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• We study asymmetries and dynamics of shocks transmission between cryptocurrencies and traditional assets. • Hedge and diversifier properties of cryptocurrencies are confirmed unconditionally. However, investors should be aware of high amount of idiosyncratic shocks. • Conditional analysis reveals periods of substantial shock transmission between traditional assets and Bitcoin in both directions. • Increases in shock transmission can be attributed to certain events like Bitcoin market disruptions, monetary or political shocks. This paper studies the asymmetric transmission mechanisms of shocks between the most liquid representatives of traditional asset classes, including commodities, foreign exchange, stocks and financials, and cryptocurrencies, represented by Bitcoin. Our results suggest that the unconditional connectedness between cryptocurrencies and traditional assets is negligible. However, conditional analysis uncovers periods of substantial shock transmission between Bitcoin and traditional assets. This finding undermines the potential of Bitcoin as a hedge to traditional assets and shows that market disruptions can spread from Bitcoin to the traditional economy. The increasing market capitalization of cryptocurrencies further strengthens the importance of such findings. [ABSTRACT FROM AUTHOR]

Recently, the importance of traditional firm-specific determinants of capital structure has been challenged. The paper uses the trade-off theory to investigate the managerial experience of top managers as a determinant of capital structure. The paper applies system-generalized method of moments (GMM) which corrects endogeneity problem. Our results reveal that top managers’ experience is positively related to book value measures of capital structure. As top managers’ (CEOs) experience increases, both the book total debt and long-term debt ratios increase. Our results are robust using both the market total debt and long-term debt ratios. Based on the findings, the results suggest that top managers’ experience is a potential determinant of firms’ capital structure. The findings also suggest that experienced top managers maximize the benefits of debt interest tax-shield; top managers can increase firm value. [ABSTRACT FROM AUTHOR]

Firms around the globe have enhanced their green credentials as a means of increasing competitiveness and improving firm performance. The literature on firms and news suggests that stock prices of most firms tends to be very responsive to news items in the short-term. However, many green companies make investments or are working in industries where the payoffs are likely to be obtained more in the medium-term. There is therefore good reason to believe that the stock prices of these firms would be less responsive to daily news items. Using a database of green firms in emerging markets, the study finds that news can impact on daily returns of green companies. However, the effects of this news does not seem to be long-lasting and was not observed across the majority of firms considered. [ABSTRACT FROM AUTHOR]

We studied downside and upside risk spillovers from China to a set of Asian stock markets by computing the downside and upside CoVaR values and assessing spillover effects by testing for significant differences between the CoVaR and VaR values. We found evidence of a positive relationship between China and Asian stock markets, with bivariate dependence structure differed across Asian stock markets. Finally, we also found asymmetries in upside and downside risk spillovers, with higher intensity in downside risk spillovers. Our results, consistent with the increasing economic integration between China and Asian economies in the form of trade links and investment movements, indicate that investors should consider the existence of asymmetric spillover effects from China for downside and upside risk management of international portfolios for these Asian stock markets. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of trading intensity and trading volume on return volatility using transaction data from the Tunis Stock Exchange. In our study, we find that long trade duration decreases stock return, supporting the assumption that periods of absence of trade are indicative of bad news. Our results reveal that contemporaneous total trading volume exerts a positive and greater effect on return volatility than trading intensity. In addition, the return volatility is found to be affected positively by both informed trading volume and bad news arrival. [ABSTRACT FROM AUTHOR]

