Download or read book Essays in Financial Economics and Credit Risk written by Jens Dietrich Hilscher and published by . This book was released on 2005 with total page 203 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Hang Bai and published by . This book was released on 2016 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters that aim to understand the fundamental relations between asset prices and the real/financial decisions of firms. The first chapter studies the credit risk implications of labor market fluctuations, by incorporating defaultable debt into a textbook search model of unemployment. In the model, the present value of cash flows that firms extract from workers simultaneously drives unemployment dynamics and credit risk variation. The model generates fat right tails in both unemployment and credit spreads, and their strong comovement over the business cycle, in line with the historical U.S. data from 1929 to 2015. Quantitatively, the model reasonably replicates the level, volatility and cyclicality of credit spreads. Overall, the paper highlights labor market fluctuations as an important macroeconomic driver of credit risk variation. In the second chapter, co-authored with Kewei Hou, Howard Kung, and Lu Zhang, we study how rare economic disasters, events such as the Great Depression, affect the cross section of stock returns, in particular the relation between the CAPM and the value premium. In historical U.S. data, it is well-established that the CAPM fails miserably to explain the value premium during the post-Compustat period. Perhaps less well-known is that the CAPM turns out to capture the value premium pretty well during the long sample period from 1929 to 2014. To understand the drivers behind the differential performance of the CAPM, we embed disasters into a stylied investment-based asset pricing model. The key result is that our single-factor model reproduces the failure of the CAPM in explaining the value premium in finite samples in which disasters are not materialized, and its relative success in samples in which disasters are materialized. Due to measurement errors in pre-ranking market betas, the relation between these estimated betas and average returns is flat in simulations, consistent with the beta “anomaly,” even though the relation between true betas and expected returns is strongly positive. The third chapter empirically examines how asset returns vary over the credit cycle. I construct a variable called Corporate Credit Growth (hereafter CCG) to capture the phase of the credit cycle, and show that CCG strongly negatively predicts future excess stock returns both in sample and out of sample. A one-standard-deviation decrease in CCG is associated with a sizable 1.5% increase in the equity premium over the next quarter. The predictive power of CCG can not be accounted for by a wide range of previously studied predictors. Impulse response analysis indicates CCG contains information about the term structure of expected stock returns. Finally, the paper examines alternative indicators of the credit cycle and finds that credit flows to other sectors of the economy do not appear to predict returns in the equity market.

Download or read book Managing Global Money written by Graham Bird and published by Springer. This book was released on 1988-05-24 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: This collection of articles and papers has been organised under a limited number of specific themes in international financial economics, including balance of payment theory and policy, the activities of the IMF, Special Drawing Rights, the role of the private financial markets, and the international economic order. A unifying theme running through all the essays is that some degree of management of international financial affairs is desirable. The book has a strong policy orientation and should be of interest to students and practitioners of international financial economics alike.

Download or read book Empirical Essays on Financial Economics written by Henrik Degrér and published by . This book was released on 2004 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays in Financial Economics written by Hilal Yilmaz and published by . This book was released on 2006 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis aims to develop techniques for improving portfolio optimization. The second chapter presents an improved covariance matrix estimator in the mean-variance optimization setting. Sample covariance matrix can be singular when the number of observations is less than the number of assets, and nearly singular when the number of observations exceeds the number of assets. Since the sample covariance matrix is not well-conditioned, using it as an input in mean-variance optimization can result in unreasonable "optimal" portfolios and badly biased estimates of Sharpe ratios. We address this problem by imposing constraints on the Sharpe ratio, asset return variances, and the variance of the global minimum variance portfolio. Our simulations show that the Constrained Maximum Likelihood Estimator (CMLE) performs better than the sample covariance matrix. Moreover, when the shrinkage approach is applied to the CMLE and single index covariance matrix, it performs better than the shrinkage of the sample covariance matrix and the single index covariance matrix of Ledoit and Wolf (2004). During the last two decades Value-at-Risk (VaR) has become the most commonly used measure of market risk due to its ease of calculation and simple interpretation. However, VaR has some undesirable mathematical characteristics such as lack of subadditivity and convexity. Conditional Value-at-Risk (CVaR), defined as the expected loss conditional on a loss larger than the VaR is an intuitively appealing coherent risk measure (Artzner et al. (1999)). However, tractable methods to optimize portfolios based on CVaR are not readily available. In the third chapter, we use the volatility dispersion trading strategy to illustrate that the quantile regression approach developed by Bassett et al. (2004) to risk management with CVaR allows for the easy solution of this otherwise difficult hedging and optimization problem. Credit risk is more difficult to model than market risk because the loss distribution is asymmetric and "fat-tailed" relative to the normal distribution. In the fourth chapter, we use a standard bond portfolio to demonstrate that credit risk optimization can be carried out using the quantile regression approach to compute CVaR developed by Bassett et al. (2004).

