Issuers’ credit risk and pricing of warrants in the recent financial crisis

2015 ◽  
Vol 16 (4) ◽  
pp. 444-462 ◽  
Author(s):  
Andrea Schertler ◽  
Saskia Stoerch
Keyword(s):  
Credit Risk ◽  
Design Methodology ◽  
Explanatory Power ◽  
Credit Default Swap ◽  
Price Setting ◽  
New Approach ◽  
Content Type ◽  
Credit Default ◽  
Recent Financial Crisis

Purpose – The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010. Design/methodology/approach – Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations. Findings – Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations. Research limitations/implications – These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper. Originality/value – Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.

scholarly journals EXAMINING WHAT BEST EXPLAINS CORPORATE CREDIT RISK: ACCOUNTING-BASED VERSUS MARKET-BASED MODELS

2013 ◽  
Vol 15 (2) ◽  
pp. 253-176 ◽  
Author(s):  
Antonio Trujillo-Ponce ◽  
Reyes Samaniego-Medina ◽  
Clara Cardone-Riportella
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Explanatory Power ◽  
Credit Default Swap ◽  
Comprehensive Model ◽  
Corporate Credit ◽  
Credit Default ◽  
Recent Financial Crisis ◽  
Market Variables ◽  
Swap Spreads

This paper uses a sample of 2,186 credit default swap spreads quoted in the European market during the period 2002–2009 to empirically analyze which model – accounting- or market-based – better explains corporate credit risk. We find little difference in the explanatory power of these two approaches. Our results indicate that a comprehensive model that combines accounting- and market-based variables is the best option to explain the credit risk, suggesting that both types of data are complementary. We also demonstrate that the explanatory power of credit risk models is particularly strong during periods of high uncertainty, such as those experienced in the recent financial crisis. Finally, the comprehensive model continues to produce the best results if the credit rating is used as the proxy for credit risk; however, accounting variables currently appear to have a more important role than market variables in determining corporate credit ratings.

The risk associated with strategic decisions: is it a marketing issue?

2019 ◽  
Vol 35 (1) ◽  
pp. 6-8
Author(s):  
Davide Settembre-Blundo ◽  
Alfonso Pedro Fernández del Hoyo ◽  
Fernando Enrique García-Muiña
Keyword(s):  
Design Methodology ◽  
Management Practice ◽  
Current Debate ◽  
Strategic Decisions ◽  
New Approach ◽  
Content Type ◽  
Marketing Function ◽  
Strategic Approach ◽  
Management Perspective

Purpose The purpose of this paper is to analyze the strategic management of risks in companies from a marketing management perspective and to provide some guidance for management practice. Design/methodology/approach This paper presents the authors’ viewpoint, and it conceptualizes a new approach to risk management. Findings The conceptual discussion has opened up a possible new way for enterprises, especially SMEs, to start taking a strategic approach to risk. Originality/value This paper would like to contribute to the current debate on the role of marketing function in managerial practice beyond the classic four Ps.

scholarly journals Splitting Credit Risk into Systemic, Sectorial and Idiosyncratic Components

2019 ◽  
Vol 12 (3) ◽  
pp. 129
Author(s):  
Alfonso Novales ◽  
Alvaro Chamizo
Keyword(s):  
Risk Factor ◽  
Credit Risk ◽  
Interest Rates ◽  
Explanatory Power ◽  
Credit Default Swap ◽  
Global Risk ◽  
Additional Information ◽  
The North ◽  
Credit Default ◽  
Highly Correlated

We provide a methodology to estimate a global credit risk factor from credit default swap (CDS) spreads that can be very useful for risk management. The global risk factor (GRF) reproduces quite well the different episodes that have affected the credit market over the sample period. It is highly correlated with standard credit indices, but it contains much higher explanatory power for fluctuations in CDS spreads across sectors than the credit indices themselves. The additional information content over iTraxx seems to be related to some financial interest rates. We first use the estimated GRF to analyze the extent to which the eleven sectors we consider are systemic. After that, we use it to split the credit risk of individual firms into systemic, sectorial, and idiosyncratic components, and we perform some analyses to test that the estimated idiosyncratic components are actually firm-specific. The systemic and sectorial components explain around 65% of credit risk in the European industrial and financial sectors and 50% in the North American sectors, while 35% and 50% of risk, respectively, is of an idiosyncratic nature. Thus, there is a significant margin for portfolio diversification. We also show that our decomposition allows us to identify those firms whose credit would be harder to hedge. We end up analyzing the relationship between the estimated components of risk and some synthetic risk factors, in order to learn about the different nature of the credit risk components.