The purpose of this study is to examine the impact of the Qualified Foreign Institutional Investors (QFII) on the dynamic relationship between the Chinese stock index futures and spot markets. The research uses high frequency data (5 min interval) and various dynamic methods including VECM, GJR, BEKK and DCC GARCH models to evaluate price discovery and volatility spillover effect. The data used is from 01/02/2011 to 29/07/2011, which includes 3 months before and after the implementation of the QFII scheme to trade in the Chinese stock index futures market. We find a bi-directional asymmetric lead-lag relationship between the Chinese stock index futures and spot markets, indicating a significant lead from the futures market to the spot market but weak lead from the spot market to the futures market in terms of both magnitude and lasting time. It is observed that the introduction of the QFII has enhanced the price discovery role of the futures market and increased the predictive power of the futures market. Our empirical results show that the Chinese stock index futures market has become less volatile (risky) and probably more efficient after the introduction of QFII. We find that foreign institutional investors could enhance the volatility spillover effect from the futures market to the spot market, indicating an improvement in information transmission running from the futures to spot markets. Our results suggest that Chinese government should continue opening its financial markets to the world. The dynamic conditional correlation between the futures and spot markets decreases and becomes more volatile after the introduction of QFII. This indicates that the futures and spot markets become less correlated after the QFII event which may have major influence on hedging strategies. [ABSTRACT FROM AUTHOR]

Asset allocation is critically dependent on the ability to forecast the equity risk premium (ERP) out-of-sample. But, is superior econometric predictability across the business cycle synonymous with predictability at all times? We evaluate recently introduced ERP forecasting models, which have been shown to generate econometrically superior ERP forecasts, and find that their forecasting ability is regime-dependent. They give rise to significant relative losses during market downturns, when it matters the most for asset allocators to retain assets and their client base intact. Conversely, any economic benefit occurring during market upswings is diminished for high risk-averse and leverage-constrained investors. [ABSTRACT FROM AUTHOR]

We study utility indifference pricing in order to measure a random cash flow. We evaluate a utility indifference price with an exponential utility function, which we call a risk-sensitive value measure, under the class of normal mixture distributions. It has desirable properties as a value measure. We compare the risk-sensitive value measure and mean-variance approach and provide an empirical application. [ABSTRACT FROM AUTHOR]

We compare the predictive performances of AR- t -GARCH and recent QAR-Beta- t -EGARCH models. We compare predictive performances for those days when an extreme value is observed, and also for the trading day after each day when an extreme value is observed. We use a historical dataset from the adjusted Dow Jones Industrial Average (DJIA) index. We assume that the forecast users of this study are DJIA options investors. We find that AR- t -GARCH dominates QAR-Beta- t -EGARCH on each day when an extreme value is observed, and QAR-Beta- t -EGARCH dominates AR- t -GARCH on the trading day after each day when an extreme value is observed. [ABSTRACT FROM AUTHOR]

We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to a common FMI participant. We construct indicators of credit risk exposures in three main Canadian FMIs and use multivariate extreme value methods to estimate this probability. We find large differences in the levels of systemic risk across participants. Conditional on the participant being distressed, we re-estimate these probabilities and find that some participants create large exposures to FMIs, resulting in a larger level of systemic risk than the rest of the participants. Our results suggest that an appropriate oversight of FMIs may benefit from an in-depth system-wide analysis, which may have useful implications for the macroprudential regulation of the financial system. [ABSTRACT FROM AUTHOR]

This paper investigates how banking system stability is affected when we combine Islamic and conventional finance under the same roof. We compare systemic resilience of three types of banks in six GCC member countries with dual banking systems: fully-fledged Islamic banks (IB), purely conventional banks (CB) and conventional banks with Islamic windows (CBw). We employ market-based systemic risk measures such as MES, SRISK and CoVaR to identify which sector is more vulnerable to a systemic event. We also compute weighted average GES to determine which sector is most synchronised with the market. Moreover, we use graphical network models to determine the most interconnected banking sector that can more easily spread a systemic shock to the whole system. Using a sample of observations on 79 publicly traded banks operating over the 2005–2014 period, we find that CBw is the least resilient sector to a systemic event, it has the highest synchronicity with the market, and it is the most interconnected banking sector during crisis times. [ABSTRACT FROM AUTHOR]

