Fire sales by euro area banks and funds: What is their asset price impact?

The assets under management of investment funds have soared in recent years, triggering a debate on their possible implications for financial stability. We contribute to this debate assessing the asset price impact of fire sales in a novel partial equilibrium model of euro area funds and banks calibrated over the period between 2008 and 2017. An initial shock to yields causes funds to sell assets to address investor redemptions, while both banks and funds sell assets to keep their leverage constant. These fire sales generate second-round price effects. We find that the potential losses due to the price impact of fire sales have decreased over time for the system. The contribution of funds to this impact is lower than that of banks. However, funds’ relative contribution has risen due to their increased assets under management and banks’ lower leverage and rebalancing towards loans. Should this trend continue, funds will become an increasingly important source of systemic risk.     

Measuring the deadly embrace: Systemic and sovereign risks

This study contributes to the literature by making a first step toward implementing a comprehensive internally coherent measurement of systemic risk in a country. It measures systemic risk and the ensuing conditional contingent liabilities of the sovereign stemming from Luxembourg’s Other Systemically Important Institutions (OSIIs), the Global Systemically Important Banks (G-SIBs) to which they belong, the investment funds sponsored by the OSIIs, the household and the non-financial corporate sectors. The ensuing estimated systemic contingent claims are included in a stochastic version of the general government’s balance sheet to gauge their impact on the country’s sovereign risk. Results indicate that time-varying conditional implicit guarantees from OSSIs are larger than those from G-SIBs and investment funds, while systemic risk stemming from the household and non-financial corporate sectors is moderate. The robustness of the sovereign is not drastically affected by systemic risk stemming from the rest of the economy. However, illustrating the so-called “deadly embrace”, sovereign risk would significantly rise as a result of a historically plausible increase in sovereign assets’ value volatility combined with an economy-wide shock. The main policy implication is that financial stability stands on two columns, a resilient financial sector and a sustainable fiscal position.     

Life-cycle funds: Much Ado about Nothing?

The core idea of life-cycle funds or target-date funds is to decrease the fund's equity exposure and conversely increase its bond exposure towards the fund's target date. Such funds have been gaining significant market share and were recently set as default choice of asset allocation in numerous defined contribution schemes or related old-age provision products in several countries. Hence, an assessment of life-cycle funds’ risk-return profiles – that is, the probability distribution of returns – is essential for sustainable financial planning of a large group of investors. This paper studies the risk-return profile of life-cycle funds in particular compared to simple balanced or lifestyle funds that apply a constant equity portion throughout the fund's term instead. In a Black–Scholes model, we derive balanced funds that reproduce the risk-return profile of an arbitrary life-cycle fund for single and regular contributions. We then analyze the accuracy of our results under more complex asset models with stochastic interest rates, stochastic equity volatility and jumps. We further show that frequently used ‘rule of thumb approximations’ that only take into account the life-cycle fund's average equity portion are not suitable to approximate a life-cycle fund's risk-return profile. Our results on the one hand facilitate sustainable financial planning and on the other hand challenge the very existence of life-cycle funds since appropriately calibrated balanced funds can offer a similar (often dominating) risk-return profile.     

A Generalized Nash Equilibrium network model for post-disaster humanitarian relief

We develop a Generalized Nash Equilibrium network model for post-disaster humanitarian relief by nongovernmental organizations (NGOs). NGOs derive utility from providing relief supplies to victims of the disaster at demand points in a supply chain context while competing with each other for financial funds provided by donations. The shared constraints consist of lower and upper bounds for demand for relief items at the demand points to reduce materiel convergence or congestion. This game theory problem is reformulated as an optimization problem and numerical examples and a theoretical case study on Hurricane Katrina given.     

On Monetary Policy and Stock Market Anomalies

This study utilizes a macro‐based VAR framework to investigate whether stock portfolios formed on the basis of their value, size and past performance characteristics are affected in a different manner by unexpected US monetary policy actions during the period 1967–2007. Full sample results show that value, small capitalization and past loser stocks are more exposed to monetary policy shocks compared with growth, big capitalization and past winner stocks. Sub‐sample analysis, motivated by variation in the realized premia and parameter instability, reveals that the impact of monetary policy shocks on these portfolios is significant and pronounced only during the pre‐1983 period.     

我国财政专项转移支付决策过程分析--以多源流分析为视角

财政转移支付是1994年实行分税制以来平衡中央-地方以及区域间财力不均的制度，我国专项转移支付又始终占据着财政转移支付的重大比重。专项转移支付在确定资金转移地区，资金转移项目以及每个专项拨款多少的标准是如何确定的？这些都取决于专项转移支付的决策过程。文章通过多源流分析视角来探析我国财政专项转移支付的决策过程中存在的问题，了解我国财政专项转移支付的决策过程。     

Stochastic Dominance Analysis of iShares

Abstract

Country indices as represented by iShares exhibit non-normal return distributions with both skewness and kurtosis. Earlier studies provide procedures for determining the statistical significance of stochastic dominance measures and the Sharpe Ratio. This present study uses these refinements to compare the performance of 18 country market indices. The iShares are indistinguishable when using the Sharpe Ratio as no significant differences are found. In contrast, stochastic dominance procedures identify dominant iShares. Although the results vary over time, stochastic dominance appears to be both more robust and discriminating than the CAPM in the ranking of the iShares.     

The optimal asset allocation of the main types of pension funds: a unified framework

The existing literature deals with the optimal investment strategy of defined benefit (DB) or defined contribution (DC) pension plans. This article’s objective is to compare the optimal policies of different types of pension plans. This is done by first defining an original framework, which is based on the distinction between the nature of the guarantee—which can be internal or external—offered by or to a pension fund. This framework allows to establish links between optimization programs of DC, DB and targeted money purchase schemes. The case of an internal guarantee appears as a standard portfolio insurer’s problem. The second kind of guarantee, not analyzed in the literature yet with regard to the resulting optimal policy, is characterized by the existence of an option in the final wealth definition. Four funds are present in the internal guarantee optimal allocation: the speculative component, the preference independent guarantee- and contribution-hedge terms and the preference dependent state variable-hedge fund. The external guarantee program, solved with an original method using the principles of standard options theory, yields an optimal policy incorporating the delta of the option embodied in the final wealth definition. The conclusion is that the resulting optimal portfolio policy becomes riskier.