scholarly journals Effective transfer entropy to measure information flows in credit markets

2021 ◽  
Author(s):  
Nicoló Andrea Caserini ◽  
Paolo Pagnottoni
Keyword(s):  
Credit Risk ◽  
Bond Market ◽  
Small Sample ◽  
Transfer Entropy ◽  
Information Flows ◽  
Directional Information ◽  
Crisis Period ◽  
Model Free ◽  
Effective Transfer ◽  
Sovereign Bond Markets

AbstractIn this paper we propose to study the dynamics of financial contagion between the credit default swap (CDS) and the sovereign bond markets through effective transfer entropy, a model-free methodology which enables to overcome the required hypotheses of classical price discovery measures in the statistical and econometric literature, without being restricted to linear dynamics. By means of effective transfer entropy we correct for small sample biases which affect the traditional Shannon transfer entropy, as well as we are able to conduct inference on the estimated directional information flows. In our empirical application, we analyze the CDS and bond market data for eight countries of the European Union, and aim to discover which of the two assets is faster at incorporating the information on the credit risk of the underlying sovereign. Our results show a clear and statistically significant prominence of the bond market for pricing the sovereign credit risk, especially during the crisis period. During the post-crisis period, instead, a few countries behave dissimilarly from the others, in particular Spain and the Netherlands.

scholarly journals Applying transfer entropy approach to investigate the information flow among ASEAN stock markets

2020 ◽  
Vol 4 (1) ◽  
pp. First
Author(s):  
Tran Thi Tuan Anh
Keyword(s):  
Information Flow ◽  
Stock Markets ◽  
Investment Strategy ◽  
The Philippines ◽  
Transfer Entropy ◽  
The Other ◽  
Information Flows ◽  
Research Results ◽  
Region Data ◽  
Asean Countries

This paper uses transfer entropy to measure and identify the information flows between stock markets in the ASEAN region. Data on daily closing stock indices, including Vietnam, the Philippines, Malaysia, Indonesia, Thailand, and Singapore, are collected for the period from March 2012 to October 2019 to calculate these transfer entropies. The research results of this article can be considered in two aspects: one is, how information flow originating from one market will be accepted by other markets and secondly, information flow that markets receive. From the perspective of incoming transfer entropy, Vietnam is the country most affected by information from the other ASEAN markets while Indonesia and Malaysia are the least affected. In terms of outgoing entropy, Thailand is the largest source of information flow to the ASEAN markets. Malaysia and the Philippines are the two countries that receive minor information impact from other countries. The research also reveals that the Singapore stock market is rather separate from the other ASEAN countries. The research results also imply that, for investors and policymakers, defining the information flows among ASEAN stock markets can help to predict market movements, thereby developing a suitable investment strategy or establishing appropriate management policies.

scholarly journals DRIVERS OF ILLIQUIDITY IN THE ASEAN SOVEREIGN BOND MARKET

2020 ◽  
Vol 23 (4) ◽  
pp. 501-524
Author(s):  
Harald Kinateder ◽  
Robert Bauer ◽  
Niklas Wagner
Keyword(s):  
Growth Rate ◽  
Bond Market ◽  
Gdp Growth ◽  
Bond Markets ◽  
Policy Uncertainty ◽  
Yield Curves ◽  
Economic Policy Uncertainty ◽  
Sovereign Bond ◽  
Gdp Growth Rate ◽  
Sovereign Bond Markets

We study illiquidity in ASEAN-5 sovereign bond markets from 2008 to 2019 by using an illiquidity measure, which is based on a proxy of the amount of arbitrage capital available in sovereign bond markets. Our analysis identifies three drivers of illiquidity in Singapore, namely economic policy uncertainty, the default spread and the GDP growth rate. In contrast, liquidity of all other markets is mostly not characterized by economic drivers. It appears that overall liquidity is lower in the markets outside Singapore and therefore deviations in these yield curves are higher on average and arbitrage eliminates larger deviations not immediately but in a delayed manner.

