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71. Price Discovery in Commodity Futures and Cash Markets with Heterogenous Agents

Author:
Sophie van Huellen
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The paper develops a price discovery model for commodity futures markets that accounts for two forms of limits to arbitrage caused by transaction costs and noise trader risk. Four market regimes are identified: (1) effective arbitrage, (2) transaction costs but no noise trader risk, (3) no transaction costs but noise trader risk and (4) both transaction costs and noise trader risk. It is shown that commodity prices are driven by both market fundamentals and speculative trader positions under the latter two regimes. Further, speculative effects spill over to the cash market under regime (3) but are confined to the futures market under regime (4). The model is empirically tested using data from six grain and soft commodity markets. While regime (4) is rare and short lived, regime (3) with some noise trader risk and varying elasticity of arbitrage prevails
Topic:
International Trade and Finance, Markets, Investment, Commodities, and Price
Political Geography:
Global Focus

72. Developing a National Standard to Regulate the Operation and Management of Venture Capital Guiding Funds

Author:
Pangoal Institution
Publication Date:
12-2016
Content Type:
Special Report
Institution:
Pangoal Institution
Abstract:
Though National Development and Reform Commission, Ministry of Finance and Ministry of Commerce jointly released theGuiding Opinions on Guiding Funds in 2008 and local governments also issued relevant guiding opinions when they set up guiding funds, these guiding opinions lack the administrative regulations and concrete standards for the operation of venture capital guiding funds. The establishment and operation of the 40-billion-RMB Emerging Industry Venture Capital Guiding Fund will drive the new round of peak for the establishment of venture capital guiding funds in China. To better standardize the operation and management of guiding funds, improve the operation efficiency, and prevent through systems rent-seeking behaviors such as connected transactions and inbreeding, it is imperative to formulate a national standard for guiding funds.
Topic:
Regulation, Investment, Capital, and Venture Capital
Political Geography:
China and Global Focus

73. Creating Value Through the Chain: SABMiller & the Tenderos

Author:
Shashank Aeri and Trevor N. May
Publication Date:
01-2016
Content Type:
Policy Brief
Institution:
Institute for the Study of International Development, McGill University (ISID)
Abstract:
Launched in 2013, the “4e Camino al Progreso” program is an Inter-American Development Bank/Multilateral Investment Fund-sponsored social investment project led by SABMiller and implemented by the executing agency FUNDES in six Latin American countries. Capitalizing on the opportunities inherent in the brewer’s value chain, the initiative provides business and leadership consulting to small retailers, known as tenderos, in impoverished neighbourhoods. The project aims to improve the profitability and sustainability of the stores, or tiendas, allowing their proprietors to achieve a better quality of life and contribute more time and resources to improving their communities. Empowering these retailers to become better business operators ultimately strengthens SABMiller and other companies’ distribution network, creating benefits for the local and regional economy. The case presents a promising model for similar corporate-social partnerships and contains innovative examples of how the private sector can contribute to substantive development initiatives. Given the partnership’s variegated players and contacts, the case highlights stakeholder relations strategies and challenges. The project’s design also demonstrates scalability and sustainability potential, although the ultimate success of these ambitions will depend on strategic decision-making and managing SABMiller’s evolution as it merges with Anheuser Busch InBev, the world’s largest brewer. 1 While its ultimate results remain to be seen, this project raises three main lessons given its progress to date: first, sometimes even the most obvious solutions, such as using technology, do not come with an equally straightforward technique for adoption and implementation; second, reconceptualising the bottom of the pyramid as an engine of growth in the value chain, rather than simply a group of undervalued consumers; and third, understanding how productivity and efficiency contribute to sustainability, which may be undermined if this relationship is not recognized.
Topic:
Development, Business, Investment, and Private Sector
Political Geography:
Global Focus

74. The Explosive Growth of the ABCP Market Between 2004 and 2007: A 'Search for Yield' Story

Author:
Photis Lysandrou and Mimoza Shabani
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The years immediately preceding the financial crisis of 2007 witnessed an explosive growth in the supplies both of the long term securities issued by the shadow banking entities, the ABSs and CDOs, and of the short term securities issued by these entities, notably ABCP. While it is widely accepted that the search for yield was the major driving force behind ABS and CDO growth, the same is not true of the ABCP market where other factors such as regulatory arbitrage on the part of banks or the safety and liquidity concerns of institutional investors are seen as having been the more important growth driving force. This paper argues that the search for yield did play a crucial role in ABCP growth between 2004 and 2007. To back up this argument, the paper points to four close correlations that were peculiar to this particular three year span: (i) that between ABCP growth and the federal funds rate and the rate on ABCP; (ii) that between ABCP growth and the growth of US MMMF asset holdings; (iii) that between ABCP growth and the changes in the geographical and functional breakdown of the institutions supplying ABCP; (iv) and, finally, that between ABCP growth and the changes in the programme breakdown of the ABCP market.
Topic:
Economic Growth, Global Financial Crisis, Investment, Banking, and Asset Backed Commercial Paper
Political Geography:
Global Focus

