Analyzing interest rate risk: Stochastic volatility in the term structure of government bond yields

We propose a Nelson–Siegel type interest rate term structure model where the underlying yield factors follow autoregressive processes with stochastic volatility. The factor volatilities parsimoniously capture risk inherent to the term structure and are associated with the time-varying uncertainty of the yield curve’s level, slope and curvature. Estimating the model based on US government bond yields applying Markov chain Monte Carlo techniques we find that the factor volatilities follow highly persistent processes. We show that yield factors and factor volatilities are closely related to macroeconomic state variables as well as the conditional variances thereof.     

Determining underlying macroeconomic fundamentals during emerging market crises: Are conditions as bad as they seem?

Emerging market crises are characterized by large swings in both macroeconomic fundamentals and asset prices. The economic significance of observed movements in macroeconomic variables is obscured by the brief and extreme nature of crises. In this paper we propose to study the macroeconomic consequences of crises by studying the behavior of “effective” fundamentals, constructed by studying the relative movements of stock prices during crises. We find that these effective fundamentals provide a different picture than that implied by observed fundamentals. First, asset prices often reflect expectations of improvement in fundamentals after the initial devaluations; specifically, effective depreciations are positive but not as large as the observed ones. Second, crises vary in their effect on credit market conditions, with investors expecting tightening of credit in some cases (Mexico 1994, Philippines 1997), but loosening of credit in others (Sweden 1992, Korea 1997, Brazil 1999).     

欧债危机国家国债与股票收益率相关性研究

欧债危机爆发后,欧元区国家国债与股票市场的相关性呈现出新的特点。在深入分析国债和股票市场风险传导机制的基础上,提出了一个分析两者关系的理论框架,将股债相关性的变化归因于贴现率、资金流、风险三大因素的复合效应。利用希腊、葡萄牙、西班牙和德国的数据,对国债和股票收益率的相关性进行了多角度的实证研究,结果表明,本文的理论框架能够很好地解释危机前后各种股债关系的变化。     

Audit opinion and earnings management: Evidence from Greece

This study examines the relationship between audit opinions and earnings management, as measured by discretionary accruals, for listed firms on the Athens Stock Exchange (ASE). We divide the qualified audit opinions into two categories: qualified for the going-concern uncertainty and qualified for other reasons. The results indicate that audit opinions are not related to earnings management. Client financial characteristics, such as profitability and size are determinants of the going-concern audit opinion decision. The decision of auditors to issue qualified opinions for other reasons is explained by the type of audit opinion issued in the previous year.     

Central banks and macroeconomic policy choices: Relaxing the trilemma

Macroeconomic policy choices in open economies are constrained by the trilemma according to which the objectives of exchange rate stability, monetary independence and capital mobility cannot be attained jointly. This paper shows that foreign exchange interventions provide an effective instrument to relax the trilemma. An active reserve policy allows central banks to pursue independent monetary and exchange rate policies when the capital account is liberalised.We use the framework of the portfolio balance model to show that exchange market interventions may substitute for capital controls. Both allow a country to achieve the other two objectives of the trilemma. Our empirical analysis of a large country panel data set covering the period 1970–2010 confirms this theoretical insight: the weighted sum of the three trilemma objectives increases in the degree of foreign exchange market intervention. The capacity to relax the trilemma constraint has increased over time and has been most effective in emerging markets.     

《新兴市场稳定资本流动和公平债务重组的原则》述评

《新兴市场稳定资本流动和公平债务重组的原则》(以下简称《原则》)是由一些新兴市场国家和以国际金融协会为首的国际私人债权人组织在2004年11月联合发布的。这一《原则》旨在促使发生债务危机的国家尽早恢复债务支付能力和确保国际资本向这些国家的稳定流动,其中主要涉及到透明度和信息流动、双方对话与合作、善意行动和债权人间公平待遇等基本原则。这些原则对于完善债务危机解决机制具有重要意义。     

The Opportunities, Risks and Suggestions for Overseas Direct Investment of Chinese Enterprises Based on the Background of Global Sovereign Debt Crisis

