Default Risk Premium in Credit and Equity Market: A New Approach for Structural Model Estimation

2015 ◽  
Author(s):  
Alessandro Beber ◽  
Raffaele Corvino ◽  
Gianluca Fusai
Keyword(s):  
Risk Premium ◽  
Default Risk ◽  
Structural Model ◽  
Equity Market ◽  
Model Estimation ◽  
New Approach

A new approach to measuring riskiness in the equity market: Implications for the risk premium

2015 ◽  
Vol 57 ◽  
pp. 101-117 ◽  
Author(s):  
Turan G. Bali ◽  
Nusret Cakici ◽  
Fousseni Chabi-Yo
Keyword(s):  
Risk Premium ◽  
Equity Market ◽  
New Approach

Hedging Equity Market Risk in Hedge Fund Investing: A New Approach

CFA Digest ◽  
2012 ◽  
Vol 42 (1) ◽  
pp. 9-11
Author(s):  
Keith Joseph MacIsaac
Keyword(s):  
Hedge Fund ◽  
Equity Market ◽  
Market Risk ◽  
New Approach

scholarly journals Can Economic Factors Improve Momentum Trading Strategies? The Case of Managed Futures during the COVID-19 Pandemic

Economies ◽  
2021 ◽  
Vol 9 (2) ◽  
pp. 86
Author(s):  
Renata Guobužaitė ◽  
Deimantė Teresienė
Keyword(s):  
Financial Markets ◽  
Risk Premium ◽  
Trading Strategies ◽  
Economic Factors ◽  
Momentum Strategies ◽  
New Approach ◽  
Managed Futures ◽  
Asset Classes ◽  
Momentum Trading ◽  
Insight Into

Systematic momentum trading is a prevalent risk premium strategy in different portfolios. This paper focuses on the performance of the managed futures strategy based on the momentum signal across different economic regimes, focusing on the COVID-19 pandemic period. COVID-19 had a solid but short-lived impact on financial markets, and therefore gives a unique insight into momentum strategies’ performance during such critical moments of market stress. We offer a new approach to implementing momentum strategies by adding macroeconomic variables to the model. We test a managed futures strategy’s performance with a well-diversified futures portfolio across different asset classes. The research concludes that constructing a portfolio based on academically/economically sound momentum signals with its allocation timing based on broader economic factors significantly improves managed futures strategies and adds significant diversification benefits to the investors’ portfolios.

Market reaction to scheduled and unscheduled news announcements under varying economic conditions

2020 ◽  
Author(s):  
◽  
Parveshsingh Seeballack
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Implied Volatility ◽  
Equity Market ◽  
Economic Conditions ◽  
Time Varying ◽  
Equity Risk Premium ◽  
Macroeconomic News ◽  
Equity Risk ◽  
News Announcements

The unifying theme of this dissertation is the study of the role of macroeconomic news announcements in the context of the equity market. We focus on two important areas of the asset pricing theory, namely price discovery and equity risk premium forecasting. Chapter 2 investigates the time-varying sensitivity of stock returns to scheduled macroeconomic news announcements (MNAs) using high-frequency data. We present new insights into how efficiently stock returns incorporate the informational content of MNAs. We further provide evidence that the stock market response to MNAs is cyclical, and finally we conclude Chapter 2 with an investigation into the factors driving the time-varying sensitivity of stock return to MNAs. Chapter 3 investigates the time-varying sensitivity of stock returns in the context of unscheduled macroeconomic news announcements using high-frequency data. We investigate the speed and persistence in stock returns’ response to unscheduled macro-news announcements, and whether the reactions are dependent on the state of the economy, or general investor sentiment level. Combined, Chapters 2 and 3 provide interesting insights into how equity market participants react to the arrival of scheduled and unscheduled macro-announcements, under varying economic conditions. Chapter 4 focuses on equity risk premium forecasting. We investigate the predictive ability of option-implied volatility variables at monthly horizon, under varying economic conditions. We innovate by constructing monthly announcement and non-announcement option-implied volatility predictors and assess whether the monthly announcement option-implied volatility predictors contain additional information for better out-of-sample predictions of the monthly equity risk premium. Each of the three empirical chapters explores a unique aspect of the asset pricing theory in the context of the U.S. equity market.

