Research in Emerging Capital Markets

Research at CAF focuses on emerging capital markets. At present, the following research tracks dominate CAF’s research agenda. Each track is expected to generate a series of inter-linked studies. In all of them, resident researchers and external scholars based at foreign institutions work together.

Borrowing Culture and Debt Relief:  Evidence from a Policy Experiment
The current state of knowledge about the economic consequences of a large-scale debt  relief program is inconclusive. The existing economic literature suggests two channels through  which debt relief may improve investment and productivity at the household level and, as a  result, benefit the aggregate economy . In the present paper we investigate the effects of a large-scale debt relief program on the debt repayment culture of the borrowers. Using loan account level data for a large sample of rural  borrowers before and after a nation-wide debt relief program for overdue rural debt launched  by the Indian government in 2008, we compare the effects of the program on different groups  of borrowers: those who received full debt relief, those who received partial debt relief, and those who did not benefit at all from the program as their loans were not in default. We find that the effects are negative for all groups: number of days taken to repay debt increases for all  borrowers following a waiver. Interestingly, the effects are the most negative for the group that  did not benefit at all. Altogether, our results indicate a pervasive deterioration of borrowing  culture induced by the debt waiver program
Research Team: Sankar De and Prasanna Tantri
On Second Thought: The Impact of Information on Behavioral Biases
Behavioral biases like disposition effect and overconfidence have received much attention as a potential driver of numerous anomalies observed in the markets. Also, it has been argued that information uncertainty tends to exacerbate these biases and induce stronger irrational behavior among investors. Using a unique investor-level database, this paper ex-amines whether and how pertinent information impacts behavioral biases. I document that
disposition effect in stocks is lower following high-degree of private information based trading during days preceding quarterly earnings announcements. Also, consistent with theoretical predictions, I find price discovery to be faster in stocks with lower disposition effect. Finally, I find that higher pre-announcement information asymmetry and disclosure noise increases disposition effect in the post-announcement period.
Research Team: Sankar De and Saptarshi Mukherjee