with a growing number of borrowers availing credit from multiple microcredit agencies. There is a growing concern that if there are not sufficient returns to borrowing from microfinance institutions (MFIS), some borrowers might be taking loans that they will not be able to repay. A household may be considered over-indebted, for example, if its debt liability exceeds 40 percent of its income or assets. Using a long panel of household survey data from Bangladesh, the paper finds that some 26 percent of microcredit borrowers are over-indebted on this measure versus 22 percent of non-microcredit borrowers. Econometric analysis suggests that both MFI competition and multiple borrowing raise indebtedness. However, repeated borrowing, while it affects short-term liability adversely, does affect the long-term debt-asset ratio favorably. That is, repeated borrowing helps increase assets more than debt over time. Microcredit borrowers in Bangladesh are thus not necessarily over-indebted. But when borrowing is seen as protection against shocks such as floods even at the cost of being indebted...

Causes and Consequences of Civil Strife : Micro-Level Evidence from Uganda

Deininger, Klaus
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
36.967417%
To bridge the gap between case studies and highly aggregate cross-country analyses of civil unrest, the author uses data from Uganda to explore determinants of civil strife (as contrasted to theft and physical violence) at the community level, as well as the potentially differential impact of these variables on investment and nonagricultural enterprise formation at the household level. He finds that distance from infrastructure (a proxy for scarcity of economic opportunities and government investment), asset inequality (social tension), the presence of cash crops (expropriable wealth), and lower levels of human capital (ability to take advantage of opportunities in the "regular" economy) all increase the propensity for civil strife. Furthermore, civil strife, in marked contrast to violence and theft, reduces investment and nonagricultural enterprise start-ups.

Bank Capital and Systemic Stability

Anginer, Deniz; Demirguc-Kunt, Asli
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
37.727827%
This paper distinguishes among various types of capital and examines their effect on system-wide fragility. The analysis finds that higher quality forms of capital reduce the systemic risk contribution of banks, whereas lower quality forms can have a destabilizing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. The results show that regulatory capital is effective in reducing systemic risk and that regulatory risk weights are correlated with higher future asset volatility, but this relationship is significantly weaker for larger banks. The paper also finds that increased regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, the results are consistent with the theoretical literature that emphasizes capital as a potential buffer in absorbing liquidity...

A note on the exact solution of asset pricing models with habit persistence

Collard, F.; Feve, P.; Ghattassi, I.
Fonte: Cambridge Univ Press Publicador: Cambridge Univ Press
Tipo: Artigo de Revista Científica
Publicado em //2006 Português
Relevância na Pesquisa
37.165688%
This paper provides a closed-form solution to a standard asset pricing model with habit formation when the growth rate of endowment follows a first-order Gaussian autoregressive process. We determine conditions that guarantee the existence of a stationary bounded equilibrium. The findings are useful because they allow to evaluate the accuracy of various approximation methods to nonlinear rational expectation models. Furthermore, they can be used to perform simulation experiments to study the finite sample properties of various estimation methods.; Fabrice Collard, Patrick Fève and Imen Ghattassi

Gender, Growth, and Poverty Reduction; Inegalite des sexes, croissance et reduction de la pauvrete

Blackden, C. Mark
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Brief; Publications & Research
Português
Relevância na Pesquisa
36.967417%
This note focuses on the core findings, and recommendations of the 1998 status report on poverty in Sub-Saharan Africa (SSA), prepared for the Special Program for Assistance for Africa (SPA), a thematic examination of the linkages between gender, growth, and poverty reduction in SSA. Primarily focused on agriculture, and the rural sector, the report argues that one of the factors constraining growth, and poverty in SSA is gender inequality in the access to, and control of a diverse range of assets. The note reviews the determinants of growth, and the interdependence of the market, and household economies, where much of women's productive work is unrecorded, (in Kenya, about sixty percent of female activities are unaccounted for, compared with only twenty four percent of male activities). Furthermore, micro-level analyses portray a consistent picture of gender-based asset inequality, pointing at patterns of disadvantage faced by women, in accessing the basic assets, and resources required for a full participation in SSA's growth potential. In education...

Neither a Borrower Nor a Lender : Does China's Zero Net Foreign Asset Position Make Economic Sense?

