We construct a model of bank’s financing under moral hazard. The bank as an intermediary borrows funds from the investors (depositors) to channel them to the entrepreneurs who run the projects of the firm. The firm’s project return is risky, which is the source of the moral hazard. Also the investors are uncertain about whether their investment results in a positive return under scrupulous behavior of bank, but bank promises the investors to monitor the project properly that is the second source of moral hazard. We ignore the incentive issues related to the deposit insurance, and focus on uninsured but monitored bank debt. We characterize the conditions under which the double moral hazard competition leads to an excessive level of risk and insufficient monitoring.
{"title":"Moral Hazard and Banking Competition","authors":"Kyoo-Hong Kim, Young-jin Kim","doi":"10.2139/ssrn.2132854","DOIUrl":"https://doi.org/10.2139/ssrn.2132854","url":null,"abstract":"We construct a model of bank’s financing under moral hazard. The bank as an intermediary borrows funds from the investors (depositors) to channel them to the entrepreneurs who run the projects of the firm. The firm’s project return is risky, which is the source of the moral hazard. Also the investors are uncertain about whether their investment results in a positive return under scrupulous behavior of bank, but bank promises the investors to monitor the project properly that is the second source of moral hazard. We ignore the incentive issues related to the deposit insurance, and focus on uninsured but monitored bank debt. We characterize the conditions under which the double moral hazard competition leads to an excessive level of risk and insufficient monitoring.","PeriodicalId":206798,"journal":{"name":"Financial Economics 1","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128983556","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 studies the spread of the Global Financial Crisis of 2007–2009 from the financial sector to the real economy by examining ten sectors in 25 major developed and emerging stock markets. The analysis tests different channels of financial contagion across countries and sectors and finds that the crisis led to an increased co-movement of returns among financial sector stocks across countries and between financial sector stocks and real economy stocks. The results demonstrate that no country and sector was immune to the adverse effects of the crisis limiting the effectiveness of portfolio diversification. However, there is clear evidence that some sectors in particular Healthcare, Telecommunications and Technology were less severely affected by the crisis.
{"title":"Financial Contagion and the Real Economy","authors":"D. Baur","doi":"10.2139/ssrn.1660316","DOIUrl":"https://doi.org/10.2139/ssrn.1660316","url":null,"abstract":"This paper studies the spread of the Global Financial Crisis of 2007–2009 from the financial sector to the real economy by examining ten sectors in 25 major developed and emerging stock markets. The analysis tests different channels of financial contagion across countries and sectors and finds that the crisis led to an increased co-movement of returns among financial sector stocks across countries and between financial sector stocks and real economy stocks. The results demonstrate that no country and sector was immune to the adverse effects of the crisis limiting the effectiveness of portfolio diversification. However, there is clear evidence that some sectors in particular Healthcare, Telecommunications and Technology were less severely affected by the crisis.","PeriodicalId":206798,"journal":{"name":"Financial Economics 1","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130428866","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 develop a q-theoretic model of investment under incomplete information that explains the link between idiosyncratic volatility and stock returns. When calibrated to match properties of the US business cycles as well as various firms and industry characteristics, the model generates a negative relation between idiosyncratic volatility and stock returns. We show that conditional on earning surprises, the link is positive after good news and negative after bad news. This result provides new insights on the nature of stock return predictability.
{"title":"Incomplete Information, Idiosyncratic Volatility and Stock Returns","authors":"T. Berrada, J. Hugonnier","doi":"10.2139/ssrn.1361485","DOIUrl":"https://doi.org/10.2139/ssrn.1361485","url":null,"abstract":"We develop a q-theoretic model of investment under incomplete information that explains the link between idiosyncratic volatility and stock returns. When calibrated to match properties of the US business cycles as well as various firms and industry characteristics, the model generates a negative relation between idiosyncratic volatility and stock returns. We show that conditional on earning surprises, the link is positive after good news and negative after bad news. This result provides new insights on the nature of stock return predictability.","PeriodicalId":206798,"journal":{"name":"Financial Economics 1","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116349536","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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