Liquidity provision for corporate bonds has become significantly more expensive after the 2008 crisis. Using index exclusions as a natural experiment during which uninformed index trackers request ...immediacy, we find that the cost of immediacy has more than doubled. In addition, the supply of immediacy has become more elastic with respect to its price. Consistent with a stringent regulatory environment incentivizing smaller dealer inventories, we also find that dealers revert deviations from their target inventory more quickly after the crisis. Finally, we investigate the pricing impact of information, changes in ownership structure, and differences between bank and nonbank dealers.
Abstract Are sovereign risk premia subject to heterogeneous effects from their drivers, associated with the risk class each sovereign bond belongs to? In the paper at hand, effects on sovereign bond ...risk premia stemming from macroeconomic, fiscal, and volatility factors, are examined by considering the classification of sovereign riskiness. Panel data estimation techniques are used, for 30 countries, with data in quarterly frequency for the period 2001Q1 to 2019Q4. Sovereign spreads are found to be subject to heterogeneous effects associated with their credit ratings; spreads on sovereign bonds considered low‐risk increase with higher growth rates and inflation, while spreads on highly risky bonds decrease with higher growth rates and are more sensitive to idiosyncratic and global volatility. Primary fiscal surpluses indeed lower spreads but cannot counterbalance the effects of volatility episodes and the prospects for low growth. Our results provide support for countercyclical fiscal policies, suggesting that spreads can be expected to be reduced by primary surpluses, under the condition that the economy expands and market volatility is low. Our main findings are robust to various alternative setups, samples, and control variables such as central banks' asset purchases.
Abstract We aim to identify the determinants of non‐fungible tokens (NFTs) returns. The 10 most popular NFTs based on their price, trading volume, and market capitalisation are examined. Twenty‐three ...potential drivers of the returns of each NFT are considered. We employ a Bayesian LASSO model which takes into account stochastic volatility and leverage effect. The results indicate that NFTs returns are primarily driven by volatility and ethereum returns. We find a weak connection between NFTs returns and conventional assets, such as stock, oil, and gold markets.
Abstract This paper aims to design a model framework for farmer credit risk assessment based on machine learning. It reduces the degree of credit risk misjudgement caused by the weak correlation ...between evaluation indicators and default status and imbalanced data. Based on the empirical analysis of 8624 farmers' data from a commercial bank in China, the average rank of the OPSO‐GINI‐FS model designed from the feature dimension is 1.29, which is higher than that of the OPSO‐GINI‐IS model designed from the indicator dimension (1.57). This means that our model has a higher default risk identification ability than the traditional one. And the META‐SAMPLER method of processing imbalanced data is also promising. Moreover, we found the machine learning designed in this paper has a higher ability to identify farmers' loan default than the traditional econometric methods. These findings establish the potential of machine learning in credit risk identification from a micro perspective.
Abstract This experimental research investigates the effect of different types of environmental information on investor judgment. By examining three experimental cases varying the level of ...environmental disclosure, we evaluate the investment judgments of professional (Study 1) and private German investors (Study 2). Primarily, we investigate whether traditional, commonly disclosed environmental information affects investor judgments. Furthermore, we explore the effects of linking non-financial reporting elements to quantitative financial measures through the EU taxonomy by adding taxonomy indicators. Specifically, we operationalized the case where companies fall into a category of poor environmental performance by taxonomy classification. We find that only traditional environmental disclosure in combination with standardized taxonomy-aligned information (below average), influences the investment judgment. However, professional investors exhibit a significantly negative response, while private investors show a significantly positive reaction when constraining reporting flexibility through the inclusion of standardized taxonomy measures with poor performance. Consequently, we conclude that the connection between non-financial reporting elements and quantitative standardized financial measures enhances transparency for professional investors. Private investors, on the other hand, reward additional taxonomy-aligned environmental information irrespective of its content. This implies that environmental information generally conveys positive signals to private investors, but uncertainty in investment judgment can be assumed.
Abstract This study examines the association between the environmental, social, and governance (ESG) performance and firm risk in U.S. financial firms. We find a significant negative association ...between the composite ESG performance and total, idiosyncratic, and systematic risks after controlling for firm and year fixed effects and other risk predictors. We also examine the effect of each pillar of ESG on this relationship and find that “S” and “G” exhibit a significant negative relationship with both systematic and idiosyncratic risks of firms, while “E” is only associated with systematic risk. Lastly, we demonstrate that ESG performance is negatively associated with the extent to which leverage contributes to firm risk, supporting our premise that ESG alleviates financial risk. Overall, we provide empirical evidence of potential risk management benefits of ESG in the financial industry.
Abstract This study examines whether forcing banks to hold subordinated debt and enforcing market discipline could enhance the effectiveness of capital macroprudential policies in reducing banks' ...risk and contribute to bank stability. Using the system generalised method of moments and based on a sample of 322 banks across 18 countries during the period 2006–2020, we find that a higher level of subordinated debt leads banks to avoid moral‐hazard behaviours and engage in risk shifting when adapting to a tighter macroprudential framework, which in turn leads to a greater effectiveness of these policies. Furthermore, as robustness tests, we show that this effect is stronger in advanced economies and in the United States of America. These results also stand using a different proxy for banks' risk.
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