A comprehensive decision support approach for credit scoring

2019 ◽  
Vol 120 (2) ◽  
pp. 280-290 ◽  
Author(s):  
Cuicui Luo
Keyword(s):  
Decision Support ◽  
Credit Risk ◽  
Design Methodology ◽  
Credit Scoring ◽  
Predictive Performance ◽  
New Approach ◽  
Content Type ◽  
Risk Scoring ◽  
Using Data ◽  
Stable Classification

Purpose The purpose of this paper is to provide a comprehensive decision support approach in credit risk assessment. Design/methodology/approach A comprehensive decision support approach is proposed for credit scoring and prediction. The predictive performance of the new approach has been investigated by using data including number and text. Findings The results demonstrate that the proposed approach achieves better and more stable classification accuracy than the single classifiers in most cases. Meanwhile, the prediction accuracy of individual classifiers is also improved by the proposed approach. Originality/value This study provides a comprehensive model for credit risk scoring and provides valuable information to the existing literature on credit scoring by using artificial intelligence.

The role of detective experience on homicide clearances

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sean E. Goodison
Keyword(s):  
Design Methodology ◽  
Inverse Relationship ◽  
Potential Role ◽  
Explanatory Power ◽  
Analytical Models ◽  
Content Type ◽  
Case Files ◽  
Case Closure ◽  
Case Characteristics

PurposeThe study aims to examine the effect of detective experience on the likelihood of clearing a homicide, while controlling for additional extralegal and case/investigative characteristics.Design/methodology/approachThis study uses homicide and policing data collected from case files in a mid-sized US city. Detective experience is measured in multiple ways. Analytical models include extralegal variables, case characteristics, and proxies of investigative quality as controls. The study uses logistic regression with a dichotomous clearance outcome.FindingsThe results suggest a robust and significant inverse relationship between the years spent as a homicide detective and the likelihood of case closure. However, years of experience with the department overall has a significant and positive relationship to clearance. Investigation-related variables and case characteristics contribute more to model explanatory power than extralegal factors.Originality/valueThe potential role of experience has not been fully explored, with contradictory findings over time. This work builds on previous research to highlight the potential role of experience in clearing cases, while questioning previous assumptions tied to the belief that more experience improves investigative outcomes.

Credit risk signals in CDS market vs agency ratings

2016 ◽  
Vol 17 (2) ◽  
pp. 194-217 ◽  
Author(s):  
Michael Jacobs Jr ◽  
Ahmet K. Karagozoglu ◽  
Dina Naples Layish
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Credit Default Swap ◽  
Risk Assessments ◽  
Content Type ◽  
Rating Agencies ◽  
Market Participants ◽  
Credit Default ◽  
The Relationship

Purpose This research aims to model the relationship between the credit risk signals in the credit default swap (CDS) market and agency credit ratings, and determines the factors that help explain the variation in such signals. Design/methodology/approach A comprehensive analysis of the differences in the relative credit risk assessments of CDS-based risk signals and agency ratings is provided. It is shown that the divergence between credit risk signals in the CDS market and agency ratings is explained by factors which the rating agencies may consider differently than credit market participants. Findings The results suggest that agency credit ratings of relative riskiness of a reference entity do not always correspond with assessments by CDS spreads, as the price of risk is a function of additional macro and micro factors that can be explained using statistical analysis. Originality/value This research is unique in modeling the relationship between the credit risk assessments of the CDS market and the agency ratings, which to the best of the authors' knowledge has not been analyzed before in terms of their agreement and the level of discrepancy between them. This model can be used by investors in debt instruments that are not explicitly CDSs or which have illiquid CDS contracts, to replicate market-based, point-in-time credit risk signals. Based on both market-based and firm-specific factors in this model, the results can be used to augment through-the-cycle credit risk assessments, analyze issues surrounding the pricing of CDSs and examine the policies of credit rating agencies.

Reframing construction within the built environment sector

2019 ◽  
Vol 26 (5) ◽  
pp. 740-745 ◽  
Author(s):  
Gerard de Valence
Keyword(s):  
Built Environment ◽  
Construction Industry ◽  
Design Methodology ◽  
Professional Services ◽  
Special Role ◽  
New Approach ◽  
Content Type ◽  
Definition Of ◽  
Practical Implications

