Does the TIPS spread overshoot?

Government securities

Equity financing of the entrepreneurial firm

Equity financing of the entrepreneurial firm has achieved a rapid increase over the past> decade. Venture capital funds, which finance privately held start-ups, raised a record $92.3 billion in 2000. This is a 30-fold increase relative to 1990. At Nasdaq, initial public offerings raised an all-time high of$53.6 billion in 2000, which is 24 times as much as in 1990. This article studies venture equity financing and equity financing through initial public offerings against the background of asymmetric information between the entrepreneur and the (outside) investor. The analysis shows that venture capital financing (i) is superior to initial public offerings when the entrepreneur has low initial wealth relative to the size of the project and (ii) is equivalent otherwise. This result highlights the importance of private equity in financing entrepreneurial enterprises. The Gramm-Leach-Bliley Act of 1999 allows banks to expand the scope of their activities in this arena. The act allows financial holding companies to provide equity financing to nonfinancial enterprises for up to ten years. In particular, the act defines a framework in which financial holding companies can sponsor private equity funds that may provide venture capital to entrepreneurial start-ups.Corporations - Finance ; Gramm-Leach-Bliley Act ; Venture capital

Gambler’s fallacy?

Stock market

Is the current account deficit weighing on the dollar?

Balance of payments ; Budget deficits

Conjectural guarantees loom large: evidence from the stock returns of Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs) with publicly traded equity. Although these companies hold government issued charters, their securities are not legally backed by the full faith and credit of the United States government. Yet, investors and rating agencies seem to believe that the U.S. Government would "bail out" Fannie or Freddie if they became distressed. We provide evidence of a conjectural guarantee in GSE stock returns. Stock that contains an option on returning the shares at a given price to the issuer -- the government, in this case -- show pronounced nonlinearity (convexity) in the sensitivity of its return to market return. Using non parametric methods on daily stock returns, we find that the GSEs' returns are less responsive to market movements the more sharply the market declines. Our findings are consistent with a government guarantee in GSE stock against catastrophic losses but not against atrophic losses.Mortgages ; Financial institutions ; Government-sponsored enterprises