Research articles for the 2019-04-12
A Study of Various Investment Avenues in India
SSRN
Investors invest their savings to enhance their future consumption possibilities by increasing their wealth. Investment decision requires proper financial planning. Various investment avenues are available in market with their distinct features. According to requirement of investors they invest some fund in financial instrument some in nonfinancial instrument. The study aimed to focus on various investment avenues available in India.
SSRN
Investors invest their savings to enhance their future consumption possibilities by increasing their wealth. Investment decision requires proper financial planning. Various investment avenues are available in market with their distinct features. According to requirement of investors they invest some fund in financial instrument some in nonfinancial instrument. The study aimed to focus on various investment avenues available in India.
An Economic Analysis of Intra-governmental Account Transfers: Social Security and Public Infrastructure in Japan
SSRN
In the context of limited local government resources, it is often targeted to secure financial resources for social security expenditures for the aging society and upkeep expenditures against the aging of public infrastructure facilities. This paper examines whether transfers from general accounts to special accounts and public enterprise accounts have a significant impact on the financial burden of local governments, using panel data from Japanese local governments. We find that transfer to special accounts and public enterprise can inflate the net liabilities.
SSRN
In the context of limited local government resources, it is often targeted to secure financial resources for social security expenditures for the aging society and upkeep expenditures against the aging of public infrastructure facilities. This paper examines whether transfers from general accounts to special accounts and public enterprise accounts have a significant impact on the financial burden of local governments, using panel data from Japanese local governments. We find that transfer to special accounts and public enterprise can inflate the net liabilities.
Bank Dependence in Emerging Countries: Cross-Border Information Percolation in Mutual Fund Equity Investing
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In contrast to the literature involving U.S. bank domestic lending, we find that mutual funds affiliated with lending banks reduce their equity investment and turnover in the non-U.S. listed stock of their non-U.S. borrowers compared to non-lending banks or unaffiliated mutual funds. Reduced equity holdings increase loan spreads, preserving the lending bank’s cross-border information monopoly. Equity market holdings and turnover are reduced when banks lend to firms in emerging nations and when the geographic distance between the lender and the mutual fund manager is greatest. Thereby, long-range information percolation may benefit global institutions at the expense of individual subsidiaries.
SSRN
In contrast to the literature involving U.S. bank domestic lending, we find that mutual funds affiliated with lending banks reduce their equity investment and turnover in the non-U.S. listed stock of their non-U.S. borrowers compared to non-lending banks or unaffiliated mutual funds. Reduced equity holdings increase loan spreads, preserving the lending bank’s cross-border information monopoly. Equity market holdings and turnover are reduced when banks lend to firms in emerging nations and when the geographic distance between the lender and the mutual fund manager is greatest. Thereby, long-range information percolation may benefit global institutions at the expense of individual subsidiaries.
Bitcoins, Cryptocurrencies and BlockChains
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The U.S. has approximately 1,600 cryptocurrencies. No cryptocurrency is qualified to be called money because none has been designated by the U.S. government as being legal tender. Cryptocurrencies are called virtual currencies because they possess a few of the qualities of money. In this article, three issues related to cryptocurrencies are analyzed. First, bitcoins are considered, because they are the principal cryptocurrency. Second, an assessment of the processes the Federal Reserve and the central bank of Sweden are going through to evaluate the possibility of issuing some not-yet-fully-defined new form of electronic currency. Third, an examination of the viability of blockchain, which was introduced as an internal component of bitcoin, as a successful stand-alone technology.
SSRN
The U.S. has approximately 1,600 cryptocurrencies. No cryptocurrency is qualified to be called money because none has been designated by the U.S. government as being legal tender. Cryptocurrencies are called virtual currencies because they possess a few of the qualities of money. In this article, three issues related to cryptocurrencies are analyzed. First, bitcoins are considered, because they are the principal cryptocurrency. Second, an assessment of the processes the Federal Reserve and the central bank of Sweden are going through to evaluate the possibility of issuing some not-yet-fully-defined new form of electronic currency. Third, an examination of the viability of blockchain, which was introduced as an internal component of bitcoin, as a successful stand-alone technology.
Cyberattacks and Impact on Bond Valuation
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We examine the impact of cyberattacks on bondholder wealth. Unlike stockholders, bondholders do not react in the short-term but do experience negative returns in the one-month event window. Compared to similar firms not subject to cyberattacks, we find that bondholders lost approximately 2% of their wealth within a one-month period surrounding the attack (a loss of $3.8 million on average). In this decade of advanced cybersecurity, bondholders still suffer similar losses compared to the last decade. To our knowledge, this is the first study that analyzes the impact of cyberattacks on bondholder wealth.
SSRN
We examine the impact of cyberattacks on bondholder wealth. Unlike stockholders, bondholders do not react in the short-term but do experience negative returns in the one-month event window. Compared to similar firms not subject to cyberattacks, we find that bondholders lost approximately 2% of their wealth within a one-month period surrounding the attack (a loss of $3.8 million on average). In this decade of advanced cybersecurity, bondholders still suffer similar losses compared to the last decade. To our knowledge, this is the first study that analyzes the impact of cyberattacks on bondholder wealth.
