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This study examines the intertemporal nature of countries' external adjustment by using two oil income shocks with different timings: giant oil discovery news shocks and contemporaneous oil revenue shocks from international oil price changes. Empirical estimates using a large panel of countries support the intertemporal theory. Net foreign assets hike immediately upon oil revenue shocks, but decline for the first 5 years after oil discoveries and rebound subsequently. These adjustments are largely through the current account but partially stabilized by valuation effects for oil revenue shocks. Oil discoveries attract FDI inflows, while oil revenue shocks increase foreign debt assets holdings. [ABSTRACT FROM AUTHOR]

At the onset of the COVID-19 economic crisis, as in other crisis episodes, we observed a rapid appreciation of "safe haven" currencies. We quantify currency-induced balance sheet valuation effects for aggregate external positions as well as for broadly defined asset classes for the first quarter and the full year 2020. To do so, we use new data on the currency composition of cross-border assets and liabilities for 46 countries. In contrast with past financial crises, many emerging markets did not experience losses on their aggregate external balance sheets despite facing a domestic currency depreciation. This was partly due to currency-induced valuation gains on equity positions offsetting losses on debt positions, and partly due to reduced currency mismatch on their external debt positions. We conduct the stock-flow reconciliation of net international investment positions to measure overall valuation effects and compute the proportion that is due to changes in currency values. For about half of the countries in our sample, currency-induced valuation effects were substantial, representing over 50 percent of total valuation effects in 2020Q1 and the full year 2020.

We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix et al. (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs' external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks. [ABSTRACT FROM AUTHOR]

The progression of financial globalization increases the importance of valuation changes of foreign assets and liabilities, similar to that of current account in explaining the recent net foreign asset position of countries around the world. This study analyzes the long‐term determinants of valuation effects by using panel regression with 10‐year data span of 188 countries. The main findings are as follows. First, the size of foreign assets and relative portion of risky assets are positively associated with valuation effects, which suggests that general principles for long‐term individual investors also hold for an entire country. Second, current account is negatively associated with valuation effects, which suggests that these two mechanisms stabilize each other in overall international adjustment process. Third, exchange rate changes are often positively associated with valuation effects, which at times depend on foreign asset and liability positions. Fourth, per capita GDP are negatively associated with valuation effects. Fifth, current account is mainly associated with valuation effects due to asset price changes, but exchange rate changes and foreign asset and liability positions are mainly associated with valuation effects due to exchange rate changes. The relative proportion of risky assets is associated with both types of valuation effects. [ABSTRACT FROM AUTHOR]

George Floyd's murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text‐based measure of a firm's exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race‐related exposure and not gender‐related exposure. Initiatives taken by firms mitigate the negative market reaction. We document that firms with racial diversity exposure respond by appointing Black directors. The stock market views appointments of Black directors more favorably after George Floyd's murder, except when they are perceived as symbolic. We also find that firms with greater exposure to racial diversity are more likely to establish diversity, equity, and inclusion (DEI) departments, appoint DEI leaders, specify diversity goals, increase supply chain diversity, and donate to racial justice causes. Our paper provides evidence that exposure to racial diversity issues adversely affects firm value, and companies address the exposure by taking actions. [ABSTRACT FROM AUTHOR]

At the onset of the COVID-19 economic crisis, as in other crisis episodes, we observed a rapid appreciation of "safe haven" currencies. We quantify currency-induced balance sheet valuation effects for aggregate external positions as well as for broadly defined asset classes for the first quarter and the full year 2020. To do so, we use new data on the currency composition of cross-border assets and liabilities for 46 countries. In contrast with past financial crises, many emerging markets did not experience losses on their aggregate external balance sheets despite facing a domestic currency depreciation. This was partly due to currency-induced valuation gains on equity positions offsetting losses on debt positions, and partly due to reduced currency mismatch on their external debt positions. We conduct the stock-flow reconciliation of net international investment positions to measure overall valuation effects and compute the proportion that is due to changes in currency values. For about half of the countries in our sample, currency-induced valuation effects were substantial, representing over 50 percent of total valuation effects in 2020Q1 and the full year 2020., (© 2022 The Author(s).)