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Does the World Bank Move Markets?

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Abstract

This paper examines the impact of World Bank loans on borrowing country equity markets. We exploit a rich dataset with World Bank loan commitments and stock market returns at the monthly level, allowing us to study short run market reactions to news about loan commitments. Given ex ante uncertainty over the influx of resources, we expect a positive overall response to loan size in terms of the local stock market returns. To address potential endogeneity, we use a supply-push instrument based on countries' historic budget shares and the overall World Bank budget. Estimation results point to a sizable positive short run impact of World Bank loan commitments on local markets that may reduce the cost of capital for local entrepreneurs.

Suggested Citation

  • Erasmus Kersting & Christopher Kilby, 2019. "Does the World Bank Move Markets?," Villanova School of Business Department of Economics and Statistics Working Paper Series 42, Villanova School of Business Department of Economics and Statistics.
    • Handle: RePEc:vil:papers:42
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    File URL: http://repec.library.villanova.edu/workingpapers/VSBEcon42.pdf
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    Cited by:

    1. Kai Gehring & Valentin F. Lang, 2018. "Stigma or Cushion? IMF Programs and Sovereign Creditworthiness," CESifo Working Paper Series 7339, CESifo.

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    More about this item

    Keywords

    World Bank; Emerging Markets; Financial Development; Adjustment Lending; Supply-Push Instruments;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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