Kate Phylaktis

The study examines the impact of Central Bank Transparency (CBT) on foreign exchange market vulnerability, by focusing on exchange market pressure (EMP). Using panel ARDLbased analysis, and a sample of 32 countries, 12 developed markets (DMs), and 20 emerging markets (EMs) over the period 2000-2019, we find that enhanced CBT is associated with a reduction in EMP, which is robust to including US monetary and economic policy uncertainty measures, and financial development. No supporting evidence is found that during times of high uncertainty the impact of CBT on EMP is greater. The flexibility of the exchange rate regime and financial integration are found to support CBT's reduction of EMP in EMs but not in DMs.

This study examines the role of financial integration in exchange market pressure (EMP) across a representative group of 42 advanced and emerging markets over the period 2000–2019, which covers the global financial crisis, which has heightened monetary and economic policy uncertainty. The authors use a novel measure of financial integration, namely the uncovered equity return differential versus the US, which is based on the Uncovered Equity Parity and is available at a monthly frequency. Their analysis is based on panel cointegration and several robustness tests and it shows that indeed financial integration has a significant effect on the EMP of advanced markets as well as emerging markets.

This study uses firm level survey data to assess whether the capital structure theory is portable to small firms in developing countries and whether family ownership and management play a role in their financing decisions. Using a sample of firms from 24 developing countries from all over the world, our main results show (i) the size of the firm is an important factor in the level of leverage; (ii) small family firms do not follow the pecking order; (iii) the country of incorporation is an important determinant for the debt financing decisions of small family firms; they are sensitive to institutional characteristics, and the macroeconomic environment variables of the country; and (iv) the difference in capital structure choices is related to management styles of small family firms.

In this paper we study the implications for house price dynamics of the ongoing financializa- tion of housing, focusing on the role of real estate investment trusts (REITs). Building on the dramatic rise in REITs valuation in the last decade, we ask whether housing markets exposure to financial market dynamics are exacerbated by REITs. We find that REITs push up house prices significantly around the world. We show that the effect is stronger in advanced economies, where REITs have grown the most in the last decade, and in countries with more market-based pension systems. We also show that REITs are effective instruments for foreign investors to enter domestic housing markets, and represent a transmission channel for both domestic and global financial shocks into housing markets.

This study examines the influence of economic integration, both real and financial, on exchange market pressure (EMP), along with considering external monetary and economic policy uncertainties. Our analysis is based on a group of Asian emerging markets over the period 2000-2018, which covers the global financial crisis and taper tantrum episodes, which have heightened monetary and economic policy uncertainty. By bringing improvements in modeling, and EMP measurement, a time series analysis shows an overall buffering role of real and financial integration on EMP, albeit with a country-level heterogeneity. Similarly, there is a country-level heterogeneity in the foreign exchange market response to monetary and economic policy uncertainties with surging effects in most cases. A panel analysis supports also these results. This research highlights that the current trend of deglobalization may hamper the stabilizing benefit of economic integration given the global policy uncertainty in the foreign exchange market.

We construct out-of-sample (OOS) forecasts using various model specifications of equity and bond returns, and assess their statistical accuracy against the random walk (RW) model. We test their economic value by designing a trading strategy inspired by the return chasing hypothesis, based on the sign of the predicted return from our models. Using a sample of 28 currency markets, our results include (i) our OOS forecasts show that all the slope estimates of our predictive regressions are significant, indicating that the RW is mis-specified; (ii) statistical accuracy criteria suggest that our empirical models outperform the RW; and (iii) our trading strategies, that use stock and bond returns, generate significant Sharpe ratios. These returns, however, are uncorrelated with the traditional risk factors and other popular determinants of currency returns.

The paper examines the impact of economic integration on the relationship between the currency and equity markets for a group of Asian emerging economies using both linear and non‐linear frameworks. We first derive the dynamic conditional correlations between the two markets and then examine the impact of economic integration on their relationship. Our main results are: (a) there is a negative correlation between real exchange rate changes and equity return differentials for all countries apart from China, which becomes deeper during the global financial crisis (GFC) for some of the countries; (b) economic integration, both real and financial, has an asymmetric impact on the relationship between the two markets both in the short‐run and in the long‐run; and (c) applying a linear framework does not bring out the impact of financial integration.

We investigate the impact of local and global macroeconomic factors on Eurobonds and local currency issued bonds in Sub-Saharan Africa, at different points on the yield curve. Using a unique proprietary data set collected from local authorities, central banks and independent international sources over the period 2001-2016, we find the local monetary policy interest rate and the balance of trade to impact both local currency bond yields and Eurobonds; global risk aversion, as proxied by the VIX index, to impact only the Eurobonds and much more the commodity importing countries; and the explanatory power of most models to be high.

The portfolio-rebalancing theory of Hau and Rey (2006) yields uncovered equity parity (UEP) as a prediction that local-currency equity return appreciation is offset by currency depreciation. Contrary to UEP, estimations of vector autoregressive models for eight Asian emerging markets using daily data reveals a positive nexus between equity returns and currency returns. The extent of the uncovered equity “disparity” is time-varying and asymmetric as it exacerbates in crisis. We find evidence that the UEP failure is due to investors’ return chasing. Robustness checks suggest that this explanation is not an artifact of changing global volatility conditions or a flight-to-quality phenomenon.

The paper investigates the impact of global liquidity, proxied by funding liquidity, a novel measure of global liquidity, on house prices around the world via the funding channel that transmits global conditions from the main financial centers to the local banks through bank flows. Focusing on the repo markets in the US, Europe, and the UK, over the period 2000-2014, we find that liquidity shocks impact house prices in both emerging and advanced economies. However, countries’ exposure to liquidity shocks can be mitigated by monetary policy, and by various general and house market specific macroprudential policies. We document strikingly different effectiveness of these policies in advanced and emerging markets.