The study investigates dynamic and causal linkages among international remittance inflows, banking sector development and stock market development in a large panel of developing countries. We use two stage least squares and impulse response functions to shed light on the remittance-bank-stock market nexus. We find that remittances promote banking sector development in low remittance receiving countries, but not in high remittance receiving economies. We establish a bi-causal negative link between stock markets and remittances in countries with developed banking systems. In low remittance recipient countries, remittances decrease stock market development; however, in remittance dependent countries, remittances promote stock market development. Again, stock market development promotes remittance inflows in remittance dependent countries, while obstructing it in low remittance recipient countries. We suspect lingering doubts about the quality of developing country stock markets to be behind this latter result, though the fact that most developing countries’ financial systems are bank based could also play a role. [ABSTRACT FROM AUTHOR]

The main objective of this paper is to assess the exposure of Islamic stock indexes to systemic tail events. We use Conditional Value-at-Risk (CoVaR) and Delta CoVaR measures as developed by Adrian and Brunnermeier (2011) and a sample of Islamic and conventional stock indexes, from various developed and emerging markets, during the period September 2005 to March 2015. The empirical results reveal that the systemic risk has a moderate adverse effect on Islamic indexes, with a lower level in Gulf Cooperation Council countries (GCC hereafter). The findings also show the Asian stock indexes can be considered as effective hedge assets, after the global financial crisis (GFC hereafter). Furthermore, the empirical reveal that portfolio including Islamic stock indexes performs better than a benchmark portfolio in turmoil periods. These findings have several implications in financial decisions including the strategy of stability and asset allocation. [ABSTRACT FROM AUTHOR]

This study aims to provide empirical evidence on the presence, direction, and magnitude of both first and second moment spillover effects between Egypt’s stock market on the one hand and the global crude oil and natural gas markets on the other, with particular attention to the potential for structural breaks. The interdependence structure between the stock market and energy commodity counterparts is explored using a bivariate VAR( l )-EGARCH( p,q ) model augmented with shift dummies in the conditional mean and conditional variance functions. The results suggest the existence of both unidirectional mean and variance spillover effects from oil and gas markets to the stock counterpart. Asymmetric volatility responses to oil and gas price shocks are observed. Additionally, the results underline the relevance of the structural changes detected to the mean and volatility dynamics. The evidence presented in this study provides policy implications for investors and regulators. [ABSTRACT FROM AUTHOR]

This paper investigates the time-varying impacts of demand and supply oil shocks on correlations between changes in crude oil prices and stock markets returns. The findings, obtained by means of a DCC-GARCH from June 2006 to June 2016, indicate that demand shocks positively affected the correlations between crude oil prices and stock market returns from late 2007 to mid-2008, during the apex of the financial markets volatility; from early 2009 to mid-2013, during global economy recovery from the financial crisis; and after 2015, when uncertainties about the Chinese growth and the US economy upturning arose. The dynamic conditional correlation, obtained after the removal of demand shocks effects, presented an average value of 0.13 when all economy sectors were considered and of 0.03 when the energy sector returns were excluded from the stock index. These correlations, still positive on average, suggest that exogenous supply oil shocks had little impact on US mainly enterprises cash flows over the last 10 years. Exceptions are the periods from 2006 to financial crisis and from 2014 until April 2016, when significant and unpredicted changes in oil market happened, considerably affecting the value of the main US companies. [ABSTRACT FROM AUTHOR]

This paper aims at analyzing the degree and structure of interdependencies in terms of volatility (transmission, contagion) between Islamic and conventional stock markets on calm periods and at times of financial fragility and crisis. We focused on the recent financial instability periods and used the Quantile Regression-based GARCH model. Main results lead to very interesting conclusions. First, it has been found that Islamic stock markets are not totally immune to the global financial crisis. Second, a very strong interdependence is sensed from the conventional to the Islamic stock markets, especially, from the conventional developed markets to the Islamic Emerging and Arab markets and to the Islamic developed markets. Finally, it has been proved that the interdependencies from conventional to Islamic markets are propagated between Islamic markets. Our findings suggest that the Islamic finance industry does not seem able to provide cushion against economic and financial shocks that affect conventional markets. [ABSTRACT FROM AUTHOR]

