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on International Finance |
| By: | Nguyen, Duc Binh Benno; Prokopczuk, Marcel; Wese Simen, Chardin |
| Abstract: | We examine the pricing of tail risk in international stock markets. We find that the tail risk of different countries is highly integrated. Introducing a new World Fear index, we find that local and global aggregate market returns are mainly driven by global tail risk rather than local tail risk. World fear is also priced in the crosssection of stock returns. Buying stocks with high sensitivities to World Fear while selling stocks with low sensitivities generates excess returns of up to 2.72% per month. |
| Keywords: | Jump Risk; Tail Risk; International Stock Market Returns; Return Predictability; International Asset Pricing; Factor Models |
| JEL: | G01 G11 G12 G17 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-620&r=ifn |
| By: | mehmet ulu (Turkish Central Bank); Sebnem Kalemli-Ozcan (University of Maryland); Julian di Giovanni (Universitat Pompeu Fabra); Yusuf Soner Baskaya (Bilkent University) |
| Abstract: | We show that capital in ows are important drivers of domestic credit cycles using a rm-bank-loan level dataset for a representative emerging market. Instrumenting in ows by changes in global risk appetite (VIX), we nd that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-a-vis capital in ows is smaller than the IV-elasticity. Banks with higher noncore funding oer relatively lower rates to low net worth rms, but do not extend more credit to them given collateral constraints |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1198&r=ifn |
| By: | Philippe Bacchetta (University of Lausanne) |
| Abstract: | In this paper, we explore the implications of infrequent portfolio adjustment for international portfolios and asset prices in a two-country model. We focus on equity portfolios and estimate the model based on available data. For portfolio positions, we consider the U.S. versus the rest of the world and we use the estimates for U.S. assets and liabilities computed by Bertaut and Tryon (2007) and Bertaut and Judson (2014). We assume that infrequent portfolio investors face each period a constant probability p of adjusting their portfolio position. We then determine the endogenous response of asset prices and portfolios to three types of shocks. The estimated version of the model is able to match the dynamic behavior of portfolio position and excess returns when p is low. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1166&r=ifn |
| By: | Trevor Serrao (Federal Reserve Bank of Chicago); Luca Benzoni (Federal Reserve Bank of Chicago); Marco Bassetto (Federal Reserve Bank of Chicago) |
| Abstract: | We study the interplay between monetary policy and financial conditions shocks. Such shocks have a significant and similar impact on the real economy, though with different degrees of persistence. The systematic fed funds rate response to a financial shock contributes to bringing the economy back towards trend, but a zero lower bound on policy rates can prevent this from happening, with a significant cost in terms of output and investment. In a retrospective analysis of the U.S. economy over the past 20 years, we decompose the realization of economic variables into the contributions of financial, monetary policy, and other shocks. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1124&r=ifn |