Download or read book Essays in Tail Risk and Asset Pricing in Credit Markets written by Reinhard Fellmann and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asset Pricing in Credit Markets written by Frederic A. Schweikhard and published by . This book was released on 2012 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Empirical Asset Pricing written by John Robert Vogel and published by . This book was released on 2014 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three essays of empirical asset pricing. In the first essay, The Value/Growth Anomaly and Hard to Value Firms, I show that combining quality signals (firm fundamentals) and hard to value measures increases the return spread between value and growth portfolios. A portfolio that is long high quality value firms that are hard to value and short low quality growth firms that are hard to value yields a 4-factor alpha of up to 1.41% per month. Second, ex-ante observed quality signals are better at predicting high performance and low performance growth stocks as compared to value stocks. This growth stock mispricing can be explained by extreme quality measures, and enhanced by focusing on hard to value growth firms. In the second essay, Using Maximum Drawdowns to Capture Tail Risk, I, along with my co-author Wesley R. Gray, propose the use of maximum drawdown, the maximum peak to trough loss across a time series of compounded returns, as a simple method to capture an element of risk unnoticed by linear factor models: tail risk. Unlike other tail-risk metrics, maximum drawdown is intuitive and easy-to-calculate. We look at maximum drawdowns to assess tail risks associated with market neutral strategies identified in the academic literature. Our evidence suggests that academic anomalies are not anomalous: all strategies endure large drawdowns at some point in the time series. Many of these losses would trigger margin calls and investor withdrawals, forcing an investor to liquidate. In the third essay, Analyzing Valuation Measures: A Performance Horse Race over the Past 40 Years, I, along with my co-author Wesley R. Gray, show that EBITDA/TEV has historically been the best performing valuation metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replaces one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.

Download or read book Essays in Financial Econometrics Asset Pricing and Corporate Finance written by Markus Pelger and published by . This book was released on 2015 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation explores how tail risk and systematic risk affects various aspects of risk management and asset pricing. My research contributions are in econometric and statistical theory, in finance theory and empirical data analysis. In Chapter 1 I develop the statistical inferential theory for high-frequency factor modeling. In Chapter 2 I apply these methods in an extensive empirical study. In Chapter 3 I analyze the effect of jumps on asset pricing in arbitrage-free markets. Chapter 4 develops a general structural credit risk model with endogenous default and tail risk and analyzes the incentive effects of contingent capital. Chapter 5 derives various evaluation models for contingent capital with tail risk. Chapter 1 develops a statistical theory to estimate an unknown factor structure based on financial high-frequency data. I derive a new estimator for the number of factors and derive consistent and asymptotically mixed-normal estimators of the loadings and factors under the assumption of a large number of cross-sectional and high-frequency observations. The estimation approach can separate factors for normal "continuous" and rare jump risk. The estimators for the loadings and factors are based on the principal component analysis of the quadratic covariation matrix. The estimator for the number of factors uses a perturbed eigenvalue ratio statistic. The results are obtained under general conditions, that allow for a very rich class of stochastic processes and for serial and cross-sectional correlation in the idiosyncratic components. Chapter 2 is an empirical application of my high-frequency factor estimation techniques. Under a large dimensional approximate factor model for asset returns, I use high-frequency data for the S & P 500 firms to estimate the latent continuous and jump factors. I estimate four very persistent continuous systematic factors for 2007 to 2012 and three from 2003 to 2006. These four continuous factors can be approximated very well by a market, an oil, a finance and an electricity portfolio. The value, size and momentum factors play no significant role in explaining these factors. For the time period 2003 to 2006 the finance factor seems to disappear. There exists only one persistent jump factor, namely a market jump factor. Using implied volatilities from option price data, I analyze the systematic factor structure of the volatilities. There is only one persistent market volatility factor, while during the financial crisis an additional temporary banking volatility factor appears. Based on the estimated factors, I can decompose the leverage effect, i.e. the correlation of the asset return with its volatility, into a systematic and an idiosyncratic component. The negative leverage effect is mainly driven by the systematic component, while it can be non-existent for idiosyncratic risk. In Chapter 3 I analyze the effect of jumps on asset pricing in arbitrage-free markets and I show that jumps have to come as a surprise in an arbitrage-free market. I model asset prices in the most general sensible form as special semimartingales. This approach allows me to also include jumps in the asset price process. I show that the existence of an equivalent martingale measure, which is essentially equivalent to no-arbitrage, implies that the asset prices cannot exhibit predictable jumps. Hence, in arbitrage-free markets the occurrence and the size of any jump of the asset price cannot be known before it happens. In practical applications it is basically not possible to distinguish between predictable and unpredictable discontinuities in the price process. The empirical literature has typically assumed as an identification condition that there are no predictable jumps. My result shows that this identification condition follows from the existence of an equivalent martingale measure, and hence essentially comes for free in arbitrage-free markets. Chapter 4 is joint work with Behzad Nouri, Nan Chen and Paul Glasserman. Contingent capital in the form of debt that converts to equity as a bank approaches financial distress offers a potential solution to the problem of banks that are too big to fail. This chapter studies the design of contingent convertible bonds and their incentive effects in a structural model with endogenous default, debt rollover, and tail risk in the form of downward jumps in asset value. We show that once a firm issues contingent convertibles, the shareholders' optimal bankruptcy boundary can be at one of two levels: a lower level with a lower default risk or a higher level at which default precedes conversion. An increase in the firm's total debt load can move the firm from the first regime to the second, a phenomenon we call debt-induced collapse because it is accompanied by a sharp drop in equity value. We show that setting the contractual trigger for conversion sufficiently high avoids this hazard. With this condition in place, we investigate the effect of contingent capital and debt maturity on capital structure, debt overhang, and asset substitution. We also calibrate the model to past data on the largest U.S. bank holding companies to see what impact contingent convertible debt might have had under the conditions of the financial crisis. Chapter 5 develops and compares different modeling approaches for contingent capital with tail risk, debt rollover and endogenous default. In order to apply contingent convertible capital in practice it is desirable to base the conversion on observable market prices that can constantly adjust to new information in contrast to accounting triggers. I show how to use credit spreads and the risk premium of credit default swaps to construct the conversion trigger and to evaluate the contracts under this specification.