Security prices are important inputs for estimating credit risk. Yet, to obtain an accurate firm-specific credit risk assessment, one needs a reliable model and a methodology that filters the elements unrelated to the firm’s fundamentals from market prices. In this article, we introduce a hybrid credit risk model defined in a Markov-switching environment. It captures firm-specific changes in the leverage uncertainty during crises. We also propose a new efficient method to estimate the model, and a numerical scheme based on trinomial lattices to price credit derivatives. The estimation is finally performed on more than 200 firms using maximum likelihood estimation. [ABSTRACT FROM AUTHOR]

This short paper introduces the distinction between short and long term asymmetric effects in volatilities. With short term asymmetry we refer to the conventional one, i.e. the asymmetric response of current volatility to the most recent return shocks. In addition, we argue that there may be asymmetries with respect to the way the effect of past return shocks propagate over time. We refer to this as long term asymmetry and propose a model that enables the study of the potential occurrence of such a feature. In an empirical application using stock market index data we find evidence of the joint presence of short and long term asymmetric effects and demonstrate important implications for risk predictions. In particular, positive return shocks is ascribed substantial significance for long term risk prediction. [ABSTRACT FROM AUTHOR]

A flexible modification of the DCC model that accounts for asymmetry and long memory in variance is proposed. This model is applied on precious metals and indexes of developed countries to revisit the flight-to-quality phenomenon. Market turmoil and shocks are covered by asset-specific variance models. I identify Gold and partly Silver as safe haven while this status seems to be dissipating in the recent years. Interestingly, Platinum shows signs of a surrogate safe haven. The practical difference between the standard DCC and the model proposed herein is significant, which stems from a more realistic variance modeling within the framework. [ABSTRACT FROM AUTHOR]

This paper investigates whether firm-specific characteristics explain idiosyncratic volatility in the stocks of non-financial firms traded in the Indian stock market. It employs the linear time series five-factor model, augmented with a liquidity factor and the conditional EGARCH model, to extract yearly idiosyncratic volatility. We estimate a panel data regression to quantify the relationship between firm-specific characteristics and the volatility of individual securities. The results show that idiosyncratic volatility is significant in emerging markets such as India, and that cross-sectional return variations of firms are associated with firm-specific characteristics such as firm size, book-to-market ratio, momentum, liquidity, cash flow-to-price ratio, and returns on assets. We find that the idiosyncratic risk documented in this study is associated with smaller size of company, higher liquidity, low momentum, high book-to-market ratio, and low cash flow-to-price ratio. The findings suggest need to develop alternative tools to make investment decisions in emerging markets. [ABSTRACT FROM AUTHOR]

We transfer the recently introduced fast fractional differencing that utilizes fast Fourier transforms (FFT) to long memory variance models and show that this approach offers immense computation speedups. We demonstrate how calculation times of parameter estimations benefit from this new approach without changing the estimation procedure. A more precise depiction of long memory behavior becomes feasible. The FFT offers a computational advantage to all ARCH(∞)-representations of widely-used long memory models like FIGARCH. Risk management applications like rolling-window Value-at-Risk predictions are substantially sped up. This new approach allows to calculate the conditional volatility of high-frequency in a practicable amount of time. [ABSTRACT FROM AUTHOR]

Financial managers are mainly concerned about long lasting accumulated large losses which may lead to massive money withdrawals. To assess this risk feeling we compute the Maximum Drawdown, the largest price loss of an investment during some fixed time period. The Maximum Drawdown at Risk has become an important risk measure for commodity trading advisors, hedge funds managers, and regulators. In this study we propose an estimation methodology based on Monte Carlo simulations and empirically validate the procedure using international stock indices. We find that this tool provides more accurate market risk control and may be used to manage portfolio exposure, being useful to practitioners and financial analysts. [ABSTRACT FROM AUTHOR]

