Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets

We estimate a flexible affine model using an unbalanced panel containing S&P 500 and VIX index returns and option prices and analyze the contribution of VIX options to the model’s in- and out-of-sample performance. We find that they contain valuable information on the risk-neutral conditional distributions of volatility at different time horizons, which is not spanned by the S&P 500 market. This information allows enhanced estimation of the variance risk premium. We gain new insights on the term structure of the variance risk premium, present a trading strategy exploiting these insights, and show how to improve S&P 500 return forecasts.     

地理距离、契约设计与企业内部资本市场借贷风险防控——来自中国企业集团内部借贷交易的证据

地理因素对保持距离型市场交易的影响已被大量文献证实,但系统考察地理因素是否以及如何影响企业内部经济活动的研究仍十分匮乏。基于手工搜集整理的企业集团内部委托贷款这一独特数据,我们实证考察了地理距离对企业集团内部借贷契约设计的影响及相关的风险防控问题。实证结果显示,借贷距离越远,针对借款者的契约设计越严苛,不仅贷款者更可能要求借款者提供抵押担保,而且对资金用途施加限制的概率也大幅增加。进一步研究发现,与地理距离阻碍了信息搜集和监督的经济直觉一致,距离对企业内部借贷契约严苛性的推高作用会因为借贷双方之间的信息摩擦问题差异而改变。而且,基于借贷违约信息的检验结果表明,作为应对信息不对称的机制,动态调整契约严苛性这一精巧契约设计有效降低了企业内部贷款违约风险。本文不仅增进了对地理因素影响企业内部资本配置的认识,而且加深了对企业内部借贷契约设计的理解,从而对如何有效防控企业内部资本市场运作风险具有启示意义。     

Defensive strategy against a private label: Building brand premium for retailer cooperation

We build a game-theoretic model of price competition between a national brand manufacturer and a retailer that also sells its private label. In particular, we examine a national brand's strategy of building brand premium in the context of channel coordination. The importance of national brand's brand equity has been well-documented in many empirical and behavioral studies. We reinforce the argument that building brand premium should be the first line of defense for a national brand instead of aggressively cutting wholesale price. Not only does the national brand manufacturer benefit from it, but also the retailer who sells both the national brand and its own private label has less incentive to promote the latter. Therefore, it can induce retailer cooperation, which is essential for a successful strategy in a distribution channel.     

Fraud risk management: A small business perspective

Small businesses face big challenges when it comes to managing fraud risks. Financial strain, rapid growth, and a lack of resources and expertise create ample opportunity for motivated fraudsters to take advantage of small businesses. In this article, we draw upon insights from our years as fraud investigators to offer seven practical recommendations to help small business leaders prevent and detect fraud in this unique environment. These strategies can help even the smallest company make a big difference when it comes to fraud risk management.     

How does the sensitivity of consumption to income vary over time? International evidence

This paper studies how the sensitivity of consumption to income has changed over time as the degree of financial integration has risen. In standard theory, greater financial integration facilitates international borrowing and lending, helping to reduce the sensitivity of consumption growth to fluctuations in income. We examine the empirical validity of this prediction using an array of indicators of financial integration for a large sample of advanced and developing countries over the period 1960–2011. We report two main results. First, the sensitivity of consumption to income has declined over time as the degree of financial integration has risen. The decline has been more pronounced in advanced economies than in developing ones. Second, our regression analysis indicates that a higher degree of financial integration is associated with a lower sensitivity of consumption to income. This finding is robust to the use of a wide range of empirical specifications, country-specific characteristics and other controls, such as interest rates and outcome-based measures of financial integration. We also discuss other potential sources of the temporal changes in the sensitivity of consumption to income.     

Competition,concentration and risk taking in Banking sector of MENA countries

This paper tests the relationship between competition and bank stability for 356 banks operating in the Middle East North Africa (MENA) countries during the period 2005–2012. Our results show that for the overall sample, a U-shaped relationship between competition and banks’ risk taking for MENA banks. The negative linear relationship between Z-Score and H-statistics in Gulf countries shows that an increase in competition leads to a reduction in the level of financial stability. In the case of other non-Gulf countries, the increase of competition in uncompetitive markets can lead to an increase in stability. The results confirm the importance of the market structure as an explanatory factor for financial stability, but also indicate that concentration is not associated with uncompetitive markets.     

Inflation and the stock market: Understanding the “Fed Model”

The so-called Fed model postulates that the dividend or earnings yield on stocks should equal the yield on nominal Treasury bonds, or at least that the two should be highly correlated. In US data there is indeed a strikingly high time series correlation between the yield on nominal bonds and the dividend yield on equities. This positive correlation is often attributed to the fact that both bond and equity yields comove strongly and positively with expected inflation. Contrary to some of the extant literature, we show that this effect is consistent with modern asset pricing theory incorporating uncertainty about real growth prospects and habit-based risk aversion. In the US, high expected inflation has tended to coincide with periods of heightened uncertainty about real economic growth and unusually high risk aversion, both of which rationally raise equity yields.     

Can mutual funds time risk factors?

Using daily observations from 448 actively managed funds, we employ the methodology in Bollen and Busse (2001) in order to assess the ability of fund managers to time systematic risk factors. We first construct synthetic portfolios in order to obtain the empirical distribution of timing coefficients under the null hypothesis of no timing ability and then compare this distribution to that of the timing coefficients of the actual funds. Fund managers do not seem to be timing any of the risk factors. We interpret this result as evidence that factor timing ability does not persist over long time periods.     

变额年金中最低累积利益保证管理模式研究

变额年金是西方养老保险市场上的主流产品,如何管控最低利益保证的风险是发展这类产品首先需要考虑的问题.本文以含有最低累积利益保证的变额年金为切入点,采用蒙特卡罗的方法分析与对比了固定乘数平衡模式及组合内部对冲模式,对不同市场状况下变额年金应采取的风险管理模式提出了一点建议.     

Risk neutrality regions

An Expected Utility maximizer can be risk neutral over a set of nondegenerate multivariate distributions even though her NM (von Neumann Morgenstern) index is not linear. We provide necessary and sufficient conditions for an individual with a concave NM utility to exhibit risk neutral behavior and characterize the regions of the choice space over which risk neutrality is exhibited. The least concave decomposition of the NM index introduced by Debreu (1976) plays an important role in our analysis as do the notions of minimum concavity points and minimum concavity directions. For the special case where one choice variable is certain, the analysis of risk neutrality requires modification of the Debreu decomposition. The existence of risk neutrality regions is shown to have important implications for the classic consumption–savings and representative agent equilibrium asset pricing models.