JEL Code G: Financial Economics - 2005

Title Author Date Source Abstract
Mutual Fund Preferences for Latin American Equities Surrounding Financial Crises. Elkinawy, S. 2005 Emerging Markets Review 6(3): 211-37.
Bank Efficiency Ratios in Latin America Forster, J. y S. Shaffer 2005 Applied Economics Letters 12(9): 529-32.
Sistema Financiero y Crecimiento Económico en Chile. Hernández, L. y F. Parro 2005 Estudios Públicos 99: 97-134. Este trabajo presenta una breve descripción del grado de desarrollo de los mercados financieros en Chile, haciendo para esto una comparación con otros pa&icute;ses. Luego de resumir las principales reformas financieras implementadas en el pa&icute;s en las últimas d&ecute;cadas, destacamos las principales fortalezas y debilidades de los mercados financieros en Chile. A continuación nos enfocamos en los problemas más urgentes, en particular, la liquidez del mercado accionario, los mercados de derivados financieros y el mercado de capital de riesgo, y discutimos si las reformas más recientes y las propuestas resuelven adecuadamente estos problemas.
Modelos de Alerta Temprana para Pronosticar Crisis Bancarias: Desde la Extracción de Señales a las Redes Neuronales. Johnson, C. 2005 Revista de Análisis Económico 20(1): 95-122. This paper reviews alternative methodologies and models to design systems to help in the early detection of banking distress (EWS). The proposed methodologies are aimed to the early identification of financial distress for countries without an important recent history of banking failure. This paper presents traditional models often used to predict currency crisis, and more advanced approaches, such as non linear neural networks models.
Currency Mismatches, Balance Sheet Effects and Hedging in Chilean Non-Financial Corporations. Cowan, K., L.O. Herrera, y E. Hansen 2005 Inter-American Development Bank Working Paper N°521. Using a new database on the currency composition of assets and liabilities this paper explores the determinants and consequences of currency mismatches in Chilean non-financial firms. As in previous firm level studies for Chile, we find that in periods following a depreciation firms with higher dollar debt do not underperform their peso counterparts. However, once we adequately control for differences in the currency composition of assets, income and net derivative positions, we do find a significant balance sheet effect. In addition, we find that derivatives play a role in insulating firm level investment from exchange rate shocks. In line with previous studies, we also find evidence of currency matching in Chilean corporates. Firms in Chile actively reduce the risks associated with exchange rate exposure by matching the currency composition of their debt with that of their income and assets, and by taking on derivatives if no “real” hedge is available. Finally, we find significant changes in the level of net currency exposure after the exchange rate was floated in 1999. We argue that one possible interpretation of these results is due to the effect of higher exchange rate variance on the relative risk of domestic and foreign debt.
The Effects on Firm Borrowing Costs of Bank M&A. Duarte, F., A. Repetto, y R.O. Vald&ecute;s 2005 Serie Econom&icute;a N°206. Departamento de Ingenier&icute;a Industrial, Universidad de Chile. Over the past few decades, banking systems in both mature and emerging markets have experienced a wave of consolidations, and mergers and acquisitions (M&A). These developments have raised a number of questions among researchers and policy makers. A key concern refers to whether bank mergers benefit or harm borrowers. The goal of this paper is to study the effects on bank clients of these M&A deals, by analyzing their effects on the loan rates paid by a sample of Chilean manufacturing firms over the 1990-98 period. Using a unique data set on credit transactions between banks and their clients, we study whether borrowers’ terms of lending improve or worsen after the merger. Our methodology allows for a heterogeneous response of firms, depending upon the number of alternative funding sources available to them. We also allow for differences in the short- and long-term response of lending rates. Our results show that M&As do affect firms’ borrowing costs, that these effects are long-lasting, and that they critically depend on whether firms have alternative lending sources that guard them from the adverse effects that mergers may convey. These results are consistent with the hypotheses that bank lending is characterized by informational monopolies and other sources of switching costs, and that valuable client-bank relationship information may be lost over the M&A process.
