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Repo rates frequently exceed unsecured rates in practice. As an explanation, this paper derives a constrained-arbitrage relation between the unsecured rate, the repo rate, and the illiquidity adjusted expected rate of return of the underlying collateral. The theory is based on unsecured...
Persistent link: https://www.econbiz.de/10011976995
We introduce a class of quantile-based risk measures that generalize Value at Risk (VaR) and, likewise Expected Shortfall (ES), take into account both the frequency and the severity of losses. Under VaR a single confidence level is assigned regardless of the size of potential losses. We allow...
Persistent link: https://www.econbiz.de/10011900226
We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign...
Persistent link: https://www.econbiz.de/10011618981
computed when individual losses are discretely supported on a finite grid. Numerical examples study the key features affecting …
Persistent link: https://www.econbiz.de/10011619282
Do credit ratings help enforce market discipline on banks? Analyzing a uniquely comprehensive dataset consisting of 1,081 rating change announcements for 154 international financial institutions between January 2004 and December 2015, we find that rating downgrades for internal reasons, such as...
Persistent link: https://www.econbiz.de/10011627047
This paper shows that FED policy announcements lead to a significant increase in international co-movement in the cross-section of equity and particularly sovereign CDS market. The effect is strongest for emerging markets, when the FED relaxes unconventionary monetary policies, and for countries...
Persistent link: https://www.econbiz.de/10011874674
We construct a dynamic model economy in which investors from segmented markets have varying financial asset demands. Intermediaries make arbitrage profits by exploiting the price spreads across markets. Meanwhile, they are required to separately post collateral to support arbitrage trades. We...
Persistent link: https://www.econbiz.de/10011874838
The part of credit spread that is not explained by corporate credit risk forecasts future economic activity. I show that the link with aggregate business risk and bond liquidity risk explains this fi nding. Once I project spreads on these two risk factors, which are readily measurable with the...
Persistent link: https://www.econbiz.de/10011875655
Market design matters when heterogeneous borrowers roll over loans, facing funding shocks. Borrower anonymity is a key feature of various financial markets, such as short term, interbank lending markets. We show that anonymous markets experience systemic runs for large shocks, but provide...
Persistent link: https://www.econbiz.de/10011876120
We want to assess the relationship between the equity and the debt cost of capital. Using a very simple dividend discount model we compute the implied discount rate and we compare it with the corresponding premium on the corporate credit default swap using a cointegration approach. We...
Persistent link: https://www.econbiz.de/10008797690