nep-cfn 2010-09-11 papers

on Corporate Finance

Issue of 2010‒09‒11
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

The Risk-Return Tradeoff and Leverage Effect in a Stochastic Volatility-in-Mean Model By Bent Jesper Christensen; Petra Posedel
Communication of companies with their surroundings - the manipulation of information and information asymmetry By Bojańczyk, Mirosław

The Risk-Return Tradeoff and Leverage Effect in a Stochastic Volatility-in-Mean Model

By:	Bent Jesper Christensen (Aarhus University, School of Economics and Management, Bartholins Allé 10, Aarhus, Denmark & CREATES); Petra Posedel (University of Zagreb)
Abstract:	We study the risk premium and leverage effect in the S&P500 market using the stochastic volatility-in-mean model of Barndor¤-Nielsen & Shephard (2001). The Merton (1973, 1980) equilibrium asset pricing condition linking the conditional mean and conditional variance of discrete time returns is reinterpreted in terms of the continuous time model. Tests are per- formed on the risk-return relation, the leverage effect, and the overidentifying zero intercept restriction in the Merton condition. Results are compared across alternative volatility proxies, in particular, realized volatility from high-frequency (5-minute) returns, implied Black-Scholes volatility backed out from observed option prices, model-free implied volatility (VIX), and staggered bipower variation. Our results are consistent with a positive risk-return relation and a significant leverage effect, whereas an additional overidentifying zero intercept condition is rejected. We also show that these inferences are sensitive to the exact timing of the chosen volatility proxy. Robustness of the conclusions is verified in bootstrap experiments.
Keywords:	Financial leverage effect, implied volatility, realized volatility, risk-return relation, stochastic volatility, VIX
JEL:	G13 L12
Date:	2010–09–01
URL:	http://d.repec.org/n?u=RePEc:aah:create:2010-50&r=cfn

Communication of companies with their surroundings - the manipulation of information and information asymmetry

By:	Bojańczyk, Mirosław
Abstract:	Creative accounting, the bankruptcy of many companies, and ongoing litigations made rapid rebuilding of investor relations imperative. Growing importance of institutional investors, who have high information needs, also impacted this process. Thus, the needs for communication with investors and reducing information asymmetry problems have become key issues in the capital markets. The traditional model of reporting was based largely on information relating to past events (financial accounting). Commonly, there was inadequate consideration of non-financial information impacting the development of goodwill in the future. Some information was published with considerable delay. This facilitated the use of confidential information by those who had previous access to it.
Keywords:	information assymetry; investment advisers; credit rating; aggressive accounting; confidential information; international accounting standards; financial crises;
JEL:	G14 G15 E44 D82 G30
Date:	2010–07–30
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:24589&r=cfn

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