model complexity and out of sample performance evidence from s p 500 index returns abstract we apply a range of out of sample specification tests to more than forty competing stochastic volatility models to address how model complexity affects out of sample performance using daily s p 500 index returns model confidence set estimations provide strong evidence that the most important model feature is the non affinity of the variance process despite testing alternative specifications during the turbulent market regime of the global financial crisis of 2008 we find no evidence that either finite or infinite activity jump models or other previously proposed model extensions improve the out of sample performance further applications to value at risk demonstrate the economic significance of our results furthermore the out of sample results suggest that standard jump diffusion models are misspecified

finance and the sources of growth at various stages of economic development this article studies the effects of financial development on the sources of growth in different groups of countries recent theoretical work shows that financial development may affect productivity and capital accumulation in different ways in industrial versus developing countries this hypothesis is tested with panel data from 74 countries using gmm dynamic panel techniques results are consistent with the hypothesis finance has a strong positive influence on productivity growth primarily in more developed economies in less developed economies the effect of finance on output growth occurs primarily through capital accumulation jel o4 g1

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

financial inclusion measurement spatial effects and influencing factors abstractusing the index of financial inclusion and the world bank global findex database this study measures the level of financial inclusion across countries the results reveal a geographical spatial aggregation distribution in which developed european and north american countries enjoy higher levels of financial inclusion than the less developed countries of africa and most of asia accordingly our spatial analysis proves our hypothesis and reveals dependence and aggregation effects among countries then we employ spatial econometric research to identify those factors significantly associated with financial inclusion the results show that an individual s income education and use of communications equipment are important factors that explain the level of financial inclusion while financial depth and banking health status are the main determinants building an inclusive financial system is an important means for most countries to achieve the millennium development goals

out of sample density forecasts with affine jump diffusion models abstract we conduct out of sample density forecast evaluations of the affine jump diffusion models for the s p 500 stock index and its options contracts we also examine the time series consistency between the model implied spot volatilities using options returns and only returns in particular we focus on the role of the time varying jump risk premia particle filters are used to estimate the model implied spot volatilities we also propose the beta transformation approach for recursive parameter updating our empirical analysis shows that the inconsistencies between options returns and only returns are resolved by the introduction of the time varying jump risk premia for density forecasts the time varying jump risk premia models dominate the other models in terms of likelihood criteria we also find that for medium term horizons the beta transformation can weaken the systematic effect of misspecified ajd models using options returns

exposure to intimate partner violence and repayment of microcredit evidence from field experiments in bangladesh abstract this paper investigates the impact of intimate partner violence on poor women s repayment behavior in microcredit in a laboratory based field experiment we extended collateral free small loans to 485 currently married women in rural bangladesh and observed their repayment decisions over multiple loan cycles in a post experiment survey we asked subjects about their experience of spousal violence we find that women who experienced physical or sexual violence in the last 12 months are more likely to strategically default on their loans relative to those who did not experience such violence we conducted several robustness tests and the results suggest that the negative correlation between victimization and loan repayment rates is unlikely to be explained by selection into victimization non random underreporting of violence or the subjects attitude toward risk

markets and institutions in financial intermediation national characteristics as determinants abstract given the importance of financial intermediation and the rise of globalization there is little prior research on how national preferences for financial intermediation markets versus institutions are determined by cultural legal and other national characteristics using panel analysis for data on a recent 8 year period for 30 countries this paper documents that national preferences for market financing increase with political stability societal openness economic inequality and equity market concentration and decreases with regulatory quality and ambiguity aversion we confirm with robustness tests that our result for regulatory quality is independent of differences in national wealth and that our result for political stability is independent of both wealth and political legitimacy these results should be of much interest to managers scholars regulators and policy makers

cross country variation in household access to financial services abstract this paper presents estimates for more than 160 countries of the fraction of the adult population using formal financial intermediaries the estimates are constructed by combining information on account numbers at banks and microfinance institutions together with banking depth and gdp data with estimates from household surveys for a smaller set of countries an illustrative application of the data compares them with information on poverty there is a correlation but it is not clearly causal

