Markets, Innovation and Competition (MIC)

In many ways, market economies are more dominant than ever before where competition intensifies, calling for innovation. On the one hand markets have facilitated wealth creation and spurred innovation; on the other, they are often held responsible for causing financial instability and widening inequality and are vulnerable to asset tunnelling, to name but a few criticisms. This gives rise to a range of connected issues to be analysed by MIC – the Markets, Innovation and Competition Themed Research Group.

Please contact MIC Research Group Dr Steven Brand if you are interested in working with MIC. 

MIC Seminars – Spring 2019

Abstract: We investigate the entrenchment effects of 20 prominent Shariah scholars (SS) on the agency costs for a cross-section of Islamic banks. Our evidence supports the notion that managers may provide concessions to external non-shareholding stakeholders to pursue their personal agendas. We conclude this for increase in agency costs with increase in entrenchment of SS while controlling for several firm and corporate governance – internal and external mechanisms – variables.

Wednesday 3 April 2019, Dr Tasawar Nawaz – Religious entrenchment and agency costs in Islamic banking business model,15:00-16:30, Cookworthy Building 404.

MIC Seminars – Autumn 2018

The full autumn programme is currently in development but we will be posting further details shortly. For further details on the programme please contact Dr Fangya Xu.

Wednesday 5th December 2018, Dr James Reade (Reading University) – Evaluating Strange Forecasts,16:00-17:30, Cookworthy Building 404

Abstract: There is no single accepted measure of forecast performance, particularly when the notion of forecast success is multi-dimensional. We compare multiple forecasts of particular events, football scorelines, made by forecasters participating in different competitions evaluated by different forecasting metrics. These events, scorelines, are low-probability, high-variance events that have a second, more predictable sub-outcome that is of interest and hence are multi-dimensional, complicating evaluation. We apply a range of evaluation metrics to all forecasts, and try to draw conclusions. We find suggestions that players playing by different rules behave in a matter consistent with their rules.

Wednesday 28 November 2018 – Dr Vineet Upreti (Swansea University) – Price of Credit Risk – Has the contribution of credit default swap (CDS) and bond markets changed? – 16:00–17:30, Cookworthy Building 404.

Authors: Vineet Upreti, Mike Buckle and Aimee Collins

Abstract: Using a mix of time-series and panel-data analysis, this paper shows that the theoretically expected cointegration relation between CDS and bond spread measures of credit risk is susceptible to structural change resulting from the move to exchange based trading with central clearing over a short-term horizon. We find that the cointegration relation between CDS and bond spreads of European companies is significantly weakened on the introduction of central clearing. While both markets contribute to the price discovery process, before as well as after the move to central clearing, but the contribution of CDS market diminishes and the contribution of the bond market increases after the move. Our results also show that both spreads react differently to changes in both the spot interest rates and the term structure of interest rates before and after the start of central clearing. We conclude that our findings could be indicating inefficiencies in the pricing of credit risk by the two markets, which may be important for policymakers and market makers.

Wednesday 31 October 2018 – Dr Ioannis Litsios (Plymouth Business School) – The role of national debts in the determination of the yen-dollar exchange rate – 16:00–17:30, Cookworthy Building 404.

An intertemporal optimization model is developed to examine the determinants of the long-run nominal yen-dollar exchange rate in the presence of national debts. The model is tested empirically using data from Japan and the USA. The proposed theoretical specification is well supported by the data and shows that relative national debts as well as monetary and financial factors may play a significant role in the determination of the long-run nominal exchange rate between the yen and the dollar.

Wednesday 17 October 2018 –  Dr Panagiotis Tziogkidis (Plymouth Business School) – Evaluating countries’ innovation potential: an international perspective – 16:00–17:30, Cookworthy Building 404.

The paper proposes a novel two-step approach that evaluates countries’ innovation efficiency and their responsiveness to expansions in their innovation inputs, while addressing shortcomings associated with composite indicators. Based on our evaluations, we propose innovation policies tailored to take into account the diverse economic environments of the many countries in our study. Applying multidirectional efficiency analysis (MEA) on data from the Global Innovation Index, we obtain separate efficiency scores for each innovation input and output. We then estimate different sensitivities for each country, by applying partial least squares on explanatory and response matrices which are determined by the nearest neighbours of the country under consideration. The findings reveal substantial asymmetries with respect to innovation efficiencies and sensitivities, which is indicative of the diversity of national innovation systems. Considering these two dimensions in combination, we outline three policy directions that can be followed, offering a platform for better-informed decision-making.

MIC Seminars – Spring 2018

Details of the first MIC seminar in spring 2018 are below. The full Spring programme is currently in development but we will be posting further details shortly. For further details on the programme please contact Dr Fangya Xu.

Wednesday 23 May 2018 – Gianluca Marcato (Full Professor in Finance and Real Estate, Henley Business School, University of Reading) –            Time to Homeownership and Mortgage Design (with Rafal Wojakowski)  16:00–18:00, Cookworthy Building 505.

Accessibility to homeownership in western countries, especially for middle to low income earners has decreased over time due to several factors such as stringent covenants, pressure of rental growth on household income expenditure and a negative gap between wage and house price growth. Moreover, young households face higher accumulated student loans and, in a steadily rising and strong rental market, they are not able to generate enough savings to cover the initial deposit necessary to become homeowners. We design an income sharing mortgage product where borrowers accept to pledge a portion of their future income to anticipate the time necessary to become homeowners by obtaining a higher LTV (up to 100 per cent). Our analysis finds that this mortgage may be useful for lower income households in periods of higher uncertainty and that it may become less expensive in a high interest rate environment. Finally, this product also embeds an incentive to save, with potential benefits for the overall systemic risk of the banking sector. As a consequence we find that the default risk is not higher than a plain vanilla mortgage with lower LTV.