Dollar, David; Kraay, Aart
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
37.64737%
China in the past few years has emerged as a net foreign creditor on the international scene with net foreign assets slightly greater than zero percent of wealth. This is surprising given that China is a relatively poor country with a capital-labor ratio about one-fifth the world average and one-tenth the U.S. level. The main questions that the authors address are whether it makes economic sense for China to be a net creditor and how they see China's net foreign asset position evolving over the next 20 years. They calibrate a theoretical model of international capital flows featuring diminishing returns, production risk, and sovereign risk. The calibrations for China yield a predicted net foreign asset position of -17 percent of China's wealth. The authors also estimate nonstructural cross-country regressions of determinants of net foreign assets in which China is always a significant outlier with 5 to 7 percentage points more of net foreign assets relative to wealth than is predicted by its characteristics. China's extensive capital controls can explain why its current net foreign asset position is far away from what is predicted by open-economy models and cross-country empirics. It seems reasonable to assume that China's international financial integration will increase over time. The authors calibrate and predict different scenarios out to 2025. These scenarios are necessarily speculative...

Mozambique : Financial Sector Assessment

World Bank
Fonte: Washington, DC Publicador: Washington, DC
Tipo: Economic & Sector Work :: Financial Sector Assessment Program (FSAP); Economic & Sector Work
Português
Relevância na Pesquisa
37.184736%
Mozambique's overall macroeconomic performance in recent years has been impressive. Macroeconomic stability, a sustained structural reform effort, substantial foreign aid flows and, until recently, a benign international environment has generated an average annual real gross domestic product (GDP) growth rate of 7½ percent for most of the past decade. While inflation has been relatively high (around 10 percent annually) and volatile in recent years, reflecting the predominance of food (52 percent) and energy (23 percent) in the consumer basket, underlying inflationary pressures appear to be contained. As a result, the banking sector's soundness, in particular asset quality, improved substantially. Between end-2003 and 2008, non-performing loans (NPLs) for the system as a whole declined dramatically (from 14.4 to 2.9 percent), largely reflecting the restructuring of problem banks and assets and a supportive macroeconomic environment. This Financial Sector Assessment (FSA) focuses on the key developmental challenges still facing the Mozambican financial sector. Section two provides an assessment of the structure and performance of the banking sector and the main impediments to financial deepening and outreach. Section three presents the state of development and key challenges in the pension and insurance sectors...

Firm Financing in India : Recent Trends and Patterns

Martinez Peria, Maria Soledad; Love, Inessa
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
37.36862%
Using balance sheet information for nearly 6,000 firms between 1994-2003, this study investigates recent firm financing patterns in India. The paper documents the overall use of debt and, in particular, the role of bank financing (short-term and long-term), trade credit, intrabusiness group borrowing and foreign financing. The study examines financing patterns over time and explores differences across firms by sector, age, ownership type, export orientation, and, in particular, size. In terms of trends, we find that while debt to asset ratios have been relatively stable, nominal debt growth has slowed down in recent years. At the same time, firms' repayment capacity, as measured by the interest coverage ratio has exhibited a U-shaped pattern falling during 1997-99 and recovering in recent years. Throughout the period of study, bank financing as a share of total debt has increased, while borrowing from non-bank financial institutions fell sharply. In terms of differences across firms, the most robust finding is that debt levels increase with firm size. Smaller firms have especially less debt relative to larger firms if they are young (below 10 years since incorporation), if they are in the manufacturing sector, and if they are located in Southern India. Furthermore...

Are Microcredit Participants in Bangladesh Trapped in Poverty and Debt?

Khandker, Shahidur R.; Samad, Hussain A.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
47.64737%
This paper addresses whether microcredit participants in Bangladesh are trapped in poverty and debt, as many critics have argued in recent years. Analysis of data from a long panel survey over a 20-year period confirms this is not the case, although numerous participants have been with microcredit programs for many years. The results of the analysis suggest that participants derive a variety of benefits from microcredit: It helps them to earn income and consume more, accumulate assets, invest in children's schooling, and be lifted out of poverty. This is not to say that non-participants have failed to progress over the same period. Both participants and non-participants have gained as the economy has grown; however, the rates of poverty reduction have been higher for participants. Testing the net effect of microcredit programs requires applying an econometric method that controls for why some households participated and others did not, conditional on their initial characteristics. In addition, the method must control for time-varying...

The Leverage Ratio : A New Binding Limit on Banks

D'Hulster, Katia
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Brief; Publications & Research
Português
Relevância na Pesquisa
37.688906%
Excessive leverage by banks is widely believed to have contributed to the global financial crisis. To address this, the international community has proposed the adoption of a non-risk-based capital measure, the leverage ratio, as an additional prudential tool to complement minimum capital adequacy requirements. Its adoption can reduce the risk of excessive leverage building up in individual entities and in the financial system as a whole. The leverage ratio has inherent limitations, however, and should therefore be considered as just one of a set of macro- and micro-prudential policy tools.

