Download or read book How Did CDS Markets Impact Stock Markets Evidence from Latest Financial Crisis written by Hasan Baklaci and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well-documented that financial markets become more integrated during turmoil periods. In addition, the recent global financial crisis has led to an in depth analysis and discussion of the pros and cons of derivative instruments, particularly credit default swaps, which are considered as the best proxy for firm and sovereign default risk. The aim of this study is to explore if default risk, represented by CDS spreads, is embedded in stock returns. Our main assertion rests on the idea that if CDS spreads proxy default risk, then it should have informational content for stock markets and should have a significant impact in price formation process. The analysis is conducted by using CDS Regional Index spreads and MSCI Regional Index values in Europe, Pacific Region and Emerging Markets. The results indicate that changes in CDS Regional Index spreads significantly impact stock indices within the same region as well as cross-regionally.
Download or read book Why Stock Markets Crash written by Didier Sornette and published by Princeton University Press. This book was released on 2017-03-21 with total page 449 pages. Available in PDF, EPUB and Kindle. Book excerpt: The scientific study of complex systems has transformed a wide range of disciplines in recent years, enabling researchers in both the natural and social sciences to model and predict phenomena as diverse as earthquakes, global warming, demographic patterns, financial crises, and the failure of materials. In this book, Didier Sornette boldly applies his varied experience in these areas to propose a simple, powerful, and general theory of how, why, and when stock markets crash. Most attempts to explain market failures seek to pinpoint triggering mechanisms that occur hours, days, or weeks before the collapse. Sornette proposes a radically different view: the underlying cause can be sought months and even years before the abrupt, catastrophic event in the build-up of cooperative speculation, which often translates into an accelerating rise of the market price, otherwise known as a "bubble." Anchoring his sophisticated, step-by-step analysis in leading-edge physical and statistical modeling techniques, he unearths remarkable insights and some predictions--among them, that the "end of the growth era" will occur around 2050. Sornette probes major historical precedents, from the decades-long "tulip mania" in the Netherlands that wilted suddenly in 1637 to the South Sea Bubble that ended with the first huge market crash in England in 1720, to the Great Crash of October 1929 and Black Monday in 1987, to cite just a few. He concludes that most explanations other than cooperative self-organization fail to account for the subtle bubbles by which the markets lay the groundwork for catastrophe. Any investor or investment professional who seeks a genuine understanding of looming financial disasters should read this book. Physicists, geologists, biologists, economists, and others will welcome Why Stock Markets Crash as a highly original "scientific tale," as Sornette aptly puts it, of the exciting and sometimes fearsome--but no longer quite so unfathomable--world of stock markets.
Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.
Download or read book The 2008 Financial Crisis and the Dynamics of Price Discovery Among Stock Prices CDS Spreads and Bond Spreads for US Financial Firms written by Christos I. Giannikos and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the dynamics of price discovery among three informationally connected markets: the stock market, the bond market, and the CDS market. The recent financial crisis in the US has provided a perfect natural experiment to study the impact of stress on price discovery. We study daily stock prices, CDS spreads, and bond spreads over a four-year period before and during the crisis (2005-2008) for 10 US financial firms. The strong cointegrated relationship between the CDS spread and bond spread and the dominant role of CDS spread in price discovery are stable throughout the sample period. Before the crisis, the stock market played a dominant role in price discovery. During the crisis, we document a much weaker role of the stock market while the CDS market has taken on a more important role becoming the dominant source of information during the financial crisis. We also propose two behavioral explanations for our empirical finding.
Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.
Download or read book The Stock Market written by Allison S. Wetherby and published by Nova Science Publishers. This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book examines the dynamic linkages among the federal budget deficit, interest rates and the stock market for the United States from 1960 to 2006. Topics discussed herein include the strategic risk assessment techniques that can be applied to investment and trading portfolios in emerging financial markets, such as in the context of the Gulf Co-operation Council (GCC) stock markets, as well as Africa's emerging capital markets and the financial crisis and whether the theory of periodically collapsing speculative bubbles can explain the dynamics of East Asian emerging stock market returns.
Download or read book The Emerging Market Crisis and Stock Market Linkages written by Cheng Hsiao and published by . This book was released on 2006 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the long-run price relationship and the dynamic price transmission among the U.S., Germany, and four major Eastern European emerging stock markets, with particular attention to the impact of the 1998 Russian financial crisis. The results show that both the long-run price relationship and the dynamic price transmission were strengthened among these markets after the crisis. The influence of Germany became noticeable on all the Eastern European markets only after the crisis but not before the crisis. We also conduct a rolling generalized VAR analysis to confirm the robustness of the main findings.
