In 2010 we witnessed a major European sovereign debt crisis. By examining the links between sovereign Credit Default Swaps and stock indexes for eight European countries during the period 2007-2010, this paper studies the lead-lag relationships of the two markets which represent a country's credit and market risk. Through the use of a Vector Autoregressive model and a panel data model we find that the stock market plays a leading role during the sample period, but when 2010 is isolated a change in this relationship appears: a key role of sovereign CDS markets – the incorporation of new information emerges. This phenomenon is most significant in countries with high risk spread.
{"title":"A Case for Europe: The Relationship between Sovereign CDs and Stock Indexes","authors":"M. Coronado, M. T. Corzo, L. Lazcano","doi":"10.2139/ssrn.1889121","DOIUrl":"https://doi.org/10.2139/ssrn.1889121","url":null,"abstract":"In 2010 we witnessed a major European sovereign debt crisis. By examining the links between sovereign Credit Default Swaps and stock indexes for eight European countries during the period 2007-2010, this paper studies the lead-lag relationships of the two markets which represent a country's credit and market risk. Through the use of a Vector Autoregressive model and a panel data model we find that the stock market plays a leading role during the sample period, but when 2010 is isolated a change in this relationship appears: a key role of sovereign CDS markets – the incorporation of new information emerges. This phenomenon is most significant in countries with high risk spread.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130863256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The commodity indexes associated with Japan’s commodity-futures markets were formed in 2008 and publicized by the Tokyo Commodity Exchange and the Tokyo Grain Exchange. In this paper, I used these indexes to analyze the properties of Japan’s commodity futures as portfolio investments, and could confirm that they possess investment characteristics that differ from stocks, and that commodity investors can enjoy favorable “diversified investment” effects if leveraged skillfully.
{"title":"Characteristics of Japan’s Commodities Index and its Correlation with Stock Index","authors":"Nobuyoshi Yamori","doi":"10.2139/ssrn.1469517","DOIUrl":"https://doi.org/10.2139/ssrn.1469517","url":null,"abstract":"The commodity indexes associated with Japan’s commodity-futures markets were formed in 2008 and publicized by the Tokyo Commodity Exchange and the Tokyo Grain Exchange. In this paper, I used these indexes to analyze the properties of Japan’s commodity futures as portfolio investments, and could confirm that they possess investment characteristics that differ from stocks, and that commodity investors can enjoy favorable “diversified investment” effects if leveraged skillfully.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"4 5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133527871","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper deals with the use of the CAPM for investment decisions and evaluations. Four different measures are deductively drawn from this model: the disequilibrium Net Present Value, the equilibrium Net Present Value, the disequilibrium Net Future Value, the equilibrium Net Future Value. It is shown that all of them may be used for accept-reject decisions, but only the equilibrium Net Present Value and the disequilibrium Net Future Value may be used for valuation, given that they enjoy the additivity property. The two nonadditive indexes cannot be deducted from the CAPM assumptions if the decision problem “invest/no invest” is reframed as “invest in Z/invest in Y”. Despite their additivity, the equilibrium Net Present Value and the disequilibrium Net Future Value are unreliable for both valuation and decision, because they do not signal arbitrage opportunities whenever there is some state of nature for which they are decreasing functions with respect to the end-of-period cash flow. In this case, the equilibrium value of a project is not the price it would have if it were traded in the security market. This result is the capital-budgeting counterpart of Dybvig and Ingersoll’s (1982) result.