Download or read book Essays in Asset Pricing and Tail Risk written by Sang Byung Seo and published by . This book was released on 2015 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter "Option Prices in a Model with Stochastic Disaster Risk," co-authored with Jessica Wachter, studies the consistency between the rare disaster mechanism and options data. In contrast to past work based on an iid setup, we find that a model with stochastic disaster risk can explain average implied volatilities well, despite being calibrated to consumption and aggregate market data alone. Furthermore, we extend the stochastic disaster risk model to a two-factor model and show that it can match variation in the level and slope of implied volatilities, as well as the average implied volatility curves.

Download or read book Risk Management And Value Valuation And Asset Pricing written by Mondher Bellalah and published by World Scientific. This book was released on 2008-02-28 with total page 645 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive discussion of the issues related to risk, volatility, value and risk management. It includes a selection of the best papers presented at the Fourth International Finance Conference 2007, qualified by Professor James Heckman, the 2000 Nobel Prize Laureate in Economics, as a “high level” one. The first half of the book examines ways to manage risk and compute value-at-risk for exchange risk associated to debt portfolios and portfolios of equity. It also covers the Basel II framework implementation and securitisation. The effects of volatility and risk on the valuation of financial assets are further studied in detail.The second half of the book is dedicated to the banking industry, banking competition on the credit market, banking risk and distress, market valuation, managerial risk taking, and value in the ICT activity. With its inclusion of new concepts and recent literature, academics and risk managers will want to read this book.

Download or read book Three Essays on Empirical Asset Pricing written by Amir Akbari and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This thesis explores the role of borrowing frictions, exchange rate risk, and intertemporal demand in stock prices across international financial markets. Specifically, I study how global asset prices are governed, considering the constraints and incentives that investors face when making investment decisions. The first essay adds a new dimension to the research on the dynamics of global market integration, providing an explanation for reversals in market integration via funding illiquidity. I show that when funding capital dries out, investors, unable to borrow and trade freely, fail to facilitate the integration process. Therefore, international asset prices during these periods are explained more by country-specific asset pricing factors than by global asset pricing factors. The second essay explores the role of exchange rate risk and intertemporal demand in international markets. These sources of risk are linked via the interest rate channel and are both likely proxies of the state variables that affect asset prices over time. We carefully disentangle the two risk factors and study the international equity market indices with multiple risk factors in a large cross-section through time. We show that the evidence of global pricing of risk crucially hinges on pooling assets with substantial cross-sectional variation. The third essay introduces a methodological innovation to study the dynamics of the compensation for the intertemporal risk in business cycles. Specifically, we contribute to the empirical asset pricing literature by studying the relative importance of prices of intertemporal risk during recessions, recoveries, and expansions." --