out of sample performance of discrete time spot interest rate models we provide a comprehensive analysis of the out of sample performance of a wide variety of spot rate models in forecasting the probability density of future interest rates although the most parsimonious models perform best in forecasting the conditional mean of many financial time series we find that the spot rate models that incorporate conditional heteroscedasticity and excess kurtosis or heavy tails have better density forecasts generalized autoregressive conditional heteroscedasticity significantly improves the modeling of the conditional variance and kurtosis whereas regime switching and jumps improve the modeling of the marginal density of interest rates our analysis shows that the sophisticated spot rate models in the existing literature are important for applications involving density forecasts of interest rates

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

interaction between housing prices and household borrowing the finnish case abstract employing time series econometrics this study shows that there has been a significant two way interaction between housing prices and housing loan stock in finland since the financial liberalization in the late 1980s before the financial deregulation the interaction was substantially weaker furthermore housing appreciation has a notable positive impact on the outstanding consumption loan stock it appears that there is no similar relationship between stock prices and credit understanding the two way interaction between housing prices and credit is of importance since the interdependence is likely to augment boom bust cycles in the economy and increase the fragility of the financial sector

financial access and exclusion in kenya and uganda abstract policy emphasis has recently shifted to finance for all given evidence that financial sector development contributes to growth but effects on poverty do not arise from pro poor provision we argue that given this policy goal analyses of barriers to access must be country specific and go beyond the emphasis on transactions costs to incorporate the effects of social institutions since these contribute to discrimination this paper uses data from financial access surveys carried out in 2006 in kenya and uganda to investigate the socio economic demographic and geographical factors influencing access to and exclusion from formal semi formal and informal financial services

reaching out access to and use of banking services across countries the authors 1 present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities 2 show that these indicators predict household and firm use of banking services 3 explore the association between the outreach indicators and measures of financial institutional and infrastructure development across countries and 4 relate these banking outreach indicators to measures of firms financing constraints in particular they find that greater outreach is correlated with standard measures of financial development as well as with economic activity controlling for these factors the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach government ownership of financial institutions translates into lower access while more concentrated banking systems are associated with greater outreach finally firms in countries with higher branch and atm penetration and higher use of loan services report lower financing obstacles thus linking banking sector outreach to the alleviation of firms financing constraints

immigration remittances and business cycles we use data on border enforcement and macroeconomic indicators from the united states and mexico to estimate a two country business cycle model of labor migration and remittances the model matches the cyclical dynamics of labor migration to the united states and documents how remittances to mexico serve an insurance role to smooth consumption across the border during expansions in the destination economy immigration increases with the expected stream of future wage gains but it is dampened by a sunk migration cost that reflects the intensity of border enforcement during recessions established migrants are deterred from returning to their country of origin which places an additional downward pressure on the wage of native unskilled workers thus migration barriers reduce the ability of the stock of immigrant labor to adjust during the cycle enhancing the volatility of unskilled wages and remittances we quantify the welfare implications of various immigration policies for the destination economy

optimal filtering of jump diffusions extracting latent states from asset prices this paper provides an optimal filtering methodology in discretely observed continuoustime jump diffusion models although the filtering problem has received little attention it is useful for estimating latent states forecasting volatility and returns computing model diagnostics such as likelihood ratios and parameter estimation our approach combines time discretization schemes with monte carlo methods it is quite general applying in nonlinear and multivariate jump diffusion models and models with nonanalytic observation equations we provide a detailed analysis of the filter s performance and analyze four applications disentangling jumps from stochastic volatility forecasting volatility comparing models via likelihood ratios and filtering using option prices and returns jel c11 c13 c15 c51 c52 g11 g12 g17 this paper develops a filtering approach for learning about unobserved shocks and states from discretely observed prices generated by continuous time jumpdiffusion models the optimal filtering problem which has received little attention is the natural companion to the parameter estimation problem as filters allow researchers to analyze and use their models for practical applications 1 despite its usefulness there is currently no general method for solving the filtering problem in continuous time models

