36 research outputs found
Densely Entangled Financial Systems
In [1] Zawadoski introduces a banking network model in which the asset and
counter-party risks are treated separately and the banks hedge their assets
risks by appropriate OTC contracts. In his model, each bank has only two
counter-party neighbors, a bank fails due to the counter-party risk only if at
least one of its two neighbors default, and such a counter-party risk is a low
probability event. Informally, the author shows that the banks will hedge their
asset risks by appropriate OTC contracts, and, though it may be socially
optimal to insure against counter-party risk, in equilibrium banks will {\em
not} choose to insure this low probability event.
In this paper, we consider the above model for more general network
topologies, namely when each node has exactly 2r counter-party neighbors for
some integer r>0. We extend the analysis of [1] to show that as the number of
counter-party neighbors increase the probability of counter-party risk also
increases, and in particular the socially optimal solution becomes privately
sustainable when each bank hedges its risk to at least n/2 banks, where n is
the number of banks in the network, i.e., when 2r is at least n/2, banks not
only hedge their asset risk but also hedge its counter-party risk.Comment: to appear in Network Models in Economics and Finance, V. Kalyagin, P.
M. Pardalos and T. M. Rassias (editors), Springer Optimization and Its
Applications series, Springer, 201
Relations between Financing and Output in the Not-for-Profit Hospital
Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/68639/2/10.1177_107755878804500204.pd
Do Firms Issue More Equity When Markets Become More Liquid?
This paper investigates how public equity issuance is related to stock market liquidity. Using quarterly data on IPOs and SEOs in 36 countries over the period 1995-2008, we show that equity issuance is significantly and positively related to contemporaneous and lagged innovations in aggregate local market liquidity. This relation survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment. Liquidity considerations are as important in explaining equity issuance as market timing considerations. The relation between liquidity and issuance is driven by the quarters with the greatest deterioration in liquidity and is stronger for IPOs than for SEOs. Firms are more likely to carry out private instead of public equity issues and to postpone public equity issues when market liquidity worsens. Overall, we interpret our findings as supportive of the view that market liquidity is an important determinant of equity issuance that is distinct from other determinants examined to date
Optimal hedging of stock portfolios against foreign exchange risk: theory and applications
Global Finance Journal3297-11
International evidence on financial derivatives usage
Theory predicts that nonfinancial corporations might use derivatives to lower financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to explain the determinants of corporate derivatives usage. Instead, we show that derivative usage is determined endogenously with other financial and operating decisions in ways that are intuitive but not related to specific theories for why firms hedge. For example, derivative usage helps determine the level and maturity of debt, dividend policy, holdings of liquid assets, and international operating hedging
Foreign equity investment restrictions, capital flight, and shareholder wealth maximization
SIGLEAvailable from British Library Document Supply Centre- DSC:3597.9512(CEPR-DP--1208) / BLDSC - British Library Document Supply CentreGBUnited Kingdo