nep-fmk New Economics Papers
on Financial Markets
Issue of 2021‒11‒22
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the Origin of IPO Profits By Sergey Kovbasyuk; David C. Brown; Tamara Nefedova
  2. Safe asset shortage and collateral reuse By Jank, Stephan; Mönch, Emanuel; Schneider, Michael
  3. Risk and return prediction for pricing portfolios of non-performing consumer credit By Siyi Wang; Xing Yan; Bangqi Zheng; Hu Wang; Wangli Xu; Nanbo Peng; Qi Wu
  4. Price Stability of Cryptocurrencies as a Medium of Exchange By Tatsuru Kikuchi; Toranosuke Onishi; Kenichi Ueda
  5. Crypto-exchanges and Credit Risk: Modelling and Forecasting the Probability of Closure By Fantazzini, Dean; Calabrese, Raffaella
  6. The Impact of the ECB Banking Supervision Announcements on the EU Stock Market By Angelo Baglioni; Andrea Monticini; David Peel
  7. Modeling ex-ante risk premia in the oil market By Remzi Uctum; Georges Prat

  1. By: Sergey Kovbasyuk (New Economic School); David C. Brown (University of Arizona); Tamara Nefedova (Universit Ì e Paris Dauphine-PSL)
    Abstract: By combining investors’ portfolio holdings with trading and commissions data, we analyze the determinants of IPO allocations. We distinguish among common explanations for investors’ IPO profits: information revelation, quid pro quo arrangements (related to commissions), and post-IPO trading behaviors. We find that information proxies explain the majority of the variation in IPO profits, while commissions and post-IPO trading behaviors explain relatively little. Commissions and post-IPO trading matter at the extensive, but not intensive, margins, while information matters at both. Different explanations matter for allocations and IPO profits to Investment Managers, Hedge Funds, and Banks, Pension Funds and Insurers.
    Keywords: IPOs, Allocations, Institutional Investors, Underwriters, Money Left on the Table
    JEL: G23 G24 G32
    Date: 2021–11
  2. By: Jank, Stephan; Mönch, Emanuel; Schneider, Michael
    Abstract: The reuse of collateral can support the efficient allocation of assets in the financial system. Exploiting a novel dataset, we quantify banks' collateral reuse at the security level. We show that banks substantially increase their reuse of collateral in response to scarcity induced by central bank asset purchases. Repo rates are less sensitive to purchase-induced scarcity at low levels of reuse, when the banking system can easily supply collateral through reuse. Repo rates are more sensitive to scarcity and more volatile at high levels of reuse, highlighting the trade-off between the shock absorption and shock amplification effects of collateral reuse.
    Keywords: safe assets,government bonds,collateral reuse,rehypothecation,repo market,securities lending
    JEL: E4 E5 G1 G2
    Date: 2021
  3. By: Siyi Wang; Xing Yan; Bangqi Zheng; Hu Wang; Wangli Xu; Nanbo Peng; Qi Wu
    Abstract: We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a manner of risk transferring. However, the problem is nontrivial technically and related research is absent. We tackle the challenge by building a bottom-up architecture, in which we model the distribution of every single loan's repayment rate, followed by modeling the distribution of the portfolio's overall repayment rate. To address the technical issues encountered, we adopt the approaches of simultaneous quantile regression, R-copula, and Gaussian one-factor copula model. To our best knowledge, this is the first study that successfully adopts a bottom-up system for analyzing credit portfolio risks of consumer loans. We conduct experiments on a vast amount of data and prove that our methodology can be applied successfully in real business tasks.
    Date: 2021–10
  4. By: Tatsuru Kikuchi (Faculty of Economics, The University of Tokyo); Toranosuke Onishi (Tokio Marine & Nichido Fire Insurance Co., Ltd.); Kenichi Ueda (Faculty of Economics, The University of Tokyo)
    Abstract: We present positive evidence of price stability of cryptocurrencies as a medium of exchange. For the sample years from 2016 to 2020, the prices of major cryptocurrencies are found to be stable, relative to major financial assets. Specifically, after filtering out the less-than-one-month cycles, we investigate the daily returns in US dollars of the major cryptocurrencies (i.e., Bitcoin, Ethereum, and Ripple) as well as their comparators (i.e., major legal tenders, the Euro and Japanese yen, and the major stock indexes, S&P 500 and MSCI World Index). We examine the stability of the filtered daily returns using three different measures. First, the Pearson correlations increased in later years in our sample. Second, based on the dynamic time-warping method that allows lags and leads in relations, the similarities in the daily returns of cryptocurrencies with their comparators have been present even since 2016. Third, we check whether the cumulative sum of errors to predict cryptocurrency prices, assuming stable relations with comparators’ daily returns, does not exceeds the bounds implied by 1 the Black-Scholes model. This test, in other words, does not reject the efficient market hypothesis.
    Date: 2021–11
  5. By: Fantazzini, Dean; Calabrese, Raffaella
    Abstract: While there is an increasing interest in crypto-assets, the credit risk of these exchanges is still relatively unexplored. To fill this gap, we consider a unique data set on 144 exchanges active from the first quarter of 2018 to the first quarter of 2021. We analyze the determinants of the decision of closing an exchange using credit scoring and machine learning techniques. The cybersecurity grades, having a public developer team, the age of the exchange, and the number of available traded cryptocurrencies are the main significant covariates across different model specifications. Both in-sample and out-of-sample analyses confirm these findings. These results are robust to the inclusion of additional variables considering the country of registration of these exchanges and whether they are centralized or decentralized.
    Keywords: Exchange; Bitcoin; Crypto-assets; Crypto-currencies; Credit risk; Bankruptcy; Default Probability
    JEL: C21 C35 C51 C53 G23 G32 G33
    Date: 2021
  6. By: Angelo Baglioni (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Andrea Monticini (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); David Peel
    Abstract: We study the impact of ECB’s supervisory announcements on the Bank Stock index, from 2013 through 2017. Our evidence shows that the news, related to supervisory actions, do have highly significant effects on the market price of banks, contributing to the volatility of the Bank Stock Index for Europe and Italy. Most announcements signal the need to raise more regulatory capital and lead to negative returns in the stock market, thus increasing the cost of raising new capital. Our study is related to previous ones (by Bernanke and Kuttner) focusing on the impact of monetary policy announcements on the stock exchange.
    Keywords: Banking Supervision, ECB, GARCH, Stock Market.
    JEL: G21 G28
    Date: 2021–11
  7. By: Remzi Uctum; Georges Prat
    Abstract: Using Consensus Economics survey-based data we show that oil price expectations are not rational, implying that the ex-ante premium is a more relevant concept than the widely popular ex-post premium. We propose for the 3- and 12-month horizons a portfolio choice model with risky oil assets and a risk-free asset. At the maximized expected utility the risk premium is defined as the product of the risk price by the expected oil return volatility. We show that the representative investor can be risk averse or risk seeking depending on the state of nature, implying that the price of risk is positive or negative, respectively. The price of risk and expected volatility being unobservable magnitudes, a state-space model, where the risk prices are represented as stochastic unobservable components and where expected volatilities depend on historical squared returns, is estimated using Kalman filtering. We find evidence of significant disparities of risk prices according to horizons: higher amplitudes and risk seeking behaviour are associated with short horizons and lower fluctuations and risk aversion attitude characterize longer horizons. We show that macroeconomic, financial and oil market-related factors drive risk prices whose signs are consistent with the predictions of prospect theory. An upward sloped term structure of oil risk premia prevails in average over the period.
    Keywords: oil market, oil price expectations, ex-ante risk premium
    JEL: D81 G11 Q43
    Date: 2021

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