trade interdependence the international financial institutions and the recent evolution of sovereign debt renegotiations abstract this paper analyzes the effect of a debtor country s pattern of trade with commercial creditors home countries on the outcome of debt rescheduling negotiations the analysis reveals that a debtor country with more market power has greater leverage in a three way debt rescheduling negotiation that includes the debtor country its creditors and the international financial institutions ifis the paper also considers the effects of the ifi sovereign debt policy on the bargaining power of the parties in debt rescheduling negotiations two bargaining frameworks analyzed and compared in the paper represent the negotiation mechanism at different stages of the ifi sovereign debt policy evolution

constant and variable returns to scale dea models for socially responsible investment funds abstract in order to evaluate the performance of socially responsible investment sri funds we propose some models which use data envelopment analysis dea and can be computed in all phases of the business cycle these models focus on the most crucial elements of an investment in mutual funds in the literature both constant and variable returns to scale dea models have been used to evaluate the performance of mutual funds we carry out an empirical investigation on european sri equity funds to test the presence of returns to scale rts another aspect taken into account by the empirical investigation is the measurement of the degree of social responsibility of sri equity funds in various european countries in addition we analyse the performance of the funds considered with the different dea models proposed which differ in the way the ethical objective is taken into account moreover the paper focuses on another crucial issue regarding socially responsible investing the comparison of the performances between sri and non sri funds the empirical study suggests that the ethical objective can be pursued without having to renounce financial rewards

efficiency analysis for exogenously fixed inputs and outputs we evaluate by means of mathematical programming formulations the relative technical and scale efficiencies of decision making units dmus when some of the inputs or outputs are exogenously fixed and beyond the discretionary control of dmu managers this approach further develops the work on efficiency evaluation and on estimation of efficient production frontiers known as data envelopment analysis dea we also employ the model to provide efficient input and output targets for dmu managers in a way that specifically accounts for the fixed nature of some of the inputs or outputs we illustrate the approach using real data for a network of fast food restaurants

the role of institutions in reputation models of sovereign debt abstract a standard explanation for why sovereign governments repay their debts is that they must maintain a good reputation to easily borrow more we show that the ability of reputation to support debt depends critically on the assumptions made about institutions at one extreme we assume that bankers can default on payments they owe to governments at the other we assume that bankers are committed to honoring contracts made with governments we show that if bankers can default then a government gets enduring benefits from maintaining a good relationship with bankers and its reputation can support a large amount of borrowing if however bankers must honor their contracts then a government gets only transient benefits from maintaining a good relationship and its reputation can support zero borrowing

non parametric frontier estimates of mutual fund performance using c and l moments some specification tests there is a burgeoning literature using non parametric frontier methods to measure mutual fund performance these articles measure the relationship between the various characteristics mainly return information and some costs of ownership of these specialized financial products to establish a ranking using some efficiency measure we argue in favor of the use of the shortage function which is compatible with general investor preferences and question some of the often maintained hypotheses in this line of research the empirical part employs a large database of us and european mutual funds to offer extensive tests of the underlying modeling assumptions using various frontier estimators

sovereign debt structural adjustment and conditionality abstract the lack of a proper enforcement mechanism for sovereign debt generates a commitment failure as a result a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure formalizing this argument we show that conditionality helps the repayment of sovereign debt in certain circumstances it can eliminate debt overhang especially when it is coupled with concessionary lending of sufficient magnitude it is however unable to restore first best when it is anticipated by lenders conditionality may get international financial institutions and sovereign debtors into a trap where the debt overhang persist debt rescheduling takes place periodically and conditionality continues indefinitely

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

syndicated lending under asymmetric creditor information abstract this paper explores how asymmetric information about borrower quality among syndicated lenders alters the incentive to refinance illiquid borrowers we use a model in which lenders enter the market sequentially in two rounds of lending between the two rounds a shock separates borrowers into good ones and bad ones and early entrants acquire information about individual borrower type while late entrants know only the distribution of borrower types the asymmetric information structure gives rise to both signalling and screening issues we show that self selecting contracts do not exist and that there is always a pooling perfect bayesian equilibrium in which late entrants lend to both good and bad types without borrower type being exposed before final clearing at the terminal time based on this framework we argue that prior to the 1982 international debt crisis it was possible for banks with heavy exposure to troubled debtors to attract rational newcomers in syndicated loans which were with positive probability bailout loans

financial markets shutdown and reaccess we employ a discrete time parametric duration model on a group of 121 countries over the period 1970 2011 and find that the probability of the end of financial markets shutdown and reaccess falls as these events become longer we also show that 1 shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls the chief executive has been in office for long periods and the country has a default history and 2 spells of reaccess tend to be longer when economic growth improves and financial openness increases there are neither government crises nor government instability and the country did not default in the past jel c41 g15

