G20 - Financial Institutions and Services: GeneralReturn

This paper examines the relationship between financial stability and income inequality in 35 developing countries from 2004 to 2020 using system generalized method of mo- ments (GMM) estimation. Four dimensions of the financial sector, namely financial stability, depth, access and efficiency were included as regressors. The results for the relationship of each of the financial dimensions with income inequality are mixed. In this study, inequality increases with an increase in the stability of the financial sector; on the contrary, the depth of the financial sector reduces inequality. Furthermore, not only does the dimension of the financial sector matter in addressing income inequality issues, but the quality of institutions is important. It is important for policy makers to understand linkages between financial dimensions and inequality so as to come up with appropriate prudential regulatory mechanisms.

Price changes on all international financial and commodity markets have shown a sig- nificant correlation. The correlation dependence increased due to macroeconomic changes that led to cyclical economic trends caused by the COVID-19 pandemic. In the new economic circumstances, there has been a change in investment strategy of individual and institutional investors. The investment portfolios have increased in demand related to the purchase of gold, seen as a safe-haven asset, which has led to significant growth in aggregate demand on the international precious metals market. This paper deals with a dynamic conditional correlation (DCC) between the investment in gold as an asset and the movement of major world market indices. We used cryptocurrency (bitcoin) volatility as an independent variable in the model. We tested its correlation to the other major market indices and gold as a safe-haven asset. Related to a proposed model based on GARCH DCC and the Generalised Reduced Gradient (GDR) algorithm, we set up the Hedging Effectiveness (HE) index and an optimally weighted investment portfolio.

The present study focuses on the analysis of systemic risk in the American and European financial systems for the period from 20 August 2004 to 28 February 2014. The global crisis in 2007 has brought attention to the urgent need to understand the systemic risk issues and the stability of financial systems along with their actors. To assess systemic risk, Adrian and Brunnermeier (2011) advocated the use of conditional value-at-risk (CoVaR) methodology in integrating quantile regression. Instead of the value-at-risk (VaR), which is unable to detect systemic risk, we seek to use the CoVaR methodology to calculate the systemic risk levels of the United States and European markets. In the light of related findings, we conclude that the insurance sector contributes most to the systemic risk in the USA, while in the Eurozone, it is the financial services sector that is highly interconnected with systemic risk.

This study examines the role of firm-specific, macroeconomic, banking and financial environment factors in determining whether they were able to access external finance during the global financial crisis. Heckman's selection approach is used to model the demand and supply of credit in the euro area during and after the financial crisis period. We conclude that since 2011, when the rejection probabilities for external credit applications peaked, the chances of obtaining credit have improved. However, young and small firms are still more likely to have their credit applications rejected. A decrease in government support such as guarantees increases the probability of rejec-tion, as does a reduction in firms' own capital and a worsening credit history. Among the bank-specific factors, an increase in banks' equity capitalization reduces the rejection probability, while an increase in the cost of borrowed funds and a decrease in the competition levels raise the rejection probability. The legal structure to deal with insolvency disputes and the development of the credit information market have a significant bearing on credit availability, as we find that an increase in the time to resolve insolvencies and a reduction in adverse selection problems by credit information sharing increase the credit rejection probabilities.

This paper examines the role of financial development in promoting innovation-related activity using panel data for seven East Asian countries for the period from 1998-2009. On overall financial development, we find that, financial sector size and the overall activity of banks and stock market exert positive influences on patent applications. In particular, our results show that all measures of banking development are positively and significantly related to the number of patent applications after controlling for variables known to affect innovative activities. Interestingly, we find no evidence that variation in patent applications is affected by a country's stock market development. The findings suggest that banking sector plays important roles in supporting innovation activity in East Asian countries.