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on Corporate Finance |
| By: | Diego Amaya (University of Quebec at Montreal (UQUAM)); Peter Christoffersen (University of Toronto and CREATES); Kris Jacobs (University of Houston); Aurelio Vasquez (Instituto Tecnológico Autónomo de México (ITAM)) |
| Abstract: | We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments? time-series and cross-sectional properties. We investigate if this week?'s realized moments are informative for the cross-section of next week'?s stock returns. We ?find a very strong negative relationship between realized skewness and next week?'s stock returns. A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 24 basis points with a t-statistic of 3.65. Our results on realized skewness are robust across a wide variety of implementations, sample periods, portfolio weightings, and firm characteristics, and are not captured by the Fama-French and Carhart factors. We ?find some evidence that the relationship between realized kurtosis and next week?'s stock returns is positive, but the evidence is not always robust and statistically significant. We do not find a strong relationship between realized volatility and next week?'s stock returns. |
| Keywords: | Realized volatility, skewness, kurtosis, equity markets, cross-section of stock returns |
| JEL: | G11 G12 G17 |
| Date: | 2013–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-41&r=cfn |
| By: | Peter Christoffersen (University of Toronto and CREATES); Kris Jacobs (University of Houston); Xisong Jin (University of Luxembourg); Hugues Langlois (McGill University) |
| Abstract: | We characterize diversification in corporate credit using a new class of dynamic copula models which can capture dynamic dependence and asymmetry in large samples of firms. We also document important differences between credit spread and equity return dependence dynamics. Modeling a decade of weekly CDS spreads for 215 firms, we find that copula correlations are highly time-varying and persistent, and that they increase significantly in the financial crisis and have remained high since. Perhaps most importantly, tail dependence of CDS spreads increase even more than copula correlations during the crisis and remain high as well. The most important shocks to credit dependence occur in August of 2007 and in August of 2011, but interestingly these dates are not associated with significant changes to median credit spreads. |
| Keywords: | Credit risk, default risk, CDS, dynamic dependence, copula |
| JEL: | G12 |
| Date: | 2013–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-46&r=cfn |
| By: | Peter Christoffersen (University of Toronto and CREATES); Mathieu Fournier (Rotman School of Management); Kris Jacobs (University of Houston) |
| Abstract: | Principal component analysis of equity options on Dow-Jones firms reveals a strong factor structure. The first principal component explains 77% of the variation in the equity volatility level, 77% of the variation in the equity option skew, and 60% of the implied volatility term structure across equities. Furthermore, the first principal component has a 92% correlation with S&P500 index option volatility, a 64% correlation with the index option skew, and a 80% correlation with the index option term structure. We develop an equity option valuation model that captures this factor structure. The model allows for stochastic volatility in the market return and also in the idiosyncratic part of firm returns. The model predicts that firms with higher betas have higher implied volatilities, and steeper moneyness and term structure slopes. We provide a tractable approach for estimating the model on a large set of index and equity option data on which the model provides a good fit. The equity option data support the cross-sectional implications of the estimated model. |
| Keywords: | factor models, equity options, implied volatility, option-implied beta |
| JEL: | G10 G12 G13 |
| Date: | 2013–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-47&r=cfn |
| By: | Peter Christoffersen (University of Toronto); Vihang R. Errunza (McGill University); Kris Jacobs (University of Houston); Xisong Jin (University of Luxembourg) |
| Abstract: | Forecasting the evolution of security co-movements is critical for asset pricing and portfolio allocation. Hence, we investigate patterns and trends in correlations over time using weekly returns for developed markets (DMs) and emerging markets (EMs) during the period 1973-2012. We show that it is possible to model co-movements for many countries simultaneously using BEKK, DCC, and DECO models. Empirically, we ?find that correlations have significantly trended upward for both DMs and EMs. Based on a time-varying measure of diversification benefit, we ?find that it is not possible in a long-only portfolio to circumvent the increasing correlations by adjusting the portfolio weights over time. However, we do find some evidence that adding EMs to a DM-only portfolio increases diversification benefits. |
| Keywords: | Asset pricing, asset allocation, dynamic conditional correlation (DCC), dynamic equicorrelation (DECO) |
| JEL: | G12 |
| Date: | 2013–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-49&r=cfn |
| By: | Federico Cingano (OECD/ELS, Paris, Bank of Italy); Francesco Manaresi (Bank of Italy); Enrico Sette (Bank of Italy) |
| Abstract: | This paper shows evidence on the real effects of the bank lending channel exploiting the dramatic 2007 liquidity drought in interbank markets as a source of variation in banks' credit supply. For a large sample of Italian firms we combine information on firm-bank credit relationships, firms and banks balance sheet data, and estimate both the direct effect of the liquidity drought on the investment rate and the sensitivity to bank credit of investment (as well as of other firms outcomes) in 2007-10. We find that: (i) pre-crisis exposure to the interbank markets does predict banks subsequent credit supply (ii) banks exposure also has a significant direct impact on firms investment rate, accounting for more than 40% of the negative trend in investment observed in the sample; (iii) firms' investments are highly sensitive to bank credit: a 10 percentage point fall in credit growth reduces the investment rate by 8-14 points over four years, depending on the definition of the credit variable; (iv) credit shocks have a significant impact on broader economic activity, lowering firms' value added, employment and intermediate inputs purchases; we also find evidence of its propagation through a contraction in the supply of trade credit by firms. |
| Keywords: | Bank Lending Channel, Corporate investments, Corporate liquidit,, Financial crisis |
| JEL: | E22 E44 G01 G21 G32 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:91&r=cfn |
| By: | Neville Arjani; Graydon Paulin |
| Abstract: | The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. The performance of the Canadian banking system during this period was relatively strong. Using a case study approach together with empirical analysis, we assess some of the factors that contributed to this favourable outcome with a view to drawing useful lessons for regulatory reform. We argue that an important contributor to positive bank performance was a solid approach to risk management on the part of the Canadian banking system, an approach that was actively fostered by the domestic authorities. Efforts to buttress risk management were favourably influenced by several stressful yet instructive episodes in Canadian financial history. The 2007-09 crisis experience suggests a need to make risk management a pervasive element of financial system culture and emphasizes the importance of robust liquidity management. |
| Keywords: | Financial institutions; Financial system regulation and policy |
| JEL: | G21 G28 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:13-4&r=cfn |
| By: | Feng, Xunan (Shanghai University); Johansson, Anders C. (Stockholm China Economic Research Institute); Zhang, Tianyu (Chinese University of Hong Kong) |
| Abstract: | We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries. |
| Keywords: | Political participation; Entrepreneurs; Corporate governance; Rent seeking; Debt financing; Tax burden; Government subsidies; Mergers and acquisitions; Regulated industries; China |
| JEL: | G30 G32 G34 H20 P26 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hascer:2013-028&r=cfn |