Tolerance interval is an important statistical tool for determining the threshold of a certain reference. We propose to utilize nonparametric one-sided tolerance limits with three look-back window sizes for return spreads in order to find trading entry and exit signals. We illustrate how the proposed method help uncover arbitrage opportunities via the daily return spreads of 12 stock pairs in the U.S. markets and then report the performance of pair trading for two out-of-sample periods. The empirical results suggest that combining the minimum squared distance method and nonparametric one-sided tolerance limits generates positive excess returns, relative to the underlying stocks. [ABSTRACT FROM AUTHOR]

Motivated by the heated debate on commodities market financialization hypothesis we set off to examine the asymmetric relationship between commodities funds flows and commodities market prices by employing a novel nonparametric causality-in-quantiles. With respect to our results, while the linear Granger causality tests fail to provide evidence of causality in either direction the more robust causality-in-quantiles approach highlights partial evidence of one way causality running from market returns to commodities fund flows. Finally, substantial evidence of predictability of the variance of commodities market returns emanating from commodities fund flows is also reported. [ABSTRACT FROM AUTHOR]

We examine the Croatian Kuna, the Czech Koruna, the Hungarian Forint, the Polish Złoty, the Romanian Leu, and the Swedish Krona whether their Euro exchange rates volatility exhibits true or spurious long memory. Recent research reveals long memory in foreign exchange rate volatility and we confirm this finding for these currency pairs by examining the long memory behavior of squared residuals by means of the V/S test. However, by using the ICSS approach we also find structural breaks in the unconditional variance. Literature suggests that structural breaks might lead to spurious long memory behavior. In a refined test strategy, we distinguish true from spurious long memory for the six exchange rates. Our findings suggest that Czech Koruna and Hungarian Forint only feature spurious long memory, while the rest of the series have both structural breaks and true long memory. Lastly, we demonstrate how to extend existing models to jointly model both properties yielding superior fit and better Value-at-Risk forecasts. The results of our work help to avoid misspecification and provide a better understanding of the properties of the foreign exchange rate volatility. [ABSTRACT FROM AUTHOR]

The aim of the paper is to investigate the role of gold and crude oil as hedges and safe havens for the stock and currency markets. We generalize Baur and Lucey's (2010) original idea by allowing for the nonstationarity of the returns. First, we look for structural changes in long term volatility of returns in order to identify flights to safety moments. Next, we analyse the relations between variables of interest using the rolling regression framework. Our study reveals that only some relations are stable, and only gold is a weak hedge for equity. [ABSTRACT FROM AUTHOR]

This article presents an analysis of the literature on systemic financial risk. To that end, we analyze and classify 266 articles that were published no later than September 2016 in the databases Scopus and Web of Knowledge ; these articles were identified using the keywords “systemic risk”, “financial stability”, “financial”, “measure”, “indicator”, and “index”. They were evaluated based on 10 categories, namely, type of study, type of approach, object of study, method, spatial scope, temporal scope, context, focus, type of data used, and results. The analysis and classification of this literature made it possible to identify the remaining gaps in the literature on systemic risk; this contributes to a future research agenda on the topic. Moreover, the most influential articles in this field of research and the articles that compose the mainstream research on systemic financial risk were identified. [ABSTRACT FROM AUTHOR]

This paper investigates the presence of the leverage effect in commodities, in comparison with financial markets. The EGARCH model with a Mixture of Normals distribution (EGARCH-MN) is used to capture (i) heavy tails and skewness in the conditional returns, and (ii) leverage effects and time-varying long-term component in the volatility specification. Besides, the estimation strategy relies on an innovative recursive (REC) method, which allows disentangling the leverage effect from the unconditional skewness as an empirical result. When applied to a broadly diversified dataset of assets during 1995–2012, the EGARCH-MN models offers state-of-the-art specifications with leverage and fat-tailed skewed densities, that allow to contrast the specific characteristics of commodities with traditional assets (equities, bonds, FX). [ABSTRACT FROM AUTHOR]

