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on Financial Markets |
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Issue of 2015‒08‒01
six papers chosen by |
| By: | Aktas, Nihat; Karampatsas, Nikolaos; Petmezas, Dimitris; Servaes, Henri |
| Abstract: | We document a curvilinear relation between credit ratings and acquisitions, where acquisitiveness first goes up and then down as credit ratings increase, with a maximum around the A minus threshold. This pattern is broken by firms around the high-yield cut-off, which are more reluctant to make acquisitions. The increase in acquisitiveness at low rating levels is accompanied by lower announcement returns. Acquisitions have a negative impact on credit ratings, even after controlling for all the characteristics potentially influenced by the transaction itself, and especially for mergers that are poorly received by the stock market. This work suggests that a firm’s credit rating exerts substantial influence on the acquisition process and that rating agencies pay particular attention to acquisitions when deciding on the creditworthiness of firms. |
| Keywords: | credit rating; financial constraints; mergers & acquisitions |
| JEL: | G32 G34 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10719&r=fmk |
| By: | Andrei N. Soklakov |
| Abstract: | Quantitative Structuring is a rational framework for manufacturing financial products. It shares many of its components with mainstream economics. The Equity Premium Puzzle is a well known quantitative challenge which has been defying mainstream economics for the last 30 years. Does Quantitative Structuring face a similar challenge? We find Quantitative Structuring to be in remarkable harmony with the observed equity premium. Observed values for the equity premium (both expected and realized) appear to be a real and transparent phenomenon which should persist for as long as equities continue to make sense as an investment asset. Encouraged by this finding, we suggest a certain modification of mainstream economics. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1507.07214&r=fmk |
| By: | Samuel R\"onnqvist; Peter Sarlin |
| Abstract: | News is a pertinent source of information on financial risks and stress factors, which nevertheless is challenging to harness due to the sparse and unstructured nature of natural text. We propose an approach based on distributional semantics and deep learning with neural networks to model and link text to a scarce set of bank distress events. Through unsupervised training, we learn semantic vector representations of news articles as predictors of distress events. The predictive model that we learn can signal coinciding stress with an aggregated index at bank or European level, while crucially allowing for automatic extraction of text descriptions of the events, based on passages with high stress levels. The method offers insight that models based on other types of data cannot provide, while offering a general means for interpreting this type of semantic-predictive model. We model bank distress with data on 243 events and 6.6M news articles for 101 large European banks. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1507.07870&r=fmk |
| By: | Adam, Klaus; Beutel, Johannes; Marcet, Albert; Merkel, Sebastian |
| Abstract: | We present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief differences, introducing financial transactions taxes (FTTs) remains undesirable. While FTTs reduce the size and length of boom-bust cycles, they increase the likelihood of such cycles, therby overall return volatility and wealth redistribution. Contingent FTTs, which are levied only above a certain price threshold, give rise to problems of equilibrium multiplicity and non-existence. |
| Keywords: | asset price booms; financial transactions tax; Tobin tax |
| JEL: | D84 G12 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10727&r=fmk |
| By: | Weibing Huang; Charles-Albert Lehalle; Mathieu Rosenbaum |
| Abstract: | The tick value is a crucial component of market design and is often considered the most suitable tool to mitigate the effects of high frequency trading. The goal of this paper is to demonstrate that the approach introduced in Dayri and Rosenbaum (2015) allows for an ex ante assessment of the consequences of a tick value change on the microstructure of an asset. To that purpose, we analyze the pilot program on tick value modifications started in 2014 by the Tokyo Stock Exchange in light of this methodology. We focus on forecasting the future cost of market and limit orders after a tick value change and show that our predictions are very accurate. Furthermore, for each asset involved in the pilot program, we are able to define (ex ante) an optimal tick value. This enables us to classify the stocks according to the relevance of their tick value, before and after its modification. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1507.07052&r=fmk |
| By: | Bayraci, Selcuk |
| Abstract: | In this study, we present a VAR-BEKK model to investigate the co-movements of long-term interest rates between Turkey and four developed (Germany, Japan, USA and UK) markets . We use weekly rates on the 5-year maturity government bonds for the period of February 10, 2006 to September 12, 2014 containing 448 observations. We empirically document that, while Turkish bond market is only correlated with Japanese and the US markets, there are strong ties between the returns and volatility of developed bond markets. Our findings indicate most of the movements in international government bond markets is a product of global risk factors rather than country specific factors |
| Keywords: | Bond market co-movement; volatility spillover; BEKK-GARCH model |
| JEL: | C32 C51 G15 |
| Date: | 2015–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65758&r=fmk |