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on Financial Markets |
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Issue of 2008‒04‒29
six papers chosen by |
| By: | Robert J. Shiller |
| Abstract: | The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed. |
| JEL: | G13 R31 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13962&r=fmk |
| By: | Stefan Mittnik (Ludwig-Maximilians-University Munich, Center for Financial Studies, Frankfurt, and Ifo Institute for Economic Research, Munich); Tina Yener (Ludwig-Maximilians-University Munich) |
| Abstract: | Abstract. We show that the use of correlations for modeling dependencies may lead to counterintuitive behavior of risk measures, such as Value-at-Risk (VaR) and Expected Short- fall (ES), when the risk of very rare events is assessed via Monte-Carlo techniques. The phenomenon is demonstrated for mixture models adapted from credit risk analysis as well as for common Poisson-shock models used in reliability theory. An obvious implication of this finding pertains to the analysis of operational risk. The alleged incentive suggested by the New Basel Capital Accord (Basel II), namely decreasing minimum capital requirements by allowing for less than perfect correlation, may not necessarily be attainable. |
| Keywords: | Operational Risk, Latent Variables, Correlated Events |
| JEL: | C52 G11 G32 |
| Date: | 2408–04 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200814&r=fmk |
| By: | Cécile Carpentier; Jean-François L'Her; Jean-Marc Suret |
| Abstract: | In Canada, a venture stock market lists micro-capitalization firms that are at a pre-revenue stage, and competes with both formal and informal venture capital (VC). This market provides a higher rate of return and is able to provide seven times more new listings to the main exchange than the VC market. We do not evidence post-graduation underperformance, and indeed, new listings on a main exchange can succeed even if they originate from a public venture market. Our results do not support the theoretical arguments that confer specific advantages on the VCs with regard to screening, monitoring and exiting new ventures. <P>Au Canada, un marché boursier de capital de risque inscrit des entreprises à très faible capitalisation, avant même qu’elles ne rapportent des revenus. Ce marché est en concurrence directe avec le capital de risque institutionnel et informel. Le taux de rendement de ce marché boursier est supérieur à celui du capital de risque, et ce marché amène sept fois plus d’entreprises au marché principal, par « graduation », que ne le fait le capital de risque à la suite d’émissions initiales. Nous n’observons aucune performance anormale négative à la suite des graduations. Nos résultats indiquent que le capital de risque canadien ne semble pas disposer des avantages que la théorie attribue généralement à ce type d’investisseurs en matière de sélection des projets, de supervision ou encore de capacité de disposition des placements. |
| Keywords: | public venture capital, start-up, graduation, success rate, stock exchange, capital de risque, démarrage, graduation, marché boursier |
| Date: | 2008–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2008s-12&r=fmk |
| By: | Cao, Jin; Illing, Gerhard |
| Abstract: | Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing, 2007), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback between lender of last resort policy and incentives of private banks, determining the aggregate amount of liquidity available. We show that imposing minimum liquidity standards for banks ex ante are a crucial requirement for sensible lender of last resort policy. In addition, we analyse the impact of equity requirements and narrow banking, in the sense that banks are required to hold sufficient liquid funds so as to pay out in all contingencies. We show that such a policy is strictly inferior to imposing minimum liquidity standards ex ante combined with lender of last resort policy. |
| Keywords: | Liquidity risk; Free-riding; Narrow banking; Lender of last resort |
| JEL: | E5 G21 G28 |
| Date: | 2008–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:3358&r=fmk |
| By: | Ricardo Correa |
| Abstract: | This paper uses data on publicly-traded firms in the U.S. to analyze the effect of interstate bank integration on the financial constraints borrowers face. A firm-level investment equation is estimated in order to test if bank integration reduces the sensitivity of capital expenditures to the level of internal funds. The staggered deregulation of cross-state bank acquisitions that took place in the U.S. between 1978 and 1994 helps estimate the model. Integration decreases financing constraints for bank-dependent firms. The change in firms' access to external finance is explained by an increase in the share of locally headquartered geographically diversified banks. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:925&r=fmk |
| By: | Miroslav Misina; Greg Tkacz |
| Abstract: | Historical narratives typically associate financial crises with credit expansions and asset price misalignments. The question is whether some combination of measures of credit and asset prices can be used to predict these events. Borio and Lowe (2002) answer this question in the affirmative for a sample of 34 countries, but the question is surprisingly difficult to answer for individual developed countries that have faced very few, if any, financial crises in the past. To circumvent this problem, we focus on financial stress and ask whether credit and asset price movements can help predict it. To measure financial stress, we use the Financial Stress Index (FSI) developed by Illing and Liu (2006). Other innovations include the estimation and forecasting using both linear and endogenous threshold models, and a wide range of asset prices (stock and housing prices, for example). The exercise is performed for Canada, but the methodology is suitable for any country that fits the above description. |
| Keywords: | Credit and credit aggregates; Financial stability |
| JEL: | G10 E5 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-10&r=fmk |