nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒02‒05
five papers chosen by

  1. A closed-form formula for pricing bonds between coupon payments By Sylvia Gottschalk
  2. Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations By Schwandt, Hannes
  3. Basel III long-term liquidity standard in the context of the profitability of banks and volatility of their stock prices – quantitative analysis for the euro area By Marcin Flotyński
  4. How ETFs Amplify the Global Financial Cycle in Emerging Markets By Tomas Williams; Nathan Converse; Eduardo Levy-Yeyati
  5. ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds By Jeromin Zettelmeyer; Christoph Trebesch

  1. By: Sylvia Gottschalk
    Abstract: We derive a closed-form formula for computing bond prices between coupon payments. Our results cover both the `Treasury' and the `Street' pricing methods used by sovereign and corporate issuers. We apply our formulas to two UK gilts, the 8% Treasury Gilt 2015, and the 0.5% Treasury Gilt 2022, and show that we can obtain the dirty price of these bonds at any date with a minimum of calculations, and without intensive computational resources.
    Date: 2018–01
  2. By: Schwandt, Hannes
    Abstract: Do wealth shocks affect the health of elderly in developed countries? I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees. Using data from the 1998-2011 Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These wealth shocks predict wealth changes and strongly affect health outcomes. A 10% wealth loss leads to an impairment of 2-3% of a standard deviation in physical health, mental health and survival rates.
    Keywords: health; Mortality; Retirees; Stock market; Wealth shocks
    JEL: G10 I10 J14
    Date: 2018–01
  3. By: Marcin Flotyński (Poznan University of Economics and Business)
    Abstract: The paper is devoted to the Net Stable Funding Ratio (NSFR) - the liquidity regulation included in the Basel III recommendations. The aim of the article is to verify the impact of stable funding structure measured by estimated NSFR on the profitability of banks and the volatility of their stock prices. It embraces the data of the 100 biggest banks in the euro area which are listed on stock exchanges. The research area of this article is divided into two parts. The first one is devoted to the relation between the NSFR and bank profitability. In the second one, the relation between the NSFR and a bank’s valuation (stock prices) and the volatility of stock prices on the capital market is presented. Models with financial and macroeconomic variables were used. The research results showed that there is a positive and statistically significant relation between the level of the NSFR in banks and their profitability measured by the return on average assets (ROAA), the return on average equity (ROAE) and the net interest margin (NIM). Furthermore, a growing NSFR has a positive influence on changes of stock prices and a negative influence on the level of their volatility.
    Keywords: banking sector, regulation, funding structure, liquidity, Basel III, Net Stable Funding Ratio (NSFR), volatility of stock prices
    JEL: C33 G10 G15 G17 G21
    Date: 2017
  4. By: Tomas Williams (George Washington University); Nathan Converse (Federal Reserve Board); Eduardo Levy-Yeyati (Universidad Torcuato di Tella)
    Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important investment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fundlevel data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global risk factors for equity (bond) ETFs is 1.5 (1.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global risk factors. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of the global financial cycle in emerging markets.
    Keywords: exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets
    JEL: F32 G11 G15 G23
  5. By: Jeromin Zettelmeyer (Peterson Institute for International Economics); Christoph Trebesch (Kiel University)
    Abstract: We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable "twist" of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.
    Keywords: Central Bank Asset Purchases, Securities Markets Programme, Eurozone Crisis, Sovereign Risk, Market Segmentation
    JEL: E43 E58 F34 G12
    Date: 2018–01

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