What Drives Capital Structure? Evidence from Chilean Panel Data. Fernández, V. 2005 Serie Econom&icute;a N°200. Departamento de Ingenier&icute;a Industrial, Universidad de Chile. There is an extensive literature on the determinants of capital structure for developed countries, but little has been said about emerging economies. This article analyzes the driving forces of capital structure in Chile for the period 1990-2002. We study aggregate leverage and interestbearing liabilities in isolation for all firms, and firms segmented by economic sector. Our results give more support to the trade-off theory than to the pecking-order hypothesis. In particular, in recent years equity issues have followed firms’ financing deficits more closely than net debt issues have. We conjecture that tax and monetary policies might have driven this result. The contribution of our work is also methodological. Our econometric specification is based on a random-effects panel data model for censored data developed by Anderson (1986) and extended by Kim and Maddala (1992). We expand Anderson-Kim-Maddala’s work to panel data models for uncensored data, and devise specification tests for non-nested random-effects models. Most literature on capital structure focuses on the cross-section variation of the data by averaging observations over time. Or, when using panel data models, the bias of fixed-effects estimates, under a dynamic specification, is usually neglected.
The International CAPM and a Wavelet-Based Decomposition of Value at Risk. Fernández, V. 2005 Serie Econom&icute;a N°203. Departamento de Ingenier&icute;a Industrial, Universidad de Chile. In this article, we formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, we derive an analytical formula for time-scale value at risk and marginal value at risk (VaR) of a portfolio. We apply our methodology to stock indices of seven emerging economies belonging to Latin America and Asia, the sample period 1990-2004. Our main conclusions are the following. First, the estimation results hinge upon the choice of the world market portfolio. In particular, the stock markets of the sampled countries appear to be more integrated with other emerging countries than with developed ones. Second, value at risk depends on the investor’s time horizon. In the short run, potential losses are greater than in the long run. Third, additional exposure to some specific stock indices will increase value at risk to a greater extent, depending on the investment horizon. Our results go in line with recent research in asset pricing that stresses the importance of heterogeneous investors.
Supervision of Financial Conglomerates: The Case of Chile. Stephanou, C. 2005 World Bank Policy Research Working Paper N°3553. This paper describes the presence of financial conglomerates and assesses the extent to which the risks they introduce to the Chilean financial system are mitigated by existing oversight arrangements (and at what cost). In particular, the paper questions whether the current silo-based supervisory framework, which has served the system fairly well until now, can continue unchanged given growing inter-linkages in the financial system. A high-level short- and medium-term supervisory reform agenda is proposed, which addresses identified vulnerabilities relating to financial conglomerates and continues the migration from a rules-oriented to a risk-based supervisory approach that has gradually been taking place in Chile in recent years.
Financial Liberalization in Latin-America in the 1990s: A Reassessment. Aizenman, J. 2005 NBER Working Paper N° 11145. This paper studies the experience of Latin-America [LATAM] with financial liberalization in the 1990s. The rush towards financial liberalizations in the early 1990s was associated with expectations that external financing would alleviate the scarcity of saving in LATAM, thereby increasing investment and growth. Yet, the data and several case studies suggest that the gains from external financing are overrated. The bottleneck inhibiting economic growth is less the scarcity of saving, and more the scarcity of good governance. A possible interpretation for these findings is that in countries where private savings and investments were taxed in an arbitrary and unpredictable way, the credibility of a new regime could not be assumed or imposed. Instead, credibility must be acquired as an outcome of a learning process. Consequently, increasing the saving and investment rates tends to be a time consuming process. This also suggests that greater political instability and polarization would induce consumers to be more cautious in increasing their saving and investment rates following a reform. Hence, reaching a sustained take-off in Latin-America is a harder task to accomplish than in Asia.
Did the Basel Accord cause a Credit Slowdown in Latin America? Barajas, A., R. Chami, y T. Cosimano 2005 IMF Working Paper N° 05/38.
The Announcement Effect of Bond and Equity Issues: Evidence from Chile. Castillo, A. 2005 Estudios de Economía 31(2): 177-205.
Why Should the Portfolios of Mandatory, Private Pension Funds be Captive? (The Foreign Investment Question). De Menil, G. 2005 Journal of Banking and Finance 29(1): 123-41.
Interest Rate Risk in an Emerging Economy. Fernandez, V. 2005 The Quarterly Review of Economics and Finance 44(5): 678-709. The sharp decrease in inflation over the last decade—from 26% in 1990 to 4% in 2001—led the Central Bank of Chile to set its monetary policy interest rate in nominal terms since August 2001. This paper analyzes the effect of nominalization on the behavior of nominal, inflation-linked, and real interest rates, and its subsequent effects on the financial market. We find that nominalization has made nominal interest rates less volatile, while the opposite holds for inflation-linked interest rates. The effect on real interest rates is less unambiguous, but nominalization appears to have increased the cost of borrowing.