nep-fmk New Economics Papers
on Financial Markets
Issue of 2011‒04‒30
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Stock Volatility During the Recent Financial Crisis By G. William Schwert
  2. Patents and the financial performance of firms - An analysis based on stock market data By Neuhäusler, Peter; Frietsch, Rainer; Schubert, Torben; Blind, Knut
  3. The Riskiness of Risk Models By Christophe Boucher; Bertrand Maillet

  1. By: G. William Schwert
    Abstract: This paper uses monthly returns from 1802-2010, daily returns from 1885-2010, and intraday returns from 1982-2010 in the United States to show how stock volatility has changed over time. It also uses various measures of volatility implied by option prices to infer what the market was expecting to happen in the months following the financial crisis in late 2008. This episode was associated with historically high levels of stock market volatility, particularly among financial sector stocks, but the market did not expect volatility to remain high for long and it did not. This is in sharp contrast to the prolonged periods of high volatility during the Great Depression. Similar analysis of stock volatility in the United Kingdom and Japan reinforces the notion that the volatility seen in the 2008 crisis was relatively short-lived. While there is a link between stock volatility and real economic activity, such as unemployment rates, it can be misleading.
    JEL: G11 G12
    Date: 2011–04
  2. By: Neuhäusler, Peter; Frietsch, Rainer; Schubert, Torben; Blind, Knut
    Abstract: The following article systematically analyzes the question of how the results of R&D and its protection - or so to say, the technology base of a firm - can influence its market value and profits. Based on theoretical arguments it is hypothesized that large and highly valuable patent portfolios of firms have significant effects on their competitiveness in the long run. For the empirical testing a panel dataset including 479 firms from 1990 to 2007 based on the DTI-Scoreboard is used, which contains data on R&D expenditures, market capitalization, turnover etc. and structural information like firm-size and industry sector. To this database the relevant information on patenting behavior and financial performance are added, so effects of firm characteristics can be calculated. To assess the value of a firm's patent portfolio, different value measures like the number of received patent citations, opposed patents, number of inventors etc. are being applied. The results suggest that at least at the firm level, especially forward citations and family size positively influence market value. Concerning the Return on Investment, especially oppositions and family size show positive effects. This leads to the conclusion that securing international markets has a positive effect on the value of the firm in the home market. --
    Date: 2011
  3. By: Christophe Boucher (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, A.A.Advisors-QCG - ABN AMRO); Bertrand Maillet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, A.A.Advisors-QCG - ABN AMRO, EIF - Europlace Institute of Finance)
    Abstract: We provide an economic valuation of the riskiness of risk models by directly measuring the impact of model risks (specification and estimation risks) on VaR estimates. We find that integrating the model risk into the VaR computations implies a substantial minimum correction of the order of 10-40% of VaR levels. We also present results of a practical method - based on a backtesting framework - for incorporating the model risk into the VaR estimates.
    Keywords: Model risk, quantile estimation, VaR, Basel II validation test.
    Date: 2011–03

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