JEL Code G: Financial Economics - 2001
|Inflation and Rates of Return on Stocks: Evidence from High Inflation Countries.||Choudhry, T.||2001||Journal of International Financial Markets, Institutions, and Money 11(1): 75-96.||
This article investigates the relationship between stock returns and inflation in four high inflation (Latin and Central American) countries: Argentina, Chile, Mexico and Venezuela. Compared to the bulk of the previous research (involving low inflation) this article provides evidence of a positive relationship between current stock market returns and current inflation. This result confirms that stock returns act as a hedge against inflation. Results also show that past rates of inflation also influence the current rate of stock returns. Similar tests are conducted using real rate of stock returns. Some evidence of an inverse relationship between current real returns and current and one-period lagged inflation is found.
|A Non-Parametric Approach to Model the Term Structure of Interest Rates: The Case of Chile.||Fernández, V.||Enero 2001||Serie Econom&icute;a N° 97. Departamento Ingenier&icute;a Industrial, Universidad de Chile.||
Numerous studies have resorted to parametric models to infer the shape of the term structure of interest rates. Recently, however, it has been shown that non-parametric techniques may be more adequate. This is an empirical study for Chile between December 1992 and April 1998. Monte Carlo simulations, based upon a non-parametric one-factor model, suggest that Chile’s downward-slopping term structure could be explained by the mean-reversion process in the data. The latter could reflect medium and long-term goals of monetary policy of the Central Bank of Chile. Some alternative explanations, such as that of the preferred habitats, might be also plausible.
|Un Análisis del Mercado de Cobertura de Riesgo en Chile y el Mundo.||Fernández, V.||Marzo 2001||Serie Econom&icute;a N° 99. Departamento Ingenier&icute;a Industrial, Universidad de Chile.||
Between the 1970’s and the 1980’s, the market of derivatives flourished. Forwards, futures and options began to be regularly traded. According to information gathered by The Bank of International Settlements, between January and April 1998, the value of over-the-counter (OTC) positions outstanding was over US$ 72 thousand billion, while the value of positions outstanding in organized exchanges was approximately US$ 14 thousand billion. In Latin America, the transactions in derivatives take place essentially in Argentina, Brazil, Chile, and Mexico. To date, Chile’s market of derivatives is the least developed among these four countries. Most domestic transactions are OTC, and consist of currency forwards (US dollar-Chilean peso). Other derivatives, such as options on stocks and futures on stock indices, have not gained popularity. It is argued that the slow growth of the market of derivatives in Chile is the consequence of a very illiquid and undeveloped financial market. Therefore, in the short-run, the market of exchange-rate derivatives continues to be the most likely to grow. It is interesting to analyze the impact of the elimination of the flotation band of the US dollar against the Chilean peso on the volume of transactions in exchange-rate forwards. Our analysis shows that this has not been noticeable. The reason is that, on average, the exchange rate has not been more volatile than it was when the flotation band was at work.
|A Liquidity Premium Puzzle?: Evidence from Chile.||Fernández, V.||Julio 2001||Serie Econom&icute;a Nº 105.Departamento Ingenier&icute;a Industrial, Universidad de Chile.||
This article looks at the determinants of liquidity premium of the term structure of interest rates. Based upon a very simple model, we show that liquidity premium is not necessarily positive, as usually believed. This point is illustrated empirically with Chilean data for the sample period 1983-1999. Our estimation results show that liquidity premium is not only time-varying but that it also depends on the curvature of the term structure, expected inflation, expected depreciation of the nominal exchange rate, and on economic activity, contradicting the expectations hypothesis. For our sample period, the liquidity premium is usually negative, and when positive it is very small. This implies that investors are willing to hold long-term assets even though their return is relatively lower. This appears to be a consequence of indexation, which reduces the risk of long-term bonds as their return is linked to past inflation. Alternatively, we believe that a negative liquidity premium may be explained by the preferred habitat hypothesis of interest rates. Indeed, data on the composition of the portfolios of Chilean insurance and re-insurance companies show that, due to immunization (matching of durations of assets and liabilities), about a 60 percent of total assets correspond with long-term bonds and mortgage securities. This investment strategy drives the prices of long-term financial instruments up, and their rates down.
|Un Análisis de la Volatilidad del Bono Soberano Chileno.||Johnson, C.||2001||Revista de Análisis Económico 16(1): 83-97.||
La creciente volatilidad e integración de los mercados internacionales hace necesaria una evaluación cada vez más exacta de las p&ecute;rdidas potenciales en las cuales un inversor puede incurrir en el caso de una turbulencia internacional. Los activos que tienen una alta liquidez pueden ser evaluados utilizando la metodolog&icute;a del Value at Risk (VaR). Sin embargo, este último indicador subestima las eventuales p&ecute;rdidas si es que el activo subyacente presenta poca liquidez. Este art&icute;culo aplica la metodolog&icute;a de VaR ajustado por liquidez a los bonos soberanos chilenos, de manera de incorporar fluctuaciones en los spreads, variable relevante al momento de evaluar el nivel de riesgo de un portafolio de inversión.
|Value at Risk: Teoría y Aplicaciones.||Johnson, C.||2001||Estudios de Econom&icute;a 28(2): 217-47.||
El concepto de Value at Risk (valor del riesgo) se ha popularizado hace ya casi una d&ecute;cada. Este art&icute;culo describe el significado de este concepto, y presenta aplicaciones sobre carteras de activos de bonos, acciones, forwards de tasa de inter&ecute;s y de tipos de cambio, y swaps. Se introducen asimetr&icute;as en la metodolog&icute;a de generación de volatilidades, a trav&ecute;s de modelos de heteroscedasticidad asim&ecute;tricos, de manera de proyectar mejor los niveles de riesgo futuros. Adicionalmente, se discute la metodolog&icute;a de ajuste del Value at Risk en un escenario de iliquidez de los activos que conforman un portafolio. Para esta situación se presenta un mecanismo de ajuste para el cálculo del indicador de riesgo de mercado VaR. Finalmente se efectúa una aplicación metodológica a una muestra de tres instituciones financieras analizando las volatilidades de la utilidades operacionales.
|Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crisis.||Martínez-Peria, M. S. y S. Schmukler||2001||Journal of Finance 56(3): 1029-51.||
This paper empirically investigates two issues largely unexplored by the literature on market discipline. We evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline. We focus on the experiences of Argentina, Chile, and Mexico during the 1980s and 1990s. We find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates. Deposit insurance does not appear to diminish the extent of market discipline. Aggregate shocks affect deposits and interest rates during crises, regardless of bank fundamentals, and investors’ responsiveness to bank risk taking increases in the aftermath of crises.
|Financial Performance Measures and Shareholder Value Creation: An Empirical Study for Chilean Companies.||Sandoval, E.||2001||Journal of Applied Business Research 17(3): 109-22.||
This paper focuses on the most important Chilean companies and studies whether EVA dominates REVA and competing accounting measures in explaining shareholder value creation. Our results indicate that REVA outperforms alternative measures in associations among their current and lagged realizations and value creation. However, at the industry level, REVA explains value creation only for construction and investment industries. For the remaining industries, in addition to the high explanatory power associated to REVA, the net income and operating cash flows help to explain only a low portion. We conclude that accounting measures should be only considered as marginal complementary performance measures used to compensate executives mainly from the electric, beverage, metallurgic and pension fund industries.