Browsing Department of Finance (FI) by Title
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Evidence from DenmarkBechmann, Ken L.; Raaballe, Johannes (København, 2004)[More information][Less information]
Abstract: Abstract It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of ap- proximately 2.5%. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news. Key words: Stock splits; Stock dividends; Cash dividends; Signaling; Liquidity URI: http://hdl.handle.net/10398/7181 Files in this item: 1
2004_1.pdf (360.0Kb) -
Bechmann, Ken L.; Hjortshøj, Toke L. (København, 2007)[More information][Less information]
Abstract: New accounting standards require ¯rms to expense the costs of option-based compensation (OBC), but the associated valuations o®er many challenges for ¯rms. Earlier research has documented that ¯rms in the U.S. generally underreport the values of OBC by manipulating the inputs used for valuation purposes. This paper examines the values of OBC disclosed by Danish ¯rms. The results suggest that ¯rms experi ence some di±culties in valuing OBC, but interestingly, there is no clear evidence of deliberate underreporting. For example, there is no evidence that ¯rms use manipulated values for the Black-Scholes parameters in their valuations. Furthermore, ¯rms determine the expected time to maturity in a way that is generally consistent with the guidelines provided by the new accounting standards. The ¯ndings di®er from those of the U.S., but is consistent with the more limited use of OBC and the lower level of attention paid to these values in Denmark. However, the di®erences can also be due to the fact that several Danish ¯rms do not provide the information required regarding their OBC, which is clearly a very e®ective way of hiding the true values. URI: http://hdl.handle.net/10398/7143 Files in this item: 1
2007_25.pdf (347.2Kb) -
evidence from changes in institutional and strategic investors´ equity holdingsNeumann, Robert; Voetmann, Torben (København, 1999)[More information][Less information]
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Sørensen, Carsten; Trolle, Anders Bjerre (København, 2004)[More information][Less information]
Abstract: We derive an explicit solution to the portfolio problem of a power utility investor with preferences for wealth at a ¯nite investment horizon. The investor can invest in assets with return dynamics described as part of a general multivariate model. The modeling framework encompasses discrete-time VAR-models where some of the state-variables (e.g. expected excess returns) may not be directly observable. A realistic multivariate model is estimated and applied to analyze the portfolio implications of investment horizon and return predictability when real interest rates and expected excess returns on stock and bonds are not directly observed but must be estimated as part of the problem faced by the investor. The solution exhibits small variability in portfolio allocations over time compared to the case when excess returns are assumed observable. JEL Classification: G11 Keywords: Portfolio choice, predictability, VAR, unobserved state-variables, hedging demands URI: http://hdl.handle.net/10398/7151 Files in this item: 1
endeligt_wp_2004_8_030105.pdf (427.9Kb) -
Kallestrup, René (Frederiksberg, 2012)[More information][Less information]
Abstract: The Global Financial Crisis which started in 2007 is a defining economic event of our lifetime. Recessions and public bailouts of banking systems have resulted in concerns about the solvency of sovereigns in recent years as many Eurozone countries face substantial fiscal pressures. The exact causes of the Global Financial Crisis are still debated but it is unlikely to be the outcome of one single event. In a review of the Global Financial Crisis based on 21 books on the topic, Lo (2011) summarises the underlying causes and policy prescriptions: ”there is still significant disagreement as to what the underlying causes of the crisis were, and even less agreement as to what to do about it ... Like World War II, no single account of this vast and complicated calamity is sufficient to describe it.” The listed causes range from global capital flows, poor regulation, regulatory capture, inequality, high leverage, skewed economic incentives of borrowers and lenders, etc. Gorton and Metrick (2012) also contain an interesting summary of the literature written in recent years and in ”Lessons from the Financial Crisis” edited by Berd (2010) several chapters from academic researchers analyse the ongoing crisis. URI: http://hdl.handle.net/10398/8450 Files in this item: 1
Rene_Kallestrup.pdf (1.375Mb) -
Raahauge, Peter (København, 2003)[More information][Less information]
