1,720,975 research outputs found
Credit risk transfer in U.S. commercial banks: what changed during the 2007–2009 crisis?
No full textFollowing the debate on the role played by credit risk transfer (CRT) in exacerbating the 2007-2009 crisis, this paper investigates usage and effects of loan sales, securitization and credit derivatives in U.S. commercial banks over the last decade, with a special emphasis on the financial crisis. We find that, in
times of severe funding constraints, the need to raise financial resources becomes the principal incentive behind CRT. On the positive side, we document some beneficial effects of CRT on the economy, as the funds released throughCRT are subsequently invested by banks to sustain credit supply, also in recession.
On the negative side, we report higher overall riskiness in banks who engage intensively in loans sales and securitization, which translates into higher default rates during the crisis. Interestingly, benefits and drawbacks of CRT are much stronger for loan sales and securitization than for credit derivatives
The Slope of the Term Structure of Credit Spreads: An Empirical Investigation
No full textIn this paper we analyze the slope of the term structure of credit spreads. We investigate the
explanatory role of interest rate, market and idiosyncratic equity variables, that recent empirical
literature has highlighted as important determinants of credit spread levels. This study extends
the analysis further and assesses their impact on credit slopes. We find that these factors impact
credit spreads at short and long maturities in a significantly different way
Market and Model Credit Default Swap Spreads: Mind the Gap!
No full textStructural models of default establish a relation across the fair values of various asset classes (equity, bonds, credit derivatives) referring to the same company. In most
circumstances such relation is verified in practice, as different financial assets tend
to move in the same direction at similar speed. However, occasional deviations from
the theoretical fair values occur, especially in times of financial turmoil. Understanding how the dynamics of the theoretical fair values of various assets compares to that
of their market values is crucial to a number of market participants. This paper investigates whether a popular structural model, the CreditGrades approach proposed by
Finger (2002), Stamicar and Finger (2005), succeeds in explaining the dynamic relation
between equity / option variables and Credit Default Swap (CDS) premia at individual company level
To Advocate or Not to Advocate: Determinants and Financial Consequences of CEO Activism
Full text linkChief executive officers (CEOs) who engage in activism take public stands on issues that are largely unrelated to the core business of their firms. This study assesses the impact of CEO activism on shareholder value and investigates potential drivers behind the decision to advocate. We conduct an event study centred on a particular episode of CEO activism: the resignation of a group of business leaders from their roles as advisors to President Trump. We choose this setting since activism is likely to have a stronger impact when a CEO is politically connected. However, by engaging in advocacy, a CEO risks severing the very same political links that underlie the strength of the message. We find that shareholders react negatively to the decision to quit a presidential advisory council, which is consistent with a fear of weakening their firms’ political influence. The decision to publicly advocate seems to be driven more by a CEO’s personal political ideology than by a company’s general involvement in corporate social responsibility. We also observe that managers are more likely to take a stand when they are protected by their firm’s corporate governance rules. This study provides empirical evidence of the risks associated with CEO activism
Credit derivatives versus loan sales: evidence from the European banking market
No full textIl contributo mette a confronto due tecniche di trasferimento del rischio di credito: i derivati creditizi e le vendite di prestiti (loan sales). L'analisi è condotta a due livelli. I due strumenti sono inanzittuto esaminati a livello teorico al fine di individuarne le caratteristiche distintive e gli eventuali elementi di complementarità. Le modalità d'uso dei due strumenti sono quindi testate su un campione di banche europee nel periodo 2003-05. In particolare l'analisi empirica è volta a valutare se le modalità d'uso dei due strumenti sono riconducibili ad alcune caratteristiche bancarie (dimensione, liquidità, cpaitalizzaione, rischiosità)
Trading Down the Slope(s)
No full textThe credit derivatives market is growing at an impressive rate, with the credit default swap
(CDS) being the most popular instrument. This article is relevant for the trading of CDSs and
bond portfolios. We show that
the slope of the credit spread term structure can be used as an indicator of changes in future
short-term credit spreads. This conclusion is tested by implementing a long-short trading
strategy on a CDS inde
Forecasting Accuracy of Implied and GARCH-based Probability Density Functions
No full textRecent research has investigated the ability of option-implied densities to produce unbiased forecasts of the actual price densities of some financial assets. In this paper, for the first time, we assess the incremental predictive power of option-implied density forecasts to that of standard GARCH-based density forecasts
Pricing multiasset equity options: How relevant is the dependence function?
No full textIn this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options. We conduct the analysis for various 5-dimensional baskets of UK shares, and a wide range of payoffs for the multiasset options, consistent with the instruments traded on the market. We also test the relevance of the dependence specification over both volatile and quiet market scenarios. Interestingly, we find that, in most circumstances, the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially. However, the dependence function becomes more relevant in particularly volatile market conditions. © 2009 Elsevier B.V. All rights reserved
Greening the Financial Sector: Evidence from Bank Green Bonds
Full text linkBanks are expected to play a key role in assisting the real economy with the green transition process. One of the tools used for this purpose is the issuance of green bonds. We analyze the characteristics of banks that issue green bonds to understand: (i) which banks are more likely to resort to these funding instruments, and (ii) if the issuance of green bonds leads to an improvement in a bank’s environmental footprint. We find that large banks and banks that had already publicly expressed their support for a green transition are more likely to issue green bonds. Conditional on being a green bond issuer, smaller banks tend to resort to green bonds in a more persistent manner and for relatively larger amounts, while larger banks issue green bonds on a more occasional basis and for smaller amounts. This heterogeneity is also reflected in our findings that only banks that issue green bonds more intensively improve their emissions and reduce lending to polluting sectors, thus contributing to the decarbonization of the financial sector
The dynamics of the volatility skew: A Kalman filter approach
No full textPreliminary draft: please do not quot
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