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A Worldwide Revolution: Securities Markets From 1990 1

Ranald C. Michie

in The Global Securities Market: A History

This chapter discusses developments in the global securities markets in the late 20th century. It is shown that the securities markets once again became essential components of each national ... More

This chapter discusses developments in the global securities markets in the late 20th century. It is shown that the securities markets once again became essential components of each national financial system and provided a key element in the financial flows that redistributed savings around the world, bringing stability to the international monetary system. By 2005, a new global securities market was in full operation, which involved a degree of integration and interaction never before seen. This was the result of a culmination of technological and organizational advances during the 20th century. The securities markets had also overcome the governmental and institutional barriers that had previously restricted its development.Less

Determinants of Liquidity in the Thai Bond Market

Akkharaphol Chabchitrchaidol and Sakkapop Panyanukul

in China, Asia, and the New World Economy

This chapter identifies and analyzes the key determinants of liquidity in the Thai bond market as measured by bid-ask spreads. It draws upon the results of this analysis to suggest ways to improve ... More

This chapter identifies and analyzes the key determinants of liquidity in the Thai bond market as measured by bid-ask spreads. It draws upon the results of this analysis to suggest ways to improve liquidity in the secondary market. It also considers policy actions the government and central bank can take to ensure that these key determinants are achieved, and provides recommendations for the authorities' role in creating an environment which best facilitates a liquid secondary market. The chapter proceeds as follows. Section 8.2 gives a brief overview of the structure of the bond market in Thailand. Section 8.3 discusses how to measure and interpret bond market liquidity, in particular the use of bid-ask spreads as a proxy for market liquidity. Section 8.4 discusses the theoretical and empirical framework used in the study, and the rationale behind it. Section 8.5 summarizes the empirical results from the estimations. Section 8.6 draws implications for policy, both for the Ministry of Finance in its capacity as an issuer of bonds, as well as for the Bank of Thailand in its role in safeguarding stability in the Thai financial system.Less

Financial Integration

Yung Chul Park

in Economic Liberalization and Integration in East Asia: A Post-Crisis Paradigm

The Chiang Mai Initiative (CMI) is an important first step in creating a regional cooperative system that can be activated immediately to provide liquidity support to any member country. The ... More

The Chiang Mai Initiative (CMI) is an important first step in creating a regional cooperative system that can be activated immediately to provide liquidity support to any member country. The structure and elements of the CMI, and those of the Asian Bond Market Initiative — a comprehensive plan for the development of regional bond markets — are discussed.Less

A Decade of Government‐Mandated Privately Run Pensions in Mexico: What Have We Learned? *

Tapen Sinha and Maria de los Angeles Yañez

in Lessons from Pension Reform in the Americas

On July 1, 1997, a new privatized pension plan — called the Seguro de Retiro, Cesantía en Edad Avanzada y Vejez (RCV, or Retirement and Old Age Insurance) — took effect in Mexico. This chapter begins ... More

On July 1, 1997, a new privatized pension plan — called the Seguro de Retiro, Cesantía en Edad Avanzada y Vejez (RCV, or Retirement and Old Age Insurance) — took effect in Mexico. This chapter begins with a short description of the new system giving special attention to the cuota social or social quota, and the housing subaccount. It then discusses the coverage issue in the context of the government's claim that higher coverage would be an important advantage of the new system. It looks at the market structure of the pension funds in Mexico and investment portfolios, and tackles the cost structure of running the funds, transition costs, and the cost of the payout phase, noting the inequality between men and women in terms of the future pension payout. Finally, it reviews the conditions that may lead low-income affiliates to fall back on the minimum pension guaranteed by the reform. It shows that the system faces a number of challenges, including a reduction in the ratio of contributors relative to affiliates, high commission charges, and a likelihood that the government will have to support the old-age poor when lower-income individuals retire with insufficient funds in their accounts. On the other hand, the government bond market has deepened, bringing more financial security to the pension system.Less

Global Bond Markets

Roy C. Smith and Ingo Walter

in Global Banking

Reviews the history of bond financing as the main method of raising funds abroad, explaining the early problems associated with Eurobond issues and the regulatory procedures developed to resolve them.

Bonds and Interest Rates

Tomas Björk

in Arbitrage Theory in Continuous Time

This chapter examines the specific problems associated with the application of arbitrage theory to the bond market. It focuses on zero coupon bonds, also known as pure discount bonds, of various ... More

This chapter examines the specific problems associated with the application of arbitrage theory to the bond market. It focuses on zero coupon bonds, also known as pure discount bonds, of various maturities. Practice exercises are included.Less

Building Bond Markets in Latin America

Eduardo Borensztein, Kevin Cowan, Barry Eichengreen, and Ugo Panizza

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter first sets out the book’s three main objectives: (i) To document the characteristics of Latin American bond markets and evaluate their “underdevelopment” in absolute terms and relative ... More

