Download or read book Three Essays on Sovereign Credit Risk written by Tingwei Wang and published by . This book was released on 2016 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis studies sovereign credit risk and its impact on banks and industrial firms. The first essay shows that bank credit risk is linked to sovereign credit risk through common exposure to systemic risk instead of implicit bailout or excessive holding of home country bonds. In the second essay, I build a trade-off model of capital structure which predicts negative correlation between optimal leverage of big firms and sovereign credit risk due to implicit bailout. The model prediction is confirmed by empirical evidence from firms in the euro area. The third essay provides a joint pricing model of CDS and bond to disentangle the default and liquidity component in CDS spread and bond yield spread. I find a remarkable liquidity component in the CDS spreads of peripheral euro area countries and conclude that ignoring CDS illiquidity leads to overestimation of default component in bond yield.

Download or read book Three Essays on the Determinants of Sovereign Risk written by Salvatore Dell'Erba and published by . This book was released on 2012 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Credit Risk with Special Focus on the Subprime Financial Crisis written by Bastian Breitenfellner and published by . This book was released on 2012 with total page 125 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on the European Sovereign Debt Crisis with a Special Focus on Greece written by Flora Leventi and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Sovereign Debt and Monetary Economics written by Diego J. Perez and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays on Sovereign Debt and Monetary Economics. The first chapter, entitled 'Sovereign Debt, Domestic Banks and the Provision of Public Liquidity' studies the effect of a sovereign default in the domestic economy and its implications for the government's incentives to repay its debt. I explore two mechanisms through which a sovereign default can disrupt the domestic economy via its banking system. First, a sovereign default creates a negative balance-sheet effect on banks, which reduces their ability to raise funds and prevents the flow of resources to productive investments. Second, default undermines internal liquidity as banks replace government securities with less productive investments. I quantify the model using Argentinean data and find that these two mechanisms can generate a deep and persistent fall in output post-default, which accounts for the government's commitment necessary to explain observed levels of external public debt. The balance-sheet effect is more important because it generates a larger output cost of default and a stronger ex-ante commitment for the government. Post-default bailouts of the banking system, although desirable ex-post, are welfare reducing ex-ante since they weaken government's commitment. Imposing a minimum public debt requirement on banks is welfare improving as it enhances commitment by increasing the output cost of default. The second chapter, entitled 'Sovereign Debt Maturity Structure Under Asymmetric Information' studies the optimal choice of sovereign debt maturity when investors are unaware of the government's willingness to repay. Under a pooling equilibrium there is a wedge between the borrower's true default risk and the default risk priced in debt, and the size of this wedge differs with the maturity of debt. Long-term debt becomes less attractive for safe borrowers since it pools more default risk that is not inherent to them. In response, safe borrowers issue low levels of debt with a shorter maturity profile -relative to the optimal choice under perfect information- and risky borrowers mimic the behavior of safe borrowers to preclude the market from identifying their type. In times of financial distress, the default risk wedge of long-term debt relative to short-term debt increases which makes borrowers reduce the amount of debt issuance and shorten its maturity profile. I present empirical evidence on sovereign debt maturity choices and sovereign spreads for a panel of emerging economies that is consistent with the model's implications. The third chapter, entitled 'Price Setting Under Uncertainty About Inflation', is based on a working paper coauthored with Andres Drenik. This chapter provides an empirical assessment of the effects of the availability of public information about inflation on price setting. We exploit an event in which economic agents lost access to information about the inflation rate: starting in 2007 the Argentinean government began to misreport the national inflation rate. Our difference-in-difference analysis reveals that this policy led to an increase in the coefficient of variation of prices of 18% with respect to its mean. This effect is analyzed in the context of a general equilibrium model in which agents make use of publicly available information about the inflation rate to set prices. We quantify the model and use it to further explore the effects of higher uncertainty about inflation on the effectiveness of monetary policy and aggregate welfare. We find that monetary policy becomes more effective in a context of higher uncertainty about inflation and that not reporting accurate measures of the CPI entails significant welfare losses.

