Chasing Returns with High-Beta Stocks
One of the proposed explanations for the low-beta anomaly – a prevalent yet puzzling empirical finding that stocks with low systematic risk tend to earn higher returns than the Capital Asset Pricing Model (CAPM) predicts and vice versa – is that leveraged-constrained and index-benchmarked mutual funds drive up demand for high-beta stocks, leading to systematic mispricing. We find evidence that Thai mutual fund managers, on average, favor high-beta stocks and tend to alter their portfolio composition of high-beta stocks in response to fund flows. In addition, funds that hold high-beta stocks perform poorly compared to their peers: a one standard deviation increase in high-beta stock holdings is associated with a 1.3 percentage point decrease in future relative returns.
Location choice and tax responsiveness of foreign multinationals: Evidence from ASEAN countries
This study uses a firm-level dataset to examine the impacts of taxation on multinationals’ decisions to set up new foreign subsidiaries in developing ASEAN countries. It finds that taxes play a critical role in MNEs’ location choice decision, with tax incentives being instrumental for maintaining location choice probabilities associated with each host country. The findings also indicate important heterogeneity in the tax responsiveness. First, the tax sensitivity for high-tech firms is significantly lower than that for low-tech firms. Second, having a prior presence in the respective host country is associated with substantially lower tax responsiveness. Finally, in accordance with international tax-avoidance considerations, the tax responsiveness is significantly diminished for affiliates with a connection to tax-haven countries. These provide important policy implications for developing-country governments that consider employing tax incentives to attract MNEs.
Household Debt and Delinquency over the Life Cycle
This paper uses loan-level data from Thailand’s National Credit Bureau to study household debt over the life cycle of borrowers. The wide coverage and the granularity of the data allow us to decompose the aggregate, commonly-used debt per capita and delinquency rate into components that unveil the extensive and intensive margins of household indebtedness. This decomposition allows us to analyze debt holding, debt portfolio, and delinquency for each age and cohort. We find the striking inverted-U life cycle patterns of indebtedness as predicted by economic theories. However, peaks are reached at different ages for different loan products and different lenders. We also find that debt has expanded over time for all age groups. In particular, the younger cohorts seem to originate debt earlier in their lives than the older generations. Meanwhile, older borrowers remain indebted well past their retirement age. Finally, we find a downward pattern of delinquency over the life cycle. Our findings have important policy implications on financial access and distress of households as well as economic development and financial stability of the economy.
Stylized Facts on Thailand’s Residential Electricity Consumption: Evidence from the Provincial Electricity Authority
This paper documents a few stylized facts of the residential electricity consumption in Thailand. Using an administrative billing records of 16 million residential meters, we find the following stylized facts and potential uses of the data. First, electricity consumption pattern can be used as proxies for household’s wealth and wealth inequality since it reflects ownership of durable electrical appliances. Second, bill payment choices suggest that a majority of the households still face non-trivial transaction costs in paying their utility bills. Lastly, the electricity consumption pattern suggests that wealthier households are more sensitive to the temperature change but are less sensitive to the change in price.
Value Investing with Quality in the US Public Insurance Companies
This study explores the value investing strategy coupling with quality metrics for the U.S. insurance industry. It uses apparent measures of insurance company efficiency such as loss ratio, expense ratio, combined ratio, and investment yield to construct portfolios. There are evidences of value premium as measured by PB and PE ratios. It is not clear that the quality metrics can give superior returns for investors. The anomalies can partially be explained by Fama-French five-factor model (FF5)’s market factor, value factor and profitability factor. The study also proposes using a new five-factor model that changes the profitability (quality) factor slightly from the Fama-French five-factor model. The adjusted FF5 “local” using insurance local factors do not improve the ability to explain the portfolios’ returns.
Educational Assortative Mating and Income Inequality in Thailand
This study measures educational assortative mating in Thailand and its relationship with income inequality using national labor force survey data from 1985-2016. Since the 1990s, Thailand shows a trend of decreasing educational homogamy, but there is evidence of continuing educational hypergamy in Thai households. Using the semiparametric decomposition method of DiNardo, Fortin and Lemieux (1996), the study finds that educational assortative mating has affected changes in household income inequality over time. Furthermore, there exists a negative relationship between income inequality and marital sorting with same education, which contradicts evidence found in developed countries.