This chapter first sets out the book’s three main objectives: (i) To document the characteristics of Latin American bond markets and evaluate their “underdevelopment” in absolute terms and relative to other forms of financing; (ii) to identify the factors behind the recent growth (or lack thereof) in these bond markets; and (iii) to discuss whether policies aimed at promoting the growth of Latin American bond markets will have a positive effect on the region’s economic performance. It then discusses the state of Latin American bond markets; government bond markets; private bond markets; and private and sovereign debt market interactions.Less

Short Rate Models

Tomas Björk

in Arbitrage Theory in Continuous Time

This chapter examines the problem of how to model an arbitrage free family of zero coupon bond price processes. It assumes a market for T-bonds for every choice of T, and that the market is arbitrage ... More

This chapter examines the problem of how to model an arbitrage free family of zero coupon bond price processes. It assumes a market for T-bonds for every choice of T, and that the market is arbitrage free. For every T, the price of a T-bond has the form p (t, T) = F (t, r, (t) ; T), where F is a smooth function of three real variables. Practice exercises are included.Less

Prospects for Latin American Bond Markets: A Cross-Country View

Barry Eichengreen, Ugo Panizza, and Eduardo Borensztein

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter documents the underdevelopment of Latin American financial markets, and Latin American corporate bond markets in particular. Statistical analysis shows that a limited number of ... More

This chapter documents the underdevelopment of Latin American financial markets, and Latin American corporate bond markets in particular. Statistical analysis shows that a limited number of observable policy variables and country characteristics explain eighty percent of the difference in private bond market capitalization between Latin America and the advanced economies. This same set of observable variables also explains seventy percent of the difference in the development of the financial institutions bond market and the entirety of the difference in the bonds of corporations between the two regions.Less

Development of Colombian Bond Markets

Camila Aguilar, Mauricio Cardenas, Marcela Melendez, and Natalia Salazar

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter examines the determinants and consequences of the development of the Colombian corporate bond market. After a brief literature review, it presents an overview of the Colombian financial ... More

This chapter examines the determinants and consequences of the development of the Colombian corporate bond market. After a brief literature review, it presents an overview of the Colombian financial sector. The chapter then describes Colombian bond markets and introduces the databases upon which the study was constructed. The data is used to estimate models that explain the probability that a firm issues bonds (supply) as well as the probability that an institutional investor holds them (demand). Next, the chapter provides some empirical evidence to support the idea that having a larger bond market is desirable. The final section provides conclusions and policy recommendations.Less

Development of the Chilean Corporate Bond Market

Matías Braun and Ignacio Briones

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter, which examines the development of the Chilean fixed-income securities market in general, and the corporate bond market in particular, begins by discussing the institutional development ... More

This chapter, which examines the development of the Chilean fixed-income securities market in general, and the corporate bond market in particular, begins by discussing the institutional development of the Chilean financial system (1973–2005). It then analyzes the development of the corporate bond market since 1990, and the recent corporate bond expansion.Less

States and Financial Markets: The Imbalance of Power

Kenneth Dyson

in States, Debt, and Power: 'Saints' and 'Sinners' in European History and Integration

This chapter looks at the imbalance between financial-market power in branding states and state power in taming financial markets. It examines collective-action problems in the face of the various ... More

This chapter looks at the imbalance between financial-market power in branding states and state power in taming financial markets. It examines collective-action problems in the face of the various channels and instruments of financial-market power, including regulatory and tax arbitrage and regulatory capture. The Basel agreements are used as case studies of these problems. The chapter addresses the question of why creditors originate problems for states. It examines the impacts of digitalization, globalization, and the de-synchronization of state and market time. Particular attention is paid to the distinctive character of financial markets, including the compound of fear and greed that plays such a vital part in their ‘animal spirits’. The chapter analyses in depth the distinctive configuration of power in sovereign-bond markets, focusing on the role of the Primary Dealer investment banks. Finally, the chapter examines the cultural, social, and political consequences of financial-market power.Less

Corporate Bond Markets in Argentina

Roque B. Fernández, Sergio Pernice, and Jorge M. Streb

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter analyzes the development of the Argentine corporate bond markets. Econometric and survey results show that only large firms use bond finance. The study also suggests that seeking a ratio ... More

This chapter analyzes the development of the Argentine corporate bond markets. Econometric and survey results show that only large firms use bond finance. The study also suggests that seeking a ratio of bond market to gross domestic product similar to that of high-income countries is an inappropriate objective. These ratios are misleading as a measure of bond market development, and providing incentives to reach ratios similar to those of the high-income countries would lead to inefficiencies if bond markets were the ideal financing vehicle only for large corporations.Less

Development of the Mexican Bond Market

Sara G. Castellanos and Lorenza Martinez

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter analyzes the Mexican bond market. It describes policies that may have contributed to fostering capital markets and analyzes how much of the recent performance of the corporate debt ... More

