Financial Crises and Information Transfer - An Empirical Analysis of the Lead-Lag Relationship between Equity and CDS iTraxx Indices

This study examines the lead-lag-relationship between European equity and CDS markets in the context of the financial crisis. Previous research identified the stock market to lead the CDS market in an ordinary economic environment. Against the background of our study this lead-lag-relationship strengthens when moving from the non-crisis- to the crisisscenario on a daily as well as on a weekly basis. Hence, we conclude that information transfer from stock to CDS markets widens during the financial crisis. In addition and in contrast to the literature we find an extraordinary day-of-the-week-effect on weekly returns as an anomaly for information processing

Exploiting Spillovers to Forecast Crashes

We develop Hawkes models in which events are triggered through self as well as cross-excitation. We examine whether incorporating cross-excitation improves the forecasts of extremes in asset returns compared to only self-excitation. The models are applied to US stocks, bonds and dollar exchange rates. In-sample, a Lagrange Multiplier test indicates the existence of cross-excitation for these series. Out-of-sample, we find that the models that include spillover effects forecast crashes and the Value-at-Risk significantly more accurately than the models without

Valuation of Ecosystem Services Provided by Biodiversity Conservation: An Integrated Hydrological and Economic Model to Value the Enhanced Nitrogen Retention in Renaturated Streams

The importance of ecosystem functions for humankind is well known. But only few attempts have been undertaken to estimate the economic value of these ecosystem services. In particular, indirect methods are rarely used, even though they are most suitable for the task. This discrepancy is because quantitative knowledge of changes in ecosystem functions is scarce. This paper presents a user-friendly procedure to quantify the increased N-retention in a renaturated river using easily available data. In a case study of the renaturated River Jossa (Germany) the benefits of increased nitrogen retention caused by beaver reintroduction are determined by using the replacement cost method. The quantification of chemical processes is discussed in detail, as well as the problems of defining an adequate reference scenario for the substitute costs. Results show that economic benefits from the evaluated ecosystem service (€12,000/annum) equal 12% of the total costs of the corresponding conservation scheme