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We study three cases in which specialized arbitrageurs lost significant amounts of capital and, as a result, became liquidity demanders rather than providers. The effects on security markets were large and persistent: Prices dropped relative to fundamentals and the rebound took months. While...
Persistent link: https://www.econbiz.de/10005788922
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...
Persistent link: https://www.econbiz.de/10005067592
We study IPOs by focusing on the degree of portfolio diversification of the shareholders taking the company public. We argue that a less diversified shareholder has more to gain from taking the company public and would be more willing to accept a lower price for the sale of its shares, i.e....
Persistent link: https://www.econbiz.de/10005124086
Can we design statistical models to predict corporate earnings which either perform as well as, or even better than analysts? If we can, then we might consider automating the process, and notably apply it to small and international firms which typically have either sparse or no analyst coverage....
Persistent link: https://www.econbiz.de/10011084355
Using a stochastic frontier model and a comprehensive dataset, we study factors that affect corporate efficiency in Europe. We find that (i) larger firms are less efficient than smaller firms, (ii) greater leverage contributes to corporate efficiency, and (iii) high competition is less...
Persistent link: https://www.econbiz.de/10011213309
This Paper analyses the effect of dynamic capital structure adjustments on credit risk. Firms may optimally adjust … find that the underestimation of credit spreads and expected default frequencies is exacerbated when the risk … it is shown that the Value-at-Risk of corporate bonds increases with the distance to default (DD) both for very low and …
Persistent link: https://www.econbiz.de/10005123682
The empirical performance of macroeconomic exchange rate models is more than disappointing. This dismal result is also reflected in the forecasting capabilities of professional analysts: all in all, analysts are not in a position to beat naïve random walk forecasts. The root for this deficient...
Persistent link: https://www.econbiz.de/10005504428
This Paper reinterprets standard axioms in choice theory to introduce the concepts of ‘belief dependent’ utility … of asset returns, including a high equity risk premium, a low risk-free rate, a high return volatility, stock return … that ‘aversion to state-uncertainty’ gives rise to ‘aversion to long-run risk’, that is, to the uncertainty surrounding the …
Persistent link: https://www.econbiz.de/10005661469
Paper, they are derived from risk-value models that generalize the Markowitz-model. We use a behaviourally based risk … measure with an endogenous or exogenous benchmark. If the risk measure is modelled by a negative HARA-function, then sharing … variance and kurtosis of the risk-neutral probability distribution of the aggregate pay-off. …
Persistent link: https://www.econbiz.de/10005136483
equilibrium version of the model with heterogeneous investors who are familiar with different assets, we find that the risk … premium of stocks depends on both systematic and idiosyncratic volatility, and that the equity risk premium is significantly …
Persistent link: https://www.econbiz.de/10008468537