Abstract: Rational expectations models make stringent assumptions on the agent's knowledge about the true model. This paper introduces a model in which the rational agent realizes that using a given model involves approximation errors, and adjusts behavior accordingly. If the researcher accounts for this empirical rationality on part of the agent, the resulting empirical model assigns likelihood to the data actually observed, unlike in the unmodified rational expectations case. A Lucas (1978)-type asset pricing model which incorporates empirical rationality is constructed and estimated using U.S. stock data. The equilibrium asset pricing function is seriously affected by the existence of approximation errors and the descriptive properties and normative implications of the model are significantly improved. This suggests that investors do not | and should not | ignore approximation errors. Keywords: Approximation errors, model uncertainty, estimation of structural models, rational expectations, asset pricing. URI: http://hdl.handle.net/10398/7139 Files in this item: 1
wp-141.pdf (347.7Kb) -
Raahauge, Peter (København, 2001)[More information][Less information]
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Lyse Hansen, Thomas; Astrup Jensen, Bjarne (København, 2004)[More information][Less information]
Abstract: It is a delicate matter to trade spot products and financial derivatives in energy markets. Op- posite to bond and stock markets, the underlying assets are real products and a significant part of the demand for them represents a real need for the products, which can only be substituted away with some difficulties or, in some cases, only in a prohibitively costly manner. This is particularly true in the spot market, where the demand is almost always met, but where the spot price processes can be quite different from the spot price processes conventionally used in the pricing of derivatives. This pattern of real demand is also the main reason for the existence of the well-known convenience yield in energy markets. URI: http://hdl.handle.net/10398/7185 Files in this item: 1
endeligt_wp__2004_10_.pdf (365.3Kb) -
Stenbo Nielsen, Mads (Frederiksberg, 2011)[More information][Less information]
Abstract: The thesis consists of three essays that cover different aspects of correlation modelling in corporate default risk. Each essay is self-contained and can be read independently. Essay I: Correlation in corporate defaults: Contagion or conditional independence? Essay II: Systematic and idiosyncratic default risk in synthetic credit markets. Essay III: Credit spreads across the business cycle. URI: http://hdl.handle.net/10398/8370 Files in this item: 1
Mads_Stenbo_Nielsen.pdf (5.032Mb) -
Bajlum, Claus (København, 2008)[More information][Less information]
Abstract: This Ph.D. thesis consists of three self-contained chapters, which can be read independently. The chapters are interrelated through their use of structural credit risk models and a credit derivative known as the Credit Default Swap (CDS). Chapter 1 estimates the impact of accounting transparency on the term structure of CDS spreads for a large cross-section of firms. Chapter 2 analyzes the use of CDS spreads in a convergence-type trading strategy known as capital structure arbitrage. Finally Chapter 3 estimates the time-series behaviour of the credit risk premium in the market for Credit Default Swaps. URI: http://hdl.handle.net/10398/6520 Files in this item: 1
claus_bajlum.pdf (1.513Mb) -
Forssbæck, Jens (Frederiksberg, 2009)[More information][Less information]
Abstract: The thesis studies how financial markets discipline commercial and central banks’ behavior in various ways. In the first part, two papers test different aspects of market discipline of commercial banks’ risk taking, using a dataset of several hundred banks worldwide. In the first paper, it is shown that the risk-shifting opportunity of shareholders introduced by deposit insurance depends on ownership structure and the extent of market discipline by uninsured creditors. I find that the effect of shareholder control on risk is convex, and that creditor discipline tempers this effect but has little individual influence on risk. The second paper tests the monitoring dimension of market discipline and formulates a two-step procedure which makes it possible to sidestep the common methodological problem that banks’ ‘true’ risk is unobserved. Results suggest that if the quality of institutions is sufficiently high, some market-based indicators may be more accurate measures of banks’ true risk than a set of commonly used accounting-based benchmark indicators – a possibility effectively precluded by much of previous research. In the second part of the thesis, three papers study constraints on central bank behavior introduced by financial markets, using data from a set of small, open European economies during the 1980s and 1990s. The first of these papers tests how capital account liberalization and exchange-rate regime constrain monetary policy autonomy. Contrary to traditional theory, the paper finds no autonomy effect of exchange rate flexibility, whereas capital controls provided some (albeit limited) independence from innovations in foreign money market interest rates. The remaining two papers address how deregulation, innovation, and growth in domestic money markets interplay with central banks’ choices of monetary policy operating procedures. The analysis of the European countries suggests that while deregulation and the emergence of short-term financial markets constrained central bank discretion and compelled increased reliance on open market operations, the paths of money market development in different countries were also partially determined by the respective central banks’ decisions. In the final paper, the same framework of analysis is applied to China, which has announced its intention to rely increasingly on market operations in monetary policy. The results suggest that the disciplining effect of domestic financial markets on central bank behavior in China is so far very small, largely due to remaining de facto financial repression. URI: http://hdl.handle.net/10398/7785 Files in this item: 1
