78 research outputs found
Rapid Economic Growth without Economic Freedom: A Puzzle Made in China
No full textAdam Smith's well-known book, An Inquiry into the Nature and Causes of the Wealth of Nations, shows that free markets, the protection of private property rights and a minimal government interference in the economy lead to prosperity. The development economics literature has expansive evidence that economic freedom and sound legal, financial and political institutions boost economic growth. China's economy has grown by nearly 10% each year for over three decades. Yet China's phenomenal economic growth has been accompanied by a relatively underdeveloped legal and financial system. For instance, China is the 124th freest economy in the 2008 Index of Economic Freedom. China seems to be an outlier in the economic growth and freedom literature
Tracking Errors and Long-Run Performance of Leveraged ETFs
No full textLeveraged exchange-traded funds (ETFs) are relatively new to the world of investments but have become increasingly popular to aggressive investors. While a regular ETF tracks the value of a specific index of stocks, a leveraged ETF attempts to achieve a multiple of the return of the underlying index on a daily basis. This multiple can be positive in the case of bull ETFs or negative in the case of bear (or inverse) ETFs. To accomplish these objectives, leveraged and inverse funds pursue a range of investment strategies through the use of swaps, futures contracts, options and other derivative instruments. Due to the effect of compounding, operating expenses and daily resets, not to mention tracking errors, the performance of leveraged funds over longer periods of time can differ substantially from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. Such performance deviations are often quite meaningful and unexpected over the long run. This paper provides an empirical assessment of how well the leveraged ETFs track their underlying index. The results show that the tracking errors on average are small. However, substantial tracking errors do occur from time to time. Despite the price decay associated with leveraged ETFs, their long-run performance
Underpricing of Homecoming A-Share IPOs by Chinese Firms Already Listed Abroad
No full textMany Chinese firms have pursued overseas listings in Hong Kong or U.S. without being first listed in China’s domestic market, mainly due to the regulatory constraints imposed by the Chinese government. Some of them eventually returned to mainland China through an A-share offering to Chinese investors. This unique feature of cross-listed Chinese stocks offers an experiment field to test some of the conventional theories of IPO underpricing. Homebound IPOs are expected to be less underpriced than domestic only IPOs that are not cross-listed because being already listed in a developed market can mitigate the information asymmetry and issue uncertainty associated with their A-share IPOs. Nevertheless, we find that homecoming A-share IPOs are still substantially underpriced, with an average market adjusted first day return of 96.53%. Furthermore, their first-day returns are not significantly different from those of domestic only IPOs once firm- and offer characteristics are controlled. This is in sharp contrast to the lukewarm aftermarket performance experienced in their overseas debuts. Overall, our results suggest the importance of local market structures and norms as influential factors of IPO underpricing
Economic Freedom and Prosperity
No full textAdam Smith’s well-known book, An Inquiry into the Nature and Causes of the Wealth of Nations, shows that free markets, the protection of private property rights and a minimal government interference in the economy lead to prosperity. The development economics literature has expansive evidence that economic freedom and sound legal, financial and political institutions boost economic growth. The basic ideas of Adam Smith has let economists to take an interest in economic and political institutions. Recent empirical work has analyzed country-level data on the gross domestic product (GDP). Another line of empirical research focuses on the link between economic freedom and economic growth. This study investigates the association between the economic freedom, economic growth, and prosperity
A Looming US-China Trade War
No full textChina exports more to the United States than US exports to China. The resulting trade deficit against China has been a major issue during the presidential campaign and now is a real issue facing the Trump administration. President Trump has claimed repeatedly that China is “stealing our jobs” and China is a “currency manipulator.” The currency manipulation designation can easily escalate to a trade war with China. Several questions arise: (1) Is China a currency manipulator? (2) Is a looming trade war with China inevitable? (3) Who are the losers and winners in a trade war? These are not easy questions. The answers lie not only in sound economic analyses, but also in wise political judgements
Country Risk and the Valuation of U.S.-Listedn Foreign IPOs
No full textThis study investigates the association of country risk with IPO valuations. Based on the law and finance literature, I hypothesize that firms domiciled in countries with higher country risk are worth less, other things equal. I test this hypothesis with a sample of international companies making their IPO debuts in the United States. The results indicate that several commonly used country-level variables can explain the observed IPO valuation differences across countries. In particular, the index of economic freedom, developed by the Heritage Foundation, and the Transparency International's corruption index have significant impact on IPO valuations. Specifically, IPO firms domiciled in countries with more economic freedom and less corruption are associated with higher valuation
Statistical Properties and Empirical Assessments of Leveraged ETFs
No full textLeveraged exchange-traded funds (ETFs) are relatively new to the world of investments but have become increasingly popular to aggressive investors. While a regular ETF tracks the value of a specific index of stocks, a leveraged ETF attempts to achieve a multiple of the return of the underlying index on a daily basis. This multiple can be positive in the case of bull ETFs or negative in the case of bear (or inverse) ETFs. To accomplish these objectives, leveraged and inverse funds pursue a range of investment strategies through the use of swaps, futures contracts, options and other derivative instruments. Due to the effect of compounding, operating expenses and daily resets, not to mention tracking errors, the performance of leveraged funds over longer periods of time can differ substantially from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. Such performance deviations are often quite meaningful and unexpected over the long run. This paper evaluates the nature and statistical properties of leveraged and inverse ETFs and in particular the long-run impacts as compared to their underlying indexes. It also provides an empirical assessment a sample of such ETFs
Economic Impacts of the Covid-19 Pandemic
No full textAs of the writing of the study, the covid-19 pandemic, which hit the world with full force two years ago, has caused more than 6 million deaths around the world, with nearly 460 million confirmed cases. After the outbreak of the pandemic, governments around the world took drastic and sometimes draconian measures—including social distancing, shelter in-place, shut-down and closure orders—to stem the spread of the coronavirus. As the covid-induced crisis unfolded, many households and firms were ill-prepared to withstand an income shock of the length and scale of the pandemic. In response, many government implemented unprecedented, largescale stimulus packages along with the easing of monetary policy. Nevertheless, the world economy fell into recession in 2020. The pandemic has been a truly global economic shock. The purpose of this study is to provide an assessment of the economic impacts of the covid-19 pandemic. To this end, it focuses on the major macroeconomic variables in 2020
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