Download or read book Essays in Financial Economics written by Christopher Trevisan and published by . This book was released on 2016 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mots-clés de l'auteur: bitcoin ; price formation ; credit risk ; cash holdings ; cash flow risk ; financial economics.

Download or read book Essays in financial economics and risk management written by Lin Zou and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Risk and Uncertainty in Economics and Finance written by Jorge Mario Uribe Gil and published by Ed. Universidad de Cantabria. This book was released on 2022-11-22 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book adds to the resolution of two problems in finance and economics: i) what is macro-financial uncertainty? : How to measure it? How is it different from risk? How important is it for the financial markets? And ii) what sort of asymmetries underlie financial risk and uncertainty propagation across the global financial markets? That is, how risk and uncertainty change according to factors such as market states or market participants. In Chapter 2, which is entitled “Momentum Uncertainties”, the relationship between macroeconomic uncertainty and the abnormal returns of a momentum trading strategy in the stock market is studies. We show that high levels of uncertainty in the economy impact negatively and significantly the returns of a portfolio of stocks that consist of buying past winners and selling past losers. High uncertainty reduces below zero the abnormal returns of momentum, extinguishes the Sharpe ratio of the momentum strategy, while increases the probability of momentum crashes both by increasing the skewness and the kurtosis of the momentum return distribution. Uncertainty acts as an economic regime that underlies abrupt changes over time of the returns generated by momentum strategies. In Chapter 3, “Measuring Uncertainty in the Stock Market”, a new index for measuring stock market uncertainty on a daily basis is proposed. The index considers the inherent differentiation between uncertainty and the common variations between the series. The second contribution of chapter 3 is to show how this financial uncertainty index can also serve as an indicator of macroeconomic uncertainty. Finally, the dynamic relationship between uncertainty and the series of consumption, interest rates, production and stock market prices, among others, is analized. In chapter 4: “Uncertainty, Systemic Shocks and the Global Banking Sector: Has the Crisis Modified their Relationship?” we explore the stability of systemic risk and uncertainty propagation among financial institutions in the global economy, and show that it has remained stable over the last decade. Additionally, a new simple tool for measuring the resilience of financial institutions to these systemic shocks is provided. We examine the characteristics and stability of systemic risk and uncertainty, in relation to the dynamics of the banking sector stock returns. This sort of evidence is supportive of past claims, made in the field of macroeconomics, which hold that during the global financial crisis the financial system may have faced stronger versions of traditional shocks rather than a new type of shock. In chapter 5, “Currency downside risk, liquidity, and financial stability”, downside risk propagation across global currency markets and the ways in which it is related to liquidity is analyzed. Two primary contributions to the literature follow. First, tail-spillovers between currencies in the global FX market are estimated. This index is easy to build and does not require intraday data, which constitutes an important advantage. Second, we show that turnover is related to risk spillovers in global currency markets. Chapter 6 is entitled “Spillovers from the United States to Latin American and G7 Stock Markets: A VAR-Quantile Analysis”. This chapter contributes to the studies of contagion, market integration and cross-border spillovers during both regular and crisis episodes by carrying out a multivariate quantile analysis. It focuses on Latin American stock markets, which have been characterized by a highly positive dynamic in recent decades, in terms of market capitalization and liquidity ratios, after a far-reaching process of market liberalization and reforms to pension funds across the continent during the 80s and 90s. We document smaller dependences between the LA markets and the US market than those between the US and the developed economies, especially in the highest and lowest quantiles.