Jens_Forssbæck.pdf (3.819Mb) -
Fux, Sebastian (Frederiksberg, 2014)[More information][Less information]
Abstract: This thesis consists of three essays of which two are about return predictability while the last essay covers term structure models. Return predictability is still a heavily debated issue among nancial economists as well as practitioners in the nancial industry. The ability to predict stock returns out-of-sample, that is, by relying on information available at time t, is still controversial. In a recent paper, Goyal and Welch (2008) comprehensively reexamine the performance of 14 predictor variables that have been suggested by the academic literature to be powerful predictors of the U.S. equity premium, that is, the S&P 500 index return minus the short-term interest rate. The authors conclude that none of these predictor variables led to robust predictions across di erent forecast horizons and sample periods which consistently beat benchmark models such as the historical mean. In a response to Goyal and Welch (2008) Campbell and Thompson (2008) nd evidence of out-of-sample predictability by putting some economically meaningful restrictions on the coe cients of the predictive regressions. However, the out-of-sample explanatory power is nil, but nonetheless it is economically signi cant for investors with mean-variance preferences. The predictability literature argues that the out-of-sample predictability deteriorates due to structural breaks such as macroeconomic instability, changes in monetary policy, new regulations etc. Thus, not only the predictor model changes over time, but also its coef- cients. Goyal and Welch (2008) explain that more sophisticated models accounting for structural breaks might be able to consistently beat historical mean predictions. Additionally, predictability su ers from model uncertainty, meaning that there is only little consensus about the correct predictor variables and hence, the correct speci cation of the predictor model is unknown. The Bayesian framework accounts for model uncertainty by computing posterior model probabilities for all possible predictor models. Thus, Bayesian forecasts condition on the whole information set as opposed to conditioning on a single predictor variable and lead to more accurate forecasts. URI: http://hdl.handle.net/10398/8906 Files in this item: 1
Sebastian_Fux.pdf (1.090Mb) -
Tang Andersen, Allan Sall (Frederiksberg, 2011)[More information][Less information]
Abstract: The topic of this thesis is the modeling of risks in interest-rate and inflation markets. Interest-rate risk is an important issue to investors. For instance, according to BIS (2010) the notional value of over-the-counter interest-rate derivatives markets is 465,260 billion US-dollar. This corresponds to 77 percent of the notional of the entire OTC derivatives market. Thus interest-rate derivatives is at the back-bone of the financial markets. According to ISDA (2009) 83 percent of Fortune 500 companies report using interest-rate derivatives in their risk management. Furthermore, many mortgage-based loans and pension contracts contain either explicit or implicit interest-rate options. Thus a better understanding of the interest-rate derivative markets, and the risk associated with the traded products is of great value, both to financial and non-financial companies as well as individuals.... URI: http://hdl.handle.net/10398/8339 Files in this item: 1
AllanSallTangAnderen_PhDThesis.pdf (2.088Mb) -
short sales, price pressure, and the stock price response to convertible bond callsBechmann, Ken L. (København, 2001)[More information][Less information]
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Lessons from the UKMallin, Chris; Mullineux, Andy; Wihlborg, Clas (København, 2004)[More information][Less information]
Abstract: In 1992 the Cadbury Committee report on the financial aspects of corporate governance was published. The Committee had been established following the failures of a number of high profile businesses in the UK which had shaken confidence in the market. Some nine years later, in 2001, the collapse of Enron sent shockwaves through the US market. As a result of the Enron collapse and various other high profile scandals in the years since its occurrence, the US is examining its own corporate governance structures and provisions to determine how these might be improved and help avoid another Enron. The EU similarly is developing principles and legislation to improve corporate governance, and scandals such as Royal Ahold and Parmalat have helped drive further governance reforms. In this paper we detail the development of corporate governance codes in the UK and the adaptation of similar codes in the EU. We discuss the role of the financial sector in corporate governance and how principles for regulation and supervision of the financial sector complement codes of conduct and legislation in the area of corporate governance. JEL Classification numbers: G34, G28, G22, G23 Keywords: corporate governance, financial sector; institutional investors. URI: http://hdl.handle.net/10398/6789 Files in this item: 1
