Purpose – Study the potential implications of sovereign wealth funds (SWFs) on financial stability.
Methodology/approach – By assessing whether and how stock markets react to the announcements of investments and divestments to firms by SWFs, this chapter takes advantage of a hand-collected database on investments and divestments by major SWFs to evaluate the short-term financial impact of SWFs on selected public equity markets in which they invest.
Findings – Results show that there was no significant destabilizing effect of SWFs on equity markets, which is consistent with anecdotal evidence.
Social implications – SWFs could promote financial stability and should be given more development space.
Originality/value of the chapter – This study contributes to the emerging academic literature that seeks to analyze the behavior of SWFs in financial markets.
Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach…
Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008). Further, the value of institutional investors' assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008). Given the magnitude of institutional investors' holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised. One such question concerns their impact on the stability of stock markets. On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values. On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Vishny, 1992). This view of institutional investors as “efficiency drivers” generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986).
This paper aims to clarify the effects of introducing depositor preference on resolution costs, probability of default and bank funding costs, allowing for the possibility…
This paper aims to clarify the effects of introducing depositor preference on resolution costs, probability of default and bank funding costs, allowing for the possibility of collateralized funding.
The importance of conflict among creditors in generating bankruptcy costs is documented. A model of such a conflict is provided, which is then used in analyzing the effects of depositor preference and other forms of asset encumbrance. The model takes into account the reactions of providers of secured and unsecured financing.
Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.
The interaction of asset encumbrance with liquidity risk is not addressed directly.
The issues addressed on the paper are currently the subject of debate by regulators and market participants. There are direct implications for prudential regulation and bank resolution policies.
The theory of conflict resolution is applied to bankruptcy and bank resolution, generating rigorous analysis of an important practical issue.
The governing Christian Social Union (CSU), sister party of Chancellor Angela Merkel’s Christian Democrats (CDU), suffered a serious blow in Bavaria's October 14 federal…
Generation Z in Germany – born after 1995 – follows in many ways similar trends to be seen in other countries. Contrary to Generation Y, it is less career-focussed, less keen on financial rewards and less willing to work flexible in a competitive world with total work–life blending. They look for structure, security and feeling good. What is different: Germany is one of the few countries in the world in which Generation Z in many cases can live up to their dreams. Germany has a prospering economy, a stable society and still a good educational system. Most important, for young people, it has an unemployment rate of virtually zero per cent. Therefore, companies definitely must engage in the war for talents and provide Generation Z with a fitting employer value proposition: Generation Z looks for meaningful and exciting work but seeks also meaning and excitement in private lives. In particular, they demand a clear separation of their private lives from their job. All this stands in contrast to the ambitions of the industrial sector in Germany promoting a more Generation Y-type environment with flexibility, agility and work–life blending. This conflict is not dealt with in an open way, since politics and media stand on the side of the large companies. Still, the power of Generation Z is not to be underestimated. Therefore, the chapter leaves it for the future to find out whether the Generation Z or other forces will win.