remittances and financial access is there really a link and for whom evidence from mexican household data in policy discussions it has frequently been claimed that migrants remittances could function as a catalyst for financial access among receiving households this paper provides empirical evidence on this hypothesis from mexico a major receiver of remittances worldwide using the mexican family life survey panel mxfls for 2002 and 2005 the results from the fixed effects logit model show that receiving remittances is strongly correlated with the ownership of savings accounts and to a limited degree with the availability of borrowing options effects are particularly important for microfinance institutions and more important for rural households compared to urban households

why do people save in cash distrust memories of banking crises weak institutions and dollarization abstract the paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks a phenomenon that is widespread in many economies but for which information is scarce using survey data from ten central eastern and southeastern european countries i document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked the analysis reveals that a lack of trust in banks memories of past banking crises and weak tax enforcement are important factors moreover cash preferences are stronger in dollarized economies where a safe foreign currency serves as a store of value

measuring household usage of financial services in recent years the number of surveys on access to and use of financial services has multiplied but little is known about whether the data generated are comparable across countries or within the same country over time a randomized experiment in ghana tested whether the identity of the respondent and the inclusion of product specific cues in questions affect reported rates of use of financial services rates of household use are almost identical whether the head reports on behalf of the household or whether the rate is tabulated from a full enumeration of household members a less complete summary of household use of financial services results when randomly selected informants nonheads of household provide the information for credit from formal institutions informal sources of savings and insurance reported use is higher when questions are asked about specific financial products rather than about the respondent s dealings with types of financial institutions in short who is asked the questions a

credit reporting financial intermediation and identification systems international evidence abstract credit reporting systems are an important ingredient for financial markets these systems are based upon the unique identification of borrowers which is enabled if a compulsory national identification system exists in a country we present evidence derived from difference in difference analyses on the impact of credit reporting and identification systems on financial intermediation in 172 countries between 2000 and 2008 our results suggest that the introduction of a mandatory identification system has a positive effect on financial intermediation bank credit to deposits net interest margins and financial access private credit to gdp especially in countries where there is also a credit reporting system

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

access to finance an unfinished agenda recent data compilations show that many poor and non poor people in many developing countries face a high degree of financial exclusion and high barriers in access to finance theory and empirical evidence point to the critical role that improved access to finance has in promoting growth and reducing income inequality an extensive literature shows the channels through which finance promotes enterprise growth and improves aggregate resource allocation there is less evidence at the household level however and on the effectiveness of policies to overcome financial exclusion the article summarizes recent efforts to measure and analyze the impact of access to finance and discusses the unfinished research agenda

the challenge of rural financial inclusion evidence from microfinance financial inclusion is said to foster development and growth however progress in financial inclusion has been slow in rural areas where poverty is most pronounced this is often attributed to hig

mobile money financial inclusion and development a review with reference to african experience we survey literature on mobile money and its contribution in promoting financial inclusion and development with a focus on sub saharan africa we use taxonomic descriptive and analytical methods to evaluate the state of knowledge in the area we analyse how mobile technology in general may contribute to economic development and financial inclusion in theory and practise we explain the mechanics of mobile money using kenya s m pesa as a canonical example and consider whether the literature has fully established the potential economic impact of mobile money especially its contribution to financial inclusion we also consider market structure pricing and regulatory implications of mobile money we conclude by highlighting issues that require further investigation the take up of mobile money mobile money and financial inclusion substitutability between mobile money and conventional finance and regulatory structures for institutions providing mobile money services

financial institutions and markets across countries and over time this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

