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How Banks Respond to Distress: Shifting Risks in Europe's Banking Union

Mink, Mark; Ramcharan, Rodney; van Lelyveld, Iman - 2020

find that risk-shifting interacts with regulatory arbitrage motives to explain how banks adjust their portfolios after … adverse solvency shocks. After regulatory solvency declines, banks increase their exposure to domestic bonds, including higher …

Persistent link: https://www.econbiz.de/10012233968

Daily Market News Sentiment and Stock Prices

Allen, David E.; McAleer, Michael; Singh, Abhay K. - 2015

In recent years there has been a tremendous growth in the influx of news related to traded assets in international financial markets. This financial news is now available via print media but also through real-time online sources such as internet news and social media sources. The increase in the...

Persistent link: https://www.econbiz.de/10011403551

Coordination of Expectations in Asset Pricing Experiments

Hommes, Cars; Sonnemans, Joep; Tuinstra, Jan; van de … - 2003

We investigate expectation formation in a controlled experimental en-vironment. Subjects are asked to predict the price in a standard asset pricingmodel. They do not have knowledge of the underlying market equilibrium equa-tions, but they know all past realized prices and their own predictions....

Persistent link: https://www.econbiz.de/10010324831

Complex Evolutionary Systems in Behavioral Finance

Hommes, Cars; Wagener, Florian - 2008

Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics....

Persistent link: https://www.econbiz.de/10010325725

Default Risk Premia on Government Bonds in a Quantitative Macroeconomic Model

Juessen, Falko; Linnemann, Ludger; Schabert, Andreas - 2009

This paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the...

Persistent link: https://www.econbiz.de/10010325941

An Experimental Study of Bond Market Pricing

Weber, Matthias; Duffy, John; Schram, Arthur - 2016

An important feature of bond markets is the relationship between initial public offering prices and the probability of the issuer defaulting. First, this probability affects the bond prices. Second, IPO prices determine the default probability. Though market equilibrium has been shown to predict...

Persistent link: https://www.econbiz.de/10011526136

Credit Rationing Effects of Credit Value-at-Risk

Slijkerman, Jan Frederik; Smant, David J.C.; de Vries, … - 2004

Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to … asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem …

Persistent link: https://www.econbiz.de/10010325499

Banks, Money, and the Zero Lower Bound on Deposit Rates

Kumhof, Michael; Wang, Xuan - 2020

-in-advance constraints, bank deposits are created through disbursement of bank loans, and banks face a convex lending cost. At the zero lower … bound on deposit rates (ZLBD), changes in policy rates affect activity through both real interest rates and banks’ net …

Persistent link: https://www.econbiz.de/10012427150

Single Stock Call Options as Lottery Tickets

Félix, Luiz; Kräussl, Roman; Stork, Philip - 2016

This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We argue that these options are overpriced because investors' overweight small probability events and overpay for such...

Persistent link: https://www.econbiz.de/10011451534

Will Islamic Banking make the World less risky? An Empirical Analysis of Capital Structure, Risk Shifting and Financial Stability

Farooq, Moazzam; van Wijnbergen, Sweder; Zaheer, Sajjad - 2015

-fledged Islamic banks (IBs) are indeed more stable than conventional banking institutions (CBIs), and are better capitalized than … loss provisioning. Similar results obtain for Islamic windows of mixed banks compared with conventional windows. The … analysis suggests that the loss absorption capacity of Islamic banks leads to less risk taking and a more stable banking system. …

Persistent link: https://www.econbiz.de/10011288404