ABSTRACT In this study, we present a novel measurement approach for systemic risk by considering an indirect network structure. In a departure from previous studies, this measurement method captures spillovers arising from deleveraging and price impact in financial systems and calculates the amplification of losses during the contagion process. We show the relationship between a bank's vulnerability

We present a new Hawkes-Contact model that combines a Hawkes process and a finite-range contact process to model the stock price movements, especially under the impact of news and other information flows that could lead to contagious effects. To fully capture the underlying price process, we take the Hawkes process to track the full pathway of historical prices on their future movements and the contact

Noise traders are often thought to be detrimental to market stability, increasing volatility and the risk of bubbles and crashes. The effect of noise traders on the learning and development of informed traders, however, has received little attention. We consider a computational model of a derivatives market containing informed traders and noise traders with the former group having to learn to price

(2021). Economic policies and their effects on financial market. The European Journal of Finance: Vol. 27, Economic policies and their effects on financial markets, pp. 929-931.

This paper investigates the relationship between bank funding costs and solvency for a large sample of euro area banks using two proprietary ECB datasets for both wholesale funding costs and deposit rates. In particular, the paper studies the relationship between bank solvency, on the one hand, and senior bond yields, term deposit rates and overnight deposit rates, on the other. The analysis finds

The use of technical analysis by practitioners in the foreign exchange market contrasts with the ongoing debate among academics on the poor predictive ability of macroeconomic variables. This paper compares these two methods by constructing pools of economic models and technical trading rules and evaluates their in-sample and out-of-sample performance both locally and globally. Results suggest the

This study constructs an extended value-at-risk model that incorporates all microstructural liquidity components using a high-quality tick-by-tick index options market dataset. Out-of-sample backtesting and mean-difference analyses suggest that the traditional value-at-risk measure significantly underestimates investors’ potential losses relative to our new liquidity-adjusted measure. Logistic regressions

This paper analyzes the stability of stablecoins and proposes a framework to test for absolute and relative stability of stablecoins. Based on high-frequency data, we find strong evidence of excess price variations. While Bitcoin is a likely source of this excess volatility because stablecoin returns, volatility and volumes are highly correlated with corresponding Bitcoin time-series, we also demonstrate

Advances in information and communication technology (ICT) have provided a platform for the introduction and diffusion of a range of financial technologies that have transformed the financial sector. This study analyses the diffusion of financial technology (fintech) and its interaction with financial inclusion and living standards (GDP per capita). We consider the determinants and effects of technology

We empirically analyze the extent to which popular systemic risk measures (SRMs) yield comparable results regarding the systemic importance of a financial institution. More important, we also examine determinants of the degree of consistency in the classification according to the various SRMs. In general, rank correlations tend to be more associated with macroeconomic variables such as the unemployment

We propose a least squares estimator weighted by a combination of lagged realized semivariances related to positive and negative returns (WLS-CRS) and use univariate models alone and in combination to reveal significant return predictability. For an investor with a mean-variance preference who allocates a portfolio based on an equal-weighted combination of WLS-CRS model forecasts, the annual certainty

In this paper, we assess the effectiveness of macroprudential policies in controlling short- and long-term credit growth. Using a sample of 414 banks located in 61 countries, we document that macroprudential policies manifest a stabilizing effect in the short run, reducing credit growth, with borrower-targeted macroprudential policies being the most effective in taming credit developments. However

In a large majority of European countries, a tax relief on mortgage interest payments is granted in order to enhance homeownership. Although there is a common belief stating that a mortgage interest deduction (MID) is capitalized into house prices, empirical evidence remains scarce. Therefore, our paper is about the influence of this fiscal relief on house prices. The scope of our analysis includes

We investigate the effect of risk management (reinsurance) on the corporate cost of equity using panel data drawn from the United Kingdom’s (UK) non-life insurance industry. Our results show that use of reinsurance lowers the cost of equity but that the relation is non-linear. We find that the rate of reduction declines as the level of premiums ceded relative to total gross premiums written increases

The link between cost of capital and information risk is one of the most fundamental and controversial issues in financial accounting. We need an exogenous shock to unequivocally tease out the link between information risk and cost of capital (CoC). In this study, we consider a firm’s listing with the S&P 500 index as the exogenous shock. Listing with the index is expected to bring the firm into the

We revisit the debate on the benefits of international financial integration. We build a partial equilibrium imperfectly competitive model with two countries, where each country has one firm. Firms are Cournot competitors. Within this framework, we examine how the liberalization of international capital flows affects the welfare of each country and their joint welfare. Our results show that international

