Articles

Zero-sum revision games

F. GENSBITTEL, S. LOVO, J. RENAULT, T. TOMALA

Games and Economic Behavior

A paraître

Départements : Finance, GREGHEC (CNRS), Economie et Sciences de la décision


Catching Falling Knives: Speculating on Liquidity Shocks

J. E. COLLIARD

Management Science

août 2017, vol. 63, n°8, pp.2573-2591

Départements : Finance, GREGHEC (CNRS)

Mots clés : supply information • nonfundamental uncertainty • market crashes • arbitrage • high-frequency trading

http://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2016.2440


Many market participants invest resources to acquire information about liquidity rather than fundamentals. I show that agents using such information can reduce the magnitude of short-lived pricing errors by trading against liquidity shocks. However, the short-run stabilizing effect of this behavior also makes it more difficult to identify liquidity shocks, a signal-jamming effect that slows down price discovery in the long run. As more agents invest in nonfundamental information, market prices become more resilient to liquidity shocks but also recover more slowly from temporary price deviations.

Dynamic Dependence and Diversification in Corporate Credit

Peter CHRISTOFFERSEN, Kris JACOBS, Xisong JIN, H. LANGLOIS-BERTRAND

Review of Finance

2017, pp.1-40

Départements : Finance, GREGHEC (CNRS)

Mots clés : Credit risk, Default risk, CDS, Dynamic dependence, Copula

https://academic.oup.com/rof/article/doi/10.1093/rof/rfx034/3980187/Dynamic-Dependence-and-Diversification-in


We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase significantly in the financial crisis, and have remained high since. The most drastic increases in credit dependence occur in July/August of 2007 and in August of 2011 and the decrease in diversification potential caused by the increases in dependence and tail dependence is large. Credit default swap correlation dynamics are important determinants of credit spreads

Housing Collateral and Entrepreneurship

Martin SCHMALZ, David SRAER, D. THESMAR

The Journal of Finance

février 2017, vol. 72, n°1, pp.99-132

Départements : Finance


We show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.

Linear-Rational Term Structure Models

D. FILIPOVIC, M. LARSSON, A. TROLLE

The Journal of Finance

avril 2017, vol. 72, n°2, pp.655-704

Départements : Finance


We introduce the class of linear-rational term structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: (i) ensures nonnegative interest rates, (ii) easily accommodates unspanned factors affecting volatility and risk premiums, and (iii) admits semi-analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of term structure, volatility, and risk premium dynamics—including when interest rates are close to the zero lower bound

Systemic Risk in Clearing Houses: Evidence from the European Repo Market

C. BOISSEL, F. DERRIEN, E. ORS, D. THESMAR

Journal of Financial Economics

septembre 2017, vol. 125, n°3, pp.511-536

Départements : Finance, GREGHEC (CNRS)

Mots clés : repurchase agreement; sovereign debt crisis; LTRO; secured money market lending; clearing houses

http://www.sciencedirect.com/science/article/pii/S0304405X17301277


We study how crises affect Central Clearing Counterparties (CCPs). We focus on a large and safe segment of CCP-cleared repo market during the Eurozone sovereign debt crisis. We develop a simple model to infer CCP stress, which is measured as repo rates’ sensitivity to sovereign CDS spreads and jointly captures (1) the effectiveness of haircut policies, (2) CCP-member default risk (conditional on sovereign default), and (3) CCP default risk (conditional on both sovereign and CCP-member default). During 2011, repo rates strongly respond to sovereign risk, particularly for GIIPS countries: repo investors behaved as if the conditional probability of CCP default was substantial. (100 words)

The Political Economy of Financial Innovation: Evidence from Local Governments

C. PERIGNON, B. VALLEE

Review of Financial Studies

juin 2017, vol. 30, n°6, pp.1903-1934

Départements : Finance, GREGHEC (CNRS)

https://academic.oup.com/rfs/article/30/6/1903/3098538/The-Political-Economy-of-Financial-Innovation


We investigate the development of an innovative and high-risk type of borrowing for local governments, known as structured loans. Using transaction data for more than 2,700 local governments in France, we show that the adoption of these instruments is more frequent for politicians from highly indebted local governments, from politically contested areas, and during political campaigns. Taking on structured loans helps incumbents win a reelection, and initially allows them to maintain lower taxes. Our findings illustrate how financial innovation can amplify principal-agent problems within the political system

Toxic Arbitrage

T. FOUCAULT, R. KOZHAN, W. W. THAM

Review of Financial Studies

avril 2017, vol. 30, n°4, pp.1053-1094

Départements : Finance, GREGHEC (CNRS)

https://academic.oup.com/rfs/article/30/4/1053/2758635/Toxic-Arbitrage


Short-lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities and faster responses to these opportunities should impair liquidity. We provide supporting evidence using data on triangular arbitrage. As predicted, illiquidity is higher on days when the fraction of toxic arbitrage opportunities and arbitrageurs’ relative speed are higher. Overall, our findings suggest that the price efficiency gain of high-frequency arbitrage comes at the cost of increased adverse selection risk

Where the Risks Lie: A Survey on Systemic Risk

S. BENOIT, J. E. COLLIARD, C. HURLIN, C. PERIGNON

Review of Finance

mars 2017, vol. 21, n°1, pp.109-152

Départements : Finance, GREGHEC (CNRS)

Mots clés : Banking, Macroprudential Regulation, Systemically Important Financial In- stitutions, Financial Crises, Too-Big-To-Fail

https://academic.oup.com/rof/article/21/1/109/2670094/Where-the-Risks-Lie-A-Survey-on-Systemic-Risk


We review the extensive literature on systemic risk and connect it to the current regulatory debate. While we take stock of the achievements of this rapidly growing field, we identify a gap between two main approaches. The first one studies different sources of systemic risk in isolation, uses confidential data, and inspires targeted but complex regulatory tools. The second approach uses market data to produce global measures which are not directly connected to any particular theory, but could support a more efficient regulation. Bridging this gap will require encompassing theoretical models and improved data disclosure

Debt decisions in deregulated industries

A. OVTCHINNIKOV

Journal of Corporate Finance: Contracting, Governance and Organization

février 2016, vol. 36, pp.230-254

Départements : Finance, GREGHEC (CNRS)

Mots clés : Debt decisions, Debt maturity, Public and private debt issues, Deregulation

http://dx.doi.org/10.2139/ssrn.2314302


Deregulation significantly affects firms’ debt decisions. Prior to deregulation, regulated firms depend more on long-term and public debt but reduce this dependence considerably during deregulation. Cross-sectional analysis shows that the lower use of long-term and public debt results from changing firm sensitivities to determinants of debt decisions triggered by deregulation. Consistent with credit and liquidity risk theories of debt maturity, the concave relation between firm quality and debt maturity is attenuated among regulated firms. Inconsistent with these theories, the convex relation between firm quality and public debt issues exists only among regulated firms. I find limited support for other theories


JavaScriptSettings