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14. Gearing the gravity of gamma: Utilizing gamma positioning of dynamic hedgers to improve market quality

Author

Bloem, Mary, Verschoor, Willem, Zwinkels, Remco, Buis, Boyd, and Business Economics

Abstract

In this paper, we study the effect of gamma positioning of dynamic hedgers on market quality through simulations. We find that increases in the net gamma positioning of dynamic hedgers reduces volatility and increases market stability, whereas a negative gamma positioning increases volatility and makes the market more prone to fail. Price discovery typically worsens when dynamic hedgers become more prevalent, regardless of the sign of their positioning. Our findings imply that gearing the gravity of gamma among dynamic hedgers can be considered a policy instrument to improve market quality, especially for instruments with low liquidity and low traded volume.

Published
2022

24. Measuring Financial Contagion Using Time-Aligned Data: The Importance of the Speed of Transmission of Shocks

Author

Kleimeier, Stefanie, Lehnert, Thorsten, and Verschoor, Willem F.C.

Subjects
Business, Business, international, Economics
Abstract

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0084.2008.00509.x Byline: Stefanie Kleimeier ([dagger]), Thorsten Lehnert ([dagger],[double dagger]), Willem F. C. Verschoor ([double dagger]) Keywords: F30; F40; G15 Abstract: Abstract This paper presents a new empirical approach to address the problem of trading time differences between markets in studies of financial contagion. In contrast to end-of-business-day data common to most contagion studies, we employ price observations, which are exactly aligned in time to correct for time-zone and end-of-business-day differences between markets. Additionally, we allow for time lags between price observations in order to test the assumption that the shock is not immediately transmitted from one market to the other. Our analysis of the financial turmoil surrounding the Asian crisis reveals that such corrections have an important bearing on the evidence for contagion, independent of the methodology employed. Using a correlation-based test, we find more contagion the faster we assume the shock to be transmitted. Author Affiliation: ([dagger])Limburg Institute of Financial Economics, Faculty of Economics and Business Administration, Maastricht University, Tongersestraat 53, 6225 LM Maastricht, The Netherlands (e-mail:s.kleimeier@finance.unimaas.nl;t.lehnert@finance.unimaas.nl) ([double dagger])Nijmegen School of Management, Radboud University, Nijmegen, The Netherlands (e-mail:w.verschoor@fm.ru.nl) Article History: Final Manuscript Received: April 2008

Published
2008

27. Measuring common cyclical features during financial turmoil: evidence of interdependence not contagion

Author

Candelon, Bertrand, Hecq, Alain, and Verschoor, Willem F.C.

Subjects
Financial services industry -- Research, Robust statistics, Financial services industry, Banking, finance and accounting industries, Business, international, Economics
Abstract

This paper develops a test of contagion in financial markets by considering a measure of co-movement based on the notion of common cycles to detect short-run co-movements between a set of time series. We apply our methodology to the international effects of the 1994 Mexican peso crisis and the 1997 Asian crisis. Our results can be interpreted as evidence of a high level of market co-movement during all states of the world and, therefore, question the hypothesis of shift-contagion in the transmission of financial shocks during the 1997 Asian crisis, and to a lesser extent, the 1994 Mexican crisis. Keywords: Common cycles; GARCH; Robust tests; Shocks; Shift-contagion; Co-movements

Published
2005

34. The effect of exchange rate variability on US shareholder wealth

Author

Muller, Aline and Verschoor, Willem F.C.

Subjects
International business enterprises -- Analysis, Stock markets -- Analysis, Stockholders -- Analysis, Foreign exchange -- Prices and rates, Foreign exchange -- Analysis, Stock market, Banking, finance and accounting industries, Business
Abstract

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2009.04.016 Byline: Aline Muller (a), Willem F.C. Verschoor (b) Keywords: Multinational firms; Financial crisis; Exchange rate risk; Market risk Abstract: We examine the relationship between financial crisis exchange rate variability and equity return volatility for US multinationals. Empirical analysis of the major financial crises of the last decades reveals that stock return variability increases significantly in the aftermath of a crisis, even relative to the increase in stock return volatility for other firms belonging to the same industry and market capitalization class. In conjunction with this increase in total volatility, there is also an increase in stock market risk ([beta]) for multinational firms. Moreover, trade and service oriented industries appear to be particularly sensitive to these changing exchange rate conditions. Author Affiliation: (a) HEC Management School of the University of Liege, Belgium and Maastricht University, The Netherlands (b) Erasmus School of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands Article History: Received 1 September 2008; Accepted 20 April 2009

Published
2009

37. Stochastic trends and jumps in EMS exchange rates

Author

Nieuwland, Frederick G.M., Verschoor, Willem F.C., and Wolff, Christian C.P.

Subjects
Foreign exchange -- Prices and rates, Stochastic processes -- Research, European Monetary System -- Research, Banking, finance and accounting industries, Business, international, Economics
Abstract

The exchange returns of the European Monetary System (EMS) are examined with regard to their statistical properties. Results show that statistical distributions of EMS exchange returns exhibit conditional leptokurtosis, parameters that fluctuate over time and the presence of jumps. The results also show that the best way to capture important features of these returns would be to use an integrated jump-GARCH model with innovations that are t-distributed.

Published
1994

38. Further evidence on exchange rate expectations

Author

Cavaglia, Stefano, Verschoor, Willem F.C., and Wolff, Christian C.P.

Subjects
Foreign exchange -- Prices and rates, Foreign exchange market -- Forecasts and trends, European Monetary System -- Analysis, Banking, finance and accounting industries, Business, international, Economics
Abstract

An analysis of data on exchange rate expectations is presented. The analysis focuses on variations between EMS (European Monetary System) and dollar exchange rates. The study follows earlier research which observe irrational rate forecasts and non-optimal information use. It is shown that EMS exchange rate forecasts are guided by long-term fundamentals despite the presence of extrapolative and adaaptive variables for non-EMS systems.

Published
1993

42. On the biasedness of forward foreign exchange rates: irrationality or risk premia?

Author

Cavaglia, Stefano M.F.G., Verschoor, Willem F.C., and Wolff, Christian C.P.

Subjects
Foreign exchange -- Prices and rates, Foreign exchange market -- Research, Foreign exchange futures -- Prices and rates, Business, Business, general
Abstract

Froot and Frankel's 1987 and 1989 analyses of the sources of forward discount bias is extended by focusing a new data set of bilateral rates relative to the American dollar and relative to the German currency over the period 1985-90. Employed to test the study's hypotheses are univariate and pooling estimation techniques, which are not as restrictive as the methods used by Froot and Frankel. Contrary to the results of the Froot and Frankel analyses, the findings of the new study demonstrate that bias in forward discount for the examined currencies originated from the failure of rational expectations as well as from the existence of time-varying risk premium. The current study complements earlier research which had concentrated mainly on the four most actively traded currency in relation to the US dollar.

Published
1994

43. Beating the Benchmark: Bond Portfolios based on Country and Industry Factors

Author

Bloem, Mary, Verschoor, Willem, Zwinkels, Remco, Qian, Zhaowen, and Business Economics

Abstract

In this paper, we propose a dynamic portfolio strategy for European corporate bonds based on a two-factor pricing model: country and industry. We introduce a strategy in which we forecast both future factors as well as bonds' future exposure to these factors. Using a unique dataset that is representative of the universe of actively quoted European corporate bonds, we find that the strategy outperforms the naive benchmark. Our strategy yields a Sharpe ratio of 0.15 in the optimal setting, relative to the naive portfolio of 0.07. The results are mainly driven by the forecasted factors and less by forecasted exposures to these factors. The performance is especially driven by the euro-countries and suggests that `tides' of bond market integration are an important contributor to performance. Finally, our findings suggest that the strategy benefits from a more heterogeneous cross-section of countries.

Published
2017

44. Heterogeneous Beliefs and Asset Price Dynamics: A Survey of Recent Evidence

Author

Verschoor, Willem F.C. and ter Ellen, Saskia

Subjects
Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212 [VDP], heterogeneous agent models, ddc:330, bounded rationality, asset price dynamics, expectations
Abstract

This paper reviews the empirical literature on heterogeneous beliefs and asset price dynamics that challenges the traditional rational agent framework. Emphasis is given to the validation and estimation of (dynamic) heterogeneous agent models that have their roots in the agent-based literature. Heterogeneous agent models per- form well in describing, explaining, and often forecasting asset markets dynamics, such as equities, foreign exchange, credit, housing, derivatives, and commodities. Our survey suggests that heterogeneous agent models have the ability to produce important stylised facts observed in nancial time series and to replicate important episodes of nancial turmoil.

Published
2017

45. Agreeing on Disagreement: Heterogeneity or Uncertainty?

Author

ter Ellen, Saskia, Verschoor, Willem F.C., and Zwinkels, Remco C.J.

Subjects
Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212 [VDP], jel:G15, heterogeneous expectations, G15, ddc:330, JEL: G15, foreign exchange markets, G12, jel:G12, uncertainty, JEL: G12, disagreement
Abstract

Disagreement is used as a measure of both investor heterogeneity and uncertainty. We study whether disagreement captures heterogeneity or uncertainty for the foreign exchange market. We do so by relating disagreement to alternative measures of uncertainty, as well as by taking advantage of the different asset pricing implications of the two concepts. We find that whereas disagreement measures uncertainty conditionally, unconditionally this is only true during the peak of the global financial crisis.

Published
2016

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