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Cheng, Hameed, Subrahmanyam & Titman: Short-Term Reversals – The Effects of Institutional Exits and Past Returns

Currency-Revaluation

ABSTRACT: Return reversals depend on de facto market making by active informed investors as well as uninformed market makers. Accordingly, we find that reversals are higher following declines in the number of active institutional investors. Price declines over the past quarter, which serve as a proxy for declines in

Jiang: Enlarged State Power to Declare Nullity – The Hidden State Interest in the Chinese Contract Law

1500px-Flag_of_the_People's_Republic_of_China.svg

ABSTRACT: This article is on the hidden state interest that article 52(§1) of the Chinese Contract Law protects and the questionable applicability of freedom of contract to Chinese state-owned enterprises (hereafter “SOEs”). In common law, fraud and duress make a contract voidable. In Western civil

Taylor: Inflation Targeting In Emerging Markets – The Global Experience

images (2)

From a recent speech: During the past decade, the practice of monetary policy changed dramatically in many countries around the world. In some developed countries—the United States and euro area countries in particular—this change in policy was apparent before the global financial crisis, and it

Ellis: The Rise and Fall of Performance Investing

shadow-banking

ABSTRACT: Performance investing has enjoyed a remarkably long life cycle, but the costs of active investment are so high and the incremental returns so low that, for clients, the money game is no longer a game worth playing. Investors—both institutions and individuals—are increasingly shifting toward

Chakrabarti & Ghosh: FDI in Africa – A Comparison of the Indian and Chinese Experience

africa

ABSTRACT: Over the last decade there has been a gradual but marked shift in the main donors of FDI funding for Africa from the traditional western developed countries to the BRICs nations. India and China in particular have become significant players in the continent. How

Cheng, Hameed, Subrahmanyam & Titman: Short-Term Reversals – The Effects of Institutional Exits and Past Returns

Currency-Revaluation

ABSTRACT:

Return reversals depend on de facto market making by active informed investors as well as uninformed market makers. Accordingly, we find that reversals are higher following declines in the number of active institutional investors. Price declines over the past quarter, which serve as a proxy for declines in active investors, lead to stronger reversals across the subsequent two months; indeed reversals are concentrated primarily in past quarter losers. We provide evidence that price pressure induced by fire sales in response to past stock price drops cannot fully account for our results. Further, the evidence is consistent with market makers reacting more quickly to changes in the number of informed investors in the more recent period, particularly for large firms.

 

Available for download here.

Jiang: Enlarged State Power to Declare Nullity – The Hidden State Interest in the Chinese Contract Law

1500px-Flag_of_the_People's_Republic_of_China.svg

ABSTRACT:

This article is on the hidden state interest that article 52(§1) of the Chinese Contract Law protects and the questionable applicability of freedom of contract to Chinese state-owned enterprises (hereafter “SOEs”). In common law, fraud and duress make a contract voidable. In Western civil law jurisdictions, including Louisiana, fraud and duress make a contract relatively null. Article 52(§1) of the Chinese Contract Law renders a contract induced by fraud and duress absolutely null (null and void if using common law terminology) when state interest is harmed. At the same time, according to article 54 of the Contract Law, fraud and duress only make a contract relatively null just like in Western laws. The situation is further complicated by article 58 of General Principles of Civil Law (hereinafter “G.P.C.L.”), which renders all civil juristic acts absolutely null when induced by fraud and duress.

To understand when a contract is null or annullable one has to reconcile these three statutory provisions and figure out what the state interest article 52(1) refers to. This article attempts to demystify this state interest through a historical survey of the evolution of contract law in the communist regime in China in comparison with the similar path Soviet civil law had gone through. If it simply means public interest, Chinese law is no different than the western counterparts. If it means something different, a secretive enlarged state power to declare nullity and invade freedom of contract might come with this law. Given the principal-agent relationship between the state and SOEs regarding the ownership rights of SOE assets, the absence of a sufficiently competitive market, the incentive incompatibility between the state and SOEs, an enlarged state power over contractual autonomy is therefore implied and justified. This article suggests that such a state interest be state-owned enterprises’ financial interest, which is different from public interest. As a result, freedom of contract shall not be applicable to Chinese SOEs when ownership rights and a competitive market are missing, and a different interpretation of nullity law should be adopted to protect SOEs’ financial interest.

 

Available for download here.