Using quarterly data for the United States (over the period from 1983 to 2014) and state-of-the-art financial econometrics, we explore for spillovers and interactions among the leverage levels of broker-dealers, commercial banks, and shadow banks and their volatilities. The key contribution to the literature is the estimation of a trivariate VARMA, GARCH-in-Mean, BEKK model that allows for the interdependence among the three leverage series and their volatilities. We find that broker-dealers leverage is procyclical, that there are significant spillover ARCH and GARCH effects across financial intermediaries, and that the leverage of broker-dealers is a good predictor of future economic activity. [ABSTRACT FROM AUTHOR]

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This paper examines the dynamic return and volatility spillovers between the Shanghai Futures Exchange (SFE) and the London Metal Exchange (LME) from 2007 to 2016 using the new spillover index of Diebold and Yilmaz (2012). Our results indicate that the LME nonferrous metal futures have a greater impact on SFE nonferrous metal futures. In particular, these trends are more pronounced in the aftermath of the recent financial crises, indicating the strength of spillovers during periods of turmoil. The direction of spillovers significantly depends on time variation. [ABSTRACT FROM AUTHOR]

We investigate the one-to-one mapping between the global minimum variance portfolio and regression hedge coefficients. The analysis demonstrates that assets with a superior (inferior) regression hedged effect in terms of marginal return create a negative (positive) weight. The asset has a weight of zero when both the asset and regression hedge enjoy the same marginal return. In addition, we develop a modified information ratio to compare the magnitudes of two arbitrary weights of the global minimum variance portfolio. From the perspective of hedging, we determine that the asset with a higher modified information ratio yields a larger weight. [ABSTRACT FROM AUTHOR]

This paper extends the stochastic dominance rules for normal mixture distributions derived by Levy and Kaplanski (2015). First, the portfolios under consideration are allowed to follow different regime-switching processes. Second, the results are extended from second- to fourth-order stochastic dominance, which is known to be closely related to kurtosis aversion in financial markets and allows to compare mixture distributions with the same overall variance. In particular, when a risk-free asset is available, checking for fourth-order stochastic dominance turns out to amount to a comparison of the regime-specific and overall Sharpe ratios of the portfolios under consideration. [ABSTRACT FROM AUTHOR]

This paper is the first attempt to investigate the multiscale tendency of the co-movement and cross-correlation of nine Islamic Exchange Traded Fund (ETF) returns across the global developed and emerging markets using both wavelet coherence and wavelet MODWT methods. The wavelet coherence results tend to indicate consistent co-movement between most of the ETF returns especially in the long run. The study also uncovers evidence of wide variation of co-movement across the time-scales during the global financial crisis and the Euro debt crisis. Strong co-movement can be observed during the global financial crisis, both for the medium term investors and long term investors. The paper studies the relationship between different ETF returns using wavelet multi-resolution analysis. The cross-correlation analysis also shows certain significant and positive correlations between the ETF returns, especially during the period of global financial crisis. The findings from these two recent dynamic time-scale decomposition methodologies have important policy implications for both risk management and investors’ investment policy. [ABSTRACT FROM AUTHOR]

Prior research has investigated the association between analysts’ forecast dispersion and future stock return but the evidence is not conclusive. We propose a conditional limited market participation hypothesis and reexamine the relation between analysts’ forecast dispersion and stock returns using the panel threshold regression approach, which allows the coefficient on the independent variable to shift when the conditioned variables exceed their respective thresholds. Our empirical results show that the degree of the negative association between analysts’ dispersion and future stock return becomes considerably diminished when the dispersion exceeds a threshold value. Our finding does not support the view of Johnson (2004), [Forecast dispersion and the cross section of expected returns, J. Financ. 59, 1957–1978], that dispersion in analysts’ forecasts serves as a proxy for risk. Although our results are consistent with the limited market participation argument in Diether et al. (2002), [Differences of opinion and the cross section of stock returns, J. Financ. 57, 2113–2141], we modify their arguments as the strength of their results is conditional on the magnitude of dispersion. [ABSTRACT FROM AUTHOR]

