Search results for "Credit"
showing 10 items of 503 documents
Law of Finance: Evidence from Finland
2003
Although it is widely acknowledged that the benefits of corporate governance reform could be substantial, systematic evidence on such reforms is scant. We both document and evaluate a contemporary corporate governance reform by constructing 18 measures of shareholder and creditor protection for Finland for the period 1980-2000. The measures reveal that shareholder protection has been strengthened whereas creditor protection has been weakened. We also demonstrate how the reform is consistent with a reorganisation of the Finnish financial market in which a bank-centred financial system shifted from relationship-based debt finance towards increasing dominance by the stock market. We find evide…
Transactions in Mobile Electronic Commerce
2000
With the development of global networking, invention of WWW, and proliferation of Internet-enabled computer hardware and software into homes and pockets, a huge customer base has been created for electronic commerce. It is rapidly expanding in USA and Europe and Japan are following the trend. So far, the development of E-commerce has happened in a rather unregulated way especially in USA, whereas in Europe the European Commission has been developing a regulatory basis mainly in form of directives. Currently (12/1999) they have not yet all been accepted and a major restructuring of the regulatory framework has also been planned. Another technological development is the rapid growth of mobile…
Monetary Policy and the Exchange Rate During the Asian Crisis: Identification Through Heteroscedasticity
2003
This paper examines whether a monetary policy tightening (i.e., an increase in the domestic interest rate) was successful in defending the exchange rate from speculative pressures during the Asian financial crisis. We estimate a bivariate VECM for four Asian countries, and improve upon existing studies in two important ways. First, by using a long data span we are able to compare the effects of an interest rate rise on the nominal exchange rate during tranquil and turbulent periods. Second, we take into account the endogeneity of interest rates and identify the system by exploiting the heteroscedasticity properties of the relevant time series, following Rigobon (2002). We find that while ti…
Stock Market Bubbles and Monetary Policy Effectiveness
2016
In this paper we provide evidence on the response of stock prices to monetary policy shocks, but conditioning the analysis to the direction of the monetary policy surprises and to the business conditions. We follow a two steps approach: First we use the SVAR approach to identify monetary policy shocks; and then we conduct regression analyses of contemporary stock market returns and monetary policy shocks in order to extract the implicit relationship between these variables in the four scenarios defined. Our results show that monetary policy do not impact on stock market returns in a significant form in the scenario defined by a positive shock and an expansion period, coinciding the poor eff…
Interest Rates and Net Interest Margins: The Impact of Monetary Policy
2017
In this chapter, we examine the determinants of bank net interest margin, focusing on the effect of interest rates, and thus monetary policy decisions. The analysis is carried with a panel of banks from 32 OECD countries over the period 2003–2014. The results show a quadratic relationship between net interest margins and interest rates, implying that the variation of the latter has a greater effect when interest rates are low. An important policy implication of the results is that there is a trade-off between economic growth and financial stability associated with the impact of expansionary monetary policy when the level of interest rates is very low. As a result, if the current scenario of…
Is There a Credit Risk Anomaly in FX Markets?
2015
This paper explores whether a link between sovereign credit ratings and currency returns exists. Perhaps contrary to expectations, it finds that currencies of countries with higher credit risk tend to generate lower returns than those with a lower credit risk. The credit risk spread cannot be explained by standard risk factors.
Robust Recovery Risk Hedging: Only the First Moment Matters
2009
Credit derivatives are subject to at least two sources of risk: the default time and the recovery payment. This paper examines the impact of modeling the recovery payment on hedging strategies in a reduced-form model as well as a structural model. We show that all hedging approaches based on a quadratic criterion do only depend on the expected recovery payment at default and not the whole shape of the recovery payment distribution if the underlying hedging instrument (say, a defaultable zero coupon bond) jumps to or reaches a pre-specified value when the credit event occurs. This justifies assuming a \emph{certain} recovery rate conditional on default time and interest rate level. Hence, th…
Portfolio diversification in the sovereign credit swap markets
2018
We develop models for portfolio diversification in the sovereign credit default swaps (CDS) markets and show that, despite literature findings that sovereign CDS spreads are affected by global factors, there is sufficient idiosyncratic risk to be diversified. However, we identify regime switching in the times series of CDS spreads and spread returns, and the optimal diversified strategies can be regime dependent. The developed models trade off the CVaR risk measure against expected return, consistently with the statistical properties of spreads. We consider three investment strategies suited for different CDS market participants: for investors with long positions, speculators that hold unco…
Is There a Connection between Sovereign CDS Spreads and the Stock Market? Evidence for European and US Returns and Volatilities
2020
This study complements the current literature, providing a thorough investigation of the lead&ndash
Pricing sovereign contingent convertible debt
2018
We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff-Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. …