What is in a Name? Group Coordination or Consolidation Plan—What is Allowed Under the EIR Recast?

The European Insolvency Regulation Recast allows for group coordination proceedings if insolvency proceedings have been opened against different companies belonging to a single group. Group coordination proceedings imply the drafting of a group coordination plan in order to define an integrated solution to the group's problems. This plan shall not include recommendations as to any consolidation of proceedings or insolvency estates. Against the backdrop of the evolving notion of ‘procedural consolidation’ and the fact the insolvency practitioners and courts concerned have to cooperate and communicate with each other, this prohibition is misplaced and should be interpreted to mean only that main or secondary proceedings opened in a member state cannot be transferred to another jurisdiction. The effective administration of insolvency proceedings of related group companies often demands an integrated solution to the group's problems, which will inevitably lead to some form of consolidation. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd.     

Quantifying preferential trading in the e-MID interbank market

Interbank markets allow credit institutions to exchange capital for purposes of liquidity management. These markets are among the most liquid markets in the financial system. However, liquidity of interbank markets dropped during the 2007–2008 financial crisis, and such a lack of liquidity influenced the entire economic system. In this paper, we analyse transaction data from the e-MID market which is the only electronic interbank market in the Euro Area and US, over a period of 11 years (1999–2009). We adapt a method developed to detect statistically validated links in a network, in order to reveal preferential trading in a directed network. Preferential trading between banks is detected by comparing empirically observed trading relationships with a null hypothesis that assumes random trading among banks doing a heterogeneous number of transactions. Preferential trading patterns are revealed at time windows of 3-maintenance periods. We show that preferential trading is observed throughout the whole period of analysis and that the number of preferential trading links does not show any significant trend in time, in spite of a decreasing trend in the number of pairs of banks making transactions. We observe that preferential trading connections typically involve large trading volumes. During the crisis, we also observe that transactions occurring between banks with a preferential connection occur at larger interest rates than the complement set—an effect that is not observed before the crisis.     

Joint accounting choices: an examination of firms’ adoption strategies for SFAS No. 106 AND SFAS No. 109

We provide insight into an argument that firms minimize the costs imposed by new accounting standards through their adoption choices. Focusing on two standards with potentially large impacts on both balance sheet and income statement accounts for many firms, we present evidence that firms chose their strategies for SFAS No. 106 (OPEB) and 109 (DTAX) jointly rather than separately. We also provide insight into how firms view recurring versus non-recurring charges, and how they weigh the tradeoff between a large one-time (income decreasing) charge against the smaller, but longer lasting effects of amortization.

Vertical Contract Disclosure in Three-Tier Industries*

Consider a three-tier industry with a monopolist supplying a manufacturer which sells its product to final consumers through two retailers. Contracts are linear and secret. Hence, upon receiving an out-of-equilibrium offer, each retailer must form a belief about the identity of the deviating upstream firm. This beliefs' specification problem wipes out if an Open Book Accounting (OBA) policy is implemented, whereby the input price is disclosed to retailers. Under Cournot (Bertrand) competition, OBA increases industry profits and consumer surplus if retailers believe that any out-of-equilibrium offer is more likely to reflect a deviation by the upstream supplier (by the manufacturer).     

Financial market models with Lévy processes and time-varying volatility

Asset management and pricing models require the proper modeling of the return distribution of financial assets. While the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution, numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution. Alternative models for describing return distributions have been proposed since the 1960s, with the strongest empirical and theoretical support being provided for the family of stable distributions (with the normal distribution being a special case of this distribution). Since the turn of the century, specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions. More specifically, subclasses of the tempered stable distribution have been proposed. In this paper, we propose one such subclass of the tempered stable distribution which we refer to as the “KR distribution”. We empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution: the Carr–Geman–Madan–Yor (CGMY) distribution and the modified tempered stable (MTS) distribution. The advantage of the KR distribution over the other two distributions is that it has more flexible tail parameters. For these three subclasses of the tempered stable distribution, which are infinitely divisible and have exponential moments for some neighborhood of zero, we generate the exponential Lévy market models induced from them. We then construct a new GARCH model with the infinitely divisible distributed innovation and three subclasses of that GARCH model that incorporates three observed properties of asset returns: volatility clustering, fat tails, and skewness. We formulate the algorithm to find the risk-neutral return processes for those GARCH models using the “change of measure” for the tempered stable distributions. To compare the performance of those exponential Lévy models and the GARCH models, we report the results of the parameters estimated for the S&P 500 index and investigate the out-of-sample forecasting performance for those GARCH models for the S&P 500 option prices.     

Interest Arbitration and the Narcotic Effect: Evidence from Three Decades of Collective Bargaining in Ontario

We study whether there is increased reliance on interest arbitration, that is, a narcotic or addictive effect or, alternatively, positive state dependence, in public sector contract settlements. We use contract data from three sectors (police, firefighters and hospitals) in the Canadian province of Ontario, which covers 1981 to 2012. The length of our study period yields much longer bargaining histories than previously used, which should provide more compelling evidence on whether there is increased reliance on interest arbitration to settle bargaining impasses over time. We obtain our estimates using a dynamic probit model with random effects that models the initial conditions. Our estimates indicate — across all the sectors we consider and some robustness checks — that there is a narcotic effect in interest arbitration usage despite very different average propensities to use arbitration across sectors.     

Bank loan recovery rates: Measuring and nonparametric density estimation

In this paper we analyse a comprehensive database of 149,378 recovery rates on Italian bank loans. We investigate a new methodology to compute the recovery percentage that we suggest to consider as a mixed random variable. To estimate the probability density function of such a mixture, we propose the mixture of beta kernels estimator and we analyse its performance by Monte Carlo simulations. The application of these proposals to the Bank of Italy’s data shows that, even if we remove the endpoints from the support of the recovery rate, the density function estimate is far from being a beta function.     

Matching and Inverse Propensity Weighting Estimates of the Union Wage Premium: Evidence from Canada, 1997–2014

I estimate the union wage premium for private‐sector workers using Canadian data from Statistics Canada's Labour Force Survey from 1997 to 2014, examining the trend and gender differences in the premium. I obtain my estimates using matching and inverse propensity weighting estimators, which form counterfactuals for union workers. These estimators create better covariate balance and can also be used to address the bias that arises from the log transformation of wages.