[FIN] Marchés financiers: working papers (RePEc, 20/09/2010)

Source : NEP (New Economics Papers) | RePEc

  • Innovative Financing at a Global Level
Date: 2010-04
By: European Commission
URL: http://d.repec.org/n?u=RePEc:tax:taxpap:0023&r=fmk
The European Commission services published a staff working document assessing the main sources of innovative financing under discussion. The analysis shows that for some of the instruments a « double dividend » of both raising revenues and improving market efficiency and stability could be reaped, in particular by putting a price on risk-taking in the financial sector and on carbon emissions.
Keywords: European Union, taxation, financial transaction tax, bank levy, bonus tax, carbon tax, financial institutions
JEL: G15
  • Gold and Financial Assets: Are There Any Safe Havens in Bear Markets?
Date: 2010-07
By: Virginie Coudert
Helene Raymond
URL: http://d.repec.org/n?u=RePEc:cii:cepidt:2010-13&r=fmk
This paper looks into the role of gold as a safe haven against stocks during recessions and bear markets. Following Baur and McDermott (2010) and Baur and Lucey (2010), we characterize safe havens by their negative correlations with stocks during crises. We extend their results in three ways. First, we identify crisis periods by exogeneous means using, successively, recession periods provided by the NBER and periods of bear US stock markets. Second, we estimate a model allowing for time varying conditional covariances between gold and stocks returns. Third, we test if long run relationships exist between gold and stocks and explore whether they can be used to construct portfolios immune to crises. The regressions are run on monthly data for gold and several stock market indices (France, Germany, UK, US, G7) over the period 1978:2-2009:1. In the short run, we find that the correlation between gold and stocks is close to ze ro during recessions, which qualifies gold for being a “weak safe haven”. This is also the case during bear markets against the stock indices of most considered countries, although gold appears as a strong hedge versus the US stock index. A closer look at the data shows that these results only hold on average and not for every crisis episode or every country. In the longer run a negative relationships exists between gold and some stock markets (France, UK, US). However, it does not allow the construction of a hedged portfolio immune to all crises. Overall, despite its interest for the diversification of portfolios, gold stays a risky investment, even during crises.
Keywords: Gold; stock; safe haven; hedge; nonlinearity
JEL: G15
  • The Impact of the 2007-2010 Crisis on the Geography of Finance
Date: 2010-08
By: Gunther Capelle-Blancard
Yamina Tadjeddine
URL: http://d.repec.org/n?u=RePEc:cii:cepidt:2010-16&r=fmk
The location of financial activities is traditionally characterized by a great deal of inertia. However, the 2007-10 crisis may considerably modify the geography of finance and cause an upheaval in world hierarchy. The crisis hit the Western countries directly and the main financial centers have been massively losing jobs, especially London and New York. Moreover, in Western countries, the financial industry is on the way to lose the support implicitly provided by governments until the crisis. Indeed, while finance was considered as a first-class position in the international division of labor, the crisis has clearly shown the threats associated with an excessive growth of the financial industry (vulnerability to external shocks, rising of inequalities, etc.). Hence, even within the traditional bastions of finance it is claimed that the financial industry needs to get smaller. At the same time, stock markets in Shanghai, Hong-Kong and Bombay are upstaging them as major players.
Keywords: Financial geography; international financial centers; globalization; financial crisis; subprime
JEL: E44
  • It Pays to Violate: How Effective are the Basel Accord Penalties?
Date: 2009-10
By: Bernardo da Veiga (School of Economics and Finance,)
Felix Chan (School of Economics and Finance,)
Michael McAleer (Econometric Institute, Erasmus School)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf186&r=fmk
The internal models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-Risk (VaR) thresholds, which are used to calculate the required capital that banks must hold in reserve as a protection against negative changes in the value of their trading portfolios. As capital reserves lead to an opportunity cost to banks, it is likely that banks could be tempted to use models that underpredict risk, and hence lead to low capital charges. In order to avoid this problem the Basel Accord introduced a backtesting procedure, whereby banks using models that led to excessive violations are penalised through higher capital charges. This paper investigates the performance of five popular volatility models that can be used to forecast VaR thresholds under a variety of distributional assumptions. The results suggest that, within the current constraints and the penalty structure of the Basel Accord, the lo west capital charges arise when using models that lead to excessive violations, thereby suggesting the current penalty structure is not severe enough to control risk management. In addition, an alternative penalty structure is suggested to be more effective in aligning the interests of banks and regulators.