Wednesday 2 May 2018 – Dr Chunping Liu (Senior Lecturer, Nottingham Trent University) – What determines China’s housing price dynamics? New evidence from a DSGE-VAR  16:00–17:30, Cookworthy Building 401.

We investigate what determines China’s housing price dynamics using a DSGE-VAR estimated with priors allowing for the featured operating of normal and shadow banks in China, with data observed between 2001 and 2014. We find that the housing demand shock, which is the essential factor for housing price bubbles to happen, accounts for over 80 per cent of the housing price fluctuation. We also find that a prosperous housing market could have led to future economic growth, though quantitatively its marginal impact is small. But this also means that, for policy-makers who wish to stabilise the housing market, the cost on output reduction would be rather limited.

Wednesday 14 March – Professor Max Munday (Cardiff Business School) – How serious is a devolved data deficit? – 16:00–17:30.

Professor Max Munday discusses whether there is appropriate economic intelligence available at the sub-national level to inform decisions on economic policy making. More information can be found on our spring programme page.

MIC research strands

The different strands of MIC connect more fundamental issues, such as the question of how to organise interaction between individuals in the presence of private information, with more specific ones, such as how regulators can step in to foster and keep up a financial and economic environment that is functioning, fair, competitive and sustainable. The group analyses financial market interdependence and integration, investigate innovation strategies, and relate competition in markets to competition between regions and countries. The different strands of MIC integrate research on economic behaviour, financial markets, and government policy and regulation. The global dimension of MIC focuses on how firms and governments manoeuvre in an internationally competitive environment.

MIC consists of three key research strands:

Finance and Economic Behaviour (including: Dr Mike Felgenhauer, Professor Peijie Wang):

  • market interaction in the presence of private information and the value of arguments
  • corporate information disclosure rules and the behaviour of investors and firms
  • corporate innovation strategies, information disclosure, and financial markets.

Manoeuvring in an Internationally Competitive Environment (including: Dr Basel Awartani, Dr Ahmed El-Masry, Professor Salima Paul, Professor Peijie Wang):
  • international competitiveness, international finance, and FDI
  • national innovation policies and international competitive advantage
  • financial market interdependence, international transmission mechanisms, and linkages between equity and commodity markets
  • risk management.

Regional Development, Environmental Protection, and International Cooperation (including: Dr James Benhin, Professor Paul Bishop, Dr Steven Brand and Dr Alexander Haupt):
  • regional growth, industrial diversity, and regional entrepreneurship
  • international and interregional competition for firms, capital and skilled workers
  • international cooperation, environmental policy, and innovation.

Selected publications 

View a more complete list of MIC publications

Felgenhauer, M. and Xu, F. (2019) “State of the Debate Contingent Arguments”, Economic Letters, Vol. 179 (June), pp. 46-48.

Felgenhauer, M. and Loerke, P. (in Press) "Bayesian Persuasion with Private Experimentation", International Economic Review.

Tziogkidis P., Matthews K., Philippas D., (2016) “The Effects of Sector Reforms on Bank Productivity: The Greek Banking Case”, Annals of Operations Research, published online before print  

El-Masry, A.A., de Mingo-López, D. V., Tortosa-Ausina, E., and Matallín-Sáez, J.C. (2016) "Environmental Conditions and Fund Characteristics of Mutual Fund Performance in MENA region", Journal of Economic Behavior & Organization, Vol. 132, Supplement, pp. 174-197  

Maghyereh, A. I., Awartani, B., & Bouri, E. (2016). "The Directional Volatility Connectedness between Crude Oil and Equity Markets: New Evidence from Implied Volatility Indexes". Energy Economics, Vol. 57, pp. 78-93

Basso, A. (2015) "Does Democracy Foster the Fertility Transition?" Kyklos. Vol. 68, No. 4, pp.459-474

Butt, H. A. and Virk, N. S. (2015) "Liquidity and Asset prices: An Empirical Investigation of the Nordic Stock Markets", European Financial Management, Vol. 21, pp.672–705

Wang, P.J. and Brand, S. (2015) "A New Approach to Estimating Value-Income Ratios with Income Growth and Time-Varying Yields", European Journal of Operational Research, Vol. 242, No. 1, pp.182-187

Kling, G., Paul, S.P. and Gonis, E. (2014) "Cash Holding, Trade Credit and Access to Short-term Bank Finance", International Review of Financial Analysis, Vol. 32 (March), pp.123-131

Bishop, P. (2013) "The Spatial Distribution of Personal Insolvencies in England and Wales, 2000–2007" Regional Studies, No. 47, Vol. 3, pp.419-432

Wang, P.J. (2013) "A Driver Currency Hypothesis", Economics Letters, Vol.118, No.1, pp.60-62

Dang, T.V. and Felgenhauer, M. (2012) "Information Provision in Over-the-counter Markets", Journal of Financial Intermediation, Vol. 21, No.1, pp.79-96

Dascher, K. and Haupt, A. (2011) "The Political Economy of Regional Integration Projects at Borders where Poor and Rich Meet: The Role of Cross-Border Shopping and Community Sorting" Journal of Urban Economics, Vol. 69, No.1, pp.148-164