Taylor: Inflation Targeting In Emerging Markets – The Global Experience

images (2)

From a recent speech:

During the past decade, the practice of monetary policy changed dramatically in many countries around the world. In some developed countries—the United States and euro area countries in particular—this change in policy was apparent before the global financial crisis, and it showed up as a deviation from the more rules-based policy of the 1980s and 1990s. This policy shift continued after the crisis and spread to other countries in what has been called the Global Great Deviation. It has been characterized by interest rate decisions that differed markedly from the 1980s and 1990s and by unconventional monetary policy actions, including quantitative easing in the form of large-scale purchases of securities. In my view this shift in policy has not been beneficial, but rather has been a factor in the deterioration of economic performance in the past decade.

As this shift away from rules-based policies was occurring in developed countries, the central banks of many emerging market countries were moving toward more rules-based systems of inflation targeting. South Africa, as well as Brazil, Mexico, and the Philippines, all adopted inflation targeting around the turn of the century, and other countries, such as Colombia began implementing monetary policy using the interest rate instrument in a rule-like manner similar to many other inflation targeting countries. In my view, these changes were, for the most part, beneficial. They led to a more stable macroeconomic environment despite significant shocks from abroad—including the global financial crisis itself—and from other non-monetary policy shocks within the countries.

Available for download here.

Ellis: The Rise and Fall of Performance Investing

shadow-banking

ABSTRACT:

Performance investing has enjoyed a remarkably long life cycle, but the costs of active investment are so high and the incremental returns so low that, for clients, the money game is no longer a game worth playing. Investors—both institutions and individuals—are increasingly shifting toward indexing. As acceptance of indexing grows, clients and managers have an opportunity to stop focusing on price discovery (which has made our markets so efficient) and refocus on values discovery, whereby investment professionals can help investors achieve good performance by structuring an appropriate, long-term investment program and staying with it.

 

Available for download here.

Chakrabarti & Ghosh: FDI in Africa – A Comparison of the Indian and Chinese Experience

africa

ABSTRACT:

Over the last decade there has been a gradual but marked shift in the main donors of FDI funding for Africa from the traditional western developed countries to the BRICs nations. India and China in particular have become significant players in the continent. How far this altered trade and investment relations is assisting the creation of opportunities or posing new challenges for the African economy has attracted considerable scholarly and government attention. While it is obvious that any increase in FDI is welcomed by Africa as it helps boost economic growth and development, there are also concerns about the exploitation of natural resources.

It is against this backdrop that this paper seeks to investigate the nature and trend of foreign direct investments made by India and China in Africa, over the past decade. While comparing the quantitative data, the focus will be on revealing similarities and dissimilarities in the patterns of development cooperation of the two Asian giants in Africa to provide better insight on the specific consequences of Indian and Chinese FDI for economic development in Africa.

 

Available for download here.

Bernes: IMF Leadership and Coordination Roles in the Response to the Global Financial and Economic Crisis

imf

From the Executive Summary:

This paper explores the IMF’s leadership and coordination roles in the global response to the financial and economic crisis. It is principally based on interviews with country authorities, IMF staff and staff of other international organizations and reflects their perceptions. The paper finds that many authorities perceive that the IMF played an important role in responding to the crisis by calling for a concerted fiscal stimulus in 2008–09, as well as in designing programs and putting together lending packages for affected emerging market economies. The IMF also led the effort to obtain bilateral borrowing agreements to support lending, inter alia, to euro area countries. Beyond this, the IMF was seen by many authorities as having played an effective but secondary role to that of the G20’s leadership in crystallizing responses to the crisis. Earlier failures in Fund surveillance and in its “standing” or “legitimacy” with advanced economies and major emerging markets constrained its ability to play a central coordinating role in the response to the crisis.

Available for download here.

Takagi, De Resende, Prieur, Loyola & Nguyen: A Review of Crisis Management Programs Supported by IMF Stand-By Arrangements, 2008-11

Currency-Revaluation

From the Executive Summary:

A review of crisis management programs supported by IMF Stand-By Arrangements (SBAs) approved between 2008 and 2011 indicates that, on average, access was large and disbursements highly frontloaded. The IMF was rapid in response, especially during the early phase, and flexible in allowing resources to be channeled directly as budget support. It collaborated, especially in early European programs, with multilateral and bilateral donors in a transparent manner. It sought private sector involvement proactively while attempting to build investor confidence and public support for these programs through public communications efforts.

