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on Corporate Finance |
| By: | Jesus Sierra |
| Abstract: | This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates. The effect is present when we control for other determinants of fund flows and is more pronounced for big and old funds. The results suggest that consumers’ investments in domestic equity mutual funds take time to respond to changes in interest rates, and that developments in the market for consumer debt may have spillovers into other areas of the financial services industry. |
| Keywords: | Financial services; Interest rates |
| JEL: | G21 G23 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-39&r=cfn |
| By: | Gourieroux, C.; Heam, J.C.; Monfort, A. |
| Abstract: | By introducing a structure of the balance sheets of the banks, which takes into account their bilateral exposures in terms of stocks or lendings, we get a structural model for default analysis. This model allows distinguishing the exogenous and endogenous default dependence. We prove the existence and uniqueness of the liquidation equilibrium, we study the consequences of exogenous shocks on the banking system and we measure contagion phenomena. This approach is illustrated by an application to the French banking system. |
| Keywords: | Contagion, Systemic Risk, Solvency, Clearing, Liquidation Equilibrium, Impulse Response, Value-of-the Firm Model. |
| JEL: | G21 G28 G18 G33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:414&r=cfn |
| By: | Artashes Karapetyan (Norges Bank (Central Bank of Norway)); Bogdan Stacescu (BI Norwegian Business School,) |
| Abstract: | Information sharing and collateral reduce adverse selection costs, but are costly for lenders. When a bank learns more about the types of its rival's borrowers through information sharing (e.g., credit bureaus), it might seem that this information should substitute the role of collateral in screening their types. We instead show that information sharing may increase, rather than decrease, the role of collateral, which can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. We extend to show that ex ante screening can substitute both collateral and information sharing. |
| Keywords: | Bank competition, Information sharing, Collateral |
| JEL: | G21 L13 |
| Date: | 2012–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2012_19&r=cfn |
| By: | Carol Osler (International Business School, Brandeis University); Tanseli Savaser (Williams College); Thang Tan Nguyen (International Business School, Brandeis University) |
| Abstract: | We analyze currency trading between custody banks and their client funds, a trading situation notable for extreme opacity and ongoing legal disputes about reputedly high markups. We propose a “shrouding” model of liquidity provision in which prices are set relative to the day’s extrema to preserve client uncertainty about execution costs. Using the complete 2006 currency trading record of a custody bank, we support this hypothesis with numerous tests. Our analysis of the client funds indicates that they recognize the high costs of standard custodial trades and raises the possibility that they trade through custodians to shroud execution-cost information from underlying investors. |
| Keywords: | Bid-ask Spread, Exchange Rates, Microstructure, Shrouding, Custody Bank |
| JEL: | G15 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:55&r=cfn |
| By: | S. Arping (University of Amsterdam) |
| Abstract: | We examine the impact CDS protection on lending relationships and efficiency. CDS insulate lenders against losses from forcing borrowers into default and liquidation. This improves the credibility of foreclosure threats, which can have positive implications for borrower incentives and credit availability ex ante. However, lenders may also abuse their enhanced bargaining power vis-a-vis borrowers and extract additional surplus in debt renegotiations. If this hold up threat becomes severe, borrowers will be reluctant to agree to debt maturity designs or control right transfers that would have been optimal in the absence of CDS protection. The introduction of CDS markets may then ultimately tighten credit constraints and be detrimental to welfare. |
| Keywords: | Corporate Lending; Financial Innovation; Credit Default Swaps; Credit Derivatives; Credit Risk Transfer; Empty Creditor Problem |
| JEL: | G2 G3 |
| Date: | 2012–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120142&r=cfn |