efficiency of mutual funds and portfolio performance measurement a non parametric approach abstract in finance portfolio performance assessment is an important area of research the two popular indices of performance are the jensen s alpha and the sharpe index however there are a number of shortcomings of the above measures that have been highlighted in the literature we propose a new measure of performance that seeks to address the limitations of the earlier indices the new index is calculated by employing a well known method in operations research called data envelopment analysis we show the benefits of the proposed approach and assess the performance of mutual funds we compare the results with traditional indices of performance an interesting result we obtain is that the mutual funds are all approximately mean variance efficient

wage and price adjustment in a multimarket disequilibrium model the estimation of wage and price adjustment equations rests heavily on the use of tension variables that aim at capturing the disequilibria in the labour and goods markets disequilibrium models therefore provide a natural way of endogenizing these tension variables this paper estimates jointly a two market disequilibrium model and a wage and price adjustment block where price and wage growth react to excess effective demands the estimation is carried out using the simulated pseudo maximum likelihood methods developed by laroque and salanie 1989 the results look promising as regards the estimation of even more sophisticated models

sovereign defaults and liquidity crises abstract sovereign debt crises in emerging markets are usually associated with liquidity and banking crises the conventional view is that the domestic turmoil is the consequence of foreign retaliation although there is no clear empirical evidence on classic default penalties this paper emphasizes instead a direct link between sovereign defaults and liquidity crises building on two natural assumptions i government bonds represent a source of liquidity for the domestic private sector and ii the government cannot discriminate between domestic and foreign creditors in the event of default in this context external debt emerges even in the absence of classic penalties and government default is countercyclical triggers a liquidity crunch and amplifies output volatility in addition a reform that involves a substitution of government bonds with privately sourced liquidity instruments could backfire by restricting governments access to foreign credit

sovereign defaults information investment and credit abstract why would a sovereign government immune from bankruptcy procedures and with few assets that could be seized in the event of a default ever repay foreign creditors and correspondingly why do foreign creditors lend to sovereigns this paper finds general conditions under which even in the absence of sanctions lending to sovereigns can emerge in a single shot game furthermore it shows that positive borrowing can be sustained both in pooling and separating equilibria in this way it makes clear that neither sanctions nor reputation considerations the two classical explanations are necessary to enforce repayment information revelation is the crucial mechanism for these results the repayment default decision is interpreted as a signal used by the government to communicate information to domestic and foreign agents about the fundamentals of the economy governments repay to affect agents expectations about them a default through its effect on expectations about fundamentals can generate a decline in foreign and domestic investment and a credit crunch in domestic credit markets governments repay to avoid these costs but may default in equilibrium when hit by a negative shock

assessing the performance of alternative investments using non parametric efficiency measurement approaches is it convincing abstract dea based performance assessment in the alternative investment fund industry is often motivated by the fact that dea is capable of simultaneously handling multiple input risk and multiple output return measures thereby still offering a single real number as a performance index without utilizing subjective weights to aggregate these inputs and outputs this paper aims at investigating whether dea based performance indexes previously used to assess alternative investment fund performance are actually able to satisfy these properties and to contrast the findings using a dea based performance index with those using a traditional financial performance index

debt relief schemes and welfare abstract this paper shows that concerted debt reduction may be welfare improving even when the investment disincentive effect of a debt overhang is not large enough to place the debtor country on the wrong side of the debt laffer curve whether the appropriate relief scheme involves debt reduction or new money however depends on whether investment disincentives or liquidity constraints dominate it is shown that except under very special circumstances mixed policy packages involving both debt and liquidity relief may not yield the desired results jel f34

bank heterogeneity reputation and debt renegotiation this paper examines a process of debt renegotiation in which banks possess divergent interests and there is asymmetric information the authors assume that large banks must exert pressure on small banks in order to obtain participation of these in the provision of new money and in debt forgiveness making use of a reputational model they argue that the effect of asymmetric information as to the amount of pressure that large banks can exert on small banks makes the debtor countries worse off than absent these asymmetries in information this also provides a rationale for the growing popularity of exit bonds copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

markowitz revisited social portfolio engineering abstract in recent years socially responsible investing has become a popular subject with both private and institutional investors at the same time a number of scientific papers have been published on socially responsible investments sris covering a broad range of topics from what actually defines sris to the financial performance of sri funds in contrast to non sri funds in this paper we revisit markowitz portfolio selection theory and propose a modification allowing to incorporate not only asset specific return and risk but also a social responsibility measure into the investment decision making process applied in an a posteriori fashion the model results in a three dimensional capital allocation plane illustrating the complete set of feasible optimal portfolios it enables investors to custom tailor their asset allocations and incorporate all personal preferences regarding return risk and social responsibility in an empirical analysis with a data set of over 6000 international companies including the complete universe of social responsibility rated stocks we find that investors opting to maximize the social impact of their investments do indeed face a statistically significant decrease in expected returns however the social responsibility risk optimal portfolio yields a statistically significant higher social responsibility rating than the return risk optimal portfolio