{"title":"CAPM and Capital Budgeting: Present versus Future, Equilibrium versus Disequilibrium, Decision versus Valuation","authors":"C. Magni","doi":"10.2139/ssrn.1024716","DOIUrl":"https://doi.org/10.2139/ssrn.1024716","url":null,"abstract":"This paper deals with the use of the CAPM for investment decisions and evaluations. Four different measures are deductively drawn from this model: the disequilibrium Net Present Value, the equilibrium Net Present Value, the disequilibrium Net Future Value, the equilibrium Net Future Value. It is shown that all of them may be used for accept-reject decisions, but only the equilibrium Net Present Value and the disequilibrium Net Future Value may be used for valuation, given that they enjoy the additivity property. The two nonadditive indexes cannot be deducted from the CAPM assumptions if the decision problem “invest/no invest” is reframed as “invest in Z/invest in Y”. Despite their additivity, the equilibrium Net Present Value and the disequilibrium Net Future Value are unreliable for both valuation and decision, because they do not signal arbitrage opportunities whenever there is some state of nature for which they are decreasing functions with respect to the end-of-period cash flow. In this case, the equilibrium value of a project is not the price it would have if it were traded in the security market. This result is the capital-budgeting counterpart of Dybvig and Ingersoll’s (1982) result.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132847750","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Alexandros Garefalakis, N. Sariannidis, C. Zopounidis, Pandelis Zisis
The present paper makes a significant effort to introduce and eventually build the appropriate Balanced Scorecard (BSC) for the specific Gas Company of Greece. As the latter is a complex organisation several management tools are considered important for the most accurate development of BSC as a strategic planning tool. An overview of the performance measures and specifically the gap between traditional and innovative performance measures is provided, so as the necessity for using progressive tools to be highlighted. Moreover, the gap between the obsolete Greek means of measuring performance and suggested ones by literature is underlined, so as to provide insight to Greek companies in improving their performance measurement system as well as keep it consistent with their strategic objectives. Finally, it was considered vital that two BSCs for both public and private sectors to be build in order to obtain the most appropriate total BSC for the specific complex organisation. It was also considered important to use particular management tools for the most accurate results and proper suggestions for improving strategic objectives of the company. As a result, the aim of this paper by developing BSC was to provide more comprehensive and efficient procedures through which managers can develop strategies and goals for progressive and competitive future businesses. As far as the specific company.
{"title":"Building Balanced Scorecard in a Complex Form of Enterprise with Various Effective Managerial Tools and Performance Strategies: The Case of Gas Corporation S.A., in Greece","authors":"Alexandros Garefalakis, N. Sariannidis, C. Zopounidis, Pandelis Zisis","doi":"10.2139/ssrn.1359873","DOIUrl":"https://doi.org/10.2139/ssrn.1359873","url":null,"abstract":"The present paper makes a significant effort to introduce and eventually build the appropriate Balanced Scorecard (BSC) for the specific Gas Company of Greece. As the latter is a complex organisation several management tools are considered important for the most accurate development of BSC as a strategic planning tool. An overview of the performance measures and specifically the gap between traditional and innovative performance measures is provided, so as the necessity for using progressive tools to be highlighted. Moreover, the gap between the obsolete Greek means of measuring performance and suggested ones by literature is underlined, so as to provide insight to Greek companies in improving their performance measurement system as well as keep it consistent with their strategic objectives. Finally, it was considered vital that two BSCs for both public and private sectors to be build in order to obtain the most appropriate total BSC for the specific complex organisation. It was also considered important to use particular management tools for the most accurate results and proper suggestions for improving strategic objectives of the company. As a result, the aim of this paper by developing BSC was to provide more comprehensive and efficient procedures through which managers can develop strategies and goals for progressive and competitive future businesses. As far as the specific company.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"78 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130627212","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we challenge basic results of signaling models. In our banking model each project of a borrower is described by a continuous density of outcomes. Different density functions are classified according to second stochastisch dominance. Combining these features we find that in a banking model collateral is no longer in a position to signal the degree of riskiness of the borrower to the lender. In most cases the equilibrium is a pooling equilibrium.
{"title":"The Banking Firm: The Role of Signaling with Collaterals","authors":"V. Bieta, Udo Broll, Wilfried Siebe","doi":"10.2139/ssrn.1135680","DOIUrl":"https://doi.org/10.2139/ssrn.1135680","url":null,"abstract":"In this paper we challenge basic results of signaling models. In our banking model each project of a borrower is described by a continuous density of outcomes. Different density functions are classified according to second stochastisch dominance. Combining these features we find that in a banking model collateral is no longer in a position to signal the degree of riskiness of the borrower to the lender. In most cases the equilibrium is a pooling equilibrium.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"81 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126234869","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Georgios Ouzounis, Chrysovalantis Gaganis, C. Zopounidis
Over recent decades, the forecasting and prediction of stock market acquisitions have been subject to increased interest due to the economic importance for various stakeholders. This study consists of two stages: dealing with the development of prediction models and their subsequent use within an investment strategy. During the first stage, we explore the ability to predict the acquisition of listed firms in the UK. In the second stage of the analysis, we explore whether it is possible to earn abnormal returns by investing in portfolios consisted of the predicted targets. The training sample includes 658 listed companies half of which were acquired between 2001 and 2005. The validation sample consists of 1,576 listed firms, of which 416 were acquired during 2006. The results indicate that the portfolios can generate abnormal returns of up to 4.78% depending on the investment horizon and the methodology employed.
