In this paper, we evaluate the causal effects of climate policies on carbon emissions reduction. Specifically, we investigate the properties of the Granger causality test in the frequency domain, assuming that the dependent variables include a binary variable and a continuous variable (resp. treatment and outcome variables). Monte Carlo simulations confirm that: (i) this test is valid under this assumption; and (ii) it has more power than its time-domain counterpart. Then, using Sweden as a case study, we evaluate the impact of the Kyoto Protocol, the Swedish carbon tax, and the European Union Emissions Trading System (EU ETS) on carbon emissions reduction over the period 1964–2021. Our empirical results indicate that only the carbon tax Granger causes carbon emissions reduction in the long run. Our methodological framework offers policymakers a useful toolbox for climate policy evaluation as well as new insights into the outcomes of international treaties and carbon pricing policies.
This paper highlights the procyclical and unstable behaviour of mutual funds, characterized by a varying sensitivity on common asset pricing factors. It proposes a novel factor model that allows for regime changes associated with macroeconomic and financial state variables. Estimated on a panel covering 825 US equity mutual funds over a period of 30 years, it appears that the yield curve, the dividend yield, short term interest rates and the industrial production coincide with regimes switches in the Fama–French factors. Furthermore, the estimated regimes coincide with financial crises and economic downturns, thus confirming the procyclical behaviour of mutual funds' returns. These findings, coupled with the emerging systemic role of mutual funds, promote the consideration for a specific macroprudential regulatory framework targeted at the mutual fund industry.
We propose a new measure of systemic risk based on interconnectedness, defined as the level of direct and indirect links between financial institutions in a correlation-based network. Deriving interconnectedness in terms of risk, we empirically show that within a financial network, indirect links are strengthened during systemic events. The relevance of our measure is illustrated at both local and global levels. Our framework offers policymakers a useful toolbox for exploring the real-time topology of the complex structure of dependencies in financial systems and for measuring the consequences of regulatory decisions.
In this paper, we reexamine the predictive power of the yield spread across countries and over time. Using a dynamic panel/dichotomous model framework and a unique dataset covering 13 OECD countries over the period 1975–2019, we empirically show that the yield spread signals recessions. This result is robust to different econometric specifications, controlling for recession risk factors and time sampling. Using a new cluster analysis methodology, we present empirical evidence of a partial homogeneity of the predictive power of the yield spread. Our results provide a valuable framework for monitoring economic cycles.
In this paper, we study the asymmetric information between asset managers and investors in the socially responsible investment (SRI) market. Specifically, we investigate the lack of transparency of the extra-financial information communicated by asset managers. Using a unique international panel dataset of approximately 1500 equity mutual funds, we provide empirical evidence that some asset managers portray themselves as socially responsible yet do not make tangible investment decisions. Furthermore, our results indicate that the financial performance of mutual funds is not related to asset managers’ signals but should be evaluated relatively using extra-financial ratings. In summary, our findings advocate for a unified regulation framework that constrains asset managers’ communication.
In this paper, we study the international and sectoral diversification potential in real estate portfolios. Building on a unique dataset of direct real estate markets covering 16 OECD countries over the period 1999–2018, we introduce a statistical test to compare country-level and sector-level diversification potential. This new diversification test provides investors and analysts with a valuable tool as it delivers both estimates and robust significance levels. The empirical findings for real estate investments broadly reveal that international diversification dominates sectoral diversification.
This paper investigates the persistent impact of financial crises on economic growth in different regimes of globalization. Relying on a nonlinear dynamic panel representation, this paper explains why the effects of globalization on growth weave into a tale of two opposite narratives. On average, a country experiences higher growth, the more open and integrated it is into the world. However, countries can also experience persistently lower medium-term output growth after a financial crisis, once globalization reaches a certain threshold. The benefits, as well as vulnerabilities, accrue earlier in the globalization process for low-income countries.