One of the key assumptions in financial markets analysis is that of normally distributed returns and market efficiency. Both of these assumptions have been extensively challenged in the literature. In the present paper, we examine returns for a number of FTSE 100 and AIM stocks and indices based on maximising the Tsallis entropy. This framework allows us to show how the distributions evolve and scale over time. Classical theory dictates that if markets are efficient then the time variant parameter of the Tsallis distribution should scale with a power equal to 1, or normal diffusion. We find that for the majority of securities and indices examined, the Tsallis time variant parameter is scaled with super diffusion of greater than 1. We further evaluated the fractal dimensions and Hurst exponents and found that a fractal relationship exists between main equity indices and their components. [ABSTRACT FROM AUTHOR]

Four prominent new asset pricing factors have recently been proposed. We test whether these factors fulfill the necessary conditions to qualify as risk factors. We show that the investment and betting-against-beta factors fulfill these conditions. However, the profitability and quality factors do not fulfill these conditions pointing towards non-risk-based explanations. [ABSTRACT FROM AUTHOR]

This paper investigates the linkages among equity returns (based on exchange traded funds, ETF) and transmission of volatilities in the following countries: Germany, Austria, Poland, Russia and Turkey. Multivariate Autoregressive Moving Averages (MARMA) and the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) methodologies are utilized. The findings include the existence of significant co-movement of returns among countries in the sample. Also, Turkish and Russian markets were found to be more volatile than Austria, Germany and Poland. However, volatilities in Russia and Turkey do not persist very long. Finally, there is strong evidence of volatility spillovers. All of the countries in the sample, with the exception of Turkey, experience volatility spillovers from other markets. The presence of spillovers among return series and persistence of volatilities are useful to investors interested in diversifying their portfolios and to traders/fund managers who are interested in maximizing returns. [ABSTRACT FROM AUTHOR]

This paper develops a novel Public Market Equivalent (PME) measure to evaluate the risk-adjusted performance of private equity investments using the standard CAPM and multi-factor extensions. Using a comprehensive sample of 7732 fully realized venture capital investments, the paper estimates PMEs using the standard CAPM, the Fama–French three-factor model, and a four-factor model that also includes the Pastor–Stambaugh traded liquidity factor. The results highlight that venture capital investments substantially outperform traded stocks and that their returns resemble those of small growth stocks. Additionally, the results show that the exposure of venture capital returns to the traded liquidity factor is negligible. [ABSTRACT FROM AUTHOR]

This paper aims to study the relationship between the adoption of the International Financial Reporting Standards ( IFRS ) and the companies’ financing structure in different emerging economies. A linear hierarchical regression model is applied, considering firm, country and region levels, in a database of 150,265 observations of companies from 145 countries between 2003 and 2014. The impact of the adoption of IFRS in financing decisions is heterogeneous among companies from different regions and countries. This effect is clearer when country controls are applied to monitor the legal enforcement and investor safety, such as the quality of the boards and accounting audits. [ABSTRACT FROM AUTHOR]

We address the problem of determining the unconditional capital required by a credit portfolio using Monte Carlo simulation. By elaborating on a tractable analytical framework, we propose a new efficient simulation algorithm that overweights recession periods, which are the most important periods for determining the final capital figure, thereby improving its efficiency for a given number of simulations. We discuss the optimality and practical advantages of this algorithm. We also conduct an empirical analysis based on American charge-off data, which shows that the proposed algorithm achieves remarkable improvements in efficiency, without introducing any bias and at a negligible implementation cost. [ABSTRACT FROM AUTHOR]

In this paper, we examine how to quantify asymmetries in volatility spillovers that emerge due to bad and good volatility. Using data covering most liquid U.S. stocks in seven sectors, we provide ample evidence of the asymmetric connectedness of stocks at the disaggregate level. Moreover, the spillovers of bad and good volatility are transmitted at different magnitudes that sizably change over time in different sectors. While negative spillovers are often of substantial magnitudes, they do not strictly dominate positive spillovers. We find that the overall intra-market connectedness of U.S. stocks increased substantially during the recent financial crisis. [ABSTRACT FROM AUTHOR]

