New Economics Papers
on Financial Markets
Issue of 2008‒03‒01
four papers chosen by

  1. Stock market volatility and learning. By Klaus Adam; Albert Marcet; Juan Pablo Nicolini
  2. Multivariate Regime–Switching GARCH with an Application to International Stock Markets By Markus Haas; Stefan Mittnik
  3. ABS, MBS and CDO Compared: an Empirical Analysis By Vink, Dennis; Thibeault, André E.
  4. Limited partners' perceptions of the Central Eastern European venture capital and private equity market By Groh, Alexander P.; Liechtenstein, Heinrich; Canela, Miguel A.

  1. By: Klaus Adam (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Albert Marcet (Institut d’Anàlisi Economica CSIC, Universitat Autònoma de Barcelona, 08193 Bellaterra, Spain.); Juan Pablo Nicolini (Universidad Torcuato di Tella, Miñones 2177, Capital Federal, (C1428ATG) Argentina.)
    Abstract: Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though we restrict con- sideration to learning schemes that imply only small deviations from full rationality. The .ndings are robust to the particular learning rule used and the value chosen for the single free parameter introduced by learning, provided agents forecast future stock prices using past information on prices. JEL Classification: G12, D84.
    Keywords: Asset pricing, learning, near-rational price forecasts.
    Date: 2008–02
  2. By: Markus Haas (University of Munich, Institute of Statistics); Stefan Mittnik (Department of Statistics, University of Munich, Center for Financial Studies, Frankfurt, and Ifo Institute for Economic Research, Munich)
    Abstract: We develop a multivariate generalization of the Markov–switching GARCH model introduced by Haas, Mittnik, and Paolella (2004b) and derive its fourth–moment structure. An application to international stock markets illustrates the relevance of accounting for volatility regimes from both a statistical and economic perspective, including out–of–sample portfolio selection and computation of Value–at–Risk.
    Keywords: Conditional Volatility, Markov–Switching, Multivariate GARCH
    JEL: C32 C51 G10 G11
    Date: 2008–01
  3. By: Vink, Dennis; Thibeault, André E. (Nyenrode Business Universiteit)
    Abstract: The capital market in which the asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. We were able to examine a total number of 3,951 loans (worth €730.25 billion) of which 1,129 (worth €208.94 billion) have been classified as ABS. MBS issues represent 2,224 issues (worth €459.32 billion) and 598 are CDO issues (worth €61.99 billion). We have investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, we have documented that the assets attached as collateral for the securities differ between security classes, but that there are also important univariate differences to consider. We found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each security class revealed that most of the common pricing characteristics associated with these classes have a different impact on the primary market spread exhibited by the value of the coefficients. The regression analyses we performed demonstrated econometrically that ABS, MBS, and CDOs are in fact different financial instruments.
    Keywords: asset securitization, asset-backed securitisation, bank lending, default risk, risk management, spreads, leveraged financing.
    Date: 2008
  4. By: Groh, Alexander P. (Montpellier Business School); Liechtenstein, Heinrich (IESE Business School); Canela, Miguel A. (University of Barcelona)
    Abstract: Growth expectations and institutional settings in Central Eastern Europe are assumed to be favorable for the establishment of a vibrant Venture Capital and Private Equity market. Despite this, there is a lack of risk capital. We examine the obstacles to institutional investments in the region through a questionnaire addressed to (potential) Limited Partners world-wide. The respondents provide information about their perceptions of the region. The protection of property rights is the dominant concern, followed by social criteria, such as the belief in the management quality of local people, and the lacking size and liquidity of the Central Eastern European capital markets. However, Limited Partners regard the growth expectations as attractive, and those with exposure in Central Eastern Europe are satisfied with the historical risk and return ratio, they have a good knowledge of the region, are attracted by other emerging regions, and they appreciate the region's entrepreneurial opportunities and the local General Partners. Overall, the region is ranked very favorable compared to other emerging regions, and especially with respect to its economic and entrepreneurial activity.
    Keywords: Venture Capital; Private Equity; International Asset Allocation; Institutional Investors;
    JEL: G23 G24
    Date: 2008–01–13

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