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Modeling and Risk AnalysisCont, Rama; Jessen, Cathrine (, 2011)[More information][Less information]
Abstract: Constant Proportion Debt Obligations (CPDOs) are structured credit derivatives which generate high coupon payments by dynamically leveraging a position in an underlying portfolio of investment grade index default swaps. CPDO coupons and principal notes received high initial credit ratings from the major rating agencies, based on complex models for the joint transition of ratings and spreads for all names in the underlying portfolio. We propose a parsimonious model for analyzing the performance of CPDO strategies using a top-down approach which captures the essential risk factors of the CPDO. Our approach allows to compute default probabilities, loss distributions and other tail risk measures for the CPDO strategy and analyze the dependence of these risk measures on various parameters describing the risk factors. We nd that the probability of the CPDO defaulting on its coupon payments is found to be small{and thus the credit rating arbitrarily high{ by increasing leverage, but the ratings obtained strongly depend on assumptions on the credit environment (high spread or low spread). More importantly, CPDO loss distributions are found to be bimodal with a wide range of tail risk measures inside a given rating category, suggesting that credit ratings are insu cient performance indicators for such complex leveraged strategies. A worst-case scenario analysis indicates that CPDO strategies have a high exposure to persistent spread-widening scenarios CPDO ratings are shown to be quite unstable during the lifetime of the strategy. URI: http://hdl.handle.net/10398/8890 Files in this item: 1
constant_proportion_cathrine_jessen.pdf (599.2Kb) -
Krishnamurthy, Arvind; Vissing-Jørgensen, Annette (Chicago, 2012)[More information][Less information]
Abstract: Investors value the liquidity and safety of US Treasuries. We document this by showing that changes in Treasury supply have large effects on a variety of yield spreads. As a result, Treasury yields are reduced by 73 basis points, on average, from 1926 to 2008. Both the liquidity and safety attributes of Treasuries are driving this phenomenon. We document this by analyzing the spread between assets with different liquidity (but similar safety) and those with different safety (but similar liquidity). The low yield on Treasuries due to their extreme safety and liquidity suggests that Treasuries in important respects are similar to money. URI: http://hdl.handle.net/10398/8882 Files in this item: 1
aggregate_demand_annette_vissing (2).pdf (1.802Mb) -
Dick-Nielsen, Jens; Feldhütter, Peter; Lando, David (Amsterdam, 2012)[More information][Less information]
Abstract: We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds. URI: http://hdl.handle.net/10398/8864 Files in this item: 1
corporate_bon_liquidity_david_lando.pdf (623.7Kb) -
Moskowitz, Tobias J.; Ooi, Yao Hua; Heje Pedersen, Lasse (Amsterdam, 2012)[More information][Less information]
Abstract: We document significant ‘‘time series momentum’’ in equity index, currency, commodity, and bond futures for each of the 58 liquid instruments we consider. We find persistence in returns for one to 12 months that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction. A diversified portfolio of time series momentum strategies across all asset classes delivers substantial abnormal returns with little exposure to standard asset pricing factors and performs best during extreme markets. Examining the trading activities of speculators and hedgers, we find that speculators profit from time series momentum at the expense of hedgers. URI: http://hdl.handle.net/10398/8862 Files in this item: 1
time_series_momentum_lasse_heje.pdf (997.5Kb) -
The effects of potential social capital on involvement in foreign markets for goods and technologyLaursen, Keld; Masciarelli, Francesca; Prencipe, Andrea (, 2012)[More information][Less information]
Abstract: Drawing on social capital theory and the international business literature, we argue that domestic geography, in terms of localized potential social capital, facilitates individual firms’ awareness of business opportunities, including knowledge related to involvement in the foreign markets for goods and technology, thereby enhancing firms’ involvement in those foreign markets. When potential social capital reaches a certain threshold, it may work to trap firms into operating only within their home regions, thus reducing involvement in foreign markets. We conjecture that firms’ research and development investment moderates the relationship between potential social capital and degree of involvement in foreign markets, but given the very different properties of the two markets, with different signs for each market: a positive moderation effect for the markets for goods, and a negative effect for the markets for technology. We find empirical support for our arguments based on a representative sample of around 2000 Italian firms. URI: http://hdl.handle.net/10398/8860 Files in this item: 1
trapped_or_spurred_keld_laursen.pdf (471.9Kb)