2008年金融危机以来,欧美等发达国家主权债务危机接连爆发。危机的发生带来跨国公司在全球范围内对生产经营的调整,从而影响全球资本流动,也给我国企业拓展海外投资带来了机遇和风险并存的外部环境。本文从境外直接投资角度,分析主权债务危机给中国企业境外投资带来的机遇和风险,并对我国企业在主权债务危机背景下开展境外直接投资活动提出了相关建议。     

Credit default swaps and the market for sovereign debt

In this paper, we analyze the determinants and effects of credit default swap (CDS) trading initiation in the sovereign bond market. CDS trading initiation is associated with a 30–150 basis point reduction in sovereign bond yields, with greater yield reductions accruing to higher default risk economies. For countries with high default risk, rated B or lower by Standard and Poor’s, CDS initiation is also associated with significant price efficiency benefits in the underlying market. CDS trading initiation is more likely following increases in local equity index volatility, index spreads for regional and global CDS markets, or depreciation of the local currency relative to the US dollar, and decreases in a country’s ability to service foreign debt. Our results are robust to selection bias controls based on these factors.     

Foreign macroeconomic and industry-related information transfers around earnings announcements: Evidence from U.S.-listed non-U.S. firms

This study examines information transfer regarding how investors react to new foreign macroeconomic and industry-related information embedded in foreign firms' earnings releases. Using non-U.S. firms listed in the U.S. as our main setting, we find that U.S. investors react significantly to foreign macroeconomic information and to information generated by the interaction between macroeconomic and industry-related information. We also find that the benefits (costs) of processing earnings reports increase (decrease) both types of information transfers. In addition, we find macroeconomic information transfers in an international cross-listing setting and both types of information transfers in an international non-cross-listing setting.     

Illiquidity or credit deterioration: A study of liquidity in the US corporate bond market during financial crises

We investigate whether liquidity is an important price factor in the US corporate bond market. In particular, we focus on whether liquidity effects are more pronounced in periods of financial crises, especially for bonds with high credit risk, using a unique data set covering more than 20,000 bonds, between October 2004 and December 2008. We employ a wide range of liquidity measures and find that liquidity effects account for approximately 14% of the explained market-wide corporate yield spread changes. We conclude that the economic impact of the liquidity measures is significantly larger in periods of crisis, and for speculative grade bonds.     

银行间债市收益率上扬的成因及后市展望

自2013年6月以来,利率的上行趋势已从货币市场利率扩散到中长端国债收益率,并蔓延到短端收益率。回归分析结果表明,经济基本面和资金面仅可部分解释国债收益率的上涨。文章进一步分析指出,货币政策维持中性偏紧趋向、金融机构调整资产配置结构削减债券投资额度、银行筹资方式多元化推高资金成本这三大因素,也是引起本轮利率接力上行的显著外力。中长期看,债券市场收益率中枢将随之抬升。在中性偏紧的货币政策基调没有改变前,债券市场将只有阶段性回嗳而无趋势性好转的行情。     

Leadership structure and the value of debt contracts: Evidence from the Canadian market

This paper investigates the impact of a firm's leadership structure on its ability to generate value from loans by examining the market reaction to the disclosure of Canadian bank credit agreements. Two leadership structures are considered in this paper. In the first scenario, the positions of Chief Executive Officer and Chair of the Board are held by two different persons (denoted as a Separate CEO-Chair structure); in the second scenario, both positions are held by the same person (denoted as a Combined CEO-Chair structure).We observe a stronger market reaction to the announcement of bank credit agreements when firms have a Separate CEO-Chair structure (relative to a Combined CEO-Chair structure). This stronger market reaction for firms with a Separate CEO-Chair structure suggests that the division of CEO and Chair of the Board responsibilities between two people enhances a firm's ability to generate value from its loans. This conclusion is further supported by the fact that the observed market reaction for firms with a Separate CEO-Chair structure is even greater when the size of the board of directors is small. Our results also indicate that bank monitoring activities are more valuable for firms with a Combined CEO-Chair structure and no institutional shareholder.     

The effect of macroeconomic news on beliefs and preferences: Evidence from the options market

We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price densities (SPDs) of bond prices shortly before and after the announcements. We find that the announcements reduce the uncertainty implicit in the second moment of the SPD regardless of the content of the news. The changes in the higher-order moments, in contrast, depend on whether the news is good or bad for economic prospects. We explore three alternative explanations for our empirical findings: relative mispricing, changes in beliefs, and changes in preferences. We find that our results are consistent with time-varying risk aversion.     

