Credit Derivatives Pricing with a Smile-Extended Jump Stochastic Intensity Model
Reference: 2006-13Authors: Damiano Brigo, Naoufel El-Bachir
Abstract: We present a two-factor stochastic default intensity and interest rate model for pricing single-name default swaptions. The specific positive square root processes considered fall in the relatively tractable class of affine jump diffusions while allowing for inclusion of stochastic volatility and jumps in default swap spreads. The parameters of the short rate dynamics are first calibrated to the interestContinue reading
Optimal Hedging with Higher Moments
Reference: 2006-12Authors: C. Brooks, A. Cerny, J. Miffre
Abstract: This study proposes a utility-based framework for the determination of optimal hedge ratios that can allow for the impact of higher moments on the hedging decision. The approach is applied to a set of 20 commodities that are hedged with futures contracts. We find that in sample, the performance of hedges constructed allowing for non-zero higher moments is onlyContinue reading
Return Differences Between Family and Non-Family Firms: Absolute and Index Differences
Reference: 2006-11Authors: Suranjita Mukherjee, Dr. Carol Padgett
Abstract: The objective of the paper is to determine if family firms are able to provide a return premium compared to their non-family counterparts. The assumption is that some of the benefits and costs related to family ownership can be absorbed into the business model. This may mean that family characteristics could actually impact the perception of the market andContinue reading
The Relative Merits of Investable Hedge Fund Indices and of Funds of Hedge Funds in Optimal Passive Portfolios
Reference: 2006-10Authors: Jacques Pézier, Anthony White
Can the new investable hedge fund indices (IHF) enhance the performance of optimal passive portfolios made of equities and bonds? How do they compare to funds of hedge funds (FoHF) as well as to other alternative investments such as commodities and volatility? The conclusions depend crucially on forecasts of future expected excess returns for all assets as well as aContinue reading
Momentum Profits and Time-Varying Unsystematic Risk
Reference: 2006-09Authors: Momentum Profits and Time-Varying Unsystematic Risk Xiafei Li, Joëlle Miffre, Chris Brooks
Abstract: This study assesses whether the widely documented momentum profits can be ascribed to time-varying risk as described by a GJR-GARCH(1,1)-M model. Consistent with rational pricing in efficient markets, we reveal that momentum profits are a compensation for time-varying unsystematic risks, common to the winner and loser stocks. We also find that, because losers have a higher propensity than winnersContinue reading
Regimes in CDS Spreads: A Markov Switching Model of iTraxx Europe Indices
Reference: 2006-08Authors: Carol Alexander, Andreas Kaeck
Abstract: This paper investigates the determinants of the iTraxx CDS Europe indices, finding strong evidence that they are regime dependent. During volatile periods credit spreads become highly sensitive to stock volatility and more sensitive to this than to stock returns. They are also almost immune to interest rates changes. During tranquil periods credit spreads are more sensitive to stock returnsContinue reading
Speculative Bubbles in the S&P 500: Was the Tech Bubble Confined to the Tech Sector?
Reference: 2006-07Authors: Chris Brooks, Apostolos Katsaris
Abstract: This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. WeContinue reading
The Stock Performance of America?s 100 Best Corporate Citizens
Reference: 2006-06Authors: Stephen Brammer, Chris Brooks, Stephen Pavelin
Abstract: This study considers the stock performance of America’s 100 Best Corporate Citizens following the annual survey by Business Ethics. We examine both possible short-term announcement effects around the time of the survey’s publication, and whether longer-term returns are higher for firms that are listed as good citizens. We find some evidence of a positive market reaction to a firm’sContinue reading
Corporate Reputation and Stock Returns: Are Good Firms Good for Investors?
Reference: 2006-05Authors: Stephen Brammer, Chris Brooks, Stephen Pavelin
Abstract: This paper employs a unique dataset from the UK based on ten years of surveys of company directors and analysts conducted for Management Today to examine the relationship between a firm’s reputation and the returns on its shares. We find that investors who purchase stocks with reputation scores that have risen significantly can make abnormal returns. Also, firms whoseContinue reading
Minimum Variance Hedging and Stock Index Market Efficiency
Reference: 2006-04Authors: Carol Alexander, Andreza Barbosa
Abstract: This empirical study examines the impact of both advanced electronic trading platforms and index exchange traded funds (ETFs) on the minimum variance hedging of stock indices with futures. Our findings show that minimum variance hedging may provide an out-of-sample hedging performance that is superior to that of the one-one futures hedge, but only in markets without active trading ofContinue reading
Hedging Options with Scale-Invariant Models
Reference: 2006-03Authors: Carol Alexander, Leonardo M. Nogueira
Abstract: A price process is scale-invariant if and only if the returns distribution is independent of the price level. We show that scale invariance preserves the homogeneity of a pay-off function throughout the life of the claim and hence prove that standard price hedge ratios for a wide class of contingent claims are model-free. Since options on traded assets areContinue reading
Investing in Montenegro: Limits and Opportunities
Reference: 2006-02Authors: Dr Dragan Radanovic
Abstract: Over the past few decades international flow of capital has contributed to the globalisation phenomena. Some countries took advantage of this, managing to develop their economies and to improve the standard of living of their citizens by attracting foreign investments. Others were not so successful. Countries of the South-Eastern Europe, hit by Balkan wars and economic sanctions, were lateContinue reading
A False Perception? The relative riskiness of AIM and listed stocks
Reference: 2006-01Authors: John Board, Alfonso Dufour, Charles Sutcliffe, Stephen Wells
Abstract: This research examines the perception that the AIM market is riskier than the Official List market in comparable stocks. The empirical analysis uses high frequency data for January 2000 to December 2004 on 533 AIM stocks and 264 comparable Official List stocks. Risk is measured in a variety of ways. At a superficial level AIM stocks appear riskier thanContinue reading
