nep-fmk New Economics Papers
on Financial Markets
Issue of 2017‒07‒09
four papers chosen by

  1. Financial crises and the dynamic linkages between stock and bond returns By Eraslan, Sercan; Ali, Faek Menla
  2. CDS and credit: Testing the small bang theory of the financial universe with micro data By Gündüz, Yalin; Ongena, Steven; Tümer-Alkan, Günseli; Yu, Yuejuan
  3. Stocks for the Long Run: New Monthly Indices of British Equities, 1869-1929 By Grossman, Richard
  4. Credit ratings of domestic and global agencies: What drives the differences in China and how are they priced? By Xianfeng Jiang; Frank Packer

  1. By: Eraslan, Sercan; Ali, Faek Menla
    Abstract: This paper investigates the dynamic linkages in terms of the first and second moments between stock and bond returns, within a wide range of advanced economies, over the different phases of the recent financial crisis. The adopted empirical framework is a bivariate volatility model, where volatility spillovers of either positive or negative sign are allowed for. Our results lend support to the existence of a substantial time-variation in the dynamic linkages between these financial assets over the different stages of the recent crisis. In particular, our results of the return spillovers show that such spillovers mostly run from stocks to bonds and exhibit a time-varying pattern over all three stages of the crisis in most countries. Regarding the volatility spillovers, such spillovers from bond returns to those of stocks are stronger than the other way round and also exhibit a time-varying pattern in most countries. Furthermore, the portfolio performance comparison results show that by considering time-varying return and volatility spillovers when calculating the risk-minimising portfolio weights of the selected assets, the portfolio volatility can be reduced despite limited diversification opportunities within national markets in times of financial crises.
    Keywords: Bond prices,Financial crisis,Stock prices,Time-varying GARCH models,Volatility spillovers
    JEL: C32 C58 G15
    Date: 2017
  2. By: Gündüz, Yalin; Ongena, Steven; Tümer-Alkan, Günseli; Yu, Yuejuan
    Abstract: Does hedging motivate CDS trading and does that affect the availability of credit? To answer these questions we couple comprehensive bank-firm level CDS trading data from the Depository Trust and Clearing Corporation with the German credit register containing bilateral bank-firm credit exposures. We find that following the Small Bang in the European CDS market, extant credit relationships with riskier firms increase banks' CDS trading and hedging of these firms. Properly hedged banks holding more CDS contracts of riskier firms supply relatively more credit to these firms. Our results are overall stronger for firm CDSs experiencing larger improvements in liquidity.
    Keywords: credit default swaps,credit exposure,hedging,bank lending,Depository Trust and Clearing Corporation (DTCC)
    JEL: G21
    Date: 2017
  3. By: Grossman, Richard
    Abstract: This paper presents new monthly capital gain, dividend yield, and total return indices for common equities quoted on British exchanges during 1869-1929. I construct indices for 25 domestic sectors, calculate capital asset pricing model betas for each sector, and construct a 30-stock blue chip index. I splice the new broad market index to Turner et al.'s(2009) pre-1870 index to create a century-long (1825-1929) monthly equity index. I use the new indices to examine the timing of British business cycles and compare the returns on home and foreign UK investment during 1870-1929.
    Keywords: Business Cycles; economic history; London Stock Exchange; stock market indices
    JEL: G10 G12 G15 N23 N24
    Date: 2017–06
  4. By: Xianfeng Jiang; Frank Packer
    Abstract: The market for the credit ratings of Chinese firms is large and growing. We focus our analysis on the firms that have ratings from both domestic and global agencies. Despite the similar symbols, the rating scales of the domestic and global agencies differ: domestic agencies rate firms that are jointly rated higher than global agencies by 6-7 notches on average. Focusing on the rank order of domestic and global credit ratings, we test for differences in the determinants of ratings across global and domestic agencies. We find asset size is weighed more heavily as a positive factor by domestic agencies, and leverage is weighed more heavily as a negative factor by global agencies. Profitability and state-ownership are weighed more positively by global rating agencies. The influence of the variables is generally stable across a variety of robustness checks. In spite of these differences, both domestic and global ratings appear to be priced into the market values of rated bonds.
    Keywords: credit ratings, split ratings, state-owned firms, Chinese bond markets
    JEL: G12 G18 G23 G24
    Date: 2017–06

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