Emerging Markets at Risk

2020 ◽  
Vol 110 ◽  
pp. 493-498
Author(s):  
Gonzalo Asis ◽  
Anusha Chari ◽  
Adam Haas
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Economic Stress ◽  
Model Fit ◽  
Risk Models ◽  
Advanced Economy ◽  
Distress Risk ◽  
Learning Technique ◽  
Corporate Distress

Policymakers would like to predict and mitigate the risks associated with the post-global financial crisis rise in corporate leverage in emerging markets. However, long-standing advanced-economy bankruptcy models fail to capture the idiosyncrasies that impact the solvency of emerging market firms. We study how a machine learning technique for variable selection, LASSO, can improve corporate distress risk models in emerging markets. Exploring the trade-off between model fit and predictive power, we find that larger models forecast distress with more accuracy during periods of economic stress (when global factors gain relevance), while more parsimonious specifications outperform during normal times.

scholarly journals Liquidity regulations and bank behavior: An emerging markets perspective

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 194-211
Author(s):  
Tafirei Mashamba
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Emerging Market Economies ◽  
Basel Iii ◽  
Market Economies ◽  
Coverage Ratio ◽  
The Impact

The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

scholarly journals On the Elicitability and Risk Model Comparison of Emerging Markets Equities

2021 ◽  
Vol 26 (3) ◽  
pp. 63
Author(s):  
Peterson Owusu Junior ◽  
Imhotep Paul Alagidede ◽  
Aviral Kumar Tiwari
Keyword(s):  
South Africa ◽  
Emerging Markets ◽  
Value At Risk ◽  
Risk Model ◽  
Global Financial Crisis ◽  
Risk Models ◽  
Market Conditions ◽  
Tail Risk ◽  
Risk Modelling ◽  
Model Confidence Set

The need for comparative backtesting in the Basel III framework presents the challenge for ranking of internal value-at-risk (VaR) and expected shortfall (ES) models. We use a joint loss function to score the elicitable joint VaR and ES models to select competing tail risk models for the top 9 emerging markets equities and the emerging markets composite index. We achieve this with the model confidence set (MCS) procedure. Our analysis span two sub-sample periods representing turbulent (Eurozone and Global Financial crises periods) and tranquil (post-Global Financial crisis period) market conditions. We find that many of the markets risk models are time-invariant and independent of market conditions. But for China and South Africa this is not true because their risk models are time-varying, market conditions-dependent, percentile-dependent and heterogeneous. Tail risk modelling may be difficult compared to other markets. The resemblance between China and South Africa can stem from the closeness between their equities composition. However, generally, there is evidence of more homogeneity than heterogeneity in risk models. This is indicated by a minimum of three models (out of six) per equity in most of the countries. This may ease the burden for risk managers to find the optimal set of models. Our study is important for internal risk modelling, regulatory oversight, reduce regulatory arbitrage and may bolster confidence in international investors with respect to emerging markets equities.

Book Reviews

2011 ◽  
Vol 49 (4) ◽  
pp. 1268-1269
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
International Business Cycles ◽  
Cornell University ◽  
Global Linkages ◽  
The Global Financial Crisis ◽  
World Economic Order

Jing Zhang of University of Michigan reviews “Emerging Markets: Resilience and Growth amid Global Turmoil” by M. Ayhan Kose and Eswar S. Prasad. The EconLit abstract of the reviewed work begins, “Examines changes in the nature of cyclical linkages between advanced economies and emerging market economies in order to analyze the resilience of the latter group to global economic and financial developments. Discusses changes in the world economic order--a roadmap; rising global linkages and international business cycles--what we know; setting the stage; shifting dynamics of global gross domestic product and growth; global trade linkages; global financial linkages; business cycle volatility; comovement of business cycles and financial markets; exploring the sources of business cycle comovement; macroeconomics of recessions and financial crises; emerging markets during the global financial crisis; the good and the ugly--emerging Asia and emerging Europe; and what explains the resilience of emerging markets. Kose is Assistant to the Director in the International Monetary Fund's Research Department. Prasad is Tolani Senior Professor of Trade Policy at Cornell University and New Century Chair in International Economics at the Brookings Institution. Index.”

