Journal of Emerging Market Finance

Policy-makers in many countries earnestly debate the extent of powers that commercial banks should be allowed. In contrast, some economists declare such a debate futile. Commercial banks should be allowed all powers, and competition will ensure they will adopt only those ones that they can perform competently. In other words, they argue, so long as competition is not arti ficially restricted, efficient institutions will emerge. This paper shows that unrestricted competition does not necessarily lead to efficient institutions if the markets in which institutions compete are not naturally competitive. Therefore, the debate on what powers banks should have is relevant even from an efficiency point of view. More evidence is needed to convince policy- makers, especially in developing countries.

Research on term structure estimation and bond pricing in developed countries has established that liquidity premium is an important component of bond prices, and is attributable to security-specific features. The import ance of liquidity premia is expected to be higher in emerging debt markets, which are characterised by illiquidity in large segments on account of various factors. Analysing daily information on secondary market trading in Gov ernment of India bonds, we find that residual maturity, time since issuance, current yield and issue size account for most of the variation in pricing errors off an estimated term structure. Our results highlight the need for explicit modelling of security-specific factors determining liquidity premia and bond pricing in emerging markets.

In this article, we use recursive and rolling cointegration methods to test for a system ofseveral exchange rates being within the process of convergence. We use the methods to analyse how the convergence of five exchange rates within the (European) Exchange Rate Mechanism has developed during the ERM period. We find that the number of cointegration vectors in the system of ERM exchange rates increases as the sample period is extended, and interpret this as a sign of increased convergence of ERM exchange rates. In particular, we find no evidence of convergence in the first years of the ERM and strong evidence of convergence in the last years of the ERM. In the analyses we acknowledge that managed exchange rates, such as exchange rates in ERM target zones, can be misaligned at their observed values as compared to their fundamental free-float values. For this reason, we also study convergence of filtered shadow exchange rates. We use two filters to extract the shadow exchange rates: a linear filter and a non-linear filter.

Pre-funding of pension commitments in OECD economies is increasingly seen as a central strategy to cope with the ageing of their populations. This paper argues that investments in emerging markets can help at the margin, but are unable to solve the demographic problem. While these investments bring potential advantages through enhanced risk diversification, higher rates of return, and accelerated financial market development, the total effects are likely to be limited. Furthermore, in order to harvest them, capital sending and receiving countries must fulfill various politically and economically challenging requirements. For pension policy, the limited con tribution ofpre-funding at home and abroad in order to address the demo graphic problem implies that enhanced emphasis must be given to domestic reforms.