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Implications of ambiguity for the dynamics of asset prices and wealth distribution are the chief concern of this study.

In a continuous-time stochastic macro setting characterized by heterogeneous agents and financial friction with perfect “skin-in-the-game” for productive agents, we derive analytically and then illustrate numerically how ambiguity aversion would impinge on the agents’ consumption share and precautionary motives, sowing the seeds for asset price misalignment and thereby calling for appropriate policy response.

The agents’ ambiguity-aversion triggers a low real risk-free rate, fewer consumption shares, higher precautionary savings and wealth redistribution, inducing misalignment in asset prices. The distortion entails welfare loss for all agents, making a case for conventional monetary and fiscal policy design and analysis. For a given degree of ambiguity aversion, the dividend and capital value taxations could mitigate the asset price misalignment though causing a welfare loss as they are distortionary in turn. However, conventional monetary policy could lessen the asset price distortion and improve the welfare of at least a subset of agents if it is fine-tuned well.

Characterizations of ambiguity-driven asset price misalignments along with redistributive implications of ambiguity and their reflections for asset price volatility, leverage, welfare and fiscal and monetary policy conduct and analysis are the key contributions of this study.

The purpose of this paper is to investigate the effectiveness of asset price channel in monetary policy transmission and the effect of stock market volatility on monetary policy in Kenya.

Empirical analysis is based on quantitative analysis which incorporates both descriptive analysis and empirical approach. The study specifically uses the VAR approach which is most appropriate for this kind of study involving analysis of policy shocks on macroeconomic variables.

The main findings of this paper are as follows: first, the evidence of the existence of the asset price channel of monetary policy transmission is mixed in Kenya. Second, while the effect of monetary policy on stock price volatility is not significant, stock market volatility creates instability in monetary policy variables, implying that information from the stock market may be important in predicting the business cycle.

The paper provides useful policy insights to academicians, economists and central bankers who are interested in understanding the financial stability‐monetary policy nexus. This is important considering that most economies are emerging from the effects of the global financial crisis and they are thus enhancing financial stability measures. No such study that the authors are aware of has been conducted using data for Kenya.

Should the central bank target asset price inflation? In their 1999 paper Bernanke and Gertler claimed that price stability and financial stability are “mutually consistent objectives” in a flexible inflation targeting regime which “dictates that central banks … should not respond to changes in asset prices.” This conclusion is straightforward within their framework in which asset price inflation shows up as a factor “augmenting” the IS curve. In this chapter, we pursue a different modeling strategy so that, in the end, asset price dynamics will be incorporated into the NK Phillips curve. We put ourselves, therefore, in the best position to obtain a significant stabilizing role for asset price targeting. It turns out, however, that inflation volatility is higher in the asset price targeting case. After all, therefore, targeting asset prices may not be a good idea.

Purpose – To discuss, from the perspective of developing countries, recent proposals for reforming international standards for bank capital requirements.

Methodology/approach – After evaluating, from the viewpoint of developing countries, the effectiveness of capital requirements reforms and progress in implementing existing regulatory accords, the chapter discusses the procyclical effects of Basel regimes, and suggests a reform proposal.

Findings – Minimum bank capital requirements proposals in developing countries should be complemented by the adoption of an incremental, size-based leverage ratio.

Originality/value of chapter – This chapter contributes to enlarge the academic and policy debate related to bank capital regulation, with a particular focus on the situation of developing countries.

This study investigates the presence of herding in the Brazilian stock market between 2012 and 2020 and associates it with the volume of searches on the Google platform.

Following methodologies are used to investigate the presence of herding: the Cross-Sectional Standard Deviation of Returns (CSSD), the Cross-Sectional Absolute Deviation (CSAD) and the Cross-Sectional Deviation of Asset Betas to the Market.

Most of the models detected herding. In addition, there was a causal relationship between peaks in Google search volumes and the incidence of herding across the whole period, especially in 2015 and 2019.

This study suggests that confirmation bias influences investors' decisions to buy or sell assets.

This paper compares the performance of the big four UK banks and four Australian banks between 2004‐2009. The banks are chosen according to the total assets as listed in The Banker magazine 2009. The purpose is to analyse why UK banks were more vulnerable to the financial crisis of 2007‐2009 than Australian banks. The consequence of this study is what improvements can be made in relation to liquidity, leverage, loan to deposit, asset quality and capital ratios.