Download or read book Essays in International Asset Pricing written by Ying Wu and published by . This book was released on 2013 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical research focuses on the common risk factors in stock returns and trading activities. The first essay is titled "Asset Pricing with Extreme Liquidity Risk". Defining extreme liquidity as the tails of illiquidity for all stocks, I propose a direct measure of market-wide extreme liquidity risk and find that extreme liquidity risk is priced cross-sectionally in the U.S. equity market. From 1973 through 2011, stocks in the highest quintile of extreme liquidity risk loadings earned value-weighted average returns 6.6% per year higher than stocks in the lowest quintile. The extreme liquidity risk premium is robust to common risk factors related to size, value and momentum. The premium is different from that on aggregate liquidity risk documented in Pástor and Stambaugh (2003) as well as that based on tail risk of Kelly (2011). Extreme liquidity estimates can offer a warning sign of extreme liquidity events. Predictive regressions show that extreme liquidity measure reliably outperforms aggregate liquidity measures in predicting future market returns. Finally, I incorporate the extreme liquidity risk into Acharya and Pedersen's (2005) framework and find new supporting evidence for their liquidity-adjusted capital asset pricing model. The second essay is co-authored with Prof. Andrew Karolyi. We have developed a multi-factor returns-generating model for an international setting that captures how restrictions on investability or accessibility can matter. The model works reasonably well in a wide variety of settings. More specifically, using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over a two-decade period, we propose and test a multi-factor model that includes factor portfolios based on firm characteristics and that builds separate factors comprised of globally-accessible stocks, which we call "global factors," and of locally-accessible stocks, which we call "local factors." Our new "hybrid" multi-factor model with both global and local factors not only captures strong common variation in global stock returns, but also achieves low pricing errors and rejection rates using conventional testing procedures for a variety of regional and global test asset portfolios formed on size, value, and momentum. In the third essay, I examine the implications of the Lo and Wang (2000, 2006) mutual fund separation model in the cross-sectional behavior of global trading activity. It demonstrates that return-based factors work poorly around the world. On average across countries, market-wide turnover captures 37% of all systematic turnover components in individual stock trading, and two additional Fama and French (1993) factor turnovers increase the explanatory power by 23%. Similarly Lo and Wang's (2000) turnovers only capture on average 64% of all systematic turnover components. Using this multi-factor asset pricing-trading framework, a horserace is further performed to explore other factors in return by examining the turnover behavior of different factor mimicking portfolios. All the return-based factors capture at most 67% of the common variation in trading, suggesting that stock pricing and trading volume may not be compatible around the world. In cross-country analysis, the explanatory power of the returnbased factor model varies substantially across countries and markets, with better performance for European developed markets and China. Surprisingly, in North America, Japan and most emerging markets there are larger amounts of commonality in trading, mostly higher than 47 %, for reasons other than return motive.

Download or read book Two Essays on Asset Pricing written by Dan Luo and published by . This book was released on 2017-01-26 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Two Essays on Asset Pricing" by Dan, Luo, 罗丹, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This thesis centers around the pricing and risk-return tradeoff of credit and equity derivatives. The first essay studies the pricing in the CDS Index (CDX) tranche market, and whether these instruments have been reasonably priced and integrated within the financial market generally, both before and during the financial crisis. We first design a procedure to value CDO tranches using an intensity-based model which falls into the affine model class. The CDX tranche spreads are efficiently explained by a three-factor version of this model, before and during the crisis period. We then construct tradable CDX tranche portfolios, representing the three default intensity factors. These portfolios capture the same exposure as the S&P 500 index optionmarket, to a market crash. We regress these CDX factors against the underlying index, the volatility factor, and the smirk factor, extracted from the index option returns, and against the Fama-French market, size and book-to-market factors. We finally argue that the CDX spreads are integrated in the financial market, and their issuers have not made excess returns. The second essay explores the specifications of jumps for modeling stock price dynamics and cross-sectional option prices. We exploit a long sample of about 16 years of S&P500 returns and option prices for model estimation. We explicitly impose the time-series consistency when jointly fitting the return and option series. We specify a separate jump intensity process which affords a distinct source of uncertainty and persistence level from the volatility process. Our overall conclusion is that simultaneous jumps in return and volatility are helpful in fitting the return, volatility and jump intensity time series, while time-varying jump intensities improve the cross-section fit of the option prices. In the formulation with time-varying jump intensity, both the mean jump size and standard deviation of jump size premia are strengthened. Our MCMC approach to estimate the models is appropriate, because it has been found to be powerful by other authors, and it is suitable for dealing with jumps. To the best of our knowledge, our study provides the the most comprehensive application of the MCMC technique to option pricing in affine jump-diffusion models. DOI: 10.5353/th_b4819935 Subjects: Capital assets pricing model