In this paper, we test whether foreign exchange (FX) rate and interest rate (IR) risks are priced at short to long return horizons. We also test whether the associated risk premia relate to certain stock characteristics. Our new evidence indicates that risk premia increase with the length of the return horizon and that the risk premium signs depend on the sign of the corresponding exposure beta. Thus

Reducing interest rates to below zero may be justified on theoretical grounds. However, in practice, it has been shown to create a number of distortions and malfunctions in several dimensions of banking system and the financial markets, which in turn may affect the whole economy. This paper surveys the theoretical grounds of unconventional monetary policy, focusing mostly on the available empirical

Existing approaches have considered characteristics of Environmental, Social and Corporate Governance (ESG) focused investments from a return-oriented perspective without paying due consideration to investors’ utility and how ESG features impact utility. We contribute to this literature by providing a model that captures the implications for investment if ESG is valued by the investor as well as wealth

Our paper documents that capital utilization and short-term debt are procyclical. We show that a strong positive relationship exists both at the aggregate and firm levels, and it persists even when we control the regressions for firm size, profits, growth, and business cycle effects. In addition, our DSGE model shows that in the presence of capital utilization, positive real and financial shocks cause

This paper investigates hedge fund herding at the industry level and its impact on industry returns. Although the level of industry herding on average is substantially weaker for hedge funds compared to non-hedge fund institutions, we find that industries that experience heavy herding by hedge funds experience return reversals in the long-run. We provide evidence that non-hedge funds especially follow

ABSTRACT We explore a unique dataset on individual investors’ online trading accounts to examine the determinants of their attention and its relation to portfolio performance. In particular, we investigate what individual characteristics affect investor attention and what type of information drives investment performance. We find distinct differences in investors’ attention and provide evidence that

Building on the fast developing – yet not consolidated – literature on blockchain and the financial system, this paper aims to investigate how Distributed Ledger Technologies (DLTs) may affect the banking sector performance by influencing the efficiency of the securities post-trading process. Three different scenarios have been developed and used as a framework to assess the impact of the adoption

The single factor stochastic diffusion processes most commonly used for Real Options Valuation are the Geometric Brownian Motion and Mean Reversion Models. Nonetheless, the choice of process to model asset price dynamics is still one of the main challenges for researchers and practitioners in the field. Particularly, in investment projects where there is significant managerial flexibility, the project

Recent literature suggests that regulatory risk measures do not adequately capture the actual economic risk of bank portfolios. We shed new light on this issue by analyzing both regulatory and accounting standards, i.e. capital requirements and loan loss provisions. Examining a sample of large European banks for the years 2002–2015, we show that regulatory risk sensitivity, i.e. the response of Basel

We analyse the stability of the cross-market shock transmission mechanism between banks and sovereign bonds during the Eurozone sovereign debt crisis for crisis-hit periphery countries and Germany. We also examine the shock propagation of banking shocks and sovereign bond shocks between domestic and external markets. Using a Markov-switching framework, we find strong evidence of bilateral contagion

We propose an actionable calibration procedure for general Quadratic Hawkes models of order book events (market orders, limit orders, cancellations). One of the main features of such models is to encode not only the influence of past events on future events but also, crucially, the influence of past price changes on such events. We show that the empirically calibrated quadratic kernel is well described

We investigate the effects of the Federal Reserve's quantitative easing and maturity extension programs on the yields of US dollar-denominated corporate bonds using a multiple-regime heteroskedasticity-based VAR identification approach. Impulse response functions suggest that a traditional, rate-based expansionary policy may lead to an increase in yields while quantitative easing is linked to a general

We investigate a solution for the problems related to the application of multivariate GARCH models to markets with a large number of stocks by restricting the form of the conditional covariance matrix and by introducing a system of recursion formals. The model is based on a decomposition of the conditional covariance matrix into two components and requires only six parameters to be estimated. The first

This study finds that even after controlling for board gender diversity, TMT gender diversity has a distinct and positive effect on corporate innovation. The study also finds that the joint interaction of tournament incentives and TMT gender diversity is detrimental to innovation, implying the two are substitutes. The substitution effect persists beyond the year of female transition and is concentrated

We conduct laboratory experiments to study whether increasing the number of independent public signals in an economy with endogenous private information is an effective measure to promote the acquisition of information and to enhance price efficiency. We observe that the release of public information crowds out the traders' demand for private information under a single disclosure while favoring private