How does the exchange-rate regime affect dual-listed share price parity? Evidence from China’s A- and H-share marketsJournal articleJoseph K. W. Fung, Eric Girardin and Jian Hua, Journal of International Money and Finance, Volume 129, pp. 102738, 2022

This paper examines the impact of exchange-rate regime change on the price disparity of China’s dual-listed stocks. We use four years of synchronous intraday data of 26 pairs of dual-listed RMB-denominated A-shares and their corresponding HKD-denominated H-shares. The sample period covers the 2005 and 2008 changes in the exchange rate regime. During that time, the Chinese authorities strictly prohibited short selling of stocks and tightly regulated capital flows. In contrast to the existing general findings, we find that the law of one price can be strengthened for dual-listed stocks (DLSs) in segmented capital markets under a flexible exchange rate regime; the disparity between the DLSs is reduced under the managed float compared to the pegged regime. Moreover, we find that the magnitude of the H-share discount is positively related to the expected RMB appreciation under managed float; however, under the pegged regime the relationship is negative.

Is a clash coming when trade and climate meet at the border? The impact of the EU's carbon border adjustment on China's belt and road initiativeJournal articleJamal Khan, Yuan Li and Eric Girardin, Structural Change and Economic Dynamics, Volume 63, pp. 112-124, 2022

We empirically examine the effectiveness of EU Border carbon adjustment (BCA) in the context of BRI, by developing a hypothetical BCA scheme based on a multi-regional Input-Output model. We use various evaluation criteria such as sectoral coverage, economic condition of trade partners, compliance with trade regulations, and selection of Best Available Technology (BAT). Our analysis shows that the EU-BCA scheme covers 44% of the global traded emissions, of which 84% are generated in the BRI regions. However, the BAT principle and trade provisions reduce the coverage of BCA emissions for BRI regions, while assumptions about the carbon intensity of imports result in a further reduction. Our findings both cast serious doubt on BCA's ability to drive industrial decarbonisation and alleviate domestic producers' competitiveness concerns, and support the argument that EU-BCA may level the playing field for the EU's domestic market but may not address competitiveness concerns in other (non-EU) markets.

Bank liquidity creation: A new global dataset for developing and emerging countriesJournal articleCarmela D’Avino, Eric Girardin and Mimoza Shabani, Review of World Economics, Volume 158, pp. 529-570, 2022

The pre-Global Financial Crisis build-up, followed by the post-crisis collapse, in bank liquidity creation in developed countries is well-documented (Berger and Bowman, Berger and Bouwman, Review of Financial Studies 22:3779–3837, 2009). Comparable analyses on developing and emerging countries (DECs) have been severely hindered by the lack of detailed bank-by-bank balance sheet data. This paper proposes a new, high-frequency, Aggregate Bank Liquidity Creation (A-BLC) measure for 114 DECs on a comparable cross-country basis, which relies on macroeconomic, country-wide, banking systems’ balance sheet data. The A-BLC database allows us to assess the extent of bank fragility arising from illiquidity associated with intermediation at the banking system level for every DEC, at a monthly frequency over the period 2001–2016. Our measure captures more accurately than other measures proposed in the literature the evolution of bank liquidity creation in the DECs. Stylised facts and panel-regression analysis suggest a sharp pre-crisis build-up and post-crisis fall in liquidity creation in DECs, larger then that observed for developed countries. In addition, financial depth and stability appear as particularly important drivers of A-BLC in DECs.

Testing for real estate bubblesBook chapterEric Girardin, Roselyne Joyeux and C. Leung, In: Handbook of Real Estate and Macroeconomics, 2022-02, pp. 137-164,Chap6, Edward Elgar Publishing, 2022

This chapter provides a review of the recent literature on bubble testing in real estate markets. Starting from a theoretical overview of the specificities of real estate assets we assess the latest econometric methodology to detect the periods when a real estate bubble is present. In an illustration for the case of Japan's house prices over four decades, we focus on a two-step econometric strategy to first filter out the fundamental component in the price-to-rent ratio and then test for the possible explosive character of the, non-fundamental, residual. Such a strategy enables researchers both to avoid misleading signals about spurious bubbles, and to detect bubbles which may be hidden when focusing only on the price-to-rent ratio.