Download or read book Two Essays on Empirical Asset Pricing written by Yangqiulu Luo and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays on empirical asset pricing. The first essay examines if the idiosyncratic risk is priced. Theories such as Merton (1987) predict that idiosyncratic risk should be priced when investors do not diversify their portfolio. However, the previous literature has presented a mixed set of results of the pricing of idiosyncratic risk. We find strong evidence that idiosyncratic risk is priced differently across bull and bear markets. For the sample period from June 1946 to the end of 2010, a factor portfolio long on stocks with high idiosyncratic volatility and short on stocks with low idiosyncratic volatility yields an equal-weighted monthly return of 1.59% for bull markets but -1.29% for bear markets. These evidences support the hypothesis that investors are rewarded for betting on individual stocks during bull markets and holding more diversified portfolios during bear markets. The second essay examines the role of the limits to arbitrage in the negative effect of liquidity on subsequent stock returns. I hypothesize that if the negative effect persists because of the limits to arbitrage, the effect should be more pronounced when there are more severe limits to arbitrage. My empirical evidence supports the hypothesis. In addition, I find that the effect of the limits to arbitrage on the liquidity anomaly is not correlated to the liquidity risk.

Download or read book Essays on Asset Pricing and Financial Institutions written by Patrick Christian Kiefer and published by . This book was released on 2018 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasts of risk prices at alternative time scales can be used to consolidate history dependence in asset return time series. The resulting Markovian structure identifies a martingale component in the latent transition dynamics. I apply the model to U.S. stock markets and find the concentration of return volatility on the martingale component - the spectral gap - is countercyclical, and predicts annual market returns out-of-sample (o.o.s.) with an R-squared of 10.8%. Value (HML) predictability is concave and front-heavy, peaking at a one-year 14.7% o.o.s. R-squared. In contrast, the momentum predictability term structure is convex, insignificant on the short end, but accelerates to 31.4% o.o.s. R-squared at the three-year horizon. I form timing portfolios to investigate the risk content of the aggregate forecasts. Incremental gains from timing value are compensation for bearing systematic shocks to time-varying expected returns. Exposure to the market timing portfolio is cross-sectionally priced, while gains from timing size (SMB) are not. The findings provide new restrictions for parametric asset pricing theories. Incomplete human capital markets induce unexpected rebalancing costs that are mitigated by a bank. Ex-ante, the bank exchanges risky endowments for demandable liabilities. An ex-post withdrawal corresponds to exercising a put option on the market, used to resolve an unexpected portfolio choice problem. Portfolio choice opens a risk aversion channel that distinguishes our predictions from Diamond and Dybvig (1983) and related models. In these models, deposits resolve consumption-timing tensions by accommodating the investor's intertemporal elasticity of substitution (IES). The inclusion of risk-based incentives allow us to characterize the endogenous link between the intermediary balance sheet and the preference-based pricing kernel. Moreover, ex-post rebalancing incentives relax enforcement problems for ex-ante optimal policies in incomplete markets. This provides a justification for the coexistence of intermediation and market institutions.

