[FIN] Marchés financiers: working papers (RePEc, 11/07/2010)

Source : NEP (New Economics Papers) | RePEc

  • Autoregressive multifactor APT model for U.S. Equity Markets
Date: 2010-04-15
By: Malhotra, Karan
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:23418&r=fmk
Arbitrage Pricing Theory is a one period asset pricing model used to predict equity returns based on a multivariate linear regression. We choose three sets of factors – Market specific, firm specific, and an autoregressive return term to explain returns on twenty U.S. stocks, using monthly data over the period 2000-2005. Our findings indicate that, apart from the CAPM beta factor, at least five other factors are significant in determining time series and cross sectional variations in returns. The times series regression establishes factor loadings and the cross sectional regression gives the risk premiums associated with these factors.
Keywords: Equity Pricing; APT; Arbitrage pricing theory; Multifactor model; Security; Pricing; CAPM
JEL: G12
  • Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts
Date: 2010-06-11
By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN))
Persson, Lars (Research Institute of Industrial Economics (IFN))
Tåg, Joacim (Research Institute of Industrial Economics (IFN))
URL: http://d.repec.org/n?u=RePEc:hhs:iuiwop:0841&r=fmk
Commentators on the private equity industry often claim that favorable tax treatment gives private equity firms advantages in the market for corporate control. But we show that tax advantages do not affect the equilibrium ownership of corporate assets when acquisition costs are fully deductible since buyers’ valuations of assets are then independent of taxes. However, tax advantages are of importance under limited bidding competition, limited deductibility and in the presence of oligopolistic externalities in the product market. We also show that from an efficiency perspective, there are too many acquisitions in a double taxation system because acquisitions create deductions for buyers that are not available to sellers.
Keywords: Capital Gains Tax; Corporate Tax; Ownership Efficiency; Private Equity; Buyouts; LBOs; M&As
JEL: D20
  • An Empirical Analysis of Equity Market Expectations in the Recent Financial Turmoil Using Implied Moments and Jump Diffusion Processes
Date: 2010-06
By: Yoshihiko Sugihara (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yoshihiko.sugihara@boj.or.jp))
Nobuyuki Oda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: nobuyuki.oda@boj.or.jp))
URL: http://d.repec.org/n?u=RePEc:ime:imedps:10-e-09&r=fmk
This paper investigates market expectations of future equity prices using the probability distribution and the moments implied in equity option prices. We first conduct, without assuming a particular model, a nonparametric analysis of the development of market expectations in four major markets during the financial turmoil following the summer of 2007. We then conduct a parametric analysis to reconsider these expectations from the perspective of a stochastic process, assuming jump diffusion processes that configure the implied distribution. These analyses reveal that the possibility of discontinuous price jumps in each country increased downwards during the recent financial turmoil, while volatilities determining the dispersion of continuous price changes surged. Viewing the results from the perspective of a probability distribution, we find that kurtosis and the absolute value of skewness declined, while variance dramati cally increased.
Keywords: implied distribution, implied moment, jump diffusion process, nonparametric method, GMM, characteristic function GMM
JEL: C13
  • What renders financial advisors less treacherous? – On commissions and reciprocity –
Date: 2010-06-23
By: Vera Popva (Max Planck Institute of Economics, Jena, Germany)
URL: http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-036&r=fmk
An advisor is supposed to recommend a financial product in the best interest of her client. However, the best product for the client may not always be the product yielding the highest commission (paid by product providers) to the advisor. Do advisors nevertheless provide truthful advice? If not, will a voluntary or obligatory payment by a client induce more truthful advice? According to the results, only the voluntary payment reduces the conflict of interest faced by advisors.