The Role of the Real Estate Sector in the Structural Dynamics of the Chinese Economy: An Input–Output AnalysisJournal articleYongming Huang, Jamal Khan, Eric Girardin and Umair Shad, China & World Economy, Volume 29, Issue 1, pp. 61-86, 2021

Market-oriented housing reforms and the rapid urbanization process have led to spectacular growth in the Chinese real estate sector (RES). However, the changes in the role played by this sector in the structural dynamics of the Chinese economy have not been examined sufficiently. Accordingly, we analyze the intersectoral structural changes to the Chinese RES, its linkages with the rest of the economy, and its growth sources, using four Chinese input–output tables from 2002 to 2017. We depart from existing work on the RES by using the causative matrix approach and structural decomposition analysis, and obtain three main results. First, the RES, which received little non-RES feedback during the 2002–2007 period, has subsequently received much more substantial feedback. Second, the impact of the RES on China's economic growth stems mainly from its forward linkages. Third, the growth in the RES has been driven mainly by domestic demand expansion. Our results highlight that the Chinese RES, which plays a key role in value chains, is highly dependent on its own final demand and a fall in its demand would impede economic development. An important implication of these results is that developing the national economy by stimulating the RES would not be as effective as developing the RES through stimulating the national economy.

Demystifying China’s Stock Market: The Hidden Logic behind the PuzzlesBookEric Girardin and Zhenya Liu, Springer Books, 2019-12, Number 978-3-030-17123-0, XXI,125 pages, Springer International Publishing, 2019

Mainstream research has rationalized China’s stock market on the basis of paradigms such as the institutional approach, the efficient market hypothesis, and corporate valuation principles. The deviations from such paradigms have been analyzed as puzzles of China’s stock market. Girardin and Liu explore to what extent, in the perspective of Chinese cultural and historical characteristics, far from being puzzles, these 'deviations’ are rather the symptoms of a consistent strategy for the design, development and regulation of a government-dominated financial system. This book will help investors, observers and researchers understand the hidden logic of the design and functioning of China’s modern stock market, taking a political economy view.

The January effect in the foreign exchange market: Evidence for seasonal equity carry tradesJournal articleEric Girardin and Fatemeh Salimi Namin, Economic Modelling, Volume 81, Issue C, pp. 422-439, 2019

In this study, we investigate monthly seasonality in the foreign exchange market. Given the well-known recurrent higher returns in some month than in others in stock markets around the world, we consider it likely that a seasonal outperformance of a country’s stock market over another is associated with similar seasonal patterns in capital flows and exchange rates. A seasonal profit (carry trade) opportunity can be created by the simultaneous appreciation of a country’s currency and the outperformance of its stock market. By focusing on the world’s key currency pairs, the US dollar-Deutsche mark and the US dollar-euro, and by using a Markov-switching framework, we document persistent January and December effects in the foreign exchange market from 1971 to 2017. Analysis of the German-US stock returns differential and their bilateral capital flows reveal similar month effects in 65% of the whole sample.

Mexico's Monetary Policy Communication and Money MarketsJournal articleAlicia García-Herrero, Eric Girardin and Arnoldo Lopez-Marmolejo, International Journal of Economics and Finance, Volume 11, Issue 2, pp. 81-97, 2019

Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico’s communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico’s speeches and statements and find that Mexican money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank’s words. Regarding the ability to listen we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico’s governing body. As for the markets’ understanding, we document a statistically significant rise in money market rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico’s money markets.

Stock Market Bubble Migration: From Shanghai to Hong Kong: Essays in Honor of Georges PratBook chapterEric Girardin, Roselyne Joyeux and Shuping Shi, In: Uncertainty, Expectations and Asset Price Dynamics, 2018-12, pp. 173-192, Springer International Publishing, 2018

The speculative nature of the stock market in Mainland China has attracted the attention of many observers. However while the degree of integration of the Hong Kong market with its Mainland counterpart has monopolized the interest of researchers, they have neglected the diffusion of bubbles from the latter to the former. We thus propose the first study of such bubble migration. Focusing on the period 2005–2017, we use the Phillips et al. (Int Econ Rev 56:1043–1078, 2015a; Int Econ Rev 52:201–226, 2015b) recursive explosive root test to detect and date speculative episodes in both markets. We then implement the Greenaway-McGrevy and Phillips (NZ Econ Pap 50:88–113, 2016) methodology to detect the presence of migration between the two markets. We detect significant, but dwindling, bubble migration from Shanghai to Hong Kong.

Fundamentals and the volatility of real estate prices in China: A sequential modelling strategyJournal articleYongheng Deng, Eric Girardin and Roselyne Joyeux, China Economic Review, Volume 48, Issue C, pp. 205-222, 2018

In a similar way to the stock market, the housing market in China has often been portrayed as highly speculative, giving rise to “bubble” concerns. Over the last decade, residential prices increased every year on average by double digits in Beijing or Shanghai. However many observers and researchers argue that fundamentals of the housing sector, both sector-specific and macroeconomic, may have been the driving force behind housing price volatility. While existing empirical work exclusively relies on the government housing prices which may suffer from the well-documented downward bias, this paper uses original high frequency unit price as well as transaction series for the residential resale housing markets of Beijing and Shanghai between January 2005 and December 2010 to test alternative hypotheses about housing prices volatility.