Fair Dynamic Valuation of Insurance Liabilities via Convex Hedging
SSRN
A general class of fair valuations, which are model-consistent (mark-to-model), market-consistent (mark-to-market) and time-consistent, was introduced in Barigou et al. (2018) under a multi-period setting. In this paper, we generalize the convex hedging approach proposed in Dhaene et al. (2017) to a multi-period framework and investigate the realization of fair dynamic valuations via a convex hedge-based (CHB) approach. We show that the classes of fair dynamic valuations and CHB dynamic valuations are equivalent. Moreover, we show how to implement the CHB dynamic valuations through a backward iterations scheme with the application of some specific convex hedgers.
SSRN
A general class of fair valuations, which are model-consistent (mark-to-model), market-consistent (mark-to-market) and time-consistent, was introduced in Barigou et al. (2018) under a multi-period setting. In this paper, we generalize the convex hedging approach proposed in Dhaene et al. (2017) to a multi-period framework and investigate the realization of fair dynamic valuations via a convex hedge-based (CHB) approach. We show that the classes of fair dynamic valuations and CHB dynamic valuations are equivalent. Moreover, we show how to implement the CHB dynamic valuations through a backward iterations scheme with the application of some specific convex hedgers.
Market Risk Premium and Risk-Free Rate Used for 69 Countries in 2019: A Survey
SSRN
This paper contains the statistics of a survey about the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used in 2019 for 69 countries. We got answers for 84 countries, but we only report the results for 69 countries with more than 8 answers.Due to “Quantitative Easingâ€, many respondents use for European countries a RF higher than the yield of the 10-year Government bonds. The coefficient of variation (standard deviation/average) of RF is, on average, 2.75 times higher than the CV of MRP for 24 European countries.For the second time of this survey, 9 respondents providedâ€"without being asked forâ€"a different MRP for Spain and Catalonia (on average, 6.4% for Spain and 11.5% for Catalonia).
SSRN
This paper contains the statistics of a survey about the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used in 2019 for 69 countries. We got answers for 84 countries, but we only report the results for 69 countries with more than 8 answers.Due to “Quantitative Easingâ€, many respondents use for European countries a RF higher than the yield of the 10-year Government bonds. The coefficient of variation (standard deviation/average) of RF is, on average, 2.75 times higher than the CV of MRP for 24 European countries.For the second time of this survey, 9 respondents providedâ€"without being asked forâ€"a different MRP for Spain and Catalonia (on average, 6.4% for Spain and 11.5% for Catalonia).
The Effects of Institutional Quality on Formal and Informal Borrowing Across High-, Middle-, and Low-Income Countries
SSRN
This paper examines the effects of institutional quality on financing choice of individual using a large dataset of 137,160 people from 131 countries. We classify borrowing activities into three categories, including formal, constructive informal, and underground borrowing. Although the result shows that better institutions aids the uses of formal borrowing, the impact of institutions on constructive informal and underground borrowing among three country sub-groups differs. Higher institutional quality improves constructive informal borrowing in middle-income countries but reduces the use of underground borrowing in high- and low-income countries.
SSRN
This paper examines the effects of institutional quality on financing choice of individual using a large dataset of 137,160 people from 131 countries. We classify borrowing activities into three categories, including formal, constructive informal, and underground borrowing. Although the result shows that better institutions aids the uses of formal borrowing, the impact of institutions on constructive informal and underground borrowing among three country sub-groups differs. Higher institutional quality improves constructive informal borrowing in middle-income countries but reduces the use of underground borrowing in high- and low-income countries.
The Impact of Credit Risk Mispricing on Mortgage Lending During the Subprime Boom
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We provide new evidence that credit supply shifts contributed to the U.S. subprime mortgage boom and bust. We collect original data on both government and private mortgage insurance premiums from 1999-2016, and document that prior to 2008, premiums did not vary across loans with widely different observable characteristics that we show were predictors of default risk. Then, using a set of post-crisis insurance premiums to fit a model of default behavior, and allowing for time-varying expectations about house price appreciation, we quantify the mispricing of default risk in premiums prior to 2008. We show that the flat premium structure, which necessarily resulted in safer mortgages cross-subsidizing riskier ones, produced substantial adverse selection. Government insurance maintained an even flatter premium structure even post-crisis, and consequently also suffered from adverse selection. But after 2008 it reduced its exposure to default risk through a combination of higher premiums and rationing at the extensive margin.
SSRN
We provide new evidence that credit supply shifts contributed to the U.S. subprime mortgage boom and bust. We collect original data on both government and private mortgage insurance premiums from 1999-2016, and document that prior to 2008, premiums did not vary across loans with widely different observable characteristics that we show were predictors of default risk. Then, using a set of post-crisis insurance premiums to fit a model of default behavior, and allowing for time-varying expectations about house price appreciation, we quantify the mispricing of default risk in premiums prior to 2008. We show that the flat premium structure, which necessarily resulted in safer mortgages cross-subsidizing riskier ones, produced substantial adverse selection. Government insurance maintained an even flatter premium structure even post-crisis, and consequently also suffered from adverse selection. But after 2008 it reduced its exposure to default risk through a combination of higher premiums and rationing at the extensive margin.
