Determinants of Stock Market Correlations. Accounting for Model Uncertainty and Reverse Causality in a Large Panel Setting
with A Afonzo and K Beck
We examine 22 determinants of stock market correlations in a panel setting with 651 country pairs of developed economies over the 2001-2018 period, while accounting for model uncertainty and reverse causality. On the one hand, we find, that a number of determinants, well established in the literature, e.g. trade, institutional distance, and exchange rate volatility fail the robustness test. On the other hand, we find strong evidence supporting several others: (1) inertia, with current correlation being the best single predictor of the future stock market correlation (2) positive impact of the market size (3) imperative role of the interconnected financial factors: capital mobility, financial development, and portfolio equity flows. With the expected future growth of economies and their capital markets as well as deepening financial liberalization, this paper brings strong support to the hypothesis of diminishing international diversification potential.
Chinese investment in Greece: Analysing the response to a crisis
with J Li and S Masino
This paper examines one of the most high-profile Chinese investment projects in Europe. Using data collected over the period 2019-2021, we tackle important questions around the impact on employment and workplace regimes on the state-run Piraeus Port Authority (PPA) and COSCO-run Piraeus Container Terminal (PCT) sides of Piraeus port in Greece. Our key findings indicate that, while COSCO’s investment has created much-needed local employment, the adoption of widespread subcontracting of the labour force has segmented workers into very different workplace regimes depending on the side of the port they work at. We found the new workplace regime introduced by PCT to have evolved over time since the inception of operations, but to have nevertheless retained key elements of a labour control strategy detrimental to workers’ agency. We examine these findings in light of the facilitative and enabling role that the national labour market reforms played in paving the way for COSCO’s adoption and deployment of such working practices and contextualise them within a multi-scalar governance architecture that connects transnational, national, sectoral and firm specific elements of the prevailing labour conditions.
Exchange Rate Predictability: Fact or Fiction?
with G Magkonis
The present study investigates the factors that affect the forecasting performance of several models that have been used for exchange rate prediction. We provide a quantitative survey collecting 8,413 reported forecast errors and we investigate which forecasting characteristics tend to improve forecasting ability. According to our evidence, predictions can beat random walk when certain types of models and econometric methods are used. In particular, linear specifications based on PPP outperform random walk. Furthermore, higher data frequency and longer forecasting horizon also improve forecasting performance. In this way, we identify under which conditions it is feasible to solve the `Meese-Rogoff' puzzle.
Financial, institutional, and macroeconomic determinants of cross-country portfolio capital flows
with A Afonzo, J Alves and K Beck
We consider a new dataset that provides a description of the population of financial equity flows between developed countries from 2001 to 2018. We follow the standard practice of controlling for pull and push factors as well as gravity-style variables, while also accounting for the business cycle, public debt and sovereign ratings. Our key findings are as follows: (i) equity flows are more intense between countries at the same stage of the business cycle (ii) increased equity flows to countries with a relatively lower public debt deficit as a ratio of GDP (iii) financial and macroeconomic variables are mportant for big equity flows, while institutional variables are important for the small flows. Overall, this new dataset provides novel evidence on the importance of the business cycle, government debt and sovereign ratings scores.