Optimal Bidding with Announcement of the Reservation Price

This paper is aimed at introducing a model of the symmetric Bayes-Nash equilibrium in a FPSB auction, when the auctioneer announces the reservation price known at all bidders. Following the specification of the ways in which the existing literature treats this matter and, in particular Carey (1993), it is established an alternative model based on the “nature’s move” tipical of bayesian games. Finally, in the conclusion, there is a treatment of the difference between the optimal bidding strategy which concludes this work and the one of Carey, after that the data have been made homogeneous for ease of comparison.

Macro Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation

By analysing the macro financial determinants of the Great Financial Crisis of 2007-2009 on 83 countries, we find that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries having higher levels of: i) net interest margin, ii) concentration in the banking sector, iii) restrictions to bank activities, iv) private monitoring. Our findings contribute to the ongoing discussion that can help policymakers calibrate new regulation, by achieving a reasonable trade-off between financial stability and economic growth

Macro Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation

By analysing the macro financial determinants of the Great Financial Crisis of 2007-2009 on 83 countries, we find that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries having higher levels of: i) net interest margin, ii) concentration in the banking sector, iii) restrictions to bank activities, iv) private monitoring. Our findings contribute to the ongoing discussion that can help policymakers calibrate new regulation, by achieving a reasonable trade-off between financial stability and economic growth

The Dynamics of Tobin’sQ

In this article, I propose a general-equilibrium model with proportional adjustment costs and industry-specific capital to study the firm migration phenomenon across market-to-book ratio. In my model, investors’ desire to diversify their portfolios and investment frictions generate a mean-reverting dynamics of Tobin’s q consistent with the probabilities of migration found in the data, and a non-linear pattern in the conditional volatility of Tobin’s q. In addition, since firms’ market-to-book ratios are function of the state of the economy and contain information about stock returns, stock prices inherit these properties, yielding asset-pricing implications in line with the empirical evidence, namely the value premium and a non-monotone relationship between the volatility of stock returns and the Tobin’s q

Returns Volatility and Correlation in Asset Pricing: A Review

In this paper we provide a survey of the role of equity returns volatility and correlation within the asset pricing literature. In general, the literature of the second moments of stock returns can be classified in three main “phases”. In the first one, which started with the pioneering work of Markowitz (1952, 1959) and (building on this) culminated in what has come to be known as the Capital Asset Pricing Model (CAPM), variances and covariances were assumed to be constant over time. Only at the beginning of the '80s, and in particular with the leading contribution of Engle (1982), a new generation of approaches appeared. This literature abandoned the hypothesis of constant volatility and modeled the variance of the current error term to be a function of the variances of the previous time-period's error terms. However, in this “phase”, multivariate ARCH (GARCH) models were either assuming that equity correlations are constant over time or specifying the covariance term as a unique unknown, without differentiating the several components of the covariance matrix. Only in more recent years (the third “phase”), the asset pricing literature, recognizing that stock returns correlations are not stable over time but fluctuate dramatically, started separating volatility shocks from correlation shocks

Portfolio Selection with Transaction Costs and Default Risk

Purpose: The purpose of this paper is to investigate the effect of default risk and transaction costs on the investor's asset allocation and the liquidity premium. More precisely, it aims at answering the following question: can default risk generate a first-order effect on the investor's asset allocation and a liquidity premium of the same order of magnitude as transaction costs? Design/methodology/approach: The author proposes a very simple consumption-investment model in which an infinitely-lived investor allocates her wealth between a risky asset and a riskless security, and incurs in proportional transaction costs when exchanging them. In addition, the risky asset may default at some random time, thus reducing the available wealth of the agent. Two different scenarios of default risk are considered. In the total default scenario, the value of the risky asset drops to zero when default occurs whereas, in the partial default case, the proceeds from the liquidation of the risky asset amount to 50% of its value. Findings: The paper shows that default risk can generate a first-order effect on the investor's asset allocation. On the contrary, the liquidity premium is one order of magnitude smaller than the transaction costs, implying that the additional source of risk determined by the possibility of default is not able to generate a first-order effect on asset pricing. Originality/value: To the author knowledge, this is the first paper that investigates the interaction of default risk and transaction costs on the investor's asset allocation and its effects on the liquidity premium