Effectiveness of policy interventions during financial crises in China and Russia: Lessons for the COVID-19 pandemic

We test the hypothesis that policy interventions in crisis periods are less effective when markets are integrated, drawing on China and Russia’s experience during the global financial crisis. We conduct an event study to examine the response of stock market returns and volatility to intervention efforts using DCC-GARCH and Markov Regime Switching Models. We then estimate the extent of integration of China and Russia with the US market and assess its impact on policy interventions’ effectiveness based on a regression framework. We find that interventions were effective in China but failed in Russia, where greater global links were evident. Our findings provide important policy lessons to address the impact of the current COVID-19 pandemic, given the increasing global market linkages.     

Underwriting and Calls of Convertible Bonds*

We model convertible bond calls under asymmetric information where, unlike Harris and Raviv (1985), we consider a nonzero call price and a call notice period. In the model, the use of underwriters conveys negative information. Consequently, the stock price decline is greater for underwritten calls than for nonunderwritten calls. Furthermore, underwritten calls are made earlier and when the conversion option is less deep in the money. Underwriting commissions and the stock price decline associated with a call are negatively related to the extent that the conversion option is in the money before the call. Empirical evidence in this paper and Singh, Cowan, and Nayar (1991) are consistent with the model's predictions.