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Since the Great Recession cross-border financial assets have grown nearly 60 percent. While cross-border bank lending has stayed relatively constant, cross-border portfolios and market-based finance have grown tremendously. This trend has been compounded by market opaqueness, with limited information on the portfolios of non-bank financial institutions and individual investors potentially hiding significant risk in the global financial system.
In this talk, World Bank economist Alvaro Pedraza will shed light on this pressing issue with recent insights from the Colombian Stock Exchange (CSE). The CSE, which is the sole authorized trading venue for Colombian stocks, provides detailed information on the transactions of the universe of investors participating in the market. The comprehensive data set is useful in addressing several key questions about the role of global and domestic investors in capital markets: (i) What is the response of different classes of foreign investors to monetary policy shocks or to equity/debt index rebalancing? Relatedly, how do changes in the demand of foreign investors affect the financing of domestic firms? (ii) What is the role of domestic institutional investors? Do they enhance liquidity and price discovery, and more generally, are they catalysts for market development? (iii) What is the behavior of individual investors? Do social interactions improve financial decision making or is investor communication through social networks a conduit for spreading biases and investment mistakes?
Together, the answers to these questions can provide greater insight into the risks faced by emerging markets, guide national policy makers on how to better manage risks to their countries’ economies, and provide new evidence for international regulators concerned about the state of global financial markets.
Alvaro Pedraza is an Economist in the Finance and Private Sector Development Team of the World Bank's Development Research Group. His research interests include financial economics, asset pricing and macroeconomics. Prior to joining the Bank he worked at the Federal Reserve Bank of Atlanta, the Inter-American Development Bank, the Colombian Association of Pension Fund Administrators and the National Collateral Fund of Colombia. He holds a B.A. in Physics and a M.A. in Economics from Universidad de los Andes in Colombia, and a Ph.D. in Economics from the University of Maryland.
Susan M. Lund is IFC’s Vice President for Economics and Private Sector Development. She leads a large staff of economists that provide economic analysis to support IFC investments, including macroeconomic outlooks, country risk assessments, and country private sector diagnostics. She is also responsible for the Anticipated Impact Measurement and Monitoring framework (AIMM) to assess the development impact of IFC investments; identifying opportunities to use blended concessional finance to enable investments in the lowest-income and fragile nations; and overseeing IFC’s research and thought leadership.
Deon Filmer is Director of the Development Research Group at the World Bank. He has previously served as Acting Research Manager in the Research Group, Co-Director of the World Development Report 2018: Learning to Realize Education’s Promise, and Lead Economist in the Human Development department of the Africa Region of the World Bank. He works on issues of human capital and skills, service delivery, and the impact of policies and programs to improve human development outcomes—with research spanning the areas of education, health, social protection, and poverty and inequality. He has published widely in refereed journals, including studies of the impact of demand-side programs on schooling and learning; the roles of poverty, gender, orphanhood, and disability in explaining education inequalities; and the determinants of effective service delivery.
The monthly Policy Research Talks showcase the latest findings of the World Bank’s research department, challenge and contribute to the institution’s intellectual climate, and re-examine conventional wisdom in current development theories and practice. These talks facilitate a dialogue between researchers and operational staff and inform World Bank operations both globally and within partner countries. Read More »