This chapter analyzes the Mexican bond market. It describes policies that may have contributed to fostering capital markets and analyzes how much of the recent performance of the corporate debt market in Mexico can be attributed to them. The chapter is organized as follows. The second section describes some macroeconomic aspects and legal reforms that may be influencing the development of bond markets. The third section explains the government debt management strategies and the extension of the yield curve that may have contributed to expanding the corporate debt market. The fourth section portrays in more detail the recent growth trend of the corporate bond market. The fifth section is dedicated to empirical analysis, using two different approaches: Probit and tobit regressions are estimated to determine the impact of macroeconomic and legal factors on the probability of issuing corporate debt and the conditions of issuances. Finally, the sixth section identifies additional ways to encourage the deepening of bond markets, and presents some final remarks.Less

Development of the Brazilian Bond Market

Ricardo P. C. Leal and Andre L. Carvalhal-da-Silva

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter identifies the main determinants of Brazilian corporate bond financing and discusses what can be done to promote the development of that market. Although the market has rapidly developed ... More

This chapter identifies the main determinants of Brazilian corporate bond financing and discusses what can be done to promote the development of that market. Although the market has rapidly developed since the inception of the Real Plan in July 1994, interest rate spreads and general credit default rates remain high. Increasing domestic credit demand by the federal government may also crowd out other borrowers with a combination of attractive interest rates and favorable prudential treatment of government debt relative to corporate debt, providing little incentive for more credit to the private sector.Less

Wall Street Transitions, 1880–1920: From National to World Financial Centre

Richard Sylla

in Financial Centres and International Capital Flows in the Nineteenth and Twentieth Centuries

On the eve of World War I, the U.S. economy was by a good measure the largest in the world. Nonetheless, the USA was viewed as a relatively minor player on the world financial stage. A comparison of ... More

On the eve of World War I, the U.S. economy was by a good measure the largest in the world. Nonetheless, the USA was viewed as a relatively minor player on the world financial stage. A comparison of leading financial systems, however, indicates that the USA also had by a good measure the largest of any country. The large U.S. financial system served mostly the large domestic U.S. economy with a rather limited role, in comparison to the leading European economies, in international finance. World War I abruptly transformed the USA from a leading debtor nation into the leading creditor nation. An appreciation of the true dimensions of the U.S. financial system before the war contributes to an understanding of how New York, a seemingly secondary financial center in 1913, could become the world’s leading financial center a decade later.Less

Corporate Bonds

Eilís Ferran and Look Chan Ho

in Principles of Corporate Finance Law

Corporate bonds have become a popular alternative to bank loans and offer benefits such as a diversification of sources of funds for the corporate sector, increased choice and flexibility for ... More

Corporate bonds have become a popular alternative to bank loans and offer benefits such as a diversification of sources of funds for the corporate sector, increased choice and flexibility for companies raising finance, and the internationalization of funding sources. This chapter discusses bonds and issuers’ capital structure and financing choices; terms of bonds; structure of bond issues; listing and issuance of bonds; and the secondary market trading of bonds.Less

Bond Markets as Conduits for Capital Flows: How Does Asia Compare?

Barry Eichengreen and Pipat Luengnaruemitchai (eds)

in International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy

This chapter assesses bond markets as a conduit for capital flows. Using bilateral data it analyzes the importance of a range of factors determining nonresident holdings of a country's bonds. By ... More

This chapter assesses bond markets as a conduit for capital flows. Using bilateral data it analyzes the importance of a range of factors determining nonresident holdings of a country's bonds. By comparing cross-country holdings in Asia with cross-country holdings in other regions, as well as analyzing the determinants of holdings across regions, the extent of bond market integration and how it compares across regions and over time can be determined. The results show that Europe is head and shoulders above other regions in terms of financial integration. Asia already seems to have made some progress on this front compared to Latin America and the world as a whole. Cross-holdings are heavily driven by financial conditions in the investing country, which suggests that bond market conditions could adjust abruptly for reasons having nothing to do with policies in the borrowing economy. Bondholders are attracted to the securities of countries whose returns co-vary with their own, suggesting return chasing rather than diversification behavior.Less

How Can Emerging Market Economies Benefit from a Corporate Bond Market?

Patrick Bolton and Xavier Freixas

in Bond Markets in Latin America: On the Verge of a Big Bang?

This chapter explores the effects of creating a corporate bond market in emerging market economies on the efficiency of capital allocation. It argues that creating a corporate bond market and ... More

This chapter explores the effects of creating a corporate bond market in emerging market economies on the efficiency of capital allocation. It argues that creating a corporate bond market and decoupling the banking sector from public finances reduces the fragility of the banking sector and shields a greater proportion of corporations from the consequences of government debt crises. The formal model in Bolton and Freixas (2006) is also used to evaluate the effects of different types of policies, such as financial liberalization or the creation of a market for collateralized debt obligations on the efficient allocation of capital and the incidence of debt crises.Less