scholarly journals Option-Based Credit Spreads

2018 ◽  
Vol 108 (2) ◽  
pp. 454-488 ◽  
Author(s):  
Christopher L. Culp ◽  
Yoshio Nozawa ◽  
Pietro Veronesi
Keyword(s):  
Economic Growth ◽  
Credit Risk ◽  
Risk Premium ◽  
Bond Market ◽  
Credit Spreads ◽  
Put Options ◽  
No Arbitrage ◽  
Primary Determinant ◽  
Default Risks ◽  
Bond Spreads

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo firm assets. Empirically, like corporate spreads, pseudo bond spreads are large, countercyclical, and predict lower economic growth. Using this framework, we find that bond market illiquidity, investors' overestimation of default risks, and corporate frictions do not seem to explain excessive observed credit spreads but, instead, a risk premium for tail and idiosyncratic asset risks is the primary determinant of corporate spreads. (JEL E23, E32, E44, G13, G24, G32)

scholarly journals The Effect of the Arab Spring on the Performance of Islamic and Conventional Banks in Egypt: Which Model Performs Better Amidst Crisis?

2020 ◽  
Vol 11 (4) ◽  
pp. 180
Author(s):  
Zar-Tashiya Khan ◽  
Andres Ramirez ◽  
David Ketcham
Keyword(s):  
Credit Risk ◽  
Effect Size ◽  
Arab Spring ◽  
Small Sample Size ◽  
Small Sample ◽  
Capital Adequacy ◽  
Superior Performance ◽  
Size Analysis ◽  
Ratio Analysis ◽  
The Arab Spring

This empirical study analyzes financial institutions and performance in times of external crisis and whether a difference in performance between Islamic (IBs) and conventional (CBs) bank models exists. Egypt surrounding the Arab Spring (2009-2013) is taken as a case study, comparing 6 CBs and 3 IBs. Financial ratio analysis is the main method employed, allowing performance to be measured by efficiency, capital adequacy, profitability, solvency, liquidity, and credit risk performance. Due to small sample size, the nonparametric Mann-Whitney U test and effect size analysis assess the significance of the ratio analysis results. Results show CBs have superior performance in all indicators other than Cost-Income and NIM. Efficiency performance for both models were equally volatile or alternately stable with progression through the crisis, while IBs increased capital adequacy and solvency during the crisis. IBs profitability was significantly negatively impacted by the crisis, other than related to NIM, while CBs increased profitability rates. IBs liquidity worsened, then improved midway through the crisis while CBs stabilized liquidity rates throughout. IBs improved credit risk midway through the crisis while CBs declined. Nonparametric results hold observed differences are insignificant and have weak effect size for all but the TENL ratio.

scholarly journals Quantifying the Information Flow between Ghana Stock Market Index and Its Constituents Using Transfer Entropy

2020 ◽  
Vol 2020 ◽  
pp. 1-10
Author(s):  
Prince Mensah Osei ◽  
Anokye M. Adam
Keyword(s):  
Stock Market ◽  
Information Flow ◽  
Information Exchange ◽  
Oil And Gas ◽  
Transfer Entropy ◽  
Stock Market Index ◽  
Insurance Sector ◽  
Market Index ◽  
The Individual ◽  
Effective Transfer

We quantify the strength and the directionality of information transfer between the Ghana stock market index and its component stocks as well as observe the same among the individual stocks on the market using transfer entropy. The information flow between the market index and its components and among individual stocks is measured by the effective transfer entropy of the daily logarithm returns generated from the daily market index and stock prices of 32 stocks ranging from 2nd January 2009 to 16th February 2018. We find a bidirectional and unidirectional flow of information between the GSE index and its component stocks, and the stocks dominate the information exchange. Among the individual stocks, SCB is the most active stock in the information exchange as it is the stock that receives the highest amount of information, but the most informative source is EGL (an insurance company) that has the highest net information outflow while the most information sink is PBC that has the highest net information inflow. We further categorize the stocks into 9 stock market sectors and find the insurance sector to be the largest source of information which confirms our earlier findings. Surprisingly, the oil and gas sector is the information sink. Our results confirm the fact that other sectors including oil and gas mitigate their risk exposures through insurance companies and are always expectant of information originating from the insurance sector in relation to regulatory compliance issues. It is our firm conviction that this study would allow stakeholders of the market to make informed buy, sell, or hold decisions.