scholarly journals The euro area's common default risk: Evidence on the Commission's impact on European fiscal affairs

2011 ◽  
Vol 12 (4) ◽  
pp. 507-528 ◽  
Author(s):  
Roman Goldbach ◽  
Christian Fahrholz
Keyword(s):  
Financial Markets ◽  
Euro Area ◽  
Risk Premium ◽  
Default Risk ◽  
Decisive Role ◽  
Fiscal Institutions ◽  
Growth Pact ◽  
Daily Data ◽  
Political Events ◽  
The Stability

Sovereign creditworthiness within the euro area hinges upon the credibility of the Stability and Growth Pact (SGP). We analyse whether political events that worsen the SGP's credibility result in a shared default risk premium for all euro members, therefore leading to a joint deterioration of creditworthiness. We especially examine the decisions and statements of the Commission and the Council of Economic and Finance Ministers. Analysing daily data through the 1999–2005 period with an ARMA-GARCH model, we find the Commission plays a decisive role in affecting investor evaluations, where its credibility-strengthening decisions decrease volatility and statements signalling a weakening of fiscal credibility spark uncertainty on financial markets. Our results stress the importance of creating credible fiscal institutions that preserve sovereign creditworthiness within the euro area.

scholarly journals A New Approach to Gauging Inflation Expectations

2009 ◽  
pp. 1-4
Author(s):  
Joseph G. Haubrich
Keyword(s):  
Interest Rates ◽  
Risk Premium ◽  
New Method ◽  
Inflation Expectations ◽  
Real Interest Rates ◽  
Inflation Risk ◽  
New Approach ◽  
Expected Inflation ◽  
Inflation Risk Premium

This Economic Commentary explains a relatively new method of uncovering inflation expectations, real interest rates, and an inflation-risk premium. It provides estimates of expected inflation from one month to 30 years, an estimate of the inflation-risk premium, and a measure of real interest rates, particularly a short (one-month) rate, which is not readily available from the TIPS market. Calculations using the method suggest that longer-term inflation expectations remain near historic lows. Furthermore, the inflation-risk premium is also low, which in the model means that inflation is not expected to deviate far from expectations.

How to estimate expected credit losses – ECL – for provisioning under IFRS 9

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mariya Gubareva
Keyword(s):  
Risk Premium ◽  
Default Risk ◽  
Financial Regulation ◽  
Credit Default Swap ◽  
High Yield ◽  
Expected Loss ◽  
Content Type ◽  
Term Structures ◽  
Ifrs 9 ◽  
Investment Grade

PurposeThis paper provides an objective approach based on available market information capable of reducing subjectivity, inherently present in the process of expected loss provisioning under the IFRS 9.Design/methodology/approachThis paper develops the two-step methodology. Calibrating the Credit Default Swap (CDS)-implied default probabilities to the through-the-cycle default frequencies provides average weights of default component in the spread for each forward term. Then, the impairment provisions are calculated for a sample of investment grade and high yield obligors by distilling their pure default-risk term-structures from the respective term-structures of spreads. This research demonstrates how to estimate credit impairment allowances compliant with IFRS 9 framework.FindingsThis study finds that for both investment grade and high yield exposures, the weights of default component in the credit spreads always remain inferior to 33%. The research's outcomes contrast with several previous results stating that the default risk premium accounts at least for 40% of CDS spreads. The proposed methodology is applied to calculate IFRS 9 compliant provisions for a sample of investment grade and high yield obligors.Research limitations/implicationsMany issuers are not covered by individual Bloomberg valuation curves. However, the way to overcome this limitation is proposed.Practical implicationsThe proposed approach offers a clue for a better alignment of accounting practices, financial regulation and credit risk management, using expected loss metrics across diverse silos inside organizations. It encourages adopting the proposed methodology, illustrating its application to a set of bond exposures.Originality/valueNo previous research addresses impairment provisioning employing Bloomberg valuation curves. The study fills this gap.

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