This article investigates co-movements and volatility spillovers between the three UK financial sector CDS indexes over time. We find sharp increases in the dynamic conditional correlations for all pairs after the Lehman shock, indicating evidence of contagion, and decreases for two pairs (banking-life insurance and life insurance-other financial) after the zenith of the European debt crisis, implying the emergence of diversification opportunities. Dynamic spillover index measures suggest that, although the banking sector was a dominant net transmitter of volatility, other financial sectors also became net transmitters for some periods, highlighting the importance of appropriate regulation of these two sector areas. [ABSTRACT FROM AUTHOR]

We investigate the role of investor sentiment in predicting annual stock returns of financial companies at the aggregate level and for a large panel of developed countries within two panel regime-switching models, with threshold and with smooth transition between regimes. We find a negative, but insignificant effect of sentiment on future returns during normal times, and a surprisingly positive and strongly significant effect during crisis times. This result could be explained by a differentiated impact of investor sentiment on specific types of stocks, as opposed to a wide horizon of stocks. We find less evidence of predictability for shorter-term financial stock returns. To the best of our knowledge, this study is the first to examine the predictability of financial stock returns within a panel regime-switching framework. [ABSTRACT FROM AUTHOR]

The unconditional credit loss distribution is identified based on a long-term sample. This sample influences the capital estimate. In this study, we performed an empirical investigation of this sample dependency problem using charge-off data and by focusing on the influence of the Great Recession. The results demonstrated the significant dependency of the capital requirements on the homogeneity and cyclicality of the long-term sample. Thus, a sample containing only the Great Recession data produced lower capital requirements due to the homogeneity effect, whereas a mixed sample containing the Great Recession data produced higher capital requirements due to the cyclical effect. [ABSTRACT FROM AUTHOR]

We assess the integration dynamics on the European carbon futures market at both the intraday and daily levels. We focus on EUA futures contracts that can be traded on three trading platforms: the Intercontinental-European Climate Exchange (ICE-ECX), the NASDAQ OMX and the European Energy Exchange (EEX). We analyze trading activity for three contract maturities and find that the ECX and EEX platforms exhibit a reasonable level of integration. The price discovery process does not occur at the daily level but rather at the hourly frequency. We conclude that this market still needs to be closely monitored by the regulatory authorities. [ABSTRACT FROM AUTHOR]

We address credit capital cyclicality from a different point of view with the objective of defining alternative measures of long-term capital solvency. We first define the conditional coverage vector, which results from keeping capital constant and let conditional coverage evolve with the economy. We show that its average equals the corresponding unconditional coverage, which motivates us to propose to use its minimum and standard deviation as long-term measures of solvency resilience and stability. We also conduct an empirical analysis. The results show the influence of the Great Recession on the conditional coverage vector and its long-term solvency discrimination power. [ABSTRACT FROM AUTHOR]

Extreme observations can bias the average return calculation and this bias affects small stocks more. We study several filters that could help to alleviate such a bias. As an illustrative example, we examine the impact of these filters on the size premium around the world. Our findings carry important implications for future empirical research in international stock returns. [ABSTRACT FROM AUTHOR]

We suggest a simple and general approach to fitting the discount curve under no-arbitrage constraints based on a penalized shape-constrained B-spline. The approach accommodates B-splines of any order and fitting both under the L 1 and the L 2 loss functions. An application to US STRIPS data from 2001–2015 suggests that polynomial splines of order three and four are mandatory to obtain reasonable fits. The choice of the loss function appears to be less relevant. [ABSTRACT FROM AUTHOR]

We investigate trading opportunities of price jump clusters in the FX markets. We identify clusters for eight FX rates against the U.S. dollar from March 1, 2013 to June 6, 2013 sampled at a 5-minute frequency. We propose a high-frequency jump cluster-based trading strategy and show that jumps carry a tradable signal for all currencies; however, when incorporating the bid-ask spread, the only profitable currencies are the euro, yen and rand. From the portfolio perspective, a combination of the euro and yen represents a strategy robust to the holding period, minimizes the transaction costs, and diversifies out the U.S.-related risk. [ABSTRACT FROM AUTHOR]