DATA DISCRETIZATION FOR THE TRANSFER ENTROPY IN FINANCIAL MARKET

2013 ◽  
Vol 12 (04) ◽  
pp. 1350019 ◽  
Author(s):  
XUEJIAO WANG ◽  
PENGJIAN SHANG ◽  
JINGJING HUANG ◽  
GUOCHEN FENG
Keyword(s):  
Financial Market ◽  
Information Flow ◽  
Coarse Graining ◽  
Transfer Entropy ◽  
Linear Modeling ◽  
Information Theoretic ◽  
Model Free ◽  
Temporal Correlations ◽  
Data Discretization ◽  
Flow Of Information

Recently, an information theoretic inspired concept of transfer entropy has been introduced by Schreiber. It aims to quantify in a nonparametric and explicitly nonsymmetric way the flow of information between two time series. This model-free based on Shannon entropy approach in principle allows us to detect statistical dependencies of all types, i.e., linear and nonlinear temporal correlations. However, we always analyze the transfer entropy based on the data, which is discretized into three partitions by some coarse graining. Naturally, we are interested in investigating the effect of the data discretization of the two series on the transfer entropy. In our paper, we analyze the results based on the data which are generated by the linear modeling and the ARFIMA modeling, as well as the dataset consists of seven indices during the period 1992–2002. The results show that the higher the degree of data discretization get, the larger the value of the transfer entropy will be, besides, the direction of the information flow is unchanged along with the degree of data discretization.

scholarly journals INFORMATION FLOWS IN CAUSAL NETWORKS

2008 ◽  
Vol 11 (01) ◽  
pp. 17-41 ◽  
Author(s):  
NIHAT AY ◽  
DANIEL POLANI
Keyword(s):  
Information Flow ◽  
Causal Effect ◽  
Fundamental Concept ◽  
Transfer Entropy ◽  
Information Flows ◽  
Causal Independence ◽  
Causal Networks

We use a notion of causal independence based on intervention, which is a fundamental concept of the theory of causal networks, to define a measure for the strength of a causal effect. We call this measure "information flow" and compare it with known information flow measures such as transfer entropy.

scholarly journals THE INTERACTIONS AND TRADE-OFFS OF SOVEREIGN CREDIT DEFAULT SWAP (CDS) AND BOND SPREADS IN A DYNAMIC CONTEXT

2019 ◽  
Vol 20 (3) ◽  
pp. 466-488
Author(s):  
Ioannis A. Tampakoudis ◽  
Andrius Tamošiūnas ◽  
Demetres N. Subeniotis ◽  
Ioannis G. Kroustalis
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Credit Default Swap ◽  
Bond Market ◽  
Discovery Process ◽  
Sovereign Credit ◽  
Credit Default ◽  
Default Swap ◽  
Bond Spreads ◽  
Price Discovery Process

This study provides a dynamic analysis of the lead-lag relationship between sovereign Credit Default Swap (CDS) and bond spreads of the highly indebted southern European countries, considering an extensive time sample from the period before the global financial crisis to the latest developments of the sovereign indebtedness in the euro area. We employ an integrated price discovery methodology on a rolling sample, with the intention to shed light on whether the CDS spreads can trigger rises in bond spreads, and the relative efficiency of credit risk pricing in the CDS and bond markets. In addition, we attempt to depict the evolution of the price discovery process regarding the direction of influence from one market to the other. The rolling window analysis verifies that the price discovery process evolves over time, presenting frequent alternations concerning the leading market. We find that during periods of economic turbulence the CDS market leads the bond market in price discovery, incorporating the new information about sovereign credit risk faster and more efficiently than the bond market does. This regularity should be seriously considered by private and public participants as they make investment and funding decisions. Therefore, the motivation of our paper is to identify the dominant market in terms of price discovery during a period of economic turmoil and, thus, to provide insights for decision making to investment bodies and central governments.

Sign in / Sign up

Export Citation Format

Share Document