nep-fmk New Economics Papers
on Financial Markets
Issue of 2017‒06‒04
five papers chosen by

  1. What To Do If The Stock Market Crashes? By Gorga, Carmine
  2. Analysis of the Evolution of Global Regulation in Separate Segments of Financial Markets By Bogdanyuk, Evgeny; Kiyutsevskaya, Anna; Trunin, Pavel; Hudko, Elizaveta
  3. The reaction of the stock market on credit rating agencies’decisions By Patrycja Chodnicka-Jaworska
  4. Innovative Originality, Profitability, and Stock Returns By David Hirshleifer; Po-Hsuan Hsu; Dongmei Li
  5. Safe Collateral, Arm's-Length Credit : Evidence from the Commercial Real Estate Mortgage Market By Lamont K. Black; John Krainer; Joseph B. Nichols

  1. By: Gorga, Carmine
    Abstract: If the Stock Market crashes, the Federal Reserve System (the Fed) ought to open the Discount Window to Main Street, by making 1. loans only for the creation of real wealth; 2. loans at cost; 3. loans to benefit as large a number of people as possible by issuing loans to individual entrepreneurs, cooperatives, corporations with ESOPs and/or CSOPs as well as to public agencies with taxing power to fund infrastructure projects.
    Keywords: D73, D78, E02, E32, E44, E52, E58, F53, G01, G18, G28, H12
    JEL: D73 D78 E02 E32 E44 E52 E58 F53 G01 G18 G28 H12
    Date: 2017–03–14
  2. By: Bogdanyuk, Evgeny (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Kiyutsevskaya, Anna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Hudko, Elizaveta (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: Global system of financial regulation began to develop in the 1970s. in the conditions of increasing openness of financial markets and active developing of financial instruments. Currently global regulation standards cover the activities of key segments of the financial market and corporations: the banking sector, insurance organizations, payment and settlement systems, collective investment funds, securities market, a system of deposit insurance, and the organization of the financial statements. Development of financial activities in Russia requires an appropriate control system development, taking into account international best practices. The paper analyzes the evolution of global regulation system of individual segments of the financial markets, the extent of Russian involvement in global regulation and compliance with national approaches to the global standards.
    Date: 2017–03
  3. By: Patrycja Chodnicka-Jaworska (University of Warsaw)
    Abstract: Firms with low credit risk realize higher returns than firms with high credit risk. This credit risk effect in the cross-section of stock returns is a puzzle because investors appear to pay a premium for bearing credit risk. A higher credit risk can reduce a propensity to invest. The basic goal of the paper is to analyse and verify the impact of the changes of financial and nonfinancial institutions’ credit ratings on the rates of return of shares. The following hypotheses have been formed: first, differences in the strength and direction of the reaction of stock prices between financial and nonfinancial institutions have been observed. Secondly, downgrades of credit ratings have got a stronger impact on the rates of return of shares than upgrades thereof. The analysis has been constructed for European companies for the period between 1995 and 2016 using the event study method. The sample has been divided according to: the direction of changes in credit ratings, countries’ economic divisions, the character of the institution. The prepared analysis suggests that nonfinancial stock prices react to changes in credit ratings similarly to stock prices of financial institutions. The moment of reaction is differentiated by taking the level of economic development. Generally, a stronger reaction to credit rating changes in the case of companies from lower and middle economies has been observed the than from high-income countries.
    Keywords: financial institutions, nonfinancial institutions, event study, credit ratings, stock prices
    JEL: G24 F21 G14
    Date: 2017–05
  4. By: David Hirshleifer; Po-Hsuan Hsu; Dongmei Li
    Abstract: We propose that innovative originality (InnOrig) is a valuable organizational resource, and that owing to limited investor attention and skepticism of complexity, firms with greater InnOrig are undervalued. We find that firms’ InnOrig strongly predicts higher, more persistent, and less volatile profitability; and higher abnormal stock returns—findings that are robust to extensive controls. The return predictive power of InnOrig is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to InnOrig. This evidence suggests that innovative originality acts as a ‘competitive moat,’ and that the market undervalues InnOrig.
    JEL: G12 G14 G3
    Date: 2017–05
  5. By: Lamont K. Black; John Krainer; Joseph B. Nichols
    Abstract: When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating that the securitization channel, when available, funds safe collateral.
    Keywords: Collateral ; Commercial banking ; Commercial real estate ; Securitization
    JEL: G21 G24 G33
    Date: 2017–05

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.