nep-cfn 2007-02-17 papers

on Corporate Finance

Issue of 2007‒02‒17
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

An Asset Pricing Model for Mean-Variance-Downside-Risk Averse Investors By José Olmo
Foreign Banks, Foreign Lending and Cross-Border Contagion: Evidence from the BIS Data By Adam Geršl

An Asset Pricing Model for Mean-Variance-Downside-Risk Averse Investors

By:	José Olmo (Department of Economics, City University, London)
Abstract:	We introduce a family of utility functions that describe the preferences of mean-variance-downside-risk (mvdr) averse investors. The risk premium on a risky asset in an economy with these individuals is given by a weighted sum of CAPM systematic risk and a systematic risk given by the level of comovements between the asset and the market in distress episodes. Hence investors require a higher reward than predicted by CAPM for holding assets correlated with the market in distress episodes, and a lower reward for holding assets with negative correlation in market downturns. The application of this pricing theory to financial sectors in FTSE-100 is illuminating. The empirical failure of standard CAPM is explained by the extra reward required by investors from market downturns. While Chemicals and Mining sectors exhibit positive comovements with FTSE downturns; Banking and Oil and Gas sectors are robust to them and Telecommunications Services exhibit negative comovements serving as refugee of investors fleeing from domestic market distress episodes.
Keywords:	Asset Pricing, CAPM, Downside-risk, Mean-variance
JEL:	G11 G12 G13
Date:	2007–01
URL:	http://d.repec.org/n?u=RePEc:cty:dpaper:0701&r=cfn

Foreign Banks, Foreign Lending and Cross-Border Contagion: Evidence from the BIS Data

By:	Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
Abstract:	The article discusses the role of foreign banks and foreign lending in the CEE countries from the financial stability perspective using the data on international banking business. The pattern of foreign banks’ involvement is analyzed and the risk of cross-border contagion explored, focusing on three aspects: maturity of cross-border exposures, concentration of foreign creditors and the existence of common creditor.
Keywords:	contagion; banks; financial stability; common creditor
JEL:	F30 F34 G21
Date:	2007–01
URL:	http://d.repec.org/n?u=RePEc:fau:wpaper:wp2007_08&r=cfn

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