Download or read book Anatomy of Global Stock Market Crashes written by Gagari Chakrabarti and published by Springer Science & Business Media. This book was released on 2012-01-05 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work is an exploration of the global market dynamics, their intrinsic natures, common trends and dynamic interlinkages during the stock market crises over the last twelve years. The study isolates different phases of crisis and differentiates between any crisis that remains confined to the region and those that take up a global dimension. The latent structure of the global stock market, the inter-regional and intra-regional stock market dynamics around the crises are analyzed to get a complete picture of the structure of the global stock market. The study further probing into the inherent nature of the global stock market in generating crisis finds the global market to be chaotic thus making the system intrinsically unstable or at best to follow knife-edge stability. The findings have significant bearing at theoretical level and on policy decisions.
Download or read book Equity Market Contagion During the Global Financial Crisis written by Mardi Dungey and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis (2007-2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of contagion effects in both advanced and emerging equity markets. In the aggregate equity market indices, contagion from the US explains a large portion of the variance in stock returns in both advanced and emerging markets. However, in the financial sector indices we find less evidence of contagion than in the aggregate indices, and this is particularly the case for the advanced markets. The results suggest that contagion effects are not strongly related to high levels of global integration.
Download or read book CDS and Equity Market Reactions to Stock Issuances in the U S Financial Industry written by Marcia Millon Cornett and published by . This book was released on 2014 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study market reactions to seasoned equity issuances that were announced by financial companies between 2002 and 2013. To assess the risk and valuation implications of these seasoned equity issuances, we conduct an event analysis using daily credit default swap (CDS) and stock market pricing data. The major findings of the paper are that CDS prices respond quickly to new, default-relevant information. Over the full sample period, cumulative abnormal CDS spreads drop in response to equity issuance announcements. The reactions are significantly stronger during the financial crisis. At that time, the federal government injected equity into financial institutions to ensure their viability. The market reacted to the equity issue announcements by assessing significantly lower costs for default protection via credit default swaps. The evidence indicates that single-name CDS based on financial firms' default probabilities are potentially useful for private investors and regulators.
Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Download or read book Time Varying Co Movements and Contagion Effects In Asian Sovereign CDS Markets written by Daehyoung Cho and published by . This book was released on 2016 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate interconnectedness and the contagion effect of default risk in Asian sovereign CDS markets since the global financial crisis. Using dynamic conditional correlation analysis, we find that there are significant co-movements in Asian sovereign CDS markets; that such co-movements tend to be larger between developing countries than between developed and developing countries; and that in the comovements intra-regional nature is stronger than inter-regional nature. With the Spillover Index model, we measure contagion probabilities of sovereign default risk in CDS markets of seven Asian countries and find evidence of contagion effects among six of them; Japan is the exception. In addition, we find that these six countries are affected more by cross-market spillovers than by their own-market spillovers. Furthermore, a rolling-sample analysis reveals that contagion in the Asian sovereign CDS markets expands during episodes of extreme economic and financial distress, such as the Lehman Brothers bankruptcy, the European financial crisis, and the US-credit downgrade.
Download or read book Tail Dependence of Financial Stocks and CDS Markets written by Paulo Pereira da Silva and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Last Three Stock Market Crashes Can Boom and Bust Be Predicted written by Arthur Ritter and published by GRIN Verlag. This book was released on 2015-05-06 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2014 in the subject Business economics - Investment and Finance, grade: 15 (2,0), University of St Andrews (School of Management), course: Corporate Financial Management, language: English, abstract: Stock market crashes had occurred in the financial market since the very beginning and in every generation (Sornette, 2003a). “Greed, hubris and systemic fluctuations have given us the Tulip Mania, the South Sea bubble, the land booms in the 1920s and 1980s, the U.S. stock market and great crash in 1929, the October 1987 crash, to name just a few of the hundreds of ready examples“ (Sornette, 2003a, p. 7.). This essay will compare and contrast the last three major stock market crashes in 1987, 2000 and 2007. To do this, the essay will pay special emphasis on the causes of the three crashes. From there the essay will draw out the similarities and differences and will answer the question if boom and bust can be predicted.
