Risk premium and market power in credit markets

Across multiple measures of “liquidity” and a variety of methods to control for correlated characteristics of more- (less-) liquid bonds, the authors find only limited evidence of a liquidity premium in the cross section of corporate bonds. Specifically, although illiquid bonds have slightly higher credit spreads and directionally higher average returns, portfolios that tilt toward (away from) less (more) liquid bonds exhibit considerably higher levels of volatility. Economically, the low Sharpe ratios of illiquidity factor–mimicking portfolios are hard to justify for an investor. This is puzzling, as theory suggests investors should demand a risk premium for holding less-liquid assets.

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Monitoring and market power in credit markets

International Journal of Industrial Organization ◽

10.1016/j.ijindorg.2003.06.001 ◽

2004 ◽

Vol 22 (2) ◽

pp. 269-288 ◽

Cited By ~ 5

Author(s):

Ari Hyytinen ◽

Otto Toivanen

Keyword(s):

Market Power ◽

Credit Markets

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Measuring bank efficiency and market power in the household and corporate credit markets considering credit risks

Acta Oeconomica ◽

10.1556/032.2018.68.2.1 ◽

2018 ◽

Vol 68 (2) ◽

pp. 175-207 ◽

Cited By ~ 1

Author(s):

Zsuzsanna Hosszú ◽

Bálint Dancsik

Keyword(s):

Market Power ◽

Cost Efficiency ◽

Stochastic Frontier Analysis ◽

Credit Markets ◽

Credit Market ◽

Operating Conditions ◽

Gradual Improvement ◽

Frontier Analysis ◽

Corporate Credit ◽

Lerner Index

The aim of this paper is to estimate the efficiency of Hungarian banks with several models and to calculate the Lerner index for both the household and the corporate credit market. We apply stochastic frontier analysis (SFA) and data envelopment analysis (DEA) models to estimate the efficiency and calculate profit and cost efficiency with and without taking credit losses into consideration. In terms of cost efficiency, banks are nearly homogeneous and improved their efficiency after the crisis. Banks, however, are extremely heterogeneous in terms of profit efficiency. During the crisis, a gradual improvement could be observed across the sector after the initial downturn. Since the operating conditions of the household and the corporate credit markets are different, we estimated the intensity of competition separately for both the markets. While the Lerner index showed strong market power in the household credit market, the corporate credit market was characterised by intense competition. Regarding efficiency, various models often resulted in different conclusions, especially in the case of cost efficiency. Therefore we recommend that the regulatory decision-making process should always consider the results of several models. Moreover, the Lerner indices demonstrate that it might be important to use disaggregated models when modelling the features of credit markets.

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Application of the Concept of Significant Market Power in Electronic Communications

Acta Juridica Hungarica ◽

10.1556/ajur.47.2006.3.-6 ◽

2006 ◽

Vol 47 (3) ◽

pp. 314-323

Author(s):

Mária Kitti Popovics

Keyword(s):

Market Power ◽

Electronic Communications

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The long-run stability of a small, open economy under crawling peg regime

Acta Oeconomica ◽

10.1556/aoecon.52.2002.1.3 ◽

2002 ◽

Vol 52 (1) ◽

pp. 57-78

Author(s):

S. Çiftçioğlu

Keyword(s):

Exchange Rate ◽

Open Economy ◽

Risk Premium ◽

Small Open Economy ◽

Exchange Rate Policy ◽

Price Stability ◽

Output Stability ◽

Long Run ◽

The Exchange Rate ◽

The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

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