nep-fmk New Economics Papers
on Financial Markets
Issue of 2012‒05‒22
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Weighted-indexed semi-Markov models for modeling financial returns By Guglielmo D'Amico; Filippo Petroni
  2. Credit contagion between financial systems By Podlich, Natalia; Wedow, Michael
  3. The stock market evaluation of IPO-firm takeovers By Braun, Thorsten V.; Lehmann, Erik E.; Schwerdtfeger, Manuel T.

  1. By: Guglielmo D'Amico; Filippo Petroni
    Abstract: In this paper we propose a new stochastic model based on a generalization of semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that the financial returns are described by a weighted indexed semi-Markov chain model. We show, through Monte Carlo simulations, that the model is able to reproduce important stylized facts of financial time series as the first passage time distributions and the persistence of volatility. The model is applied to data from Italian and German stock market from first of January 2007 until end of December 2010.
    Date: 2012–05
  2. By: Podlich, Natalia; Wedow, Michael
    Abstract: We examine contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Our results additionally confirm that the set up of the financial rescue scheme in Germany partially shielded German banks but not insurance companies from contagion. Overall, our results suggest that contagion from dealer banks have the most prominent effect on the German financial system. While dealer banks impact on German banks and insurance companies in a similar way, a deterioration in the CDS spreads of dealer banks has a particularly pronounced effect on German dealer banks. --
    Keywords: Systemic Risk,CDS Spreads,Contagion,OTC Dealer
    JEL: G14 G21 G28
    Date: 2011
  3. By: Braun, Thorsten V.; Lehmann, Erik E.; Schwerdtfeger, Manuel T.
    Abstract: We conduct an event study to assess the stock market evaluation of public takeover announcements. Unlike the majority of previous research, we specifically focus on acquisitions targeted at newly public IPO-firms and show that the stock market positively evaluates these M&As as R&D. However, bidders' abnormal announcement returns are significantly lower for takeovers directed at targets with critical intangible assets and innovative capabilities inalienably bound to their initial owners than for those that have internally accumulated respective resources and capabilities. We explain these findings with the acquirer's post-acquisition dependence on continued access to the IPO-firm founders' target-specific human capital. Our results contribute to literature in that they show that the stock market perceives these potential impediments to successful exploitation of acquired strategic resources and thus identify a potential cause for heretofore mostly inconsistent evidence on bidder abnormal returns in corporate takeovers found in previous research. --
    Keywords: Ownership Structure,High-Tech IPO-Firms,Mergers & Acquisitions
    JEL: D23 G32 G34 L22 M13
    Date: 2011

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