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ABSTRACT: We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500,
US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time,
evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns
exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional
correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There
is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we
demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional
correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.
KeywordsCMBS-REITs-Dynamic conditional correlation-Macroeconomic variables
JEL ClassificationsG11-C32
The Journal of Real Estate Finance and Economics 04/2012; · 0.88 Impact Factor
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ABSTRACT: Using high-frequency data, this study investigates intraday price discovery and volatility transmission between the Chinese stock index and the newly established stock index futures markets in China. Although the Chinese stock index started a drastic falling immediately after the stock index futures were introduced, we find that the cash market plays a more dominant role in the price discovery process. The new stock index futures market does not function well in its price discovery performance at its infancy stage, apparently due to high barriers to entry into this emerging futures market. Based on a newly proposed theoretically-consistent asymmetric GARCH model, the results uncover strong bidirectional dependence in the intraday volatility of both markets.
INTL: Descriptive Studies in Emerging Markets (Topic). 12/2010;
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ABSTRACT: With an international dataset of credit default spreads as a credit risk measure, we propose a novel empirical framework to identify the structure of credit risk network across major financial institutions around the recent 2007-2008 global credit crisis. The findings directly shed light on credit risk transmission in a financial network and help find systemically important financial institutions from the perspective of interconnectedness. Specifically, Lehman Brothers, Morgan Stanley, Sefeco, Chubb, and possibly AIG in the US and BNP Paribs, Dresdner bank, and UBS in the Europe are primary senders of credit risk information. Goldman Sachs, Bear Sterns, Bank of America, and Metlife in the US and Barclays, RBS, Commerzbank, and HVB in the Europe play the role of the exchange center on the credit market by intensively receiving from some financial institutions and then transferring credit risk information to others. Finally, Citigroup, Wachovia, JPMorgan and Hartford in the US, and ABN AMRO, ING, Rabobank, and Deutsche Bank in the Europe appear to be prime receivers of credit risk information. Further analysis shows that leverage ratios and certain aspect of corporate governance (i.e., CEO duality) may be significant determinants of identified different roles of financial institutions in credit risk transfer, while no such evidence is found for other factors including size, liquidity and asset write-downs.
Risk Management eJournal. 10/2010;
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Management Science. 01/2010; 56:2031-2049.
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ABSTRACT: We investigate the international transmission of inflation among G-7 countries using data-determined vector autoregression analysis, as advocated by Swanson and Granger [Swanson, N., Granger, C., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions. Journal of the American Statistical Association 92, 357–367]. Over the period 1973–2003, we find that unexpected changes in US inflation have large effects on inflation in other countries, although they are not always the dominant international factor. Similarly, shocks to some other countries also have a statistically and economically significant influence on US inflation. Moreover, our evidence indicates that US inflation has become less vulnerable to foreign shocks since the early 1990s, mainly because of the diminished influence from Germany and France.
Journal of Banking & Finance. 02/2006;
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Jian Yang,
Yinggang Zhou,
Warren Bailey,
Mathias Drehmann,
Robert Engle,
Philipp Hartmann,
Andrew Karolyi,
Jan Pieter Krahnen,
Francis Longstaff,
Stijn Ferrari,
David Ng,
Meijun Qian,
Fan Yu,
Gaiyan Zhang,
Hao Zhou,
Haibin Zhu
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ABSTRACT: With an international dataset of credit default spreads as a credit risk measure, we propose a novel empirical framework to identify the structure of credit risk network across major financial institutions around the recent 2007-2008 global credit crisis. The findings directly shed light on credit risk transmission in a financial network and indirectly help find systemically important financial institutions from the perspective of interconnectedness. Specifically, we are able to identify three groups of players including primary senders, exchange centers and prime receivers of credit risk information on the credit market. Further analysis shows that leverage ratios and certain aspect of corporate governance (i.e., CEO duality) may be significant determinants of identified different roles of financial institutions in credit risk transfer, while no such evidence is found for other factors including size, liquidity and asset write-downs.
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ABSTRACT: Using monthly stock and bond return data in the past 150 years (1855–2001) for both the US and the UK, this study documents time-varying stock–bond correlation over macroeconomic conditions (the business cycle, the inflation environment and monetary policy stance). There are different patterns of time variation in stock–bond correlations over the business cycle between US and UK, which implies that bonds may be a better hedge against stock market risk and offer more diversification benefits to stock investors in the US than in the UK. Further, there is a general pattern across both the US and the UK during the post-1923 subperiod and during the whole sample period: higher stock–bond correlations tend to follow higher short rates and (to a lesser extent) higher inflation rates.
Journal of Banking & Finance.