Cojumping: Evidence from the US Treasury bond and futures markets

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using formal cojumping tests this paper considers the cojumping behavior of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher sampling frequencies. We find that the probability of cojumping is altered by the presence of an anticipated macroeconomic news announcement. The probability of cojumping is particularly affected by news surprises in non-farm payrolls, CPI, GDP and retail sales. However, the two cojumping tests are also more likely to provide contradictory results in the presence of surprises in non-farm payrolls. On these occasions the market does not clearly signal its short term pricing behavior.     

My global fund portfolio is not yours: the effect of home bias on European- and US-managed convertible bond fund exposures

This paper shows that global convertible bond funds (CBFs) and their resulting equity-bond exposures are regionally biased. Global bond fund managers display home bias, resulting in CBFs that are not only tilted towards the home market but also reflect the different bond-equity exposures of European and US convertibles. More specifically we find that global funds managed by a European asset management firm are more bond-like than global funds managed by a US-based asset manager. Hence, investors have to account for the asset management company's origin to avoid that the performance of the fund and its correlation with other assets is not in line with investor's ex ante expectations about globally managed portfolios. Our results also indicate that for investors of European-based CBFs this home bias has resulted in an ex post opportunity cost up to 1.38% per year, depending on the sample period.     

Risk and return in convertible arbitrage: Evidence from the convertible bond market

In this paper, we identify and document the empirical characteristics of the key drivers of convertible arbitrage as a strategy and how they impact the performance of convertible arbitrage hedge funds. We show that the returns of a buy-and-hedge strategy involving taking a long position in convertible bonds (“CBs”) while hedging the equity risk alone explains a substantial amount of these funds' return dynamics. In addition, we highlight the importance of non-price variables such as extreme market-wide events and the supply of CBs on performance. Out-of-sample tests provide corroborative evidence on our model's predictions. At a more micro level, larger funds appear to be less dependent on directional exposure to CBs and more active in shorting stocks to hedge their exposure than smaller funds. They are also more vulnerable to supply shocks in the CB market. These findings are consistent with economies of scale that large funds enjoy in accessing the stock loan market. However, the friction involved in adjusting the stock of risk capital managed by a large fund can negatively impact performance when the supply of CBs declines. Taken together, our findings are consistent with convertible arbitrageurs collectively being rewarded for playing an intermediation role of funding CB issuers whilst distributing part of the equity risk of CBs to the equity market.     

The dynamics among G7 government bond and equity markets and the implications for international capital market diversification

This paper investigates potential international capital market diversification gains from relationships between global government bond and equity markets. Its primary contributions are (1) including both government debt and equity markets in the investigation of global diversification gains, (2) basing the analysis on real, risk-adjusted returns, and (3) evaluating both variance decompositions and impulse responses, as well as long-term relationships for international U.S. dollar investors. We find the cointegration, variance decomposition, and impulse response function results indicate interdependence and reduction in gains to international diversification.     

Round-the-clock market efficiency and home bias: Evidence from the international Japanese government bonds futures markets

This paper examines how information is processed between almost identical international futures markets: London (LIFFE) and Tokyo (TSE) JGB futures. In these markets, variations in open-to-open changes are virtually the same as those of close-to-close changes, suggesting that information is transmitted efficiently across markets with small opening pricing errors. The overall results confirm market efficiency around the clock, yet the intraday U-shaped patterns in volume/volatility of the London JGB futures suggest home bias in international investments, indicating a less global view of trading than expected. Specifically, at the LIFFE open, London investors rush to rebalance portfolios instead of doing so at the TSE close, which is only one hour before the LIFFE opens.     

Loan supply shocks during the financial crisis: Evidence for the Euro area

This paper employs a panel vector autoregressive model for the member countries of the Euro Area to explore the role of banks during the slump of the real economy that followed the financial crisis. In particular, we seek to quantify the macroeconomic effects of adverse loan supply shocks, which are identified using sign restrictions. We find that loan supply shocks significantly contributed to the evolution of the loan volume and real GDP growth in all member countries during the financial crisis. However, concerning both, the timing and the magnitude of the shocks our results also indicate that the Euro Area was characterized by a considerable degree of cross-country heterogeneity.