{"title":"Prediction of Acquisitions and Portfolio Returns","authors":"Georgios Ouzounis, Chrysovalantis Gaganis, C. Zopounidis","doi":"10.2139/ssrn.1137966","DOIUrl":"https://doi.org/10.2139/ssrn.1137966","url":null,"abstract":"Over recent decades, the forecasting and prediction of stock market acquisitions have been subject to increased interest due to the economic importance for various stakeholders. This study consists of two stages: dealing with the development of prediction models and their subsequent use within an investment strategy. During the first stage, we explore the ability to predict the acquisition of listed firms in the UK. In the second stage of the analysis, we explore whether it is possible to earn abnormal returns by investing in portfolios consisted of the predicted targets. The training sample includes 658 listed companies half of which were acquired between 2001 and 2005. The validation sample consists of 1,576 listed firms, of which 416 were acquired during 2006. The results indicate that the portfolios can generate abnormal returns of up to 4.78% depending on the investment horizon and the methodology employed.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129865494","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents a new way of valuing firms and measuring residual income. The method, originally introduced in Magni (2000a, 2000b, 2000c, 2001), is here renamed lost-capital paradigm. In order to enhance comprehension the presentation relies on a very simple numerical example which shows that the new paradigm of residual income enjoys a property of abnormal earnings aggregation, according to which the NPV (and therefore the market value) of the firm does not change if each residual income changes, as long as the (uncapitalized) sum of all residual incomes do not change. While radically different from the standard residual income, the difference between the two notions is equal to the interest accrued on the past cumulated standard residual incomes, which has interesting implications for incentive compensation.
{"title":"A Sum & Discount Method of Appraising Firms: An Illustrative Example","authors":"C. Magni","doi":"10.2139/ssrn.1033522","DOIUrl":"https://doi.org/10.2139/ssrn.1033522","url":null,"abstract":"This paper presents a new way of valuing firms and measuring residual income. The method, originally introduced in Magni (2000a, 2000b, 2000c, 2001), is here renamed lost-capital\u0000paradigm. In order to enhance comprehension the presentation relies on a very simple numerical example which shows that the new paradigm of residual income enjoys a property of abnormal earnings aggregation, according to which the NPV (and therefore the market value) of the firm does not change if each residual income changes, as long as the (uncapitalized) sum of all residual incomes do not change. While radically different from the standard residual income, the difference between the two notions is equal to the interest accrued on the past cumulated standard residual incomes, which has interesting implications for incentive compensation.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134290482","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Rafael Eldor, Shmuel Hauser, Michael Kahn, Avi Kamara
We investigate nontradable and tradable identical Treasury derivatives. The nontradability premium is statistically and economically significant, and it covaries positively with interest rate volatility and relative tightness in the markets. Our data offer an almost-perfect laboratory to study the determinants of liquidity. The product of conditional interest rate volatility times the underlying bill's turnover is a better liquidity measure than the trading volume, amount outstanding, and turnover. A higher turnover is associated with a lower expected time for trading at a "desirable" price. The higher the volatility, the larger the marginal value of a reduction in the expected time to trade.
{"title":"The Nontradability Premium of Derivatives Contracts","authors":"Rafael Eldor, Shmuel Hauser, Michael Kahn, Avi Kamara","doi":"10.1086/503657","DOIUrl":"https://doi.org/10.1086/503657","url":null,"abstract":"We investigate nontradable and tradable identical Treasury derivatives. The nontradability premium is statistically and economically significant, and it covaries positively with interest rate volatility and relative tightness in the markets. Our data offer an almost-perfect laboratory to study the determinants of liquidity. The product of conditional interest rate volatility times the underlying bill's turnover is a better liquidity measure than the trading volume, amount outstanding, and turnover. A higher turnover is associated with a lower expected time for trading at a \"desirable\" price. The higher the volatility, the larger the marginal value of a reduction in the expected time to trade.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131049173","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a new approach to density forecast optimisation and apply it to Value-at-Risk estimation. All existing density forecasting models try to optimise the distribution of the returns based solely on the predicted density at the observation. In this paper we argue that probabilistic predictions should be optimised on more than just this accuracy score and suggest that the statistical consistency of the probability estimates should also be optimised during training. Statistical consistency refers to the property that if a predicted density function suggests P percent probability of occurrence, the event truly ought to have probability P of occurring. We describe a quality score that can rank probability density forecasts in terms of statistical consistency based on the probability integral transform (Diebold et al., 1998b). We then describe a framework that can optimise any density forecasting model in terms of any set of objective functions. The framework uses a multi-objective evolutionary algorithm to determine a set of trade-off solutions known as the Pareto front of optimal solutions. Using this framework we develop an algorithm for optimising density forecasting models and implement this algorithm for GARCH (Bollerslev, 1986) and GJR models (Glosten et al., 1993). We call these new models Pareto-GARCH and Pareto-GJR. To determine whether this approach of multi-objective optimisation of density forecasting models produces better results over the standard GARCH and GJR optimisation techniques we compare the models produced empirically on a Value-at-Risk application. Our evaluation shows that our Pareto models produce superior results out-of-sample.
