Department of Finance (FI)
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Mølgaard, Pia (Frederiksberg, 2018)[More information][Less information]
Abstract: Classical asset pricing theory assumes \perfect markets" which means that nancial markets are frictionless. However, in the real world nancial frictions exists. Recently the nancial literature has focused more on these frictions and on how they a ect asset prices. This thesis contributes to the literature by providing evidence on how nancial frictions a ect pricing and trading of corporate loans. The rst chapter examines how managers of collateralized loan obligations (CLOs) trade leveraged loans and how their activity a ects the performance of the CLO. The second chapter examines how the performance of leveraged loans depends on the borrowers' relationship with its bank. The third chapter studies methodologies used to quantify how information ows between the corporate bond and the credit default swap market. URI: http://hdl.handle.net/10398/9674 Files in this item: 1
Pia Mølgaard.pdf (1.662Mb) -
Daetz, Stine Louise (Frederiksberg, 2018)[More information][Less information]
Abstract: The first essay shows that corporate bond issuers derive value from bond underwriter relationship capital. A strong underwriter relationship enables the underwriter to credibly certify the issuer on the bond market which is fundamental for firms when issuing new debt and refinancing maturing debt. In order to empirically verify this certification hypothesis we study corporate bond issuing firms' underwriter relations and analyze their value for the issuing firm. The second essay provides a detailed investigation of the implications of creditors' use of credit default swaps (CDSs) for the debt financing of related firms. CDSs are financial derivatives that protect the buyer against default of a given reference firm. The availability of CDS contracts has in general been outlined to improve bank lending by reducing financial frictions on the supply side of credit. Using unique and comprehensive CDS and credit registry data from Deutsche Bundesbank I explicitly study the CDS holdings of banks with a credit relationship to the reference firm and analyze the role of the variation in creditors use of CDSs for the borrower's debt financing. As outlined in the data creditors typically hold multiple CDSs written on the same firm and are often also net sellers of CDS contracts written on their own borrowers. The third essay investigates whether unconventional monetary interventions by central banks can stimulate corporate investment and, thus, afiect the real economy. Specifically, we address this question by analyzing ECB's three-year Longer-term Refinancing Operations (LTROs) as of 2011-2012. The LTROs were large liquidity injections that were implemented to support the real economic recovery after the European Sovereign Debt Crisis and provided cheap funding to Eurozone banks. For the empirical investigation of the impact of such liquidity interventions, we make use of comprehensive data on banks' use of the LTRO funds and Eurozone non-financial corporations' investment policies around the LTRO implementation. URI: http://hdl.handle.net/10398/9654 Files in this item: 1
Stine Louise Daetz.pdf (1.996Mb) -
Jensen, Christian Skov (Frederiksberg, 2018)[More information][Less information]
Abstract: The central formula in asset pricing relates the price of an Arrow-Debreu security to an investor's preferences and beliefs: Price of an Arrow-Debreu security = Preferences Beliefs. We observe the prices of Arrow-Debreu securities in the option markets. But we do not directly observe the extent to which these prices are driven by preferences or beliefs. Decomposing and investigating preferences and beliefs is essential for understanding asset prices, and it is therefore the focus of this thesis. In chapter one, my co-authors and I develop a model in which we can disentangle the contribution in asset prices which is driven by preferences and beliefs. In chapter two, my co-author and I estimate investor beliefs and study how these beliefs vary over time. In chapter three, I estimate investor preferences and study how they co-vary with investor beliefs. URI: http://hdl.handle.net/10398/9653 Files in this item: 1
Christian Skov Jensen.pdf (2.214Mb) -
Nielsen, Andreas Bang (Frederiksberg, 2018)[More information][Less information]
Abstract: We investigate how currency denomination a ects the price of credit risky securities of the same issuer. We focus on eurozone sovereign quanto spreads, i.e., di erences in credit default swap (CDS) premiums denominated in U.S. dollar and Euro of the same reference entity. Quanto spreads of eurozone sovereigns reached unprecedented levels during the European debt crisis and have remained signi cant ever since. Quanto spreads do not simply re ect di erences in contractual terms linked to currency denomination, because CDS contracts trade under the same standardized terms independent of currency denomination, including credit events and recovery rates. In order to understand which factors drive quanto spreads, we propose a no-arbitrage model that shows in a simple and rigorous manner that quanto spreads arise without any market frictions through two risk channels. The rst channel, currency crash risk, re ects the risk of an adverse jump in domestic versus foreign currency triggered by default of the reference entity. Intuitively, currency crash risk causes the expected recovery payment to be relatively smaller on the domestic CDS compared to the foreign CDS, because the recovery payment on the domestic contract is received in the 'crashed' currency. URI: http://hdl.handle.net/10398/9644 Files in this item: 1
Andreas Bang Nielsen.pdf (2.683Mb) -
Gormsen, Niels Joachim Christfort (Frederiksberg, 2018)[More information][Less information]
Abstract: This thesis concerns the empirical relation between risk and return in equities. It studies why the expected return on stocks as a whole varies over time and why there are predictable cross-sectional di↵erences in the return on individual stocks. The thesis consists of three chapters which can be read independently. The first chapter addresses why the expected return on the market portfolio varies over time. The market portfolio is a claim to all future cash flows earned by the firms in the stock market. I study the expected return to these future cash flows individually. I find that the expected return to the distant-future cash flows increases by more in bad times than the expected return to near-future cash flows does. This new stylized fact is important for understanding why the expected return on the market portfolio as a whole varies over time. In addition, it has strong implications for which economic model that drives the return to stocks. Indeed, I find that none of the canonical asset pricing models can explain this new stylized fact while also explaining the previously documented facts about stock returns. The second chapter, called Conditional Risk, studies how the expected return on individual stocks is influenced by the fact that their riskiness varies over time. We introduce a new ”conditional-risk factor”, which is a simple method for determining how much of the expected return to individual stocks that can be explained by time variation in their market risk, i.e. market betas. Using this new factor, we find that around 20% of the cross-sectional variation in expected stock returns worldwide can be explained by such time variation in market betas. The third chapter studies why stocks with low market betas have high risk-adjusted returns. To shed light on this low-risk e↵ect, we decompose all stocks’ market betas into their volatility and their correlation with the market portfolio. We find that both stocks with lower volatility and stocks with lower correlation have higher risk-adjusted returns. The last fact, that stocks with low correlation have high risk-adjusted returns, is particularly important because it helps distinguish between competing theories of the low-risk e↵ect. Indeed, the high risk-adjusted returns to low-correlation stocks are consistent with leverage based theories of the low-risk e↵ect, but it is not immediately implied by competing behavioral theories we consider in the paper. URI: http://hdl.handle.net/10398/9636 Files in this item: 1
Niels Gormsen.pdf (5.568Mb)
