|
|
Anglo-French
Colloquium
Financial
Innovation
The Ninth Anglo-French Colloquium in Political Economy was held at the
Maison des Sciences de l'Homme in Paris on the 14th and 15th October
1987. The theme of the colloquium was the economics of financial
innovation. Seventeen papers were presented in all. The colloquium
provided a very useful forum, the discussion ranged from the historical
and descriptive to econometric modelling and abstract theory. Overall,
the variety of approaches complemented each other very well. It rapidly
became aparent that in the study of financial innovation the study of
institutions requires some theoretical framework just as the theory must
be motivated by a clear appreciation of the institutional detail of
actual markets.
Christian de
Boissieu presented the first paper, L'analyse economiques des
innovations financieres. Quelques lecons tirees de l'experience
francaise. The paper aimed to put in perspective the process of
financial innovation in France, paying particular attention to the
relations between public and private sectors in the creation of new
financial instruments. This process was shown to be an extremely complex
one.
Elisabetta Bertero in a talk "Continental Stock Exchanges",
discussed the differences in the structure of the various European stock
markets and the differences in recent price movements in these markets.
She then went on to give a brief outline of a continuing research
project concerning the similarities in and relations between the
European markets.
Over the past five years the French financial system has undergone a
profound change which has broken down barriers and reduced the
importance of state regulations. Joel Metais, in his paper, "Les
transformations recented du systeme financier francais: Une approche en
terme d'efficacite et de stabilite". described and analysed some of
the more important changes and placed them in context from an
international perspective.
Paul Grout, "Widening the Ownership of Financial Assets",
looked at various economic aspects of the UK governments wider share
ownership programme. He explored the economic arguments for a widening
of the ownership of financial assets, particularly emphasing the fact
that individuals cannot easily diversify their human capital and hence
may wish to hold individual specific portfolios to offset individual
risks. He concluded that none of the potential effects were likely to be
of great significance in the near future, particularly given that the
direct ownership of shares in the UK, although much wider than before,
was spread very thinly across the population.
Philippe Szymczak in "Tarification des services bancaires, mutation
du systeme financier et desinflation". argues that the traditional
system of bank charges in France appears to be sub- optimal, both from
the point of view of efficiency and equity. It doesn't appear to be a
suitable framework from which to build a modern banking system. However,
recently increased competition in the financial services sector has lead
to a revision of traditional practices, and if the internationalization
and deregulation of banking services is to continue, changes in the
system would appear to be not only desirable, but also inevitable.
Lionel Price continued on the theme of the internationalization and
deregulation of financial markets, his paper "Innovations in
international banking and capital markets - recent developments",
draws attention important structural changes in the financial services
industry. He discussed the continuing deregulation of capital markets
along with attendant supervisory issues.
Jaques Pecha and Monique Alleron, in their paper "innovations
financieres et objectifs monetaires en France", analysed the
consequences of financial innovations on the definition of aggregate
money supply and the choice of objectives by the monetary authorities.
Patrick Artus presented a paper, " Eficience et cloisonnement du
marche des changes et des marches financieres en France 1970/1986".
The paper undertook an econometric investigation into the functioning of
financial markets in France before the period of innovation and
deregulation which began in 1986.
David Miles presented a paper "Citicorp, LDC debt and bank Share
Prices: what is the market's message". The paper used `event study'
methodology based on a version of the Capital Asset Pricing Model to
explore the impact upon the value of banks the announcement made by
Citicorp in May 1987 that it was massively increasing it's bad debt
provisions. The issue of whether the bank share prices reacted in a way
which is consistent with shareholders being able to effectively monitor
the actions of management is clearly relevant to the discussion on the
regulations of finanacial intermediaries.
France moved in 85/86 from a system of quntitive controls in monetary
regulation to a policy of regulation through interest ratea. Jaques
Melitz and Christian Bordes' paper, "Liberalizatin du systeme
financiere et controle monetaire en France". argues that the change
will only be effective if people are certain about the new direction of
the policy. The authors examine the problem of monetary regulation in
the light of a simplified model which sets out the relationship between
the strategy of the monetary authorities and those of the banks. The
analysis is based on recent theories formalizing the role of credibility
in regulatory `games'.
Colin Mayer delivered a paper (co-authored with Tim Jenkinson) entitled,
"The privatization process in France and the UK". They
evaluate the performance of the privatization process in terms of the
direct costs and in the underpricing of the issues. The authors find the
that the direct costs of the UK privatizations have been in line with
those observed private sector sales, but that discounts have been
exceptionally high (this is as of October 15, 1987). The authors argue
that deficiencies in the new issue process become most acute when asset
sales of uncertain value are sold to investors with diverse information.
Attempts to broaden share ownership through new issues will therefore
have a cost. The authors conclude that privatizations are not thee
appropriate vehicle for extending share ownership. They suggest that
mispricings are best avoided by disposing of assets in two stages. The
first stage should be small and directed at institutions.
The way in which infromation gets reflected in prices is a wide topic
with many policy implications. This paper presented by David Miles,
Gordon Gemmill and Colin Meyer all draw from an understanding of this
process. Jean-Charles Rochet presented a paper written jointly with
Isabelle Bajeaux, "Operations d'Inities une analyse de
surplus". The authors extend a model due to Albert S. Kyle making
the behaviour of the 'noise traders' in that model correspond more
closely to rational choice. In the model, the market maker must set
bid-ask prices so that expected losses from informed traders are
recouped from the uninformed traders. The modification allows welfare
comparison of the cases where trading by informed agents is or is not
allowed. The authors find that within the context of their model, and
under certain conditions, the total surplus might be diminished when
insider trading is abolished. Remaining in the general area of price
formation, Gordon Gemmil, "Research on Market Making",
reviewed some of the recent relevant literature and outlined the
author's own continuing work in the field. The theories considered
include the inventory management as well as the informed trader models
of bid-ask spreads such as that explored by Rochet and Bajeaux. Gemmill
concluded with a useful list of ten 'interesting questions'
Eric Renault's paper, "Une cadre unifie pour l'econometrie linear
des modeles multibetas". was one of the more abstract papers of the
conference. By formalizing the optimal portfolio problem at the
appropriate level of generality, the paper provides a unified framework
for studying factor models for asset pricing, such as the Arbitage
Pricing Theory. Another theoretical paper concerned with asset pricing
was presented by Richard Stapleton, jointly written with M.G.
Subrahmanyam, "The Valuation of Options on Portfolios". They
addressed the problem of pricing certain options for which the usual
Black-Scholes assumptions are not appropriate. The paper outlined a
method for the valuation of options on portfolios where the underlying
factors are normally distributed and the composition of the portfolio
changes over the life of the option. One application of this is the
valuation of options on coupon bonds.
Andre Masson, Stefan Lolliver and Daniel Verger, "Facteurs
explicatifs de la composition des patrimoines: France 1980/1986,"
gave the last presentation of the conference in which they summarized
their research into the composition of asset holdings, including
property as well as financial assets, across different geographical and
social classes in France.
|
|