Download or read book Essays in Risk Modeling Asset Pricing and Network Measurement in Finance written by Bixi Jian and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "Modelling financial interconnections and forecasting extreme losses are crucial for risk management in financial markets. This thesis studies multivariate risk spillovers at the high-dimensional market network level, as well as univariate extreme risk modelling at the asset level. The first chapter proposes a novel time series econometric method to measure high-dimensional directed and weighted market network structures. Direct and spillover effects at different horizons, between nodes and between groups, are measured in a unified framework. Using a similar network measurement framework, the second chapter investigates the relationship between stock illiquidity spillovers and the cross-section of expected returns. I find that central industries in illiquidity transmission networks earn higher average stock returns (around 4% per year) than other industries.The third chapter proposes a new Dynamic Stable GARCH model, which involves the use of stable distribution with time-dependent tail parameters to model and forecast tail risks in an extremely high volatility environment. We can differentiate extreme risks from normal market fluctuations with this model." --

Download or read book Empirical Essays on Credit Risk Based Asset Pricing written by Yaofei Xu and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on International Portfolio Choice and Asset Pricing Under Financial Contagion written by Zhenzhen Fan and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The 2008 financial crisis has witnessed prices of assets traded on different exchange markets, of various asset classes, from different geographical locations plunge simultaneously or in close succession, causing serious problems for banks, insurance companies, and other financial institutions. It calls for models that account for the unconventional dependence structure of asset prices beyond the classical paradigm. The class of mutually exciting jump-diffusion processes is a promising workhorse for modeling financial contagion in continuous-time finance. The class provides a parsimonious model of jump propagation, allowing for cross-sectional asymmetry and serial dependence through time: a jump that takes place in one asset market today leads to a higher probability of experiencing future jumps in the same market as well as in other markets around the world. This thesis tries to reconsider some of the classical problems in finance, most noticeably asset pricing, portfolio choice, hedging, and valuation, in the presence of contagion. We show that many investment and risk management implications and market efficiency conditions derived from classical models are no longer valid in the context of financial contagion."--Samenvatting auteur.

Download or read book Essays on Bankruptcy Credit Risk and Asset Pricing written by Min Jiang and published by . This book was released on 2012 with total page 199 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I consider a range of topics in bankruptcy, credit risk and asset pricing. The first chapter proposes a structural-equilibrium model to examine some economic implications arising from voluntary filing of Chapter 11. The results suggest that conflict of interests (between debtors and creditors) arising from the voluntary filing option causes countercyclical losses in firm value. The base calibration shows that these losses amount to approximately 5% of the ex-ante firm value and are twice those produced by a model without incorporating the business cycles. Furthermore, besides countercyclical liquidation costs as in Chen (2010) and Bhamra, Kuehn and Strebulaev (2010), countercyclical pre-liquidation distress costs and the conflict of interests help to generate reasonable credit spreads, levered equity premium and leverage ratios. The framework nests several important models and prices the firm's contingent claims in closed-form. The second chapter proposes a structural credit risk model with stochastic asset volatility for explaining the credit spread puzzle. The base calibration indicates that the model helps explain the credit spread puzzle with a reasonable volatility risk premium. The model fits well to the dynamics of CDS spreads and equity volatility in the data. The third chapter develops a consumption-based learning model to study the interactions among aggregate liquidity, asset prices and macroeconomic variables in the economy. The model generates reasonable risk-free rates, equity premium, real yield curve, and asset prices in equity and bond markets. The base calibration implies a long-term yield spread of around 185 basis points and a liquidity premium of around 55 basis points for an average firm in the economy. The calibrated yield spread and liquidity premium are consistent with the empirical estimates.

Download or read book Tail Risk and Asset Prices written by Bryan Kelly and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new measure of time-varying tail risk that is directly estimable from the cross section of returns. We exploit firm-level price crashes every month to identify common fluctuations in tail risk across stocks. Our tail measure is significantly correlated with tail risk measures extracted from S&P 500 index options, but is available for a longer sample since it is calculated from equity data. We show that tail risk has strong predictive power for aggregate market returns: A one standard deviation increase in tail risk forecasts an increase in excess market returns of 4.5% over the following year. Cross-sectionally, stocks with high loadings on past tail risk earn an annual three-factor alpha 5.4% higher than stocks with low tail risk loadings. These findings are consistent with asset pricing theories that relate equity risk premia to rare disasters or other forms of tail risk.

Download or read book Essays on Asset Pricing in Emerging Markets written by Juan José Cruces and published by . This book was released on 2001 with total page 506 pages. Available in PDF, EPUB and Kindle. Book excerpt: