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on Financial Markets |
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Issue of 2008‒10‒28
three papers chosen by |
| By: | Stephen Fagan; Ramazan Gencay |
| Abstract: | Futures contracts on the New York Mercantile Exchange are the most liquid instruments for trading crude oil, which is the world’s most actively traded physical commodity. Under normal market conditions, traders can easily find counterparties for their trades, resulting in an efficient market with virtually no return predictability. Yet even this extremely liquid instrument suffers from liquidity shocks that induce periods of increased volatility and significant return predictability. This paper identifies an important and recurring cause of these shocks: the accumulation of extreme and opposing positions by the two main trader classes in the market, namely hedgers and speculators. As positions become extreme, approaching their historical limits, counterparties for trades become scarce and prices must adjust to induce trade. These liquidity-induced price adjustments are found to be driven by systematic speculative behaviour and are determined to be significant. |
| Keywords: | Liquidity, Futures Markets, Return Predictability, Volatility, Trader Positions, Directional Realized Volatility, Hedgers, Speculators, Position Bounds |
| JEL: | G0 G1 C1 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2008_01&r=fmk |
| By: | Vink, Dennis |
| Abstract: | In this study we provide empirical evidence demonstrating a relationship between the nature of the assets and the primary market spread. The model also provides predictions on how other pricing characteristics affect spread, since little is known about how and why spreads of asset-backed securities are influenced by loan tranche characteristics. We find that default and recovery risk characteristics represent the most important group in explaining loan spread variability. Within this group, the credit rating dummies are the most important variables to determine loan spread at issue. Nonetheless, credit rating is not a sufficient statistic for the determination of spreads. We find that the nature of the assets has a substantial impact on the spread across all samples, indicating that primary market spread with backing assets that cannot easily be replaced is significantly higher relative to issues with assets that can easily be obtained. Of the remaining characteristics, only marketability explains a significant portion of the spreads’ variability. In addition, variations of the specifications were estimated in order to asses the robustness of the conclusions concerning the determinants of loan spreads. |
| Keywords: | asset securitization; asset-backed securitisation; bank lending; default risk; risk management; leveraged financing. |
| JEL: | G21 G20 |
| Date: | 2007–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10382&r=fmk |
| By: | Oliver Blaskowitz; Helmut Herwartz |
| Abstract: | The paper proposes a data driven adaptive model selection strategy. The selection crite- rion measures economic ex–ante forecasting content by means of trading implied cash flows. Empirical evidence suggests that the proposed strategy is neither exposed to selection bias nor to the risk of choosing excessively poor models from a parameterized class of candidate specifications. |
| Keywords: | Model selection, Principal components, Factor analysis, Ex–ante forecasting, EURIBOR swap term structure, Trading strategies. |
| JEL: | C32 C53 E43 G29 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2008-064&r=fmk |