The author adopts an empirical approach and gathers data from the annual reports of the big four UK banks and Australian banks and the database “Factiva” and the Financial Times. The data contains liquidity, debt, capital, asset quality and profitability ratios during 2004‐2009.

The author's data show UK banks had on average higher cash ratios, higher leverage ratios, higher loan to deposit ratios, higher capital ratios, lower asset quality, lower ROA but higher ROE than the Australian banks.

The results support the findings in the Financial Development Index 2011 of the World Economic Forum. UK banks should ameliorate its ranking on financial stability by improving the quality of loans and capital.

The analysis is of use to regulators who are contemplating the need for reforms aimed at improving financial ratios of banks. Basel III Accord has introduced some recommendations but has its limitations.

This paper's value lies in providing analysis of the top four UK and Australian banks' performances during 2004‐2009. There is room for improvement in providing a more stable financial environment in the UK.

Summarizes the net capital flows from industrial to developing/transitional countries 1970‐1996 and recent changes in their equity and bond markets; and identifies the factors affecting these portfolio flows and risk/return behaviour in OIC stock markets. Uses monthly stock return data from ten OIC countries to demonstrate that despite their volatility they might offer opportunities for portfolio diversification; and uses cointegration methods to investigate the dynamic relationships between them. Discusses the causes of the Asian currency crisis and its impact on these stock marekts; and considers what trade and development policies OIC countries should adopt to improve their economies.

The purpose of this paper is twofold. First, the authors investigate the main drivers of house prices in the Hong Kong housing market. Second, further research is undertaken to confirm the existence of house price overvaluation, which has driven the market into a bubble episode.

First, the authors propose a theoretical framework to identify the fundamentals of the market. In the second step, they decompose house prices into fundamentals, frictions and bubble episodes for a better understanding of the evolution of house prices during the period 1996(Q3)-2013(Q3).

The results of this paper suggest an eventual possible correction of up to 46 per cent of house prices with respect to their 2013(Q3) level.

The originality of this paper is to use the procedure developed by Glindro and Delloro (2010) to analyse the Hong Kong housing market. The contribution of this paper also modifies the original Glindro and Delloro’s (2010) approach by including the Christiano and Fitzgerald (2003) filter to decompose house prices.

This current research tries to answer the widespread debate about the role of derivatives in propagating the last financial crisis. So, this work aims to examine the effect of derivatives on bank stability in emerging countries by using the bank stability index (BSI) as developed by Ghosh (2011) from three major dimensions of banking operations: stability, soundness, and profitability. We use the generalized method of moments (GMM) estimator technique developed by Blundell and Bond (1998) to estimate regressions during the normal, the turbulent, and the whole period, following the guidance given by Chiaramonte, Poli, and Oriani (2013).

The major conclusion of this study reveals that except to futures the other derivative instruments cannot be considered as troubling factors. The main implication of the research shows that derivatives – in general – are not responsible for the propagation of the recent financial crisis. Hence, the common debate accusing derivatives as being responsible for the aggravation of the recent financial crisis should be rejected.

The purpose of this paper is to compute an aggregate misalignment index using a multiple indicator approach to identify under- or over-valuation of house prices in Malta based on fundamentals.

A total of six indicators are used that capture households, investors and system-wide factors: the house price-to-Retail Price Index ratio, the price-to-hypothetical borrowing volume ratio, price-to-construction costs ratio, price-to-rent ratio, dwelling investment-to-GDP ratio and the loan bearing capacity. The weights are derived using principal component analysis. The analysis is performed using both the house price indices of the National Statistics Office (NSO) and the Central Bank of Malta (CBM), which are based on contract and advertised prices, respectively.

House prices in Malta were overvalued by around 20 to 25 per cent in the pre-crisis boom. This disequilibrium started to be corrected following the decline in house prices, with the CBM and NSO house price cycles reaching a trough in 2013 and 2014, respectively. At the trough, house prices were undervalued by around 10 to 15 per cent. Since then, house prices started to recover although the recovery in advertised prices was more pronounced compared to that based on contract prices. In mid-2017, advertised house prices were slightly overvalued, while contract prices still have to reach their equilibrium level. The dynamics from the misalignment index, including its peaks and troughs, are remarkably similar to the range derived from statistical filters.

Estimates of house price misalignment have both economic and financial stability implications.

This paper allows for a decomposition of the house price cycle, tailored for the particular characteristics of the Maltese housing market. It also takes into account the relationship between house prices and private sector rents, which in recent years have been buoyed, among other factors, by the high inflow of foreign workers and changing patterns in the tourism industry.