Download or read book Stock Market Crashes Predictable And Unpredictable And What To Do About Them written by William T Ziemba and published by World Scientific. This book was released on 2017-08-30 with total page 309 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Overall, the book provides an interesting and useful synthesis of the authors’ research on the predictions of stock market crashes. The book can be recommended to anyone interested in the Bond Stock Earnings Yield Differential model, and similar methods to predict crashes.'Quantitative FinanceThis book presents studies of stock market crashes big and small that occur from bubbles bursting or other reasons. By a bubble we mean that prices are rising just because they are rising and that prices exceed fundamental values. A bubble can be a large rise in prices followed by a steep fall. The focus is on determining if a bubble actually exists, on models to predict stock market declines in bubble-like markets and exit strategies from these bubble-like markets. We list historical great bubbles of various markets over hundreds of years.We present four models that have been successful in predicting large stock market declines of ten percent plus that average about minus twenty-five percent. The bond stock earnings yield difference model was based on the 1987 US crash where the S&P 500 futures fell 29% in one day. The model is based on earnings yields relative to interest rates. When interest rates become too high relative to earnings, there almost always is a decline in four to twelve months. The initial out of sample test was on the Japanese stock market from 1948-88. There all twelve danger signals produced correct decline signals. But there were eight other ten percent plus declines that occurred for other reasons. Then the model called the 1990 Japan huge -56% decline. We show various later applications of the model to US stock declines such as in 2000 and 2007 and to the Chinese stock market. We also compare the model with high price earnings decline predictions over a sixty year period in the US. We show that over twenty year periods that have high returns they all start with low price earnings ratios and end with high ratios. High price earnings models have predictive value and the BSEYD models predict even better. Other large decline prediction models are call option prices exceeding put prices, Warren Buffett's value of the stock market to the value of the economy adjusted using BSEYD ideas and the value of Sotheby's stock. Investors expect more declines than actually occur. We present research on the positive effects of FOMC meetings and small cap dominance with Democratic Presidents. Marty Zweig was a wall street legend while he was alive. We discuss his methods for stock market predictability using momentum and FED actions. These helped him become the leading analyst and we show that his ideas still give useful predictions in 2016-2017. We study small declines in the five to fifteen percent range that are either not expected or are expected but when is not clear. For these we present methods to deal with these situations.The last four January-February 2016, Brexit, Trump and French elections are analzyed using simple volatility-S&P 500 graphs. Another very important issue is can you exit bubble-like markets at favorable prices. We use a stopping rule model that gives very good exit results. This is applied successfully to Apple computer stock in 2012, the Nasdaq 100 in 2000, the Japanese stock and golf course membership prices, the US stock market in 1929 and 1987 and other markets. We also show how to incorporate predictive models into stochastic investment models.
Download or read book Small Scale Crisis Events Impact on Price Discovery and Volatiliy Transmission Across Financial Markets written by Thad Jackson and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of 51 terrorist attacks, three wars, an assassination, and other national security-related shocks on stock markets located in nations proximate to the crises and on American Depository Receipts (ADRs) of firms headquartered in those same nations. ADRs are securities that trade on American markets that entitle investors to the cash flows (denominated in dollars) of foreign firms. We find that small-scale terrorist attacks that receive little media attention do not affect ADR returns. Large scale terrorist attacks, the assassination of Benazir Bhutto, highly provocative actions by North Korea, and small-scale wars affect ADR returns while natural disasters do not. The negative effect on ADRs is short lived. We also examine the volatility structures of two ADR indexes (Korea and India) and their underlying home market indexes. We find that there is bi-directional information flow between the ADR markets and the home market indexes. We find evidence that various shocks affect the volatility structures of these indexes, both ADR and home market indexes.
Download or read book Stock Market Returns and Volatility written by Mansour Alharaib and published by . This book was released on 2018 with total page 340 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines how stock market returns and volatility responses to macroeconomic news announcements in US and Europe, and oil prices. Moreover, the market risk associated with these stock markets based on selected countries and regions is also analyzed here. In all chapters, the data is in a weekly time horizon and it covers 21 countries from different contents. In particular, Data covers three different time periods, i.e. full sample from 1/1/2000 to 12/31/2015, before the financial crisis, i.e. from 1/1/2000 to 9/27/2008 and after the financial crisis, i.e. from 10/11/2008 to 12/31/2015. Chapter 2 studies the impact of macroeconomic news announcements on stock markets in 21 countries using US and European countries macroeconomic news announcements. The first part investigates the impact of macroeconomic news announcements surprises in US and European Countries on stock markets returns in these countries. The second part analyzes the impact of macroeconomic news announcements in US and European Countries on stock markets volatility in these countries. Our results show that stock markets in selected countries react differently to macroeconomic news announcement in US and Europe. Chapter 3 study the interaction and volatility spillover between oil prices and stock markets returns and volatility in selected countries and regions. Oil prices are based on West Texas Intermediate (WTI). The analysis use VAR(1)-GARCH(1,1) model to capture the interdependence between stocks market and oil prices. The findings show that there is interdependence between stock markets and oil price changes in most selected countries and regions. Chapter 4 study the market risk in stock markets returns in selected countries and regions using IGARCH(1,1) and GARCH(1,1) to obtain the value at risk (VaR) and the expected shortfall (ES). The findings of chapter 4 show that market risk was high for most selected countries before the financial crisis and low after the financial crisis.