Purpose Official statistics on the output of the construction industry capture on-site activities of contractors and sub-contractors; however, the role of the industry linking suppliers of materials, machinery, products, services and other inputs is also widely recognised. These two views have been called broad and narrow, with the narrow industry defined as on-site work and the broad industry as the supply chain of materials, products and assemblies, and professional services. An argument is made for using the term “built environment sector” (BES) for the broad industry definition of construction. The paper aims to discuss these issues. Design/methodology/approach Construction industry statistics capture the on-site activities of contractors and sub-contractors. This paper reviews research that adds to construction output the contributions of suppliers of materials, machinery and equipment, products and components, professional services and other inputs required to deliver the buildings and structures that make up the built environment. Findings The same term, “construction”, has been used in a number of ways in different definitional studies of the narrow and broad industry. The term that best encompasses the large number and range of participants in the creation and maintenance of the built environment, from suppliers to end users, is the BES. Research limitations/implications Construction economics makes an important contribution to researching the macroeconomic role of the BES. There is also a special role for construction economics in researching both the boundaries of the BES and the data available on the industries that contribute to the BES. Practical implications Measuring the BES would improve the understanding of its macroeconomic role and significance. Social implications Measuring the BES would contribute to city policies and urban planning. Originality/value The paper proposes a new approach to defining and measuring the industries that contribute to the production, maintenance and management of the built environment. It introduces a new name for the combination of those industries.

Comparing sentiment measures in mutual fund performance

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Qiang Bu ◽  
Jeffrey Forrest
Keyword(s):  
Mutual Fund ◽  
Design Methodology ◽  
Explanatory Power ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Market Models ◽  
Content Type ◽  
Science Theory ◽  
Market Factors

PurposeThe purpose of this study is to investigate whether the direct and indirect sentiment measures are similar in explaining mutual fund performance.Design/methodology/approachThe authors examine the role of direct and indirect sentiment measures on fund performance in two scenarios. One is when a sentiment measure is added to market models, and the other is when it used independently. Also, the authors propose a system science theory to explain the findings.FindingsThe authors find that both direct and indirect sentiment measures are integral to the benchmark models to explain fund performance. However, while the explanatory power of the direct sentiment index is robust when used independently or collectively, the indirect sentiment measures can explain fund performance only when used along with other market factors.Originality/valueGiven the number of sentiment measures, it is critical to determine whether these measures contain the same information of sentiment. This paper represents the first study on this topic.

scholarly journals The Role of Redenomination Risk in the Price Evolution of Italian Banks’ CDS Spreads

2020 ◽  
Vol 13 (7) ◽  
pp. 150
Author(s):  
Michele Anelli ◽  
Michele Patanè ◽  
Mario Toscano ◽  
Stefano Zedda
Keyword(s):  
Financial Distress ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Credit Default Swap ◽  
Merton Model ◽  
Credit Default ◽  
Main Driver ◽  
High Volatility ◽  
Recent Financial Crisis

The recent financial crisis offered an interesting opportunity to analyze the markets’ behavior in a high-volatility framework. In this paper, we analyzed the price discovery process of the Italian banks’ Credit Default Swap (CDS) spreads through the Merton model, extended with the inclusion of a redenomination risk proxy, as to say, the risk that Italy could leave the eurozone. This paper contributes to the literature by integrating the classic Merton model with a political-sensitive market variable able to explain the greatest variance in the Italian banks’ CDS spreads during the most relevant and commonly recognized periods of socio-political and financial distress. Results show that the redenomination risk is progressively becoming the main driver of the process during crises, in particular for the sovereign debt crisis and in 2018.

scholarly journals An exploration of the role of intuitive forms of planning in the succession process: the explanatory power of effectuation theory

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mira Bloemen-Bekx ◽  
Frank Lambrechts ◽  
Anita Van Gils
Keyword(s):  
Family Business ◽  
Design Methodology ◽  
Explanatory Power ◽  
Individual Group ◽  
Relational Dynamics ◽  
Content Type ◽  
Holistic Understanding ◽  
Focus Group Meeting ◽  
Succession Process

PurposeThis study explores how and when intuitive forms of planning can be used in a family firm's succession process.Design/methodology/approachThe study uses an extended focus group meeting, consisting of individual, group and subgroup discussions with seven highly experienced external family business advisors in the Netherlands to gain a holistic understanding of the succession process and its underlying logic. The study also employs pre- and post-group questionnaires.FindingsThis study reveals that advisors perceive intuitive forms of planning as an integral part of the succession process, with the latter containing both intuitive and formal logic and activities. Both logics are used situationally and flexibly to deal with the uniqueness and unpredictability of the succession process and to build strong relations and manage relational dynamics in business families to address tasks, dilemmas and contingencies.Originality/valueThe succession process is an important part of business families' achievement of transgenerational intent. Creating commitment among potential successors begins when they are children, and understanding the role of the more intuitive forms of planning during the succession process will provide us with a more holistic perspective on its dynamics.

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