Download or read book Three Empirical Essays in Financial Economics and International Finance written by Marek Kolar and published by . This book was released on 2008 with total page 362 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays in Financial Economics written by Han-Hsing Lee and published by . This book was released on 2007 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Yupeng Wang (Scientist in business management) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays in financial economics, with a focus on the effects of new technologies on traditional financial markets including venture capital market and mortgage market.

Download or read book Three Essays in Financial Economics written by Salil Uday Gadgil and published by . This book was released on 2022 with total page 207 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Chapter 1, we investigate how price discovery in the credit default swap (CDS) market has been impacted by regulation implemented since the Global Financial Crisis. We find that single-name CDS spreads impound less private information prior to rating downgrades and adjust more slowly after downgrades are announced. We also show that CDS spreads lead corporate bond spreads less strongly following the adoption of stringent margin requirements that apply only to derivatives. This decline is sharpest for reference entities that are most exposed to the new rules. Price discovery appears to be unharmed for CDS indices, which are largely centrally cleared and, thus, less affected by many of the reforms. We rationalize the findings with a model in which increased transaction costs for single names drive informed agents to trade indices. Together, the results highlight a lesser-studied channel through which post-crisis regulation has influenced financial markets. In Chapter 2 (with Wenxin Du, Michael Gordy, and Clara Vega), we investigate how market participants price and manage counterparty credit risk in the post-2008 global financial crisis period using confidential traderepository data on single-name CDS transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a large impact on the choice of counterparties. We show that market participants are significantly less likely to trade with counterparties whose credit risk is highly correlated with the credit risk of the reference entities and with counterparties whose credit quality is low. Our results suggest that credit rationing may arise under wider circumstances than previously recognized. In Chapter 3 (with Jason Sockin), we use a sample of prominent scandals to study how employees are impacted by corporate misconduct. We find that worker sentiment decreases sharply and persistently following a scandal, driven by diminished perceptions of a firm's culture and senior management. Further, fewer employees receive variable pay and those that do see it fall 10 percent on average. Base pay and fringe benefits remain unchanged, however, highlighting that variable-pay earners are differentially exposed to firm-level shocks. As rank-and-file employees receive no compensation to offset the declines in job satisfaction and variable pay, we conclude that corporate misconduct leaves them strictly worse off.

Download or read book Two Essays in Financial Economics written by Stanislava M. Nikolova and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk measures constructed from both equity and debt prices are more closely related to bank credit ratings, asset-portfolio quality indicators, and overall financial health. In addition, models using both equity and debt price information can better predict material changes in the firm's default probability, and quarter-to-quarter changes in the firm's asset-portfolio quality and overall condition.

