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on Financial Markets |
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Issue of 2014‒11‒28
five papers chosen by |
| By: | Eickholt, Mathias |
| Abstract: | In this paper we investigate the influence of coupon structure on the financial behavior of Individual Investors in the fixed-income market. Examining circa 26 million decisions on 204 standard putable bonds with different coupon offerings our major findings are: (i) Products with a flat coupon structure and a high duration attract fewer investors and are significantly more often exercised early, whereas financially equal products with a steeply rising coupon structure arouse more interest among investors and are less often redeemed early. (ii) The shape of the upcoming coupon structure is an important basis on which investors decide which putable bond in a portfolio to exercise early. (iii) Issuers who exploit empirical patterns related to a bond´s coupon structure through "behavioral financial engineering" can benefit from a lower liquidity demand and a diminishing empirical option value. |
| Keywords: | individual investors,product design,putable bond |
| JEL: | G02 G11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:upadbr:16&r=fmk |
| By: | John D. Burger; Rajeswari Sengupta; Francis E. Warnock; Veronica Cacdac Warnock |
| Abstract: | We analyze reallocations within the international bond portfolios of US investors. The most striking empirical observation is a steady increase in US investors' allocations toward emerging market local currency bonds, unabated by the global financial crisis and accelerating in the post-crisis period. Part of the increase in EME allocations is associated with global "push" factors such as low US long-term interest rates and unconventional monetary policy as well as subdued risk aversion/expected volatility. But also evident is investor differentiation among EMEs, with the largest reallocations going to those EMEs with strong macroeconomic fundamentals such as more positive current account balances, less volatile inflation, and stronger economic growth. We also provide a descriptive analysis of global bond markets' structure and returns. |
| JEL: | F21 F31 G11 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20571&r=fmk |
| By: | Georg, Co-Pierre |
| Abstract: | When banks choose similar investment strategies, the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy ex-ante based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social belief is strong and the financial network is fragmented, banks follow their peers and their investment strategies synchronize. This effect is stronger for less informative private signals. For endogenously formed interbank networks, however, less informative signals lead to higher network density and less synchronization. It is shown that the former effect dominates the latter. |
| Keywords: | social learning,endogenous financial networks,multi-agent simulations,systemic risk |
| JEL: | G21 C73 D53 D85 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:232014&r=fmk |
| By: | Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon |
| Abstract: | This paper examines the impact of structural oil price shocks on the covariance of U.S. stock market return and stock market volatility. We construct from daily data on return and volatility the covariance of return and volatility at monthly frequency. The measures of daily volatility are realized-volatility at high frequency (normalized squared return), conditional-volatility recovered from a stochastic volatility model, and implied-volatility deduced from options prices. Positive shocks to aggregate demand and to oil-market specific demand are associated with negative effects on the covariance of return and volatility. Oil supply disruptions are associated with positive effects on the covariance of return and volatility. The spillover index between the structural oil price shocks and covariance of stock return and volatility is large and highly statistically significant. |
| Keywords: | Stock return and volatility, oil price shocks, stock volatility, structural VAR |
| JEL: | E44 G10 Q41 Q43 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-71&r=fmk |
| By: | Javier Morales; V\'ictor Tercero; Fernando Camacho; Eduardo Cordero; Luis L\'opez; F-Javier Almaguer |
| Abstract: | The total value of domestic market capitalization of the Mexican Stock Exchange was calculated at 520 billion of dollars by the end of November 2013. To manage this system and make optimum capital investments, its dynamics needs to be predicted. However, randomness within the stock indexes makes forecasting a difficult task. To address this issue, in this work, trends and fractality were studied using GNU-R over the opening and closing prices indexes over the past 23 years. Returns, Kernel density estimation, autocorrelation function and R/S analysis and the Hurst exponent were used in this research. As a result, it was found that the Kernel estimation density and the autocorrelation function shown the presence of long-range memory effects. In a first approximation, the returns of closing prices seems to behave according to a Markovian random walk with a length of step size given by an alpha-stable random process. For extreme values, returns decay asymptotically as a power law with a characteristic exponent approximately equal to 2.5. |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1411.3399&r=fmk |