Download or read book Essays on Sovereign Credit Risk and Credit Default Swap Spreads written by and published by . This book was released on 2013 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Sovereign Default and International Lending written by Lewis Suverkrop Alexander and published by . This book was released on 1987 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Sovereign Credit Default Swaps written by Yi Li and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on sovereign credit default swaps (CDSs). The first essay studies the relationship between the China sovereign and bank CDS spreads and the determinants of the China sovereign CDS spread changes using the copula model and regression analysis. Our results show a strengthened tail dependence of sovereign-bank CDS pairs, and the tail dependence coefficient is higher for commercial banks than for policy banks. U.S. stock market returns, high-yield spread changes, and changes in foreign currency reserve/GDP ratio are important global and macroeconomic factors in explaining variation in China's sovereign credit risk. Domestic factors play important roles in explaining the China sovereign CDS spread changes, especially during the trade war period. The second essay studies the explanatory power of country-level and market-level volatilities for Western European sovereign CDS spreads during the European sovereign debt crisis and short-selling ban periods. We include both historical and option-implied volatility measures. Our results show that the changes in country-specific and market-level volatilities are important factors in explaining the sovereign CDS spread changes and that option-implied volatility contains more information than historical volatility. Our results also raise the question of whether there should be a universal ban on short selling. The last essay examines the dependence structure of the sovereign CDS spreads between the U.S. and 36 countries located in Western Europe, Central & Eastern Europe, Latin America, and Asia. Our results show that the tail dependence coefficients of U.S.-Western European and U.S.-Central & Eastern European sovereign CDS pairs are non-zero. We perform a cross-sectional analysis to study the determinants of co-dependence. The results show that higher trade flow and larger foreign exposure of the U.S. banking system are associated with a higher probab.

Download or read book Three Essays on Sovereign Debt and Financial Markets written by Mauro Alessandro and published by . This book was released on 2011 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes different aspects of the actions of borrowing and repaying debts by governments in both domestic and international financial markets. In Chapter 1, which is co-authored with Guido Sandleris and Alejandro Van der Ghote, we use a unique dataset on sovereign bond issuances and syndicated bank loans to study the duration and determinants of the periods of exclusion from international credit markets that usually follow governments' defaults. Among other results, we find that countries either reaccess the markets in the first years after a default or have to wait much longer to do it, and that political stability significantly increases the chances of reaccessing the market. We present a political economy model of endogenous sovereign borrowing and market reaccess that matches these two features of the data. In Chapter 2, 1 study the relation between the domestic financial system's market structure, the allocation of government debt and the cost of credit for the government. The fact that governments are less likely to repudiate their debts when there are more domestic agents among their creditors creates an externality: when domestic investors demand government bonds, they reduce the probability of default and improve the situation of every other bondholder. The concentration of investment decisions in fewer financial institutions increases the degree of internalization of this effect, expands the demand for government bonds by domestic agents and reduces the cost of credit for the government. In Chapter 3, I propose a mechanism that can explain the observed positive correlation between public and private spreads, taking into account that domestic banks tend to be heavily exposed to sovereign debt. Firms have private information about the results of their projects, information that can be obtained by domestic banks, as long as they pay a verification cost, but not by foreign creditors. A sovereign default has a negative impact on domestic banks, reduces their verification capacity and increases the incentives for firms to declare themselves insolvent. Consequently, risks of sovereign and private defaults are positively correlated.