75. Estimating U.S. Cross-Border Securities Positions: New Data and New Methods

Author:
Carol C. Bertaut
Publication Date:
08-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The role of capital flows in the buildup to the global financial crisis and the potential vulnerabilities posed by capital flows to emerging market economies highlight the importance of reliable and timely measures of cross-border investment activity to better monitor developments as they unfold. We present new monthly estimates of U.S. cross-border securities investment, combining information from detailed annual Treasury International Capital (TIC) surveys with new information from the TIC form SLT. We also show how changes in the new monthly data can be decomposed into flows, estimated valuation changes, and a residual "gap". These decompositions can provide a richer and timelier view of developments in both foreign portfolio investment in the U.S. and U.S. portfolio investment abroad than available from transactions data or survey data alone. Data on cross-border holdings through December 2013, by country, are available for download; we also provide advice on how to construct estimates going forward. These data can be combined with the existing Bertaut-Tryon monthly estimates of securities holdings (now updated through 2011) to generate consistent monthly time series of positions.
Topic:
Emerging Markets, Markets, Global Financial Crisis, Capital Flows, and Investment
Political Geography:
Global Focus

76. Two Principles of Debt and national Income Dynamics in a Pure Credit Economy

Author:
Jan Toporowski
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The paper puts forward two principles of national income dynamics in a pure credit economy. The first is the commonly known principle of Keynesian/Kaleckian economics according to which total output and employment in a capitalist economy is determined by the level of business investment. In turn that investment has to be financed, so that debt is inherent in such and economy. The second principle is a principle of the conservation of debt , which argues that, while new debt creates deposits in the economy, attempts to reduce debt generate deflationary processes that off-set debt reductions by creating ‘enforced’ debt in other parts of the economy. The analysis reinforces Minsky’s view that debt structures require corresponding investment to manage them, and that debt problems arise when such investment is insufficient.
Topic:
Debt, Economics, Investment, Economic Theory, Keynes, and Credit
Political Geography:
Global Focus

77. Capital Flows to Emerging Markets: An alternative Theoretical Framework

Author:
Bruno Bonizzi
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper represents a theoretical contribution to the analysis of international capital flows. It outlines an alternative theoretical framework based on Post-Keynesian monetary theory, and in particular on Hyman Minsky’s Wall Street paradigm and concept of Money-manager capitalism and Jan Toporowski’s theory of capital market inflation. The key aspects of such an approach are, firstly, that in a monetary analysis capital flows need to be understood as “flows of funds”, as opposed to the traditional understanding of capital flows based on “real” decision, such as saving and investment. A consequence of this is the need of focusing on gross rather than net capital flows. Secondly, when considering emerging markets, the asymmetric nature of the international monetary system must be stressed. Thirdly, it is important to understand the specific forms that capital flows take: in today’s world, pension funds and other institutional investors — alongside banks — are key players in the financial markets, and their role in shaping capital flows to emerging markets must be explicitly recognised. This paper synthesises these elements by understanding capital flows as the result of institutional investors portfolio choice. Along the lines of Minsky and Toporowski, portfolio choice by institutional investors need to be assessed in relation to their balance sheet structure, beside risk/return trade-offs and general state of risk aversion
Topic:
Emerging Markets, Capital Flows, Investment, and Economic Theory
Political Geography:
Global Focus

78. Portfolio Diversification and the Cross-Sectional Distribution of Foreign Investment

Author:
Alexandra Tabova
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In this paper I explore the role of portfolio diversification in explaining the distribution of foreign investment across countries. I capture the portfolio diversification motive by a measure of country-specific riskiness, "covariance risk", which I construct as how countries' growth rates covary with the stochastic discount factor of a representative international investor. My key new empirical finding is a strong and significant correlation between this new measure of country riskiness and foreign investment allocations. Less risky countries, i.e. countries whose growth rates are more highly correlated with the investor's stochastic discount factor, receive larger investment shares than more risky countries. I interpret this result as evidence that investors do take into account diversification opportunities, not only for portfolio investment decisions, but also for foreign direct investment decisions. My empirical results confirm the theoretical predictions of standard portfolio allocation models.
Topic:
Foreign Direct Investment, Investment, Risk, Fiscal Policy, Securities, and Stock Markets
Political Geography:
Global Focus

79. Corporate Liquidity and Financial Fragility: The Role of Investment, Debt and Interest

Author:
Jan Toporowski
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The paper addresses the issue of how debt deflation may arise in a capitalist economy with a sophisticated credit system. It argues that the standard argument of debt deflationists, that debt-financed investment causes a build-up of unsustainable investment, fails to recognise that debt is back by credit. A corollary of this is that the rate of interest is not a factor in investment decisions. Financial fragility is caused by heterogeneity of balance sheets, debt financed operations in financial markets and insufficient debt-financed investment, rather than too much such investment.
Topic:
Debt, Markets, Investment, and Credit
Political Geography:
Global Focus

80. Institutional Herding in the Corporate Bond Market

Author:
Fang Cai, Song Han, and Dan Li
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We find substantial herding in U.S. corporate bonds among bond fund managers, much higher than that previously documented for the equity market. Herding is generally stronger among illiquid bonds, and buy herding and sell herding are driven by different factors. In particular, sell herding increases on negative news about bond ratings and corporate earnings. Interestingly, increases in ex-post transparency in corporate bond trading through Trade Reporting and Compliance Engine (TRACE) led to higher buy herding but not to higher sell herding. Finally, we find significant return reversals in the post-herding quarters, especially for sell herding and for junk bonds. Price reversal is most prominent when funds herd to sell illiquid bonds, which suggests that temporary price pressure is the reason behind price reversal.
Topic:
Markets, Business, Investment, Corporations, and Liquidity
Political Geography:
Global Focus