Finite-Sample Diagnostics for Multivariate Regressions with Applications to Linear Asset Pricing Models

DUFOUR, Jean-Marie; KHALAF, Lynda; BEAULIEU, Marie-Claude
Fonte: Université de Montréal Publicador: Université de Montréal
Tipo: Artigo de Revista Científica Formato: 219916 bytes; application/pdf
Português
Relevância na Pesquisa
37.587676%
In this paper, we propose several finite-sample specification tests for multivariate linear regressions (MLR) with applications to asset pricing models. We focus on departures from the assumption of i.i.d. errors assumption, at univariate and multivariate levels, with Gaussian and non-Gaussian (including Student t) errors. The univariate tests studied extend existing exact procedures by allowing for unspecified parameters in the error distributions (e.g., the degrees of freedom in the case of the Student t distribution). The multivariate tests are based on properly standardized multivariate residuals to ensure invariance to MLR coefficients and error covariances. We consider tests for serial correlation, tests for multivariate GARCH and sign-type tests against general dependencies and asymmetries. The procedures proposed provide exact versions of those applied in Shanken (1990) which consist in combining univariate specification tests. Specifically, we combine tests across equations using the MC test procedure to avoid Bonferroni-type bounds. Since non-Gaussian based tests are not pivotal, we apply the “maximized MC” (MMC) test method [Dufour (2002)], where the MC p-value for the tested hypothesis (which depends on nuisance parameters) is maximized (with respect to these nuisance parameters) to control the test’s significance level. The tests proposed are applied to an asset pricing model with observable risk-free rates...

The Earnings/Price Risk Factor in Capital Asset Pricing Models

Noda,Rafael Falcão; Martelanc,Roy; Kayo,Eduardo Kazuo
Fonte: Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária Publicador: Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária
Tipo: Artigo de Revista Científica Formato: text/html
Publicado em 01/01/2015 Português
Relevância na Pesquisa
37.692505%
This article integrates the ideas from two major lines of research on cost of equity and asset pricing: multi-factor models and ex ante accounting models. The earnings/price ratio is used as a proxy for the ex ante cost of equity, in order to explain realized returns of Brazilian companies within the period from 1995 to 2013. The initial finding was that stocks with high (low) earnings/price ratios have higher (lower) risk-adjusted realized returns, already controlled by the capital asset pricing model's beta. The results show that selecting stocks based on high earnings/price ratios has led to significantly higher risk-adjusted returns in the Brazilian market, with average abnormal returns close to 1.3% per month. We design asset pricing models including an earnings/price risk factor, i.e. high earnings minus low earnings, based on the Fama and French three-factor model. We conclude that such a risk factor is significant to explain returns on portfolios, even when controlled by size and market/book ratios. Models including the high earnings minus low earnings risk factor were better to explain stock returns in Brazil when compared to the capital asset pricing model and to the Fama and French three-factor model, having the lowest number of significant intercepts. These findings may be due to the impact of historically high inflation rates...

Initial cash/asset ratio and asset prices: An experimental study

Caginalp, Gunduz; Porter, David; Smith, Vernon L.
Fonte: National Academy of Sciences Publicador: National Academy of Sciences
Tipo: Article; PeerReviewed Formato: application/pdf
Publicado em 20/01/1998 Português
Relevância na Pesquisa
37.475186%
A series of experiments, in which nine participants trade an asset over 15 periods, test the hypothesis that an initial imbalance of asset/cash will influence the trading price over an extended time. Participants know at the outset that the asset or “stock” pays a single dividend with fixed expectation value at the end of the 15th period. In experiments with a greater total value of cash at the start, the mean prices during the trading periods are higher, compared with those with greater amount of asset, with a high degree of statistical significance. The difference is most significant at the outset and gradually tapers near the end of the experiment. The results are very surprising from a rational expectations and classical game theory perspective, because the possession of a large amount of cash does not lead to a simple motivation for a trader to bid excessively on a financial instrument. The gradual erosion of the difference toward the end of trading, however, suggests that fundamental value is approached belatedly, offering some consolation to the rational expectations theory. It also suggests that there is a time scale on which an evolution toward fundamental value occurs. The experimental results are qualitatively compatible with the price dynamics predicted by a system of differential equations based on asset flow. The results have broad implications for the marketing of securities...