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on Corporate Finance |
| By: | Vivien Lespagnol (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Juliette Rouchier (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS) |
| Abstract: | This paper studies the effect of investor’s bounded rationality on market dynamics. In an order driven market, we consider a few-types model where two risky assets are exchanged. Agents differ by their behavior, knowledge, risk aversion and investment horizon. The investor’s demand is defined by a utility maximization under constant absolute risk aversion. Relaxing the assumption of perfect knowledge of the fundamentals enables to identify two components in a bubble. The first one comes from the unperceived fundamental changes due to trader’s belief perseverance. The second one is generated by chartist behavior. In all simulations, speculators make the market less efficient and more volatile. They also increase the maximum amount of assets exchanged in the most liquid time step. However, our model is not showing raising average volatility on long term. Concerning the fundamentalists, the unknown fundamental has a stabilization impact on the trading price. The closer the anchor is to the true fundamental value, the more efficient the market is, because the prices change smoothly. |
| Keywords: | Agent-based modeling, market microstructure, fundamental value, trading volume, _efficient market |
| JEL: | C63 D44 G12 G14 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1419&r=cfn |
| By: | María J. Nieto (Banco de España) |
| Abstract: | This article presents a critical analysis of the principles behind the scope and forms of cooperation between EU Member States and third-country resolution authorities in the context of the 2014 Bank Recovery and Resolution Directive. The article also explores the future responsibilities of the prospective Single Resolution Authority regarding relations between the euro area and third-country resolution authorities. |
| Keywords: | European Union, banks, international economics, bankruptcy |
| JEL: | F39 G18 G33 G38 K33 L51 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1409&r=cfn |
| By: | Bennani, T.; Després, M.; Dujardin, M.; Duprey, T.; Kelber, A. |
| Abstract: | This paper presents the main features of macroprudential policy with a focus on the French case. We first recall the ultimate objective of this policy, which is to prevent and to mitigate systemic risk, i.e. the risk of “widespread disruptions to the provision of financial services that have serious consequences for the real economy” (CGFS, 2012). We put forward two goals to achieve this ultimate objective, namely (i) increasing the resilience of the financial sector and (ii) leaning against the financial cycle. Then, in the context of the ongoing reflections on the organisation of macroprudential policy at the national and European level, we analyse the macroprudential institutional framework recently adopted in France. We discuss the instruments available to macroprudential authorities in light of the two main goals of macroprudential policy. Drawing on theoretical considerations and past experience, we favour a macroprudential toolkit broadly consistent with the European CRD IV/CRR package. Finally, we emphasise the need for macroprudential authorities to be able to monitor and detect systemic risk. To this end, several indicators and their reliability are analysed. |
| Keywords: | macroprudential policy, central bank, systemic risk, financial crisis |
| JEL: | E58 G28 G18 G01 C50 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:opaper:9&r=cfn |
| By: | Daniel L. Tortorice (International Business School, Brandeis University) |
| Abstract: | I consider a consumption based asset pricing model where the consumer does not know if shocks to dividends are stationary (temporary) or non-stationary (permanent). The agent uses a Bayesian learning algorithm with a bias towards recent observations to assign probability to each process. While the true process is stationary, the consumer's beliefs change as he misinterprets a drift in dividends from their steady state value as an increased likelihood that the dividend process is non-stationary. Belief changes result in large swings in asset prices which are subsequently reversed. The model then is consistent with a broad array of asset pricing puzzles. It predicts the negative correlation between current returns and future returns and the PE ratio and future returns. Consistent with the data, I also find that consumption growth negatively correlates with future returns and the PE ratio and consumption growth forecast future consumption growth. The model amplifies return volatility over the benchmark rational expectations case and exactly matches the standard deviation of consumption. Finally, the model generates time varying volatility consistent with the data on quarterly equity returns. |
| Keywords: | Consumption, Savings, Asset Pricing, Learning, Expectations |
| JEL: | D83 D84 E21 G12 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:70&r=cfn |
| By: | Alexis Derviz |
| Abstract: | We study the impact of collateral diversification by non-financial firms on systemic risk in a general equilibrium model with standard production functions and mixed debt-equity financing. Systemic risk comes about as soon as firms diversify their collateral by holding claims on a big wholesale bank (called merchant bank in the paper) whose asset side includes claims on the same producer set. The merchant bank sector proves to be fragile (has a short distance to default) regardless of competition. In this setting, the policy response, consisting in official guarantees for the merchant bank's liabilities, entails considerable government loss risk. An alternative without the need for public sector involvement is to encourage systemically important merchant banks to introduce a simple bail-in mechanism by restricting their liabilities to contingent convertible bonds. This line of regulatory policy is particularly relevant to the containment of systemic events in globally leveraged economies serviced by big international banks outside host country regulatory control. |
| Keywords: | CoCos, collateral, merchant bank, systemic risk |
| JEL: | C68 D21 F36 G24 G38 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2013/11&r=cfn |