performance of ethical mutual funds in spain sacrifice or premium there is currently much debate in the economic literature about whether ethical investment involves a financial sacrifice or premium one of the most common methods of testing this compares the financial performance of ethical investment funds with that of other funds not considered socially responsible or ethical the majority of these research studies evaluate the performance of the ethical funds according to classic measures whereby different financial markets in different countries and for different periods of time serve as reference for evaluation the ultimate conclusion of all of these studies is that there are no significant differences between the performance results of one type of funds and the other in spain ethical investment funds are still an incipient sector of investment to date the spanish market has not been included in any type of analysis of these characteristics therefore the main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the spanish retail market we propose the aggregate type of analysis as the spanish ethical investment funds have experienced a weaker development in comparison to those of other developed countries in the first step we suggest the financial performance to be compared by style analysis since the asset distribution of the spanish social return investment sri funds differs from the european trend in particular we use the multifactor regression model with style benchmarks we found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds in the second step to achieve a more robust and homogeneous comparison we used the bootstrap method comparing ethical and non ethical fund subsamples by homogeneous groups no significant differences between these two types of funds have been found thus if we assume the positive o neutral effect of ethical investment on investor utility in the retail spanish market the financial and social performance fsp of ethical funds will be in aggregate superior to the fsp achieved by conventional funds in conclusion the financial performance of ethical mutual funds in spain is no sacrifice

sovereign bonds and socially responsible investment this article investigates how the mean variance efficient frontier defined by sovereign bonds of 20 developed countries is affected by the consideration of socially responsible indicators for countries in investment decision making for a global rating of socially responsible performances we show that it is possible to build portfolios with an increased average rating without significantly harming the risk return relationship this result differs when considering sub ratings related to the environment social concerns and public governance the results are good news for responsible investors and suggest that socially responsible portfolios of sovereign bonds can be built without a significant loss of mean variance efficiency

dea frontier improvement and portfolio rebalancing an application of china mutual funds on considering sustainability information disclosure abstract data envelopment analysis dea has been a widely used methodology for evaluating the relative performance of portfolios extensive work has appeared for realizing the role of dea in the aspect of assessing portfolio performance and deriving the relative rankings however the role of providing realizable benchmarks is not fully explored in the existing literatures most importantly the dea based portfolio performance evaluation methods developed in the existing literatures can hardly provide support for fund managers in pursuing sustainability performance in this paper we first propose a dea frontier improvement approach under the mean variance framework this approach provides investor with a rebalancing strategy as well as an improved dea frontier which approximates the portfolio efficient frontier better than the traditional dea model does then this approach is extended to a general return risk framework our in sample simulation results verify the effectiveness of the proposed approach for a wide range of applications in addition the out of sample tests show that the rebalancing investment strategies can achieve higher sharpe ratios and sortino ratios than those of the original ones finally we apply the proposed approach to evaluate mutual fund performance in china with the consideration of sustainability information disclosure we construct a disclosure index to indicate the extent of sustainable information disclosure of each mutual fund the results show that the proposed approach provides not only investment recommendations but also references for constructing sustainable green funds

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

strategic models of sovereign debt renegotiations the sovereign debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter this paper explores that assumption by analyzing three game theoretic models of debt renegotiations in two of the models both of which are built on the traditional one sector growth model all the subgame perfect equilibria have an extreme form in which the game s surplus is captured by the creditor the third game has many subgame perfect equilibria that do not have this feature however the roles of various assumptions in all three games are examined

sovereign risk and secondary markets conventional wisdom says that in the absence of default penalties sovereign risk destroys all foreign asset trade we show that this conventional wisdom rests on one implicit assumption that assets cannot be retraded in secondary markets without this assumption foreign asset trade is possible even in the absence of default penalties this result suggests a broader perspective regarding the origins of sovereign risk and its remedies sovereign risk affects foreign asset trade only if default penalties are insufficient and secondary markets work imperfectly to reduce its effects one can either increase default penalties or improve the working of secondary markets jel f34 g12 g15

data envelopment analysis models of investment funds abstract this paper develops theory missing in the sizable literature that uses data envelopment analysis to construct return risk ratios for investment funds it explores the production possibility set of the investment funds to identify an appropriate form of returns to scale it discusses what risk and return measures can justifiably be combined and how to deal with negative risks and identifies suitable sets of measures it identifies the problems of failing to deal with diversification and develops an iterative approximation procedure to deal with it it identifies relationships between diversification coherent measures of risk and stochastic dominance it shows how the iterative procedure makes a practical difference using monthly returns of 30 hedge funds over the same time period it discusses possible shortcomings of the procedure and offers directions for future research

country solidarity in sovereign crises when will solidarity which emerges spontaneously from the fear of spillovers be reinforced through contracting the optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing a borrowing cap but no joint liability while joint liability augments total surplus the borrowing country cannot compensate the deep pocket guarantor by contrast the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability provided that shocks are sufficiently independent spillovers sufficiently large liquidity needs moderate and available sanctions sufficiently tough