scholarly journals Basel III LCR Requirement and Banks’ Deposit Funding: Empirical Evidence from Emerging Markets

2019 ◽  
Vol 8 (2) ◽  
pp. 101-128
Author(s):  
Tafirei Mashamba ◽  
Rabson Magweva
Keyword(s):  
Emerging Markets ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Basel Iii ◽  
Short Term ◽  
Liquidity Shocks ◽  
Coverage Ratio ◽  
Banking Institutions ◽  
The Impact

Abstract In December 2010, the Basel Committee on Baking Supervision introduced the liquidity coverage ratio (LCR) standard for banking institutions in response to disturbances that rocked banks during the 2007/08 global financial crisis. The rule is aimed at enhancing banks’ resilience to short term liquidity shocks as it requires banks to hold ample stock of high grade securities. This study attempts to evaluate the impact of the LCR specification on the funding structures of banks in emerging markets by answering the question “Did Basel III LCR requirement induced banks in emerging market economies to increase deposit funding more than they would otherwise do?” The study found that the LCR charge has been effective in persuading banks in emerging markets to garner more stable retail deposits. This response may engender banking sector stability if competition for retail deposits is properly regulated.

scholarly journals A Risk-Adjusted Evaluation Of The JSE Top 40 As An International Investment Option

2014 ◽  
Vol 30 (6) ◽  
pp. 1639
Author(s):  
Andreas G. Heymans ◽  
Chris Van Heerden
Keyword(s):  
Financial Crisis ◽  
Emerging Markets ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Traditional Approach ◽  
Emerging Market ◽  
International Investment ◽  
Novel Approach ◽  
Omega Ratio ◽  
Top 40

In response to the wealth destruction caused by the 2007/2008 global financial crisis, many developed economies have lowered their interest rates to improve their balance sheets (SARB, 2008-2012). However, in order for investors to sustain expected returns they will have to deviate from the traditional approach of investing in government bonds and consider investing in emerging markets, which are considered as potential drivers of global growth (Deloitte Consulting LLP, 2012). The goal of this paper is to establish the importance of considering South Africa as an emerging market investment opportunity, but also to acknowledge its ability of outperforming several other common emerging markets during the post-financial crisis period. This was done by means of a novel approach to the Omega ratio. The results from this paper confirms this, illustrating that the performance of the JSE Top 40 will compensate for the additional political risk that emerging market investments possess (Anshuman, 2010).

scholarly journals Development of Banking Activities in Emerging Market Countries

2019 ◽  
Vol 7 (1) ◽  
pp. 26-43
Author(s):  
O. Narangua
Keyword(s):  
Global Financial Crisis ◽  
Emerging Market ◽  
Research Work ◽  
Foreign Banks ◽  
Advanced Economy ◽  
Emerging Market Countries ◽  
Domestic Banks ◽  
The Global Financial Crisis ◽  
The Impact

The global financial crisis of 2008 has shown the importance of a sound and profitable banking industry in developed, developing and emerging countries as well. Therefore, it is highly valuable to understand the development of banking activities in emerging market economies not only for evaluating the impact of them for encouraging emerging economies’ growth, but also establish the overall effect of these processes to global financial market. Moreover, during the last few years, the role of the emerging economy in the world economy is increasing substantially due to its economic growth, industrial potentials and a massive supply of resources and labour to the advanced economy countries. The number of researches conducted on the problem concentrated on two opposing opinions stating the foreign banks either encourage overall efficiency or cause financial instability. Despite a huge literature on this topic, the risk foreign banks impose on emerging market countries’ domestic banks should be evaluated in advance. The primary goal of this research work is to evaluate the extent of development of banking activities in emerging market countries and provide an analysis of the performance of emerging market banks. In article the author described the process of development of banking activities in emerging market economy countries.