On Worker and Firm Heterogeneity in Wages and Employment Mobility: Evidence from Danish Register Data
In this paper, we develop a model of wage dynamics and employment mobility with unrestricted interactions between worker and firm unobserved characteristics in both wages and employment mobility. We adopt the finite mixture approach of Bonhomme et al. (2017). The model is estimated on Danish matched employer-employee data for the period 1985-2013. The estimation includes gender, education, age, tenure and time controls. We find significant sorting on wages and it is stable over the period. Sorting is established early in careers, increasing during the first decade after which it declines steadily. Job-to-job mobility displays a “mean-reverting” pattern that maintains correlations between worker and firm types to a stationary level. Counterfactuals demonstrate that sorting is primarily driven by two channels: First, a “preference” channel whereby higher wage workers are more likely to accept jobs in higher wage firms. Second, a job finding channel where the job destination distribution out of non-employment is stochastically increasing in the wage type of the worker.
The Impact of LTV policy on Bank Lending: Evidence from Disaggregate Housing Loan Data
How did the Loan-to-Value (LTV) measures aimed at increasing resilience of the banking system affect banks’ lending? This paper utilizes bank-level and contract-level data of housing credit in Thailand spanning from 2004 to 2017, and applies the panel data and probit approaches in evaluating the impact of LTV measures introduced in 2009, 2011 and 2013 on the housing loans. We find that the LTV measures had an impact on banks’ risk-taking behavior in ways consistent with the policy’s objectives. The effects manifest in a reshaping of LTV distribution of the targeted loan sector rather than a credit growth slowdown at the bank level. In addition, the size of adjustment varies across different types of banks, with stronger response from large and small banks compared with medium banks. Overall, our results suggest that certain macroprudential policies can achieve target-specific outcome, but with differential impact across banks. Nevertheless, questions remain regarding the channels through which LTV measures impact bank lending and factors underlying diverging response among banks.
Bank Profitability and Risk-Taking in a Low Interest Rate Environment: The Case of Thailand
This paper studies the effects of monetary policy on the bank profitability and risk-taking. Using banklevel and account-level data sets of Thai banks during the period 2004-2017, we find that lower interest rates tend to reduce profitability. The effect works mainly through the impact of the interest rates on bank net interest income. At the bank level we find limited evidence of increased riskiness in the overall balance sheet of Thai banks when interest rates are low. However, the account-level results from a duration analysis suggest that low rates may lead to higher loan default risk and lower loan quality for long-term loans, particularly those in the portfolio of small and medium banks. Small firms seem to be more affected by bank risk-taking behavior. We also find that when the interest rate remains low for a protracted period, this tends to further increase bank risk-taking in new loans, though it helps lower the default risk for existing loans. The findings overall point to the potential unintended consequences of a low-for-long monetary policy accommodation with implications on financial stability.
Labour Supply of Married Women in Thailand: 1985-2016
This study investigates the labour supply behaviour of married Thai women with reference to their own and their spouse’s wages. By utilising data of the national Labour Force Survey in Thailand from 1985 to 2016, the wage imputation technique and the instrumental variables approach are applied to correct sample selection and to alleviate endogeneity, common issues that cause bias in estimating female labour supply. By controlling for spousal education and number of children, the main findings indicate an inverse relationship between married women’s labour supply and wages, contrary to the results found in most developed countries. The estimated own wage elasticity ranges from -1.70 to -2.40 and cross elasticity ranges from -0.16 to -0.17, indicating that the impact of own wage on labour supplied is much larger than spouse’s wage. The results from disaggregation classified according to different socioeconomic backgrounds also show the negative elasticities between own and spouses’ wage across all subgroups, except for those with university degrees and higher income.
Evaluating Thailand’s Free Basic Electricity Program
This study evaluates the performance of Thailand’s Free Basic Electricity (FBE) program along three dimensions: targeting effectiveness, benefit adequacy, and subsidy burden distribution. While the FBE benefits reaches the targeted population (low-income families) quite well, the benefit leakage to the non-targeted population could result in a significant increase in the overall subsidy cost. Furthermore, the current 50-unit free quota given by the FBE program is insufficient for the basic need of many low-income families. Lastly, the FBE subsidy burden falls exclusively on the industrial/commercial customers, but the cost increase has been rather small. Therefore, Thailand’s FBE program can be markedly improved by introducing a more effective targeting approach to reduce leakage, which will allow the government to raise the free electricity quota while maintaining the same overall subsidy cost.
