|
on Financial Markets |
|
Issue of 2012‒03‒08
three papers chosen by |
| By: | Jean-Marc Bottazzi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Jaime Luque (Universidad Carlos III de Madrid - Departamento de Economía); Mário R. Páscoa (NOVA - School of Business and Economics - School of Business and Economics) |
| Abstract: | Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth. |
| Keywords: | Repo, short sale, bubble, repo specialness, Ponzi scheme, leverage, trading. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00673995&r=fmk |
| By: | Diaa Noureldin; Neil Shephard; Kevin Sheppard |
| Abstract: | This paper introduces a new class of multivariate volatility models which is easy to estimate using covariance targeting, even with rich dynamics. We call them rotated ARCH (RARCH) models. The basic structure is to rotate the returns and then to fit them using a BEKK-type parameterization of the time-varying covariance whose long-run covariance is the identity matrix. The extension to DCC-type parameterizations is given, introducing the rotated conditional correlation (RCC) model. Inference for these mdoels is computationally attractive, and the asymptotics are standard. The techniques are illustrated using data on some SJIA stocks. |
| Keywords: | RCC, Multivariate volatiity, Covariance targeting, Common persistence, Empirical Bayes, Predictive likelihood |
| JEL: | C32 C52 C58 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:594&r=fmk |
| By: | Francisco F. Vázquez; Pablo Federico |
| Abstract: | This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001–09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with bank risk-taking. In the cross-section, the smaller domestically-oriented banks were relatively more vulnerable to liquidity risk, while the large cross-border banks were more susceptible to solvency risk due to excessive leverage. The results support the proposed Basel III regulations on structural liquidity and leverage, but suggest that emphasis should be placed on the latter, particularly for the systemically-important institutions. Macroeconomic and monetary conditions are also shown to be related with the likelihood of bank failure, providing a case for the introduction of a macro-prudential approach to banking regulation. |
| Keywords: | Bankruptcy , Banks , Financial crisis , Global Financial Crisis 2008-2009 , Risk management , |
| Date: | 2012–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/29&r=fmk |