Programs generally targeted a gradual reduction in the fiscal deficit. Actual outturns were looser than programmed as the targets were relaxed when the crisis proved to be more severe than originally forecast. Programs allowed fiscal automatic stabilizers to operate when output collapsed, but IMF financing generally does not appear to have accommodated the full extent of the fiscal shortfall.

Considerable learning had taken place since the emerging market crises of the late 1990s and early 2000s. In responding to the 2008 crisis, structural conditionality was more streamlined and more focused on the IMF’s core areas of competence. About half the programs called for greater exchange rate flexibility, but the IMF cautioned against too rapid a depreciation as having an adverse balance sheet effect. Less than 65 percent of committed resources were actually drawn, indicating that financing was sufficiently large to restore investor confidence. Program documents explicitly recognized risks, though the presentation was too pro forma to add value. For the most part, however, staff did their due diligence in contingency planning. The IMF-supported programs likely helped avert deeper contractions of output and a financial meltdown. While the average GDP growth of SBA countries in 2009 was lower by 2.7 percentage points than that of their non-program peers, the difference narrowed in 2010 to 1.6 percentage points. Though attribution is difficult, especially given the substantial and contemporaneous global easing of macroeconomic policies, IMF program financing seems to have been a factor contributing to this relatively quick turnaround.

In a number of countries, especially in high access cases, structural reforms did not progress much or were reversed after the program engagement ended, raising a question about the appropriateness of crisis programs as a vehicle for catalyzing difficult structural changes.  Also, about half the countries left the program engagement without completing reviews, raising questions about the extent of demand for SBA-type program engagements in calmer times.

 

Available for download here.

Karolyi & Liao: The Economic Consequences of Investor Relations – A Global Perspective

corporate-governance_2736-29

ABSTRACT:

We offer new evidence on the economic value of investor relations (IR) activity using the results of a 2012 global survey of IR officers and their activities at over 800 firms from 59 countries. More active IR programs, as measured by firm’s involvement in broker-sponsored conferences, in facilitating one-on-one meetings with institutional investors, through global outreach, and with formal disclosure, media and governance policies, are associated with a statistically significant and economically large 8 – 12% higher Tobin’s q valuation. The findings are resilient to concerns about potential reverse-causality as we instrument the level of IR activity with firm-level constraints on IR personnel, salaries, and budget. Greater IR activity does not substitute for firm-level governance actions and is not associated with higher stock liquidity.

Available for download here.

Rutledge: The Rentier State/Resource Curse narrative and the state of the Arabian Gulf

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ABSTRACT:

This paper proposes that the Rentier State and Resource Curse theories be considered as two elements of the same paradigm which, despite a growing body of contrary empirical evidence, retains a hegemonic influence in political economy discourse. It will be suggested that a number of reasons account for this, not least, the nature and subject of the “rent” itself. Contemporary notions of rent as essentially constituting unearned and thus unwarranted income, are divorced from a more contextually accurate ‘ground rent’ charge levied for extracting depletable sovereign resources is one. Another is the extent to which the political demonisation of OPEC, combined with the West’s concerted policy response of seeking to liberalise the world oil market in the 1980s and 1990s, is abstracted from the discourse. Moreover, by demonstrating that there is little evidence of the deterministic poverty inducing and deleterious socioeconomic outcomes in the ‘archetypal candidate’ countries of the Arabian Gulf, the utility per se of the RS/RC narrative as a conceptual and/or analytical framework is questioned.

 

Available for download here.

Naughton, Petacchi & Weber: Public Pension Accounting Rules and Economic Outcomes

public-pensions

ABSTRACT:

We provide evidence that the accounting rules prescribed by the Governmental Accounting Standards Board (GASB) and the choices states make when implementing these rules allow states to understate pension funding gaps, especially during times of fiscal stress. We also find that the funding gap understatement is negatively associated with states’ decisions to increase taxes and cut spending, and that these understatements are associated with higher future labor costs. Importantly, we find that the positive association between the funding gap understatement and future labor costs is attributable to the inherent methodology in the GASB rules, which systematically understate the funding gap, and not to opportunistic reporting by state governments. Therefore, it is not only the case that the GASB pension accounting rules pose intergenerational fairness issues (by not requiring sufficient pension contributions), but also that they are associated with policy choices (such as increased labor expenditures) that have the potential to exacerbate future fiscal problems.

 

Available for download here.

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