Keywords: financial advisors, moral hazard, reciprocity, experiments
JEL: C91
  • Can the Consumption-Free Nonexpected Utility Model Solve the Risk PremiumPuzzle? An Empirical Study of the Japanese Stock Market
Date: 2010-06
By: Myong-Il Kang
URL: http://d.repec.org/n?u=RePEc:dpr:wpaper:0783&r=fmk
This paper investigates whether the consumption-free two-beta intertemporal capital asset-pricing model developed by Campbell and Vuolteenaho (2004) is able to solve the risk premium puzzle in the Japanese stock market over the period 1984−@2002. Using the cash flow and discount rate betas as risk factors, themodel is able to explain about half of the market returns by selection of suitabe vector autoregression variables. On this basis, the model proposed solves therisk premium puzzle in Japan, thereby suggesting that Japanese investors are lessrisk averse than US investors. However, a model including only the cash flow beta better explains returns than a model with both betas. The analysis also tests and rejects the simple capital asset-pricing model in Japan.
  • What can EMU countries’ sovereign bond spreads tell us about market perceptions of default probabilities during the recent financial crisis?
Date: 2010
By: Dötz, Niko
Fischer, Christoph
URL: http://d.repec.org/n?u=RePEc:zbw:bubdp1:201011&r=fmk
This paper presents a new approach for analysing the recent development of EMU sovereign bond spreads. Based on a GARCH-in-mean model originally used in the exchange rate target zone literature, spreads are decomposed into a risk premium, an expected loss component and a liquidity premium. Time-varying default probabilities are derived. The results suggest that the rise in sovereign spreads during the recent financial crisis mainly reflects an increased expected loss component. In addition, the rescue of Bear Stearns in March 2008 seems to mark a change in market perceptions of sovereign bond risk. The government bonds of some countries lost their former role as a safe haven. While price competitiveness always helps to explain sovereign spreads, it increasingly moved into investors’ focus as financial sector soundness weakened. —
Keywords: Sovereign bond spread,GARCH-in-mean,default probability
JEL: E43
  • Analytical Solution for Expected Loss of a Collateralized Loan: A Square-root Intensity Process Negatively Correlated with Collateral Value
Date: 2010-06
By: Satoshi Yamashita (Associate Professor, The Institute of Statistical Mathematics (E-mail: yamasita@ism.ac.jp))
Toshinao Yoshiba (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: toshinao.yoshiba@boj.or.jp))
URL: http://d.repec.org/n?u=RePEc:ime:imedps:10-e-10&r=fmk
In this study, we derive an explicit solution for the expected loss of a collateralized loan, focusing on the negative correlation between default intensity and collateral value. Three requirements for the default intensity and the collateral value are imposed. First, the default event can happen at any time until loan maturity according to an exogenous stochastic process of default intensity. Second, default intensity and collateral value are negatively correlated. Third, the default intensity and collateral value are non-negative. To develop an explicit solution, we propose a square-root process for default intensity and an affine diffusion process for collateral value. Given these settings, we derive an explicit solution for the integrand of the expected recovery value within an extended affine model. From the derived solution, we find the expected recovery value is given by a Stieltjes integral with a measure-changed survival probability.
Keywords: stochastic recovery, default intensity model, affine diffusion, extended affine, survival probability, measure change
JEL: G21
  • International Capital Flows and Bond Risk Premia
Date: 2010
By: Jesus Sierra
URL: http://d.repec.org/n?u=RePEc:bca:bocawp:10-14&r=fmk
This paper studies the impact of international capital flows on asset prices through risk premia. We investigate whether foreign purchases of U.S. Treasury securities significantly contributed to the decline in excess returns on long-term bonds between 1995 and 2008. We run forecasting regressions of realized excess returns on measures of net purchases of treasuries by both foreign official and private agents. We find a clear distinction in the effects of flows on excess returns. Official flows, with a negative and non-linear effect, appear similar to relative supply shocks; private net purchases, with a positive and linear effect, resemble flows that absorb excess supply and are thus compensated in equilibrium for this service, similar to the role of arbitrageurs in preferred-habitat models of the term structure.
