The effect of foreign currency hedging on the probability of financial distress

This paper investigates the effect of foreign currency hedging with derivatives on the probability of financial distress. I use Merton’s (1974) structural default model to compute firms’ distance to default as a proxy for their probability of financial distress. Using an instrumental variables approach to control for endogenous hedging and leverage, I find that the extent of foreign currency hedging is associated with a lower probability of financial distress. Whereas previous research finds that the probability of financial distress is a determinant of a firm’s hedging policy, this paper provides direct evidence supporting the hypothesis that the extent of hedging reduces a firm’s probability of financial distress.     

略论中国经济的流动性过剩——基于经济学视角

在总结了目前理论界对流动性过剩的观点的基础上,分析了中国经济的流动性过剩的现状,并从货币的供给与需求的角度分析了其产生的根源,最后提出了治理中国经济流动性过剩问题的对策与建议。     

PUT-CALL SYMMETRY: EXTENSIONS AND APPLICATIONS

Classic put-call symmetry relates the prices of puts and calls at strikes on opposite sides of the forward price. We extend put-call symmetry in several directions. Relaxing the assumptions, we generalize to unified local/stochastic volatility models and time-changed Lévy processes, under a symmetry condition. Further relaxing the assumptions, we generalize to various  asymmetric  dynamics. Extending the conclusions, we take an arbitrarily given payoff of European style or single/double/sequential barrier style, and we construct a conjugate European-style claim of equal value, and thereby a semistatic hedge of the given payoff.     

An International Asset Pricing Model with Time-Varying Hedging Risk

This paper employs a two-factor international equilibrium asset pricing model to examine the pricing relationships among the world's five largest equity markets. In addition to the traditional market factor premium, a hedging factor premium is included as the second factor to explain the relationship between risks and returns in the international stock markets. Moreover, a GARCH parameterization is adopted to characterize the general dynamics of the conditional second moments. The results suggest that the additional hedging risk premium is needed to explain rates of return on international equities. Furthermore, the restriction that the coefficient on the hedge-portfolio covariance is one smaller than the coefficient on the market-portfolio covariance can not be rejected. This suggests that the intertemporal asset pricing model proposed by Campbell (1993) can be used to explain the returns on the five largest stock market indices.     

套期保值与企业价值的文献回顾

论文对套期保值与企业价值的理论和实证研究文献作了系统的回顾,全面地归纳和总结了企业套期保值的动因,套期保值同企业价值的关系以及企业利用衍生工具进行套期保值的各种机制。大部分的实证结果表明,套期保值在不同程度上提高了企业的价值。论文的贡献在于对已有的研究方法进行了稳健性分析,并提出进一步的研究方向,包括扩展研究企业套期保值的工具和套期保值的程度;不同套期保值机制及其组合;对实证模型的变量及其关系做进一步的研究和分析;以及将套期保值的成本和损益作为实证模型中的控制变量,以使模型更完整。     

期货市场套期保值线性策略的困境:理论评述

对传统套期保值理论框架中的线性策略进行理论评述,阐述期货市场上存在的非线性特征对传统线性策略所构成的挑战。最后,提出依据连接函数构建非线性套期保值策略的思路。通过案例分析表明,非线性策略能够结合市场不对称相关特征,具备解决市场极端变化以及不对称相关问题的能力。     

Derivative disclosures and managerial opportunism

Derivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial opportunistic behavior. We employ insider trades and stock price crash risk to capture managerial opportunism. Applying a difference-in-differences research design with hand-collected data on derivative designations, we find that, after the implementation of SFAS 161, derivative users that comply with SFAS 161 experience a significantly greater decrease in both insider trades and stock price crash risk, compared with a matched control sample of nonderivative-users. We further provide evidence to suggest that SFAS 161 curbs managerial opportunism via reducing information asymmetry between corporate insiders and outside investors and enhancing the effectiveness of derivative hedging.     

Risk spillovers between cryptocurrencies and traditional currencies and gold under different global economic conditions

This paper applies a Diagonal BEKK model to investigate the risk spillovers of three major cryptocurrencies to ten leading traditional currencies and two gold prices (Spot Gold and Gold Futures). The daily data used are from 7 August 2015 to 15 June 2020. The dataset is analyzed in its entirety and is also subdivided into four distinct subsets in order to study and compare the patterns of spillover effects during economic turmoil, such as the 2018 cryptocurrency crash and the COVID-19 pandemic. The results reveal significant co-volatility spillover effects between cryptocurrency and traditional currency or gold markets, especially during the whole sample period and amid the uncertainty raised by COVID-19. The capabilities of cryptocurrency are time-varying and related to economic uncertainty or shocks. There are significant differences between normal and extreme markets with regard to the capabilities of cryptocurrency as a diversifier, a hedge or a safe haven. We find the significant co-volatility spillover effects are asymmetric in most cases especially during the COVID-19 pandemic period, which means the negative return shocks have larger impacts on co-volatility than positive return shocks of the same magnitude. Evidently, cryptocurrencies and traditional currencies or gold can be incorporated into financial portfolios for financial market participants who seek effective risk management and also for optimal dynamic hedging purposes against economic turmoil and downward movements.     

Price discovery in commodity derivatives: Speculation or hedging?

We investigate whether commodity futures or options markets play a more important role in the price discovery process in the six most actively traded markets: crude oil, natural gas, gold, silver, corn, and soybeans. Using new information leadership techniques, we report new evidence and report that both markets make a meaningful contribution to price discovery in recent times; however, on average, options lead futures in reflecting new information for a majority of these commodities. We find that increased speculation, rather than hedging activity, in commodity derivatives is a key determinant of price discovery in the options markets.     

Hedging and diversification across commodity assets

ABSTRACT

We investigate the conditional cross effects and volatility spillover between equity markets and commodity markets (oil and gold), Fama and French HML and SMB factors, volatility index (VIX) and bonds using different multivariate GARCH specifications considering the potential asymmetry and persistence behaviours. We analyse the dynamic conditional correlation between the US equity market and a set of commodity prices and risk factors to forecast the transmission of shock to the equity market firstly, and to determine and compare the optimal hedge ratios from the different models based on the hedging effectiveness of each model. Our findings suggest that all models confirm the significant returns and volatility spillovers. More importantly, we find that GO-GARCH is the best-fit model for modelling the joint dynamics of different financial variables. The results of the current study have implications for investors: (i) the equity market displays inverted dynamics with the volatility index suggesting strong evidence of diversification benefit; (ii) of the hedging assets gold appears the best hedge for the US equity market as it has a higher hedge effectiveness than oil and bonds over time; and (iii) despite these important results, a better hedge may be obtained by using well-selected firm sized and profitability-based portfolios.