wplefic062004.pdf (171.8Kb) -
Østrup, Finn (København, 2005)[More information][Less information]
Abstract: The article analyses how government spending is determined under different exchange rate regimes in the context of a small open economy. Assuming nominal wage contracts which last for one period and assuming a benevolent government which determines government spending to optimise a representative individual’s utility, it is demonstrated that there are differences between exchange rate regimes with respect to the level of government spending. These differences arise first because a rise in government spending affects macroeconomic variables differently under different exchange rate regimes, and second because the government’s inclination to expand government spending is affected by inflation which depends on the exchange rate regime. At low rates of inflation, the government is inclined to set a higher level of government spending under a fixed exchange rate regime than under a floating exchange rate regime in which the monetary authority optimises preferences which include an employment target and an inflation target. As government spending affects the representative individual’s utility, the choice of exchange rate regime has an impact on welfare. Keywords: exchange rate regimes; fiscal policy; monetary union; inflation targeting. JEL classicification: E42, E61, E62, F33. URI: http://hdl.handle.net/10398/7140 Files in this item: 1
endeligt_wp_2005-1.pdf (290.0Kb) -
do companies need owners?Thomsen, Steen; Rose, Caspar (København, 2002)[More information][Less information]
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Raahauge, Peter (København, 2004)[More information][Less information]
Abstract: Kinks and jumps in the payoff function of option contracts prevent an effective implementation of higher-order numerical approximation methods. Moreover, the derivatives (the greeks) are not easily determined around such singularities, even with standard lower-order methods. This paper suggests a transformation to turn the original ill-conditioned pricing problem into a well-behaved numerical problem. For a standard test case, both vanilla- and binary call price functions are approximated with (tensor) B-splines of up to 10’th order. Polynomial convergence rates of orders up to approximately 10 are obtained for prices as well as for first and second order derivatives (delta and gamma). Unlike similar studies, numerical approximation errors are measured both as weighted averages and in the supnorm over a state space including time-to-maturities down to a split second. KEYWORDS: Numerical option pricing, Transformed state spaces, Higher-order B-splines. URI: http://hdl.handle.net/10398/7157 Files in this item: 1
2004_5.pdf (467.4Kb) -
Lunde, Jens (København, 2008)[More information][Less information]
Abstract: Housing markets in several countries are suffering. The prolonged and strong housing price rises of recent years have turned around. Historical records suggest that housing price drops may happen slowly but be large. Housing prices continue to fall because capital losses have substituted capital gains, housing equities are falling, and housing price expectations have become negative. Household debt had increased to the same degree as housing prices or even more in some countries. Access to mortgage and credit had improved and lenders used "cruise control” when financing still higher housing market prices. Now, housing demand is further weakened because access to credit has been tightened. During a downturn, owner-occupiers’ housing price risk is increased and a growing number of owners have negative equity and payment troubles. Under these conditions, arrears and foreclosures will be widespread in owner-occupation. The effects on the wider economy of a housing price downturn are discussed. Not only does the lenders’ increased credit risk lead to tightened credit access, losses threaten the banks and can create financial crises. Falling housing prices clearly depress the housing market and housing construction activities and thereby the contribution of residential investments to economic growth, while it is less obvious that average housing consumption and residential investments over the whole cycle are affected. The reduction of non-housing consumption as a result of a wealth effect is a reality for years for depressed owner-occupiers but in the aggregate, the housing wealth effect is more dubious. URI: http://hdl.handle.net/10398/7141 Files in this item: 1
wp 2008-1 jens lunde.pdf (199.0Kb) -
Gangopadhyay, Shubhashis; Wihlborg, Clas (København, 2001)[More information][Less information]