Download or read book Three Essays in Financial Economics written by and published by . This book was released on 2013 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is composed of three chapters that try to address questions in three different fields. In Chapter 1, I provide evidence that acquirers often pursue takeovers to catch up with competitors. This motive for takeovers leads to an important self-selection problem that is largely overlooked in previous studies, and causes downward bias in traditional estimates of takeover gains. I build a structural model to quantify this bias and measure acquirers' true takeover gains. Once estimated to match key data moments, the model produces a significantly positive takeover gain for acquirers as high as 12% of the firm value and implies a sizable bias of -16% in traditional empirical estimates. In Chapter 2, I document that high inflation predicts a decline in future real consumption and equity cash-flows, which is significantly stronger for durable than for non-durable goods. This suggests that durables is an important channel through which inflation affects long-term economic growth and asset prices. I derive and estimate an equilibrium two-good nominal economy model. The model can account for the key features of macro data, nominal bond yields and equity prices in durable and nondurable sectors. Inflation non-neutrality for durable consumption plays the key role to explain these data features. In Chapter 3, I study the impact of market competition on intermediate input quality and market share dynamics in credit rating - security issuance. In the upstream market, aggressive strategic behavior on part of credit rating agencies (CRAs) is negatively correlated with their lagged movements in market share but positively correlated with their contemporaneous movements in market share. This finding indicates that CRAs respond strategically to increasing competition by producing more "issuer-friendly" ratings. In the downstream market, investors adjust prices for credit risk but not for the effects of CRAs competition. Combining this evidence together, I conclude that policy intervention and public monitoring are necessary to restore a disciplined and well-functioning credit rating market.

Download or read book Powering the Digital Economy Opportunities and Risks of Artificial Intelligence in Finance written by El Bachir Boukherouaa and published by International Monetary Fund. This book was released on 2021-10-22 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Download or read book Three Essays on Financial Economics and Risk Managment written by Zhaowei Wang and published by . This book was released on 2014 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation mainly focuses on asset pricing and risk management in financial markets"--Abstract.

Download or read book Two Essays in Financial Economics written by Kevin T. Green and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays in financial economics. The first essay, included in Chapter 2, concerns abnormal stock returns around IPO lockup expiration events. IPO lockup agreements prevent existing shareholders from selling shares for a period of time, usually 180 days, following the initial public offering. Historically stocks exhibit negative returns on the date in which the lockup agreement expires, and thereby allows a previously restricted shareholder group to actively participate in the market. The effect is concentrated in companies backed by venture capital funding prior to going public. Given that the timing and details of the lockup agreement are publicly available, such a pattern should not exist in an efficient market. In this essay I examine the long term return pattern around IPO lockup expirations to determine whether there is evidence of market inefficiency or if market constraints limit arbitrage opportunities. Using a dataset of IPO activity from 1988-2014, I find abnormal returns are highly persistent over the sample period despite a decline in bid-ask spreads and an increase in IPO lockup publicity. This finding is contrary to earlier studies that suggest trading costs and a potentially uninformed market contributed to the abnormal return pattern. I also find suggestive evidence that the effect is not driven by short sale constraints that prohibit arbitrage traders’ ability to trade in the market. Finally, I simulate a trading strategy that allows me to implement liquidity controls and portfolio risk management constraints. I find excess returns endure but are limited in scale due to low market liquidity. This result shows the abnormal return pattern is sensitive to the size of capital investment, which serves as a deterrent to market participants and plays a significant role in the anomaly’s persistence. The second essay, included in Chapter 3, examines the indirect impact of changes in supplier credit ratings on customer procurement decisions. This essay is co-authored with Xuan Tian and Han Xia. Existing research concludes credit ratings convey important information on firms’ credit worthiness. As a result, customers may rely on credit ratings to evaluate supply chain risks. We analyze whether customers modify purchasing behavior as a risk mitigation tool following changes in their suppliers’ credit ratings. Our identification strategy incorporates a quasi-natural experiment around Moody’s 1982 ratings refinement, and allows us to alleviate the potentially endogenous effect of changes to firm financial health that often accompany changes in credit ratings. We find public sector customers respond strongly to supplier rating changes: they increase purchases from upgraded firms, and reduce purchases from downgraded firms. This response, however, is not observed for private sector customers. We show this contrast is likely due to government agents’ desire to respond to ratings, a prevalent and verifiable certification, to signal that their decision-making is aligned with external assessment and to avoid reputational losses. We also find suggestive evidence that powerful politicians use ratings to award government contracts to suppliers located in states they represent.