  • Incentives in Hedge Funds
Date: 2010-02
By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf205&r=fmk
We investigate a game of delegated portfolio management such as hedge funds featuring risk-neutrality, hidden types, and hidden actions. We show that capital gain tax plays the decisive role in solving the incentive problem. We characterize the constrained optimal fee scheme and capital gain tax rate; the fee after taxation must be linear and affected by gains and losses in a low-powered and symmetric manner. We argue that high income tax incentivizes managers to select this scheme voluntarily. The equity stake suppresses the distortion caused by solvency.
  • Realized Volatility Risk ( Revised in January 2010 )
Date: 2009-12
By: David E. Allen (School of Accounting, Finance and Economics,)
Michael McAleer (Econometric Institute,)
Marcel Scharth (VU University Amsterdam)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf197&r=fmk
In this paper we document that realized variation measures constructed from high-frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Carefully modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility (DARV) model, which incorporates the important fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 50 0 index and eight other indexes and stocks.
  • A Cholesky-MIDAS model for predicting stock portfolio volatility
Date: 2010
By: Ralf Becker
Adam Clements
Robert O’Neill
URL: http://d.repec.org/n?u=RePEc:man:cgbcrp:149&r=fmk
This paper presents a simple forecasting technique for variance covariance matrices. It relies significantly on the contribution of Chiriac and Voev (2010) who propose to forecast elements of the Cholesky decomposition which recombine to form a positive definite forecast for the variance covariance matrix. The method proposed here combines this methodology with advances made in the MIDAS literature to produce a forecasting methodology that is flexible, scales easily with the size of the portfolio and produces superior forecasts in simulation experiments and an empirical application.
  • Modelling Long Memory Volatility in Agricultural Commodity Futures Returns
Date: 2009-10
By: Roengchai Tansuchat (Faculty of Economics, Maejo University)
Chia-Lin Chang (Department of Applied Economics,)
Michael McAleer (Econometric Institute, Erasmus School)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf183&r=fmk
This paper estimates the long memory volatility model for 16 agricultural commodity futures returns from different futures markets, namely corn, oats, soybeans, soybean meal, soybean oil, wheat, live cattle, cattle feeder, pork, cocoa, coffee, cotton, orange juice, Kansas City wheat, rubber, and palm oil. The class of fractional GARCH models, namely the FIGARCH model of Baillie et al. (1996), FIEGACH model of Bollerslev and Mikkelsen (1996), and FIAPARCH model of Tse (1998), are modelled and compared with the GARCH model of Bollerslev (1986), EGARCH model of Nelson (1991), and APARCH model of Ding et al. (1993). The estimated d parameters, indicating long-term dependence, suggest that fractional integration is found in most of agricultural commodity futures returns series. In addition, the FIGARCH (1,d,1) and FIEGARCH(1,d,1) models are found to outperform their GARCH(1,1) and EGARCH(1,1) counterparts.
  • The determinants of cross-border bank flows to emerging markets: New empirical evidence on the spread of financial crises
Date: 2010
By: Herrmann, Sabine
Mihaljek, Dubravko
URL: http://d.repec.org/n?u=RePEc:zbw:bubdp1:201017&r=fmk
This paper studies the nature of spillover effects in bank lending flows from advanced to the emerging market economies and identifies specific channels through which such effects occur. Based on a gravity model we examine a panel data set on cross-border bank flows from 17 advanced to 28 emerging market economies in Asia, Latin America and central and eastern Europe from 1993 to 2008. The empirical analysis suggests that global as well as country specific factors are significant determinants of cross-border bank flows. Greater global risk aversion and expected financial market volatility seem to have been the most important factors behind the decrease in cross-border bank flows during the crisis of 2007-08. The withdraw of cross-border loans from central and eastern Europe was more limited compared to Asia and Latin America, in large measure because of the higher degree of financial and monetary integration in Europe, an d relatively sound banking systems in the region. These results are robust to various specification, sub-samples and econometric methodologies. —
Keywords: Gravity model,cross-border bank flows,financial crises,emerging market economies,spillover effects,panel data
JEL: F34
  • Dynamic Conditional Correlations in International Stock, Bond and Foreign Exchange Markets: Emerging Markets Evidence
Date: 2009-10
By: Abdul Hakim (Faculty of Economics, Indonesian Islamic University)
Michael McAleer (Econometric Institute, Erasmus School)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf179&r=fmk
The paper models the dynamic conditional correlations in emerging stock, bond and foreign exchange markets using the DCC model of Engle (2002) and the GARCC model of McAleer et al. (2008). The highly restrictive DCC model suggests that the conditional correlations of the overall returns are constant. In contrast, the GARCC model finds that the conditional correlations between bond-bond markets and between stock-stock markets are relatively constant across developed-emerging markets, while those between emerging-emerging markets are dynamic. The conditional correlations between stock-bond markets across developed-emerging markets are also more dynamic as compared with those between emerging-emerging markets.
