A hybrid information approach to predict corporate credit risk

This study proposes a hybrid information approach to predict corporate credit risk. In contrast to the previous literature that debates which credit risk model is the best, we pool information from a diverse set of structural and reduced‐form models to produce a model combination based on credit risk prediction. Compared with each single model, the pooled strategies yield consistently lower average risk prediction errors over time. We also find that while the reduced‐form models contribute more in the pooled strategies for speculative‐grade names and longer maturities, the structural models have higher weights for shorter maturities and investment grade names.     

延迟退休年龄下隔代抚育与劳动参与的抉择*——基于工资收入随机性假定的研究

隔代抚育会对延迟退休年龄政策在促进劳动力供给上产生挤出效应。为了对此进行验证，本文在工资收入随机性的假定及延迟退休5年的情景下，模拟了面临孙辈照护需求的女性临近退休者提前退休所产生的福利变化。进一步，本文采用CHIP和CHARLS的微观调查数据，对不同群组的收入增长率和收入风险进行了估计，继而分析了当面临孙辈照护需求时这些收入特征对退休决策者制度退休和退休后劳动参与抉择产生的影响。总体上，在延迟退休年龄政策下，隔代抚育将对女性劳动力供给产生挤出效应。当面临孙辈照护需求时，女性临近退休者的制度退休抉择主要受自身收入增长率和收入风险的影响，收入增长率越低，或收入风险越高，她们提前退休的意愿就越强烈；制度退休后的劳动参与则更多地受子女收入增长率的影响，子女收入增长率越高，劳动参与的概率越低。     

Audit Firm Attributes and Auditor Litigation Risk

This study examines the association between auditors' litigation risk and audit firm attributes. Using professional liability insurance premiums as a proxy for auditors' litigation risk, we present evidence that the risk is lower in audit firms having: (1) separate non-audit and audit divisions; (2) a higher proportion of partners; and (3) a higher annual growth in number of CPAs employed. Additionally, we find that the risk is higher in audit firms having: (1) operating losses; and (2) high revenue growth. Our results are consistent with the idea that audit firms' financial condition and organizational structure affect their independence/ expertise, and, in turn, their litigation risk. Our results are broadly supportive of the PCAOB's (2015) and US Department of Treasury's (2008) views that investors, audit committees, management, and other regulators could benefit from having access to financial and organizational information about audit firms.     

Unbiased estimation of expected return using CAPM

Estimation of expected return is required for many financial decisions. For example, an estimate for cost of capital is required for capital budgeting and cost of equity estimates are needed for performance evaluation based on measures such as EVA. Estimates for expected return are often based on the Capital Asset Pricing Model (CAPM), which states that expected excess return (expected return minus the risk-free rate) is equal to the asset's sensitivity to the world market portfolio (β) times the risk premium on the “world market portfolio” (the market risk premium). Since the world market portfolio, by definition, contains all assets in the world, it is not observable. As a result, an estimate for expected return is commonly obtained by taking an estimate for β based on some index (as a proxy for the world market portfolio) and an estimate for the market risk premium based on a potentially different index and multiplying them together. In this paper, it is shown that this results in a biased estimate for expected return. This is undesirable since biased estimates lead to misallocation of funds and biased performance measures. It is also shown in this paper that the straightforward procedure suggested by Fama and MacBeth [J. Financ. Econ. 1 (1974) 43] results in an unbiased estimate for expected return. Further from the analysis done, it follows that, for an unbiased estimate, it does not matter what proxy is used, as long as it is used correctly an unbiased estimate for expected return results.     

The Impact of Institutional Differences on Derivatives Usage: a Comparative Study of US and Dutch Firms

This paper examines the influence of institutional differences on corporate risk management practices in the USA and the Netherlands. We compare results to surveys in each country using a strategy that corrects for differences over industry and size classes across the Dutch and US samples. We document several differences in the firms’ uses and attitudes towards derivatives and attempt to attribute them to the differences in the institutional environments between the USA and the Netherlands. We find that institutional differences appear to have an important impact on risk management practices and derivatives use across US and Dutch firms.     

Is Volatility the Best Predictor of Market Crashes?

The objective of this paper is to determine the best predictor of equity market crashes by focusing particularly on volatility and market liquidity. In finance, volatility has traditionally been regarded as the best measure of market risk. However, this paper shows that the forecast value of market liquidity, in particular our modified calculated market depth, predicts equity market crashes much more accurately than does the forecast values of EGARCH or Implied Volatility.     

Contrarian Investment in the Dutch Stock Market

The efficient markets hypothesis states that at any times security prices fully reflect all available information. Contrarian investment strategies do not recognize the efficiency of capital markets. They call for buying undervalued stocks, i.e. stocks with a low price relative to their fundamentals. The idea behind such a strategy is to take advantage of the extrapolation behaviour of naive investors. Using a fresh and extensive data set from the Dutch stock market, we found that these strategies yield an outperformance without a higher risk. Our results make it hard to maintain the efficient market hypothesis.     

Beyond Single-Factor Affine Term Structure Models

This article proposes a new approach to testing for the hypothesisof a single priced risk factor driving the term structure ofinterest rates. The method does not rely on any parametric specificationof the state variable dynamics or the market price of risk.It simply exploits the constraint imposed by the no-arbitragecondition on instantaneous expected bond returns. In order toachieve our goal, we develop a Kolmogorov-Smirnov test and applyit to data on Treasury bills and bonds for both the United Statesand Spain. We find that the single risk factor hypothesis cannotbe rejected for either dataset.     

Relative risk aversion, relative prudence and comparative statics under uncertainty: The case of (μ, σ)‐preferences

From the expected‐utility approach, relative risk aversion being smaller than one and relative prudence being smaller than two emerge as preference restrictions that fully determine the optimal responses of decisions under uncertainty to certain shifts in probability distributions. We characterize the magnitudes of relative risk aversion and relative prudence in terms of the two‐parameter, mean‐standard deviation approach. We demonstrate that this characterization is instrumental in obtaining comparative static results in the two‐parameter setting. We further relate our findings to the results in the expected‐utility framework.