Information effects of loan portfolio quality on bank value

In this paper, the authors test whether loan-loss reserve announcements by individual commercial banks can have contagion effects on the banking industry. It is found that increased loan-loss reserves related to LDC debt do not have an effect on other banks. However, increased loan-loss reserves related to bad real estate loans elicited a negative share price response at other banks. The signal from a loss reserve adjustment is dependent on the reason for the adjustment. While LDC debt problems were restricted to money center banks and were well publicized, real estate loan problems can be contagious throughout the industry. Consequently, signals of real estate loan problems at some banks can cause a reduced valuation of other banks.     

Impact of Visibility and Investment Advisor Credibility on the Valuation Effects of High-Tech Cross-Border Acquisitions

Since foreign high-tech firms exhibit a high level of asymmetric information, there is much investor skepticism surrounding the potential benefits to US firms that acquire them. However, the investor perception may be more favorable when the acquisitions involve more visible targets and advice from investment banks with a strong reputation. Based on a sample of 503 high-tech cross-border acquisitions, bidding-firm shareholders experience positive but statistically insignificant valuation effects overall. However, bidder firms experience positive and significant valuation effects when the foreign high-tech target receives a high level of media attention and when the acquisition is endorsed by a top-tier investment bank. Visibility and credibility enhance the perceived benefits of acquiring foreign targets that have substantial intangible assets and a high level of asymmetric information.     

BANK EXPOSURE TO INTEREST RATE RISK: A GLOBAL PERSPECTIVE

In 1993, the Basle Committee on Banking Supervision considered whether to incorporate interest rate risk in risk-based capital requirements for international banks. At issue was whether a bank's interest rate risk varies with the country of concern. While the effects of interest rate movements on U.S. banks are well documented, the effects on banks from other countries are not. We find that bank interest rate risk varies among countries, which supports the need to capture interest rate risk differentials in the risk-based capital requirements. We also find that non-U.S. bank values are sensitive not only to domestic interest rates, but to international interest rates as well.     

What Drives Stock Price Behavior Following Extreme One-Day Returns

We identify samples of losers and winners by selecting daily stock price returns in excess of 10% (sign ignored) and determine whether these samples over‐ or underreact. We then identify “informed” events, which correspond to announcements in the Wall Street Journal(WSJ), and “uninformed” events, which are not explained in the WSJ. For winners, there is overreaction in response to uninformed events but no overreaction on average in response to informed events. This finding suggests the degree of overreaction to new information depends on whether the cause of the extreme stock price change is publicly released.     

PRICING CURRENCY FUTURES OPTIONS WITH LOGNORMALLY DISTRIBUTED JUMPS

We find that a mixed diffusion-jump process fits most daily currency futures price series better than a mixture of normal densities and, especially, an asymmetric stable Paretian model. We also find that Merton's (1976) mixed diffusion-jump option pricing model outperforms Black's (1 976) model for valuing currency futures options. Our results suggest that researchers should begin to consider the possibility of jump processes as time-independent models of other futures price series.     

REIT Characteristics and the Sensitivity of REIT Returns

Previous research on the returns to real estate investment trusts (REITs) has considered whether REITs are systematically exposed to general stock-market risk and interest-rate risk. This study examines how the sensitivity of REIT returns to these factors may be influenced by various REIT characteristics. Using a sample of publicly traded REITs, we estimate the sensitivity of REIT returns to stock market and interest-rate changes. We then propose and implement a model for testing whether differences in asset structure, financial leverage, management strategy, and degree of specialization in the REIT portfolios are related to their sensitivity to interest rate and market risk. Our results permit us to offer some inferences about how REITs can alter their risk exposure by managing these characteristics.