我们提出了一种新的密度预测优化方法，并将其应用于风险价值估计。所有现有的密度预测模型都试图仅根据观测点的预测密度来优化收益的分布。在本文中，我们认为概率预测应该优化的不仅仅是这个准确性分数，并建议概率估计的统计一致性也应该在训练期间优化。统计一致性指的是这样一种性质:如果一个预测的密度函数表明发生的概率为P %，那么该事件确实应该具有发生的概率P。我们描述了一个质量分数，它可以根据概率积分变换的统计一致性对概率密度预测进行排序(Diebold et al.， 1998b)。然后，我们描述了一个框架，该框架可以根据任何一组目标函数优化任何密度预测模型。该框架使用多目标进化算法来确定一组权衡解，称为最优解的帕累托前沿。利用这一框架，我们开发了一种优化密度预测模型的算法，并将该算法应用于GARCH (Bollerslev, 1986)和GJR模型(Glosten et al.， 1993)。我们称这些新模型为帕累托- garch和帕累托- gjr。为了确定这种密度预测模型的多目标优化方法是否比标准GARCH和GJR优化技术产生更好的结果，我们比较了在风险价值应用上产生的模型。我们的评估表明，我们的帕累托模型产生了更好的样本外结果。
{"title":"Making Density Forecasting Models Statistically Consistent","authors":"Michael Carney, P. Cunningham, B. Lucey","doi":"10.2139/ssrn.877629","DOIUrl":"https://doi.org/10.2139/ssrn.877629","url":null,"abstract":"We propose a new approach to density forecast optimisation and apply it to Value-at-Risk estimation. All existing density forecasting models try to optimise the distribution of the returns based solely on the predicted density at the observation. In this paper we argue that probabilistic predictions should be optimised on more than just this accuracy score and suggest that the statistical consistency of the probability estimates should also be optimised during training. Statistical consistency refers to the property that if a predicted density function suggests P percent probability of occurrence, the event truly ought to have probability P of occurring. We describe a quality score that can rank probability density forecasts in terms of statistical consistency based on the probability integral transform (Diebold et al., 1998b). We then describe a framework that can optimise any density forecasting model in terms of any set of objective functions. The framework uses a multi-objective evolutionary algorithm to determine a set of trade-off solutions known as the Pareto front of optimal solutions. Using this framework we develop an algorithm for optimising density forecasting models and implement this algorithm for GARCH (Bollerslev, 1986) and GJR models (Glosten et al., 1993). We call these new models Pareto-GARCH and Pareto-GJR. To determine whether this approach of multi-objective optimisation of density forecasting models produces better results over the standard GARCH and GJR optimisation techniques we compare the models produced empirically on a Value-at-Risk application. Our evaluation shows that our Pareto models produce superior results out-of-sample.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116830996","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper uses counterexamples and simple formalization to show that the standard CAPM-based Net Present Value may not be used for investment valuations. The reason is that the standard CAPM-based capital budgeting criterion implies a notion of value which does not comply with the principle of additivity. Framing effects arise in decisions so that different descriptions of the same problem lead to different choices. As a result, the CAPM-based NPV as a tool for valuing projects and making investment decisions is theoretically unsound, even if the CAPM assumptions are met.
{"title":"Theoretical Flaws in the Use of the CAPM For Investment Decisions","authors":"C. Magni","doi":"10.2139/ssrn.1075404","DOIUrl":"https://doi.org/10.2139/ssrn.1075404","url":null,"abstract":"This paper uses counterexamples and simple formalization to show that the standard CAPM-based Net Present Value may not be used for investment valuations. The reason is that the standard CAPM-based capital budgeting criterion implies a notion of value which does not comply with the principle of additivity. Framing effects arise in decisions so that different descriptions of the same problem lead to different choices. As a result, the CAPM-based NPV as a tool for valuing projects and making investment decisions is theoretically unsound, even if the CAPM assumptions are met.","PeriodicalId":149679,"journal":{"name":"Frontiers in Finance & Economics","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132750761","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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