The hedging argument of Black and Scholes (1973) hinges on the assumption that a continuously rebalanced asset portfolio satisfies the continuous-time self-financing condition. This condition, which is a special case of the continuous-time budget equation of Merton (1971), is believed to...

The option pricing formula of Black and Scholes (1973) hinges on the continuous-time self-financing condition, which is a special case of the continuous-time budget equation of Merton (1971). The self-financing condition is believed to formalize the economic concept of portfolio rebalancing...

We present a new method to examine financial contagion, defined as a sudden strengthening of shock transmission between financial markets. In particular, we develop a correlation-like measure of synchronicity between markets that is straightforward to implement while being insensitive to...

This paper examines whether there is a political budget cycle (PBC) in countries in the euro area. Using a multivariate model for the period 1999-2004 and various election indicators we find strong evidence that the Stability and Growth Pact has not restricted fiscal policy makers in the euro...

We develop multivariate measures of synchronicity and co-movement of business cycles. In addition to synchronicity, the co-movement measure takes differences between cycle amplitudes into account that have been overlooked in most previous studies. We apply the new measures to the euro area....

Empirical research on contagion between international stock markets generally focuses on market returns converted to US dollars, as this would be consistent with the perspective of an international investor. This note argues that such a conversion is inappropriate, since only returns denominated...

We develop multivariate measures of synchronicity and co-movement of business cycles. In addition to synchronicity, the co-movement measure takes differences between cycle amplitudes into account that have been overlooked in most previous studies. We apply the new measures to the euro area....

Financial contagion studies generally examine whether co-movement between markets increases during a crisis. We use a flexible co-movement measure to examine how conclusions of such analyses depend on the sample chosen as the ‘crisis’. To this end, we analyse stock market co-movement during...

We show that through facilitating maturity transformation, the lender of last resort gives banks an incentive to lever, diversify, and lower their lending standards. Bank leverage increases shareholder value because maturity transformation effectively allows banks to borrow against lower...