G - Financial Economics
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The Safety of Government Debt
We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. -
Which Parametric Model for Conditional Skewness?
This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values. -
The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk
Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks. -
Volatility and Liquidity Costs
Observed high-frequency prices are contaminated with liquidity costs or market microstructure noise. Using such data, we derive a new asset return variance estimator inspired by the market microstructure literature to explicitly model the noise and remove it from observed returns before estimating their variance. -
Are Product Spreads Useful for Forecasting? An Empirical Evaluation of the Verleger Hypothesis
Notwithstanding a resurgence in research on out-of-sample forecasts of the price of oil in recent years, there is one important approach to forecasting the real price of oil which has not been studied systematically to date. -
Why Do Emerging Markets Liberalize Capital Outflow Controls? Fiscal versus Net Capital Flow Concerns
In this paper, we provide empirical evidence on the factors that motivated emerging economies to change their capital outflow controls in recent decades. Liberalization of capital outflow controls can allow emerging-market economies (EMEs) to reduce net capital inflow (NKI) pressures, but may cost their governments the fiscal revenues that external financial repression generates. -
Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults
This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. -
Fire-Sale FDI or Business as Usual?
Using a new data set, we examine the characteristics and dynamics of cross-border mergers and acquisitions during emerging-market financial crises, that is, so-called “fire-sale FDI.” Our findings shed fresh light on whether the transactions undertaken during crisis periods differ in fundamental ways from those undertaken during more tranquil periods. -
Multivariate Tests of Mean-Variance Efficiency and Spanning with a Large Number of Assets and Time-Varying Covariances
We develop a finite-sample procedure to test for mean-variance efficiency and spanning without imposing any parametric assumptions on the distribution of model disturbances.