This study is motivated by the development of credit-related instruments and signals of stock price movements of large banks during the recent financial crisis. What is common to most of the empirical studies in this field is that they concentrate on modeling the conditional mean. However,...

In this paper, we provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage effect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility, and find that implied...

Several imperfections can prevent entrepreneurs from diversifying away the idiosyncratic risk of their business. As a result idiosyncratic risk discourages entrepreneurial activity and hinders growth, with the effects being stronger in economies with lower risk diversification opportunities. In...

This article uses the DCC-FIAPARCH model to examine the time-varying properties of conditional return and volatility of crude oil and US stock markets as well as their dynamic correlations over the period 1988-2013. Our results indicate that both the long memory and asymmetric behavior...

We compare nonlinear cointegration tests with the standard cointegration tests in studying the relationship of the Dow Jones Islamic finance index with three other conventional equity market indices. Our results show that there is a long-run nonlinear cointegrating relationship between the Dow...

In this paper, we review the extant mathematical and environmental economics literatures on the stochastic properties of CO2 emission allowance futures prices. We explain the main findings arising from this literature from both continuous- and jump-diffusion models. Based on the Activity...

Lagos-Rocheteau (Econometrica, 2009) is part of the literature that applies a search model to asset trade in the over-the-counter market. The only friction in their model is that it takes agents cost to getting into contact with other agents. In this paper, as an alternative to their...

Existing studies in finance have documented the comovement of stock returns of companies headquartered in the same location. The interpretation is that local investors have a “local bias†due to an information advantage on local companies. This paper argues that localized agglomeration...

We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in...

This paper examines five possible explanations for the Great Recession of 2008 and 2009, using data for the United States and the eurozone. Of these five hypotheses, four are not supported by the data, while the fifth appears reasonable.