New Economics Papers
on Financial Markets
Issue of 2013‒09‒25
five papers chosen by
  1. The Relationship Between Stock Market Parameters and Interbank Lending Market: an Empirical Evidence By Magomet Yandiev; Alexander Pakhalov
  2. The fine structure of volatility feedback II: overnight and intra-day effects By Pierre Blanc; R\'emy Chicheportiche; Jean-Philippe Bouchaud
  3. Hedging under multiple risk constraints By Ying Jiao; Olivier Klopfenstein; Peter Tankov
  4. Credit Risk and the Instability of the Financial System: an Ensemble Approach By Thilo A. Schmitt; Desislava Chetalova; Rudi Sch\"afer; Thomas Guhr
  5. Stress-testing U.S. bank holding companies: a dynamic panel quantile regression approach By Francisco B. Covas; Ben Rump; Egon Zakrajsek
  1. By: Magomet Yandiev; Alexander Pakhalov
    Abstract: The article presents calculations that prove practical importance of the earlier derived theoretical relationship between the interest rate on the interbank credit market, volume of investment and the quantity of securities tradable on the stock exchange.
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1309.5703&r=fmk
  2. By: Pierre Blanc; R\'emy Chicheportiche; Jean-Philippe Bouchaud
    Abstract: We decompose, within an ARCH framework, the daily volatility of stocks into overnight and intraday contributions. We find, as perhaps expected, that the overnight and intraday returns behave completely differently. For example, while past intraday returns affect equally the future intraday and overnight volatilities, past overnight returns have a weak effect on future intraday volatilities (except for the very next one) but impact substantially future overnight volatilities. The exogenous component of overnight volatilities is found to be close to zero, which means that the lion's share of overnight volatility comes from feedback effects. The residual kurtosis of returns is small for intraday returns but infinite for overnight returns. We provide a plausible interpretation for these findings, and show that our IntraDay/Overnight model significantly outperforms the standard ARCH framework based on daily returns for Out-of-Sample predictions.
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1309.5806&r=fmk
  3. By: Ying Jiao; Olivier Klopfenstein; Peter Tankov
    Abstract: Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the expected shortfall with respect to each of the benchmarks weighted by this loss function must remain bounded by a given threshold. We consider different alternative formulations of this problem in a complete market setting, establish the relationship between these formulations, present a general resolution methodology via dynamic programming in a non-Markovian context and give explicit solutions in special cases.
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1309.5094&r=fmk
  4. By: Thilo A. Schmitt; Desislava Chetalova; Rudi Sch\"afer; Thomas Guhr
    Abstract: The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this problem is amenable to be treated with approaches developed in statistical physics. We introduce the idea of ensemble averaging and thereby uncover generic features of credit risk. We then show that the often advertised concept of diversification, i.e., reducing the risk by distributing it, is deeply flawed when it comes to credit risk. The risk of extreme losses remain due to the ever present correlations, implying a substantial and persistent intrinsic danger to the financial system.
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1309.5245&r=fmk
  5. By: Francisco B. Covas; Ben Rump; Egon Zakrajsek
    Abstract: We propose an econometric framework for estimating capital shortfalls of bank holding companies (BHCs) under pre-specified macroeconomic scenarios. To capture the nonlinear dynamics of bank losses and revenues during periods of financial stress, we use a fixed effects quantile autoregressive (FE-QAR) model with exogenous macroeconomic covariates, an approach that delivers a superior out-of-sample forecasting performance compared with the standard linear framework. According to the out-of-sample forecasts, the realized net charge-offs during the 2007-09 crisis are within the multi-step-ahead density forecasts implied by the FE-QAR model, but they are frequently outside the density forecasts generated using the corresponding linear model. This difference reflects the fact that the linear specification substantially underestimates loan losses, especially for real estate loan portfolios. Employing the macroeconomic stress scenario used in CCAR 2012, we use the density forecasts generated by the FE-QAR model to simulate capital shortfalls for a panel of large BHCs. For almost all institutions in the sample, the FE-QAR model generates capital shortfalls that are considerably higher than those implied by its linear counterpart, which suggests that our approach has the potential for detecting emerging vulnerabilities in the financial system.
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-55&r=fmk
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