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In this paper, we introduce a small-scale heterogeneous agent-based model of the US corporate bond market. The model includes a realistic micro-grounded ecology of investors that trade a set of bonds through dealers. Using the model, we simulate market dynamics that emerge from agent behaviors in response to basic exogenous factors (such as interes...
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... addition to convexity, price risk in the overall market has further increased due to a lengthening of the maturity of the outstanding bonds (a longer maturity implies higher price sensitivity) and a decline in overall credit quality. Faced with historically low yields, issuers have been eager to lock in "low rates for longer" through the issuance of bonds with longer maturities (see Figure 3). Overall credit quality has declined as well. Table 1 shows the credit distribution of the IBoxx index (an index of European investment grade corporate bonds). In 2007, BBB rated bonds (the lowest rating in the investment grade category) accounted for 27% of the index; by 2017, the share of BBB bonds in the index increased to 49%. Similar observations apply to the US corporate bond sector, where borrowers with lower credit ratings make up for an increasingly large share of the market. Between 2010 and 2017, the Merrill Lynch US investment grade corporate bond index saw the relative share of bonds with BBB ratings increase from 38% to nearly 48%. Reflecting on the increased fundamental risk in global bond markets, Jeffrey Gundlach (CEO of Doubleline Capital) was recently quoted in the Financial Times (see ...
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We investigate if investors may benefit from using the accruals quality measure to assess the level of earnings management exercised by firms when preparing their accounting statements. More earnings management is expected to be associated with high information asymmetry among stock market participants because it makes earnings information less pre...
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... First, we propose the method of liquidity index calculation and show that our indices based on different proxies display similar dynamics within each of five markets considered in the study. Market liquidity is fragile: it evaporates quickly in hectic periods [20]. Second, considering indices based on the same proxy for different markets, we find that commonality in liquidity is higher during times of high volatility (as the global financial crisis of 2008) and lower during tranquil times. ...
The aim of the paper is to examine commonality in liquidity indices across emerging European stock markets. The liquidity proxies based on low-frequency data are used for the calculation of the liquidity index for each market. These indices are based on the blue-chip stocks’ performance and capture the overall liquidity dynamics coming from volume changes and transaction costs. Furthermore we propose additional calculation method for liquidity index based on the extreme market movements. As the sample consists of stocks listed constantly from 2008 through 2017, we examine commonalities in liquidity indices across emerging European markets at the time of hectic financial crisis as well as in tranquil periods. We find common behavior in liquidity and volatility indices. The correlations are robust to the choice of liquidity proxy. In the emerging European region liquidity dries up when VIX increase. The commonality of liquidity indices becomes stronger in market downturns.
