Does the Tail Wag the Dog? The Price Impact of CDS Trading

Session 4: Trading and Pricing in CDS MarketsWe investigate empirically whether credit default swaps (CDS) spreads are influenced by shifts in demand/supply dynamics in the market. We find that while changes in CDS spreads are insensitive to accumulated trading volume, net buying interest (NBI), a measure we construct to measure latent trade imbalance between consecutive trades, significantly affects CDS price changes. This price impact appears to be statistically significant even in the absence of concomitant stock price changes, but its economic magnitude is on par with the average bid-ask spread. While changes in fundamental information contribute to the price impact of net buying interest, liquidity of CDS contracts is another factor. We show that the effect of NBI is three times stronger in the least liquid CDS contracts than in the most liquid CDS contracts. Furthermore, exogenous supply shocks attenuate the initial price impact and accelerate the subsequent price reversal.postprin

The Leverage Externalities of Credit Default Swaps

postprin

Market conditions, default risk and credit spreads

This study empirically examines the impact of the interaction between market and default risk on corporate credit spreads. Using credit default swap (CDS) spreads, we find that average credit spreads decrease in GDP growth rate, but increase in GDP growth volatility and jump risk in the equity market. At the market level, investor sentiment is the most important determinant of credit spreads. At the firm level, credit spreads generally rise with cash flow volatility and beta, with the effect of cash flow beta varying with market conditions. We identify implied volatility as the most significant determinant of default risk among firm-level characteristics. Overall, a major portion of individual credit spreads is accounted for by firm-level determinants of default risk, while macroeconomic variables are directly responsible for a lesser portion. © 2009 Elsevier B.V. All rights reserved.postprin

Household investments in structured financial products: pulled or pushed?

Session 175 - Crisis: Individual InvestorsStructured financial products including credit-linked notes and collateralized debt obligations were popular before the credit crisis but then delivered substantial loss to investors. Driver for investment decision in those products is key to understanding the fundamental causes of the crisis. Classical portfolio theory suggests that investors would shun away from unfamiliar financial products. This familiarity bias holds especially for unsophisticated household investors. The rapid growth of structured products market, the newest financial innovations, presents an opportune setting to test such conventional wisdoms. Using unique household investment data from Hong Kong, we show that product distributors' selling intensity is an important determinant for investors' allocation in structured products. On the other hand, more financially literate investors, who are more capable of optimizing asset allocation, include less structured products into their portfolios. Important determinants according to mean-variance analysis, such as product premium, have little explanatory power to investor's allocation decisions. Our finding suggests that investments in structured products prior to the credit crisis were more likely to be pulled by distributors. This paper demonstrates the importance of financial literacy for investment decisions.postprintThe 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010

Does the Tail Wag the Dog?: The Effect of Credit Default Swaps on Credit Risk

We use credit default swaps (CDS) trading data to demonstrate that the credit risk of reference firms, reflected in rating downgrades and bankruptcies, increases significantly upon the inception of CDS trading, a finding that is robust after controlling for the endogeneity of CDS trading. Additionally, distressed firms are more likely to file for bankruptcy if they are linked to CDS trading. Furthermore, firms with more “no restructuring” contracts than other types of CDS contracts (i.e., contracts that include restructuring) are more adversely affected by CDS trading, and the number of creditors increases after CDS trading begins, exacerbating creditor coordination failure in the resolution of financial distress.postprin

Household investments in structured financial products: pulled or pushed?

Why did individual investors buy structured financial products? Were they too greedy to consider the risk involved? Or did the banks lure them to buy? Using unique household investment data from Hong Kong, we show that investor demand of such products (the ‘push’ effect) was not the key driver. Important determinants according to portfolio theories, such as product premium, have little explanatory power to investor's actual allocation decisions. More financially literate investors who can form reasonable expectations about stocks bought less. Education, IQ, and relationship with the distributing banks are statistically significant explanatory variables. However, we can only explain one-fifth of the cross-sectional variations of investment in structured products. The rest could be due to bounded rational investor behaviors and mis-selling by distributors.postprintThe 17th Conference on the Theories and Practices of Securities and Financial Markets, Kaohsiung, Taiwan, 11-12 December 2009

CRTC1 transcriptional coactivator is required for hepatitis B virus gene expression and replication

This journal suppl. entitled: Metabolism, Diet and Disease 2014: Cancer and metabolismConference Theme: Cancer and metabolismPoster Presentation: P31BACKGROUND: Chronic hepatitis B virus (HBV) infection occurs in over 400 million people worldwide, 15-40% of whom will terminally develop severe liver diseases including hepatocellular carcinoma. Although development of HCC is a multi-step process, high HBV DNA level is a major risk factor for disease progression. Transcription of HBV from the cccDNA template is essential for its replication and requires CREB transcription factor, a master regulator of cell metabolism. However, transcriptional coactivators that facilitate CREB-dependent activation of HBV transcription remain to be identified and characterized …published_or_final_versio

Ubiquitination and proteosome-dependent degradation of the activated form of human liver-enriched transcription factor CREB-H regulated by protein kinase A

Poster Presentation - Theme 1: Cell biologyCREB-H is a membrane-bound bZIP transcription factor which is mainly expressed in liver and small intestine. CREB-H plays important roles in the regulation of lipid metabolism, iron metabolism, gluconeogenesis and acute phase response. CREB-H is proteolytically activated by regulated intramembrane proteolysis to generate a C-terminal truncated form known as ...postprin

Compound pulse solitons in a fiber ring laser

Author name used in this publication: H. Y. Tam2003-2004 > Academic research: refereed > Publication in refereed journalVersion of RecordPublishe

Bound-soliton fiber laser

Author name used in this publication: H. Y. Tam2002-2003 > Academic research: refereed > Publication in refereed journalVersion of RecordPublishe