Research Unit on Complexity and Economics

Funder

Organizational Unit

Publications

The impact of hedge fund indices on portfolio performance

Publication . Garcia, Maria Teresa; Liberal, Gonçalo

The purpose of this paper is to assess the combination of investable hedge funds indices with a traditional portfolio of 60% stocks and 40% bonds. The S&P 500 Index, the Barclays US Aggregate Bond Index, and three investable hedge fund indices, the MEBI Maximum Sharpe Ratio L1 Index, the MEBI Zero Beta Strategy L1 Index, and the Eurekahedge ILS Advisers Index, were considered to conduct performance comparison, using time windows of two, five and ten years, from the 1st of January, 2006, to the 1st of February, 2016. Significant reduction of the beta of the overall portfolio is reached. The findings showed that the investable hedge fund indices under analysis can be used as an easy way to protect a portfolio during different market conditions, diversifying the risks of the traditional investment portfolios. The paper provides evidence of how investable hedge fund indices lead to an improvement in the performance results, when compared with the traditional global equity-bond portfolio alone.

2019-05Working paper

Open access

Long-run relationship between exports and imports : current account sustainability tests for the EU

Publication . Afonso, António; Huart, Florence; Jalles, João Tovar; Stanek, Piotr

We assess the sustainability of external imbalances for EU countries using panel stationarity tests of Current Account (CA) balance-to-GDP ratios and panel cointegration of exports and imports of goods and services, for the period 1970Q1-2015Q4. We find that: i) the country panel is non-stationary; ii) cross-sectional dependence plays an important role; iii) there is non-stationarity of the CA, imports, and exports with cross-sectional panel dependence and multiple structural breaks; iv) however, there is a stable long-run relationship between exports and imports in the panel. Hence, trade imbalances can be less unsustainable but this is not sufficient to make current account imbalances sustainable.

2019-11Working paper

Open access

International transmission of interest rates : the role of international reserves and sovereign debt

Publication . Afonso, António; Huart, Florence; Jalles, João Tovar; Stanek, Piotr

We analyse the international transmission of interest rates by focusing on the role of the accumulation of international reserves and on the financing of sovereign debt. An increase in foreign exchange reserves is expected to moderate the influence of U.S. interest rates. However, a high level of government debt raises the sovereign risk premium. Moreover, an increase in the stock of government debt denominated in foreign currency may increase the expected rate of depreciation of the domestic currency. We explain the theoretical mechanisms in a model, which describes the money market equilibrium in an economy with capital account openness. Then, we test the predictions of the model for a panel of advanced and developing economies over the period 1970-2018. Our main findings are: i) significant spillovers from the U.S. interest rates to other countries, mostly for Advanced Economies; ii) a dampening effect of the share of external liabilities in the domestic currency, clearly a determinant of risk premium; iii) a negative effect of international reserves on interest rates, as expected; iv) higher reserves decrease risk premia, for long-term interest rates; v) the significance of spillovers fades once the sovereign debt reaches 100% of GDP in developed countries.

2021-01Working paper

Open access

Is public investment in construction and in R&D, growth enhancing? A PVAR Approach

Publication . Afonso, António; Rodrigues, Eduardo de Sá Fortes Leitão

We study the impacts of public investment, notably in construction and in R&D on economic growth and of crowding-out effects on private investment. For this purpose, we use Panel Vector Autoregression (PVAR) models and the Generalised Method of Moments (GMM) approach for 40 advanced and emerging countries from 1995 to 2019. Our findings are as follows: i) innovations in public investment have more positive effects on GDP growth and private investment in emerging economies; ii) the positive impulse of public investment on private sector is pronounced and significant in emerging economies; iii) government construction investment has a more positive effect on economic growth in emerging economies; iv) innovations in public construction crowd-out private investment spending in advanced countries; v) emerging economies benefit from public R&D investment; vi) the public investment multiplier of the full sample is 1.67, while it is 0.87 for advanced economies and 2.29 for emerging economies.

2022-10Working paper

Open access

Tax revenue reforms and income distribution in developing countries

Publication . Gupta, Sanjeev; Jalles, João Tovar

We explore the impact of major revenue mobilization episodes on income distribution dynamics using a new “narrative” database of major policy changes in tax and revenue administration systems, covering 45 emerging and low-income countries from 2000 to 2015. Our main finding is that after a tax reform (particularly those affecting the personal income or the operation of the revenue administration), the Gini index falls and the bottom income share rises. This result does not hold for sub-Saharan Africa, calling into question the design of tax reforms implemented in the region (mostly fragile states in the sample). In general, to reduce more rapidly income inequality (and improve the income prospects of the poorest strata of the population), it would be more effective to implement tax reforms when the economy is growing relatively slowly. Finally, the smaller the government and the smaller the tax system, the larger the beneficial impact of tax reforms on income distribution. Our results are robust to a battery of sensitivity and robustness tests.

2020-07Working paper

Open access