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This paper compares the performance of asset pricing models, the CAPM, the Fama–French three-factor model, and a model including a risk factor related to equity duration. To construct the duration–risk factor, we compute the implied equity duration of Japanese equity securities. We obtain the following empirical results. While growth stocks have long duration, value stocks have short duration. The...
•We examine the effect of different types of bank supervisory powers in place before the crisis on bank risk-taking during the crisis. •We employ data of more than 8000 banks from high-income OECD countries for the 2007–2011 period and impaired loans to gross loans ratio as proxy for bank risk-taking. •Our Hausman–Taylor estimates indicate that the powers of bank supervisors to shake up the organizational...
In this paper we propose a novel extension of the standard market microstructure order flow model by incorporating non-linearities into the order flow–exchange rate relationship. This important issue has not been accounted for in the existing empirical literature. We investigate this issue using a new data set and focusing on out-of-sample forecasts. Forecasting power is measured using standard statistical...
This paper examines the intertemporal capital asset pricing (Merton, 1973) for industry portfolio returns of 14 international markets. Using different multivariate GARCH models to estimate time-varying conditional covariances between industry excess returns and market excess returns by controlling for financial market volatility variables and the Fama–French–Carhart factors, we find positive evidence...
Microprudential regulation is an integral part of any banking supervisory framework. By analysing the link between economic conditions and the survival of small co-operative banks, this study sheds light on the importance of the economic environment after assessing individual bank stability over time. The results show that bank failure is better captured when we account for the state of the economy...
We study the magnitude of tail risk – particularly lower tail downside risk – that is present in intraday versus overnight market returns and thereby examine the nature of the respective market risk borne by market participants. Using the Generalized Pareto Distribution for the return innovations, we use a GARCH model for the conditional market return components of major stock markets covering the...
Using a panel of 38 economies, over the period 2001–2010, we analyse the link between different facets of education and diversification in international portfolios. We find that university education, mathematical numeracy, in addition to financial skill, play an important role in reducing home bias. After separating countries according to their level of financial development, we find that less developed...
This paper studies the role of exchange rate volatility in determining the UK's real imports from three major developing countries – Brazil, China, and South Africa. The paper contributes to the literature by investigating the third country effect and also by analyzing the impact of the current financial crisis on the relationship between exchange rate volatility and UK imports. This paper further...
We test the mixture of distributions hypothesis (MDH) in which equity trading volumes and return volatilities are derived from an unobservable mixing variable, the speed of information flow to the market. Interpreting the public announcement of a takeover offer as a regime-changing firm-specific informational event, we study the daily trading volumes and price volatilities of 190 US targets from four...
In this paper, we examine a sample of 3119 minority block acquisitions around the world. One in seven firms are targeted by active investors who either have their own representatives on the board or in the extreme case, replace existing CEOs. We find that active investors are more prevalent in countries with good investor protection. Further, firms targeted by active investors experience significantly...
A recent line of research deals with the formulation, the justification and the modelling of a crisis triggered by involved economic agents. Modelling financial crises within an asymmetric information environment is argued to be a difficult task since the measurement of adverse selection and/or moral hazard during a financial/debt crisis is difficult. The present paper focuses on the study of moral...
•In this paper, we apply the smooth transition conditional correlation model to examine the impact that shocks to order flow imbalance have on stock market co-movement. •We find that positive and negative shocks to security order flow reduce co-movement. •When firms face net buying pressure positive shocks that raise net buying pressure lead to larger correlation reductions than negative shocks...
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