banking services for everyone barriers to bank access and use around the world using information from 193 banks in 58 countries the authors develop and analyze indicators of physical access affordability and eligibility barriers to deposit loan and payment services they find substantial cross country variation in barriers to banking and show that in many countries these barriers can potentially exclude a significant share of the population from using banking services correlations with bank and country level variables show that bank size and the availability of physical infrastructure are the most robust predictors of barriers further the authors find evidence that in more competitive open and transparent economies and in countries with better contractual and informational frameworks banks impose lower barriers finally though foreign banks seem to charge higher fees than other banks in foreign dominated banking systems fees are lower and it is easier to open bank accounts and to apply for loans on the other hand in systems that are predominantly government owned customers pay lower fees but also face greater restrictions in terms of where to apply for loans and how long it takes to have applications processed these findings have important implications for policy reforms to broaden access

measuring household usage of financial services does it matter how or whom you ask in recent years the number of surveys on access to and use of financial services has multiplied but little is known about whether the data generated are comparable across countries or within the same country over time a randomized experiment in ghana tested whether the identity of the respondent and the inclusion of product specific cues in questions affect reported rates of use of financial services rates of house hold uses are almost identical whether the head reports on behalf of the household or whether the rate is tabulated from a full enumeration of household members a less complete summary of household use of financial services results when randomly selected informants provide the information for credit from formal institutions informal sources of savings and insurance reported use is higher when questions are asked about specific financial products rather than about the respondent s dealings with types of financial institutions in short who is asked the questions and how the questions are asked both matter

do microfinance institutions accomplish their mission evidence from the relationship between traditional financial sector development and microfinance institutions outreach and performance this article analyses the relationship between outreach and performance of microfinance institutions mfis on the one hand and traditional financial sector development on the other the results indicate that mfis reach more clients and are more profitable in countries where access to the traditional financial system is low this finding is in line with the market failure hypothesis mfis respond to a need that banks do not fulfill and mfis flourish where the formal financial sector fails along the same line the results demonstrate that mfis serve poorer people in countries with well developed financial systems the results suggest that in countries with well developed financial systems the two sectors stand in more direct competition with each other this competition pushes mfis down the market and makes mission drift by mfis less likely

good and bad institutions is the debate over cross country firm level evidence from the textile industry using firm level data from nine developing countries we demonstrate that certain institutions like restrictive labour market regulations that are considered bad for economic growth might be beneficial for production efficiency whereas good business environment which is considered beneficial for economic growth might have an adverse impact on production efficiency we argue that our results suggest that there might be significant difference in the macro and micro impacts of institutional quality such that the classification of institutions into good and bad might be premature

simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets abstract we present an econometric method for estimating the parameters of a diffusion model from discretely sampled data the estimator is transparent adaptive and inherits the asymptotic properties of the generally unattainable maximum likelihood estimator we use this method to estimate a new continuous time model of the joint dynamics of interest rates in two countries and the exchange rate between the two currencies the model allows financial markets to be incomplete and specifies the degree of incompleteness as a stochastic process our empirical results offer several new insights into the dynamics of exchange rates

the absorption of financial services in an islamic environment abstract this study examines the determinants of access to finance by firms residing in 42 islamic countries firm specific characteristics such as size sector legal status and export status are found to be robust predictors of financing constraints of firms small size firms appear to face more binding financing constraints whilst firms operating in manufacturing and focusing on exports appear to face lower constraints the auditing of accounts the location of operations and ownership structure appear significant with a varying effect on direction differences are documented on the role of firm specific characteristics between islamic and non islamic countries both the absolute and relative size of islamic bank assets is a significant predictor of firms financing constraints the results add new insights on the role of non economic institutions social and cultural factors across regions in predicting financing constraints of firms in islamic countries effective financial inclusion reform must focus on small size introverted and services oriented firms operating in some distance from the center as well as understand the divergent role of institutions social structures and culture within the islamic world

financial literacy information flows and caste affiliation empirical evidence from india abstract this paper empirically investigates the relevance of social interaction and caste affiliation for individual awareness of financial instruments and investment behavior of households in india the results of our empirical analysis which is based on a large scale survey on saving patterns of indians suggest a positive relationship between financial literacy and social interaction however especially backward caste people living in regions with a large fraction of backward castes have a lower probability of being aware of various financial instruments in contrast we find only weak empirical evidence for a direct effect of caste affiliation and social interaction on investment behavior