  • Stock market reaction to debt financing arrangements in Russia
Date: 2010
By: Christophe J. Godlewski (LaRGE Research Center, Université de Strasbourg)
Zuzana Fungacova (BOFIT, Bank of Finland)
Laurent Weill (LaRGE Research Center, Université de Strasbourg)
URL: http://d.repec.org/n?u=RePEc:lar:wpaper:2010-10&r=fmk
This paper investigates stock market reaction to debt arrangements in Russia. The analysis of the valuation of debt arrangements by stock markets provides information about the use of debt by Russian companies. We apply the event study methodology to check whether debt announcements lead to abnormal returns using a sample of Russian listed companies that issued syndicated loans or bonds between June 2004 and December 2008. We find a negative reaction of stock markets to debt arrangements that can be explained by moral hazard behavior of shareholders at the expense of debtholders. Further, we observe no significant difference between announcements of syndicated loans and bonds. Thus, our findings support the view that Russian companies could have incentives to limit their reliance on external debt.
Keywords: Corporate bonds, event study, Russia, stock returns, syndicated loans.
JEL: G14
  • Collateral Posting and Choice of Collateral Currency -Implications for Derivative Pricing and Risk Management-
Date: 2010-05
By: Masaaki Fujii (Graduate School of Economics, University of Tokyo)
Yasufumi Shimada (Capital Markets Division, Shinsei Bank, Limited)
Akihiko Takahashi (Faculty of Economics, University of Tokyo)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf216&r=fmk
In recent years, we have observed the dramatic increase of the use of collateral as an important credit risk mitigation tool. It has become even rare to make a contract without collateral agreement among the major financial institutions. In addition to the significant reduction of the counterparty exposure, collateralization has important implications for the pricing of derivatives through the change of effective funding cost. This paper has demonstrated the impact of collateralization on the derivative pricing by constructing the term structure of swap rates based on the actual market data. It has also shown the importance of the ?choice? of collateral currency. Especially, when the contract allows multiple currencies as eligible collateral and free replacement among them, the paper has found that the embedded ?cheapest-to-deliver? option can be quite valuable and significantly change the fair value of a trade. The impli cations of these findings for market risk management have been also discussed.
  • « What Should Banks Do? A Minskyan Analysis »
Date: 2010-09
By: L. Randall Wray
URL: http://d.repec.org/n?u=RePEc:lev:levppb:ppb_115&r=fmk
In this new brief, Senior Scholar L. Randall Wray examines the later works of Hyman P. Minsky, with a focus on Minsky’s general approach to financial institutions and policy. The New Deal reforms of the 1930s strengthened the financial system by separating investment banks from commercial banks and putting in place government guarantees such as deposit insurance. But the system’s relative stability, and relatively high rate of economic growth, encouraged innovations that subverted those constraints over time. Financial wealth (and private debt) grew on trend, producing immense sums of money under professional management: we had entered what Minsky, in the early 1990s, labeled the “money manager” phase of capitalism. With help from the government, power was consolidated in a handful of huge firms that provided the four main financial services: commercial banking, payments services, investment banking, and mortgages . Brokers didn’t have a fiduciary responsibility to act in their clients’ best interests, while financial institutions bet against households, firms, and governments. By the early 2000s, says Wray, banking had strayed far from the (Minskyan) notion that it should promote “capital development” of the economy.
  • Bank liquidity creation and risk taking during distress
Date: 2010
By: Berger, Allen N.
Bouwman, Christa H. S.
Kick, Thomas
Schaeck, Klaus
URL: http://d.repec.org/n?u=RePEc:zbw:bubdp2:201005&r=fmk
Liquidity creation is one of banks’ raisons d’être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such interventions? To address these questions, we exploit a unique dataset of German universal banks for the period 1999 – 2008. Our main findings are as follows. First, regulatory interventions and capital injections are followed by lower levels of liquidity creation. The probability of a decline in liquidity creation increases to up to around 50 percent when such actions are taken. Second, bank risk taking decreases in the aftermath of regulatory interventions and capital injections. Third, while banks’ liquidity creation market shares decline over the five years following such disciplinary measures, they also reduce their risk exposure over th is period to become safer banks. —
Keywords: Liquidity creation,bank distress,regulatory interventions,capital injections
JEL: G21

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