Keywords: Financial markets
JEL: G11
  • A systematic approach to multi-period stress testing of portfolio credit risk
Date: 2010-06
By: Thomas Breuer (Research Centre PPE)
Martin Jandačka (Research Centre PPE)
Javier Mencía (Banco de España)
Martin Summer (Oesterreichische Nationalbank)
URL: http://d.repec.org/n?u=RePEc:bde:wpaper:1018&r=fmk
We propose a new method for analysing multiperiod stress scenarios for portfolio credit risk more systematically than in the current practice of macro stress testing. Our method quantifies the plausibility of scenarios by considering the distance of the stress scenario from an average scenario. For a given level of plausibility our method searches systematically for the most adverse scenario for the given portfolio. This method therefore gives a formal criterion for judging the plausibility of scenarios and it makes sure that no plausible scenario will be missed. We show how this method can be applied to a range of models already in use among stress testing practitioners. While worst case search requires numerical optimisation we show that for practically relevant cases we can work with reasonably good linear approximations to the portfolio loss function that make the method computationally very efficient and easy to impl ement. Applying our approach to data from the Spanish loan register and using a portfolio credit risk model we show that, compared to standard stress test procedures, our method identifies more harmful scenarios that are equally plausible.
Keywords: Stress Testing, Credit Risk, Worst Case Search, Maximum Loss
JEL: G28
  • Banking and sovereign risk in the euro area
Date: 2010
By: Gerlach, Stefan
Schulz, Alexander
Wolff, Guntram B.
URL: http://d.repec.org/n?u=RePEc:zbw:bubdp1:201009&r=fmk
We study the determinants of sovereign bond spreads in the euro area since the introduction of the euro. We show that an aggregate risk factor is a main driver of spreads. This factor also plays an important indirect role for risk spreads through its interaction with the size and structure of national banking sectors. When aggregate risk increases, countries with large banking sectors and low equity ratios in the banking sector experience greater widening in yield spreads, suggesting that financial markets perceive a larger risk that governments will have to rescue banks, increasing public debt and therefore sovereign risk. Moreover, government debt levels and forecasts of future fiscal deficits are also significant determinants of sovereign spreads. —
Keywords: Sovereign bond markets,banking,liquidity,EMU
JEL: E43
  • The Impact of Index and Swap Funds on Commodity Futures Markets: Preliminary Results
Date: 2010-06
By: Scott H. Irwin
Dwight R. Sanders
URL: http://d.repec.org/n?u=RePEc:oec:agraaa:27-en&r=fmk
This preliminary study examines the impact of index and swap fund participation in agricultural and energy commodity futures markets. Based on new data and empirical analysis the study finds that index funds did not cause a bubble in agricultural futures prices. Using Granger causality methods the study finds no statistically significant relationship between changes in index and swap fund positions and increased market volatility. The evidence is strongest for agricultural futures markets because the data on index trader positions are measured with reasonable accuracy. The evidence is not as strong in the two energy markets examined here because of considerable uncertainty about the degree to which the available data actually reflect index trader positions in these markets.
Keywords: speculation, agricultural futures markets, speculative bubbles, futures price volatility, index funds and swaps
  • Bank of Canada Communication, Media Coverage, and Financial Market Reactions
Date: 2010
By: Bernd Hayo (Philipps-University Marburg)
Matthias Neuenkirch (Philipps-University Marburg)
URL: http://d.repec.org/n?u=RePEc:mar:magkse:201020&r=fmk
We examine the impact of Bank of Canada communications and media reporting on them on Canadian (short- and medium-term) bond and stock market returns using a GARCH model. Communications are rather uniformly distributed over the sample period (1998–2006); however, media coverage is particularly high during phases of increased uncertainty about the future course and timing of Canadian monetary policy. Official communications exert a larger influence on the bond market, whereas media coverage is more relevant for the stock market. In general, media filtering does not play a prominent role.
Keywords: Bank of Canada, Central Bank Communication, Financial Markets, Media Coverage, Monetary Policy
JEL: E52
  • How Market Power Influences Bank Failures Evidence from Russia
Date: 2010
By: Zuzana Fungacova (BOFIT, Bank of Finland)
Laurent Weill (LaRGE Research Center, Université de Strasbourg)
URL: http://d.repec.org/n?u=RePEc:lar:wpaper:2010-08&r=fmk
There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.
Keywords: Bank competition, bank failure, Russia.
JEL: G21

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