Research articles for the 2019-11-03

Asset Prices with Investor Protection in Approximate Fractional Economy
Jia Yue,Ben-Zhang Yang,Ming-Hui Wang,Nan-Jing Huang

In this paper, we consider a dynamic asset pricing model in an approximate fractional economy to address empirical regularities related to both investor protection and past information. Our newly developed model features not only in terms with a controlling shareholder who diverts a fraction of the output, but also the good (or bad) memory in his budget dynamics which can be well-calibrated by a pathwise way from the historical data. We find that poorer investor protection leads to higher stock holdings of controlling holders, lower stock returns, lower interest rates, and lower stock volatilities if the ownership concentration is sufficiently high. More importantly, by establishing an approximation scheme for the good (or bad) memory of investors on the historical market information, we conclude that the good/bad memory would increase/decrease both real stock returns and interest rates while the equilibrium balances the economy by preventing investors from benefiting the memory. Our model's implications are consistent with a number of interesting facts documented in the recent literature.

Integration into \'economie-monde and regionalisation of the Central Eastern European space since 1989
Natalia Zdanowska

The fall of the Berlin Wall in 1989, modified the relations between cities of the former communist bloc. The European and worldwide reorientation of interactions that followed raises the question of the actual state of historical relationships between Central Eastern European cities, but also with ex-USSR and ex-Yugoslavian ones. Do Central and Eastern European cities reproduce trajectories from the past in a new economic context? This paper will examine their evolution in terms of trade exchanges and air traffic connexions since 1989. They are confronted with transnational firm networks for the recent years. The main contribution is to show a progressive formation of several economic regions in Central and Eastern Europe as a result of integration into Braudel's \'economie-monde.

Risk Neutral Valuation of Inflation-Linked Interest Rate Derivatives
Flavia Antonacci,Cristina Costantini,Fernanda D'Ippoliti,Marco Papi

We propose a model for the joint evolution of European inflation, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting.

We derive the valuation equation for a contingent claim depending potentially on all three factors. This valuation equation reduces to a finite number of Cauchy problems for a degenerate parabolic PDE with non-local terms. We show that the price of the contingent claim is the only viscosity solution of the valuation equation.

We also provide an efficient numerical scheme to compute the price and implement it in an example.

Using Textual Analysis to Identify Merger Participants: Evidence from the U.S. Banking Industry
Katsafados, Apostolos G.,Androutsopoulos, Ion,Chalkidis, Ilias,Fergadiotis, Emmanouel,Leledakis, George N.,Pyrgiotakis, Emmanouil
In this paper, we use the sentiment of annual reports to gauge the likelihood of a bank to participate in a merger transaction. We conduct our analysis on a sample of annual reports of listed U.S. banks over the period 1997 to 2015, using the Loughran and McDonald’s lists of positive and negative words for our textual analysis. We find that a higher frequency of positive (negative) words in a bank’s annual report relates to a higher probability of becoming a bidder (target). Our results remain robust to the inclusion of bank-specific control variables in our logistic regressions.