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on Corporate Finance |
| By: | Zhenyu Wang; Xiaoyan Zhang |
| Abstract: | In a 1997 paper, Hansen and Jagannathan develop two pricing error measures for asset pricing models. The first measure is the maximum pricing error on given test assets, and the second measure is the maximum pricing error over all possible contingent claims. We develop a simulation-based Bayesian inference of the pricing error measures. Although linear time-varying and multifactor models are widely reported to have small pricing errors on standard test assets, we demonstrate that these models can have large pricing errors over contingent claims because their stochastic discount factors are allowed to be negative and thus offer arbitrage opportunities. |
| Keywords: | Assets (Accounting) - Prices ; Arbitrage ; Pricing |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:265&r=cfn |
| By: | Roberto Pereira Guimarães; Olaf Unteroberdoerster |
| Abstract: | Private sector investment has been a key source of growth in Malaysia over the last three decades, but after an unprecedented decline in the wake of the Asian crisis it has remained sluggish in recent years. Using aggregate and firm-level data, this paper aims to explain these trends and their implications for Malaysia's investment and growth outlook. Aggregate data point to sustained overinvestment in the years prior to the Asian crisis and the role of shifts in investor perceptions as important determinants of the recent decline in private investment. Meanwhile, firm-level data suggest that low profitability, along with financing constraints affecting smaller firms and those in the services sector, has also been important. |
| Keywords: | private investment , long- and short-run dynamics , Tobin's Q , corporate investment , panel data analysis , Private investment , Malaysia , Economic growth , |
| Date: | 2006–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/190&r=cfn |
| By: | Michael G. Papaioannou |
| Abstract: | This paper presents some conventional and new measures of market, credit, and liquidity risks for government bonds. These measures are analyzed from the perspective of a sovereign's debt manager. In particular, it examines duration, convexity, M-square, skewness, kurtosis, and VaR statistics as measures of interest rate exposure; a VaR statistic as the prominent measure of exchange rate exposure; the balance sheet approach (or contingent claims approach), and its consequent probability of default as the most promising measure of credit risk exposure; and an elasticity approach and a VaR statistic to measure liquidity risk. Along with the formulas for the various statistics proposed, we provide simple examples of their application to some common risk valuation cases. Finally, we present an integrated approach for the simultaneous estimation of a portfolio's interest rate and exchange rate risk using the VaR methodology. The integrated approach is then extended to also include N risk factors. This approach allows us to measure the total risk of a portfolio, provided that the volatilities and correlations among the risk factors can be estimated. |
| Keywords: | Risk measurement , market risk , credit risk , liquidity risk , Debt , Credit risk , Debt management , |
| Date: | 2006–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/195&r=cfn |
| By: | Miguel A. Segoviano Basurto; Boris Hofmann; C. A. E. Goodhart |
| Abstract: | This paper uses a Merton-type estimate of the probability of default (PoD) for the main banks in a sample of Organization for Economic Cooperation and Development and middle-income countries as a proxy for the fragility of their banking systems. Based on theory and stylized facts, the paper explores a range of financial and real variables that explain such PoDs across time. We find property price fluctuations and bank credit to be important explanatory factors. There is two-way interaction between these variables and a clearer relationship when the variables are entered as a deviation from trend. The lag structure between such developments and PoDs is long and varies widely across countries. The paper assesses the implications of these findings for economic policy. |
| Keywords: | Probability of default , credit risk , systemic risk , macroeconomic shocks , stress testing , financial surveillance , |
| Date: | 2006–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/223&r=cfn |