Refine
Year of publication
- 2015 (104) (remove)
Document Type
- Working Paper (98)
- Part of Periodical (6)
Language
- English (104) (remove)
Has Fulltext
- yes (104) (remove)
Is part of the Bibliography
- no (104)
Keywords
- systemic risk (4)
- Solvency II (3)
- insurance (3)
- Banking Union (2)
- Basel III (2)
- Heterogeneous Agents (2)
- Income and Wealth Inequality (2)
- Incomplete Markets (2)
- Interconnectedness (2)
- Ireland (2)
Institute
- Center for Financial Studies (CFS) (104) (remove)
In the mid-1990s, institutional investors entered the syndicated loan market and started to serve borrowers as lead arrangers. Why are non-banks able to compete for this role against banks? How do the composition of syndicates and loan pricing differ among lead arrangers? By using a dataset of 12,847 leveraged loans between 1997 and 2012, I aim to answer these questions. Non-banks benefit from looser regulatory requirements, have industry expertise which helps them in the screening and monitoring of borrowers and focus on firms that ask for loans only instead of additional cross-selling of other services. I can show that non-banks specialize on more opaque and less experienced borrowers, are more likely than banks to choose participants that help to reduce potentially higher information asymmetries and earn 105 basis points more than banks.
This paper examines the dynamic relationship between credit risk and liquidity in the sovereign bond market in the context of the European Central Bank (ECB) interventions. Using a comprehensive set of liquidity measures obtained from a detailed, quote-level dataset of the largest interdealer market for Italian government bonds, we show that changes in credit risk, as measured by the Italian sovereign credit default swap (CDS) spread, generally drive the liquidity of the market: a 10% change in the CDS spread leads a 11% change in the bid-ask spread. This relationship is stronger, and the transmission is faster, when the CDS spread is above the 500 basis point threshold, estimated endogenously, and can be ascribed to changes in margins and collateral, as well as clientele effects. Moreover, we show that the Long-Term Refinancing Operations (LTRO) intervention by the ECB weakened the sensitivity of the liquidity provision by the market makers to changes in the Italian government's credit risk. We also document the importance of market-wide and dealer-specific funding liquidity measures in determining the market liquidity for Italian government bonds.
Investors and insurance policyholders are often confronted with complex products and providers' opaque organisational structures. At the same time, the possibility that their claims will not be honoured often poses an existential risk. Financial regulation therefore aims at putting in place a financial services framework that will safeguard market processes whilst also protecting consumers. However, benefits of regulation are accompanied by certain risks, as can be exemplified with the case of insurance regulation.
When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations. We derive the equilibrium dynamics in closed form and show that joint presence of both risks leads to over-proportional risk exposure for households. This implies that the whole benefit from insurance through social security is greater than the sum of the benefits from insurance against each of the two risks in isolation. We measure this through interaction effects which appear even though the two risks are orthogonal by construction. While the interactions unambiguously increase the welfare benefits from insurance, they can in- or decrease the welfare costs from crowding out of capital formation. The net effect depends on the relative strengths of the opposing forces.
Signaling cooperation
(2015)
We examine what an applicant’s vita signals to potential employers about her willingness to cooperate in teams. Intensive social engagement may credibly reveal that an applicant cares about the well-being of others and therefore is less likely to free-ride in teamwork situations. We find that contributions in a public goods game strongly increase in a subject’s degree of social engagement as indicated on her résumé (and rated by an independent third party). Engagement in other domains, such as student or sports associations, is not positively correlated with contributions. In a prediction experiment with human resource managers from various industries, we find that managers use résumé content effectively to predict relative differences in subjects’ willingness to cooperate. Thus, young professionals signal important behavioral characteristics to potential employers through the choice of their extracurricular activities.
SAFE Newsletter : 2015, Q4
(2015)
SAFE Newsletter : 2015, Q3
(2015)
SAFE Newsletter : 2015, Q2
(2015)
SAFE Newsletter : 2015, Q1
(2015)
We model education as an investment in human capital that, like other investments, is appropriately evaluated in a framework that accounts for risk as well as return. In contrast to dominant wage-premia approach to calculating the returns to education, but which implicitly ignores risk, we evaluate the returns by treating the value of human capital as the price of a non-tradable risky asset. We do so using a lifecycle framework that incorporates risk preferences and earnings risk, as well as a progressive income tax and social insurance system. Our baseline estimate is that a college degree provides a $440K dollar increase in annual certainty-equivalent consumption. Although significantly smaller than traditional estimates of the value of education, these returns are still large enough to offset both the direct and indirect cost of college education for a large range of plausible preference parameters. Importantly, however, we find that accounting for risk reverses the finding from the education wage-premia literature regarding the trends in the returns to education. In particular, we find that the risk-adjusted gains from college completion actually decreased rather than increased in the recent period. Overall, our results show the importance of earnings risks in assessing the value of education.