Economic impacts of Political Uncertainty in Thailand
This paper aims to analyze political uncertainty in Thailand by looking at various dimensions of political uncertainty and quantifying the economic impacts. Based on keyword search in Thai-language newspapers, the paper proposes five measures related to different aspects of political uncertainty. These are: (1) political protest (2) official measures in dealing with political violence (3) coup d’état (4) parliament dissolution or election and (5) political structural reform, including the aggregate index of political uncertainty. We find that the overall political uncertainty in Thailand has been in the rising trend during the past 20 years. In particular, during the past 10 years, the main source of Thai political uncertainty comes from uncertainty related to political structural reform. Based on various econometric specifications, rising political uncertainty is found to have significant negative impacts on the Thai economy both in the short run – particularly, private investment – and economic growth in the long run. Nevertheless, we find that the degree of the economic impact and statistical significance on different components of macroeconomy is quite varied, reflecting complicated interaction between political factors and economic outcome.
Thai Inflation Dynamics: A View from Micro CPI Data
This paper examines the patterns of price adjustment at the micro level in order to further our understanding of price rigidity at the aggregate level. We highlight 5 stylized facts: 1) Prices change infrequently with a mean duration of approximately 4 to 7 months between price changes; 2) Price decreases are common accounting for roughly 45 percent of all price changes; 3) Price changes, both increases and decreases, are sizable compared to the prevailing in ation rate; 4) The size of price changes covaries strongly with the rate of in ation, whereas the fraction of items changing prices does not; and 5) There is signicant dispersion in price levels as well as in the synchronicity of price changes across geographical regions. Based on a dynamic factor model, we also utilize prices at the disaggregated level to perform an in ation decomposition to understand the underlying driving factors of in ation. The key ndings are: 1) Prices at the micro level are driven mainly by idiosyncratic shocks but these shocks become less important for CPI in ation at the aggregate level; 2) Pure in ation which drives long-term price movements in Thailand is responsible for approximately 10 percent of overall price movements; 3) More than half of all within-quarter uctuations can be classied as relative price changes in response to aggregate shocks; 4) The short-run in ation-output tradeoff which appears weak in aggregate data becomes much stronger once volatile idiosyncratic price changes are removed.
Extrapolative Beliefs and Exchange Rate Markets
Following Engel (2016) and Valchev (2015), this paper documents the relationship between interest rate differentials and differential returns on domestic and foreign bonds over time horizon using a broader data sample. I find that countries with higher contemporaneous interest rates earn excess positive bond returns initially in accordance with previous UIP literature. However, the sign of excess returns reverses in the medium run. Higher contemporaneous interest rates predict negative excess returns. Eventually, interest differentials have no excess return predictability. I argue that behavioral bubbles are natural and successful candidates in generating exchange rate dynamics observed in the data. In particular, I propose that investors rely not only on fundamentals (interest differentials) but also extrapolate past exchange rates when forming expectations. The proposed extrapolative model is consistent with both excess return patterns and survey evidence in the data.
A Microscopic View of Thailand’s Foreign Exchange Market: Players, Activities, and Networks
This paper explores Thailand’s foreign exchange (FX) market landscape by utilizing the Bank of Thailand’s supervisory Financial Market Statistics (FMST) data which covers the universe of onshore foreign exchange transactions in Thailand. Historical developments regarding different groups of market players and the use of foreign exchange instruments, as well as the overall market structure are documented. Through the lens of network analysis, we also provide topological descriptions of Thailand’s FX market landscape, with applications on interbank network stability. We observe low degree of concentration among the dealer banks in terms of market turnover share. In contrast, from a customer’s perspective, market share is highly concentrated within a handful of large FX customers. The network connectivity among different groups of players suggests that the Thai FX market is one that is rather segmented and clustered among similar players. A substantial degree of specialization is evident across banks in terms of FX instruments and market segments, both in the interbank network and in the retail market. Probing into the interbank network stability, we find a small subset of banks to be truly central to the FX market network, though the system appears to hold up well in stress times supported by fluidity among interbank players.