Taming the Tide of Capital Flows

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Financial Stability ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Capital Inflow ◽  
Capital Inflows ◽  
Comprehensive Treatment ◽  
Policy Tools

While always episodic in nature, capital flows to emerging market economies have been especially volatile since the global financial crisis. After peaking at $680 billion in 2007, flows to emerging markets turned negative at the onset of crisis in 2008, then rebounded only to recede again during the U.S. sovereign debt downgrade in 2011. Since then, flows have continued to swing wildly, leaving emerging market policy makers wondering whether they can put in place policies during the inflow phase that will soften the blow when flows subsequently recede. This book offers the first comprehensive treatment of policy measures intended to help emerging markets contend with large and volatile capital flows. The book explains that, in the spirit of liberalization and deregulation in the 1980s and 1990s, many emerging market governments eliminated capital inflow controls along with outflow controls. By 2012, however, capital inflow controls were again acknowledged as legitimate policy tools. Focusing on the macroeconomic and financial-stability risks associated with capital flows, the book combines theoretical and empirical analysis to consider the interaction between monetary, exchange rate, macroprudential, and capital control policies to mitigate these risks. It examines the effectiveness of various policy tools, discuss the practical considerations and multilateral implications of their use, and provide concrete policy advice for dealing with capital inflows.

Commodities in International and Emerging Markets

2018 ◽  
Author(s):  
Kamal Smimou
Keyword(s):  
Business Cycle ◽  
Emerging Markets ◽  
Emerging Market ◽  
Trading Strategies ◽  
Emerging Nations ◽  
Economic Significance ◽  
Portfolio Strategy ◽  
Bond Portfolio ◽  
The Business Cycle ◽  
Global Investors

This chapter seeks to elucidate the relations of U.S.-listed global commodity futures, the business cycle, and stocks and bonds of emerging markets. It shows that global investors poised to benefit from investing in emerging market securities can concurrently learn from and better understand the dynamic intermarket relations when establishing such trading strategies. Investment in emerging markets can enhance the performance and sturdiness of an equity or bond portfolio strategy. Evidence lends support to the conjecture that a subtle contemporaneous and occasionally trailing effect exerted by the movement of global commodities on the business cycle exists. Global commodities also affect equity and bond market dynamics. The evidence also reveals differences in terms of economic significance and magnitude among selected emerging nations and across various commodities.

Macroeconomic Shocks and Unconventional Monetary Policy

2019 ◽  
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Emerging Markets ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Developing Economies ◽  
Spillover Effects ◽  
Macroeconomic Shocks ◽  
Monetary Policies ◽  
Developed Economies

Barely two decades after the Asian financial crisis Asia was suddenly confronted with multiple challenges originating outside the region: the 2008 global financial crisis, the European debt crisis, and, finally developed economies’ implementation of unconventional monetary policies. Especially the implementation of quantitative easing (QE), ultra-low interest rate policies, and negative interest rate policies by a number of large central banks has given rise to concerns over financial stability and international capital flows. One of the regions most profoundly affected by the crisis was Asia due to its high dependence on international trade and international financial linkages. The objective of this book is to explain how macroeconomic shocks stemming from the global financial crisis and recent unconventional monetary policies in developed economies have affected macroeconomic and financial stability in emerging markets, with a particular focus on Asia. In particular, the book covers the following thematic areas: (i) the spillover effects of macroeconomic shocks on financial markets and flows in emerging economies; (ii) the impact of recent macroeconomic shocks on real economies in emerging markets; and (iii) key challenges for the monetary, exchange rate, trade, and macroprudential policies of developing economies, especially Asian economies, and suggestions and recommendations to increase resiliency against external shocks.

Consumer Behavior in Emerging Markets

2018 ◽  
pp. 218-240 ◽  
Author(s):  
Raquel Castaño ◽  
David Flores
Keyword(s):  
Consumer Behavior ◽  
Emerging Markets ◽  
Emerging Market ◽  
High Income ◽  
Future Research ◽  
Psychological Processes ◽  
Developed Markets ◽  
Contextual Characteristics ◽  
Initial Framework

Emerging markets are substantially different from markets in high-income, industrialized societies. While many aspects of consumer behavior are the result of inherent psychological processes and are, thus, generalizable across countries and cultures, the specific contextual characteristics of emerging markets can significantly influence other aspects of consumer behavior. In this chapter, we explore the behavior of emerging market consumers. This chapter reviews the existing literature and proposes an initial framework delineating the main differences between emerging markets and developed markets consumers that describe how consumers in these societies recognize a need for, select, evaluate, buy, and use products. The chapter discusses the issues and contributions of the research on emerging consumers and presents implications of extant research for international managers. Finally, the chapter elaborates on an agenda for future research in this area.

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