Credit default swaps as indicators of bank financial distress

We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Our findings hold out-of-sample, for various cohorts, for subordinated CDS spreads, for idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk

Credit default swaps as indicators of bank financial distress

We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Our findings hold out-of-sample, for various cohorts, for subordinated CDS spreads, for idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk

The predictive power of the dividend risk premium

We show that the dividend growth rate implied by the options market is informative about(i)the expected dividend growth rate and (ii) the expected dividend risk premium. We model the expected dividend risk premium and explore its implications for the predictability of dividend growth and stock market returns. Correcting for the expected dividend risk premium strengthens the evidence of dividend growth and stock market return predictability both in-and out-of-sample. Economically,a market timing investor who accounts for the time varying expected dividend risk premium realizes an additional utility gain of 2.02% per year

Dissecting macroeconomic news

How do macroeconomic events affect the term structure of equity returns? We document that the term structure of equity excess returns is upward sloping on federal fund rate announcement days but not on nonannouncement days. The dividend strips respond significantly to macroeconomic news and the strength of the announcement response declines with the maturity of the dividend asset. Our analysis reveals that nonfarm payrolls surprises have the largest impact on the term structure of dividend strips. The cash flow and discount rate channels both contribute to the response of the dividend asset to macroeconomic news

Quantum zero point electromagnetic energy difference between the superconducting and the normal phase in a high-<math><msub><mi>T</mi><mi>c</mi></msub></math> superconducting metal bulk sample

International audienceWe provide a methodological approach to the estimate of the change of the quantum vacuum electromagnetic energy density in a high critical temperature superconducting metal bulk sample, when it undergoes the transition in temperature, from the superconducting to the normal phase. The various contributions to the Casimir energy in the two phases are highlighted and compared. While the transverse magnetic polarization of the vacuum mode allows for a macroscopic description of the superconducting transition, the changes in the transverse electric vacuum mode induced by the superconductive correlations are introduced within a microscopic model, which does not explicitly take into account the anisotropic structure of the material

Contingent Claims and Hedging of Credit Risk with Equity Options

Using contingent-claims valuation, we introduce novel hedge ratios for credit exposures using put options. Option hedge ratios are generally in line with the empirical sensitivities of credit spread changes to put option returns and, relative to stock hedge ratios, produce further reductions in volatility for a portfolio of North American firms. We show that option hedge ratios capture option-specific credit exposure related to the VIX index and the default spread, which is unaccounted for by Merton’s (1974) equity hedge ratios alone. Combining stocks and put options for credit risk hedging can be done effectively using the volatility smirk. (JEL E43, E44, G10