Download or read book Three Essays on Sovereign Default and Collateral Constraints written by Michael Grill and published by . This book was released on 2011 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Emerging Market Sovereign Credit Risk and the Sovereign Credit Default Swap Market written by Asta Klimaviciene and published by . This book was released on 2009 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Intra creditor Coordination Failures in Sovereign Debt Restructuring written by Christian Engelen and published by . This book was released on 2007 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Intermediation and Credit Risk written by Javier M. Pereira and published by . This book was released on 2015 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation focuses on issues in financial intermediation and sovereign credit risk. With the enactment of the Gramm-Leach-Bliley Act (GLBA) in 1999, the long-standing barriers between commercial and investment banking activities were formally removed. In chapter 1, I show that the increased competition, drastic reduction in underwriting fees and the increased issue complexity associated with the rapid entry of large commercial banks in securities underwriting lowered the screening incentives of top tier underwriters and led to deviations from the "underwriter certification hypothesis" (namely, that high-reputation underwriters should be associated with higher quality certification). Using data from the high-yield corporate bond market, I identify three patterns which are difficult to jointly reconcile within the standard reputation literature. First, evidence of increased credit rating variability reveals a structural change in the certification standards of prestigious underwriters after GLBA. This finding suggests that reputation concerns, a key source of discipline, did not prevent underwriters from lowering their screening standards. Second, the high yield bond market is dominated by high reputation underwriters. Hence, to account for such a behavior in a market dominated by prestigious institutions, a coordination device for poor certification would be necessary. Third, after accounting for issuer-underwriter matching, top tier underwriters still achieve lower at-issue yields post GLBA. Following poor certification, I show that market punishment through higher yields is confined to low reputation institutions. My findings suggest limitations of the reputation based disciplining mechanism. In chapter 2, I propose a theoretical framework to account for these patterns. In particular, I adopt the model of Ordonez (2013) to incorporate insights from the global game literature into the reputation mechanism to demonstrate that reputation equilibriums are fragile and can lead to a clustering of poor screening among high- and intermediate-reputation underwriters. My model suggests that the lack of a credible market-based punishment mechanism may indicate sticky priors about the reputation of prestigious underwriters. Finally, chapter 3 of my dissertation represents an exploratory work on the role of sovereign credit risk in the risk-adjusted uncovered interest parity condition (RA-UIP) and proposes the use of sovereign CDS spreads as a proxy for the time-varying risk premium necessary to explain the UIP puzzle. Recent literature suggests that sovereign risk contains a strong global component that is priced in currency markets. Using sovereign CDS spreads, I first corroborate whether changes in sovereign credit risk have a contemporaneous effect in currency prices for a set of 12 countries. In line with Della Corte et al. (2014), I find a strong contemporaneous relation between sovereign risk and currency prices. Then, I study whether sovereign credit risk contains a global credit risk component and whether the latter is priced in exchange rates. Using an equally weighted portfolio of sovereign CDS spreads as a proxy for global credit risk, I find that most of the information embedded in sovereign credit risk relevant for exchange rate returns seems to be global in nature. In light of these findings, I place my attention on the valuation channel proposed by Gourinchas and Rey (2007) and explore empirically the role of a country's net foreign asset position (NFA) for the dynamics of global credit risk exposure and exchange rate returns. I find that net creditor countries exhibit a strong positive relationship between global credit risk and exchange rate appreciation. Empirical findings demonstrate promising supportive evidence of an economic linkage between exchange rates, sovereign credit risk and macro fundamentals that warrants further exploration.

Download or read book Three Essays on Media Content and Financial Markets written by Nina Gotthelf and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays in International Finance and Econometrics written by Chien Nan Wang and published by . This book was released on 1987 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays in Macro finance written by Annukka Ristiniemi and published by . This book was released on 2016 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays that examine the role of sovereign debt in the economy. The first of the essays explores the question of optimal debt through liquidity and finds that as long as debt is below a sustainability threshold, increasing debt is beneficial. Increasing debt levels encourages buyers to enter the market improving liquidity and lowering yields. The result is built by combining two strands of literature, market thinness and default probabilities in a unified search-theoretic model of over the counter traded debt. The model also predicts that liquidity and yields in smaller countries that are not able to issue much debt, suffer more from shocks to income. A panel VAR with data on Eurozone countries confirms this prediction. In the second chapter I present a search theoretic model of over-the-counter debt with quantitative easing that explains why interest rates fall more in some countries than others. The study is motivated by our finding that the higher rated a Eurozone country was, the more yields fell. Since the central banks purchase similar amounts in each Eurozone country, it cannot explain the difference in impact on yields. We explain the differential through two channels. Firstly, in markets for highly rated bonds, there are more preferred habitat investors and subsequently fewer sellers. Sellers therefore have a higher bargaining power and can negotiate a higher price. Those preferred habitat investors' have a less elastic demand for bonds, and wil continue to buy them even though it becomes harder to find sellers and their bargaining power diminishes. This excess demand due to market tightness has an additional positive impact on the price. Finally, central bank purchases initially improve liquidity, especially in high risk countries where the measure of buyers is small, but as it tapers the purchases, liquidity is reduced well below pre-purchase levels especially in those countries, that is the cost of quantitative easing. We estimate the share of preferred habitat investors in each Eurozone country from the ECB's Securities and Holdings Statistics and confirm the differential impact on yields with a panel VAR and an event study. The third chapter examines credit ratings and their impact on sovereign debt crises and yields. The results show that credit ratings are poor predictors of sovereign debt crises. A parsimonious model of fundamentals is better at predicting Emerging Market debt crises than credit ratings. Furthermore, rating changes tend to lag events significantly. Investors should therefore ignore rating changes given that they do not contain new information. Estimating the impact of rating changes on yields, we find evidence of contrary, yields react especially strongly to downgrades of non-investment grade debt. This can be due to regulatory constraints where a downgrade reduces the value of debt as a collateral.

Download or read book Three Essays in Credit Risk written by Gordon Delianedis and published by . This book was released on 2000 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: