nep-fmk 2016-06-04 papers

on Financial Markets

Issue of 2016‒06‒04
two papers chosen by

Networks of volatility spillovers among stock markets By Eduard Baumohl; Evzen Kocenda; Stefan Lyocsa; Tomas Vyrost
How large banks use CDS to manage risks: bank-firm-level evidence By Hasan, Iftekhar; Wu, Deming

Networks of volatility spillovers among stock markets

By:	Eduard Baumohl (Institute of Economics and Management, University of Economics in Bratislava); Evzen Kocenda (Institute of Economic Studies, Charles University); Stefan Lyocsa (Institute of Economics and Management, University of Economics in Bratislava); Tomas Vyrost (Institute of Economics and Management, University of Economics in Bratislava)
Abstract:	In our network analysis of 40 developed, emerging and frontier stock markets during the 2006?2014 period, we describe and model volatility spillovers during both the global financial crisis and tranquil periods. The resulting market interconnectedness is depicted by fitting a spatial model incorporating several exogenous characteristics. We confirm the presence of significant temporal proximity effects between markets and somewhat weaker temporal effects with regard to the US equity market ? volatility spillovers decrease when markets are characterized by greater temporal proximity. Volatility spillovers also present a high degree of interconnectedness, which is measured by high spatial autocorrelation. This finding is confirmed by spatial regression models showing that indirect effects are much stronger than direct effects, i.e., market-related changes in “neighboring” markets (within a network) affect volatility spillovers more than changes in the given market alone. Our results also link spillovers of escalating magnitude with increasing market size, market liquidity and economic openness.
Keywords:	volatility spillovers, stock markets, shock transmission, Granger causality network, spatial regression, financial crisis
JEL:	C31 C58 F01 G01 G15
Date:	2016–05
URL:	http://d.repec.org/n?u=RePEc:kyo:wpaper:941&r=fmk

How large banks use CDS to manage risks: bank-firm-level evidence

By:	Hasan, Iftekhar; Wu, Deming
Abstract:	We test five hypotheses on whether banks use CDS to hedge corporate loans, provide credit enhancements, obtain regulatory capital relief, and exploit banking relationship and private information. Linking large banks’ CDS positions and syndicated lending on individual firms, we observe strong evidence for the credit enhancement and regulatory capital relief hypotheses, but mixed evidence for the hedging, banking relationship, and private information hypotheses. Banks buy and sell more CDS on their borrowers, but their net CDS positions and lending status are largely unrelated. We find no evidence of bank using CDS to exploit private information.
Keywords:	hedging, credit enhancement, regulatory capital relief, banking relationship, private information
JEL:	G14 G21 G23 G28 G32
Date:	2016–04–29
URL:	http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_010&r=fmk

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