We estimate a panel Bayesian vector autoregression model for a cross-section of seven advanced European economies and produce out-of-sample forecasts of GDP conditionally on observed developments of interest rates and credit. We show that by using a smooth transition version of the model and...

This paper identifies and discusses the conditions needed for achieving strong and stable capital markets in emerging market economies, which at present remain illiquid and underdeveloped. These conditions can be grouped into four interrelated and complementary pillars: macroeconomic stability,...

A growing body of post-global financial crisis (2007-2008) literature documents several undesirable effects of enlarged financial sectors. One of these effects is the 'growth cost' of excessive finance, which reports that the finance-growth relationship is non-monotonic, and that a credit...

This paper examines the evolving importance of banks and securities markets during the process of economic development. We find that as countries develop economically, (1) the size of both banks and securities markets increases relative to the size of the economy, (2) the association between an...

This paper presents an empirical analysis of the controversial relationship between financial system development and economic development. Using cointegration and VAR estimations on annual data from Africa, we examine the nature of the relationship between financial development and income. We...

This paper models the important role that repurchase agreements (repos) play in bond market intermediation. Not only do repos allow dealers to finance their activities, but they also increase dealers' ability to satisfy levered client demands without having to adjust their holdings of risky...

The False Strategy theorem tells us that the optimal outcome of an unknown number of historical simulations is right-unbounded — with enough trials, there is no Sharpe ratio sufficiently enough to reject the hypothesis that a strategy is false. Given the ease with which one can use a computer...

We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. The efficiency of asset prices is linked to the efficiency of the asset management market: if investors can find managers more...

We introduce two online backtest overfitting tools: BODT simulates the overfitting of seasonal strategies (typical of technical analysis), and TMST simulates the overfitting of econometric strategies (typical of academic journals). We show that econometric methods lend themselves to extreme...

We model the role that repos play in bond market intermediation. Not only do repos allow dealers to finance their activities, but also enable dealers to source assets without taking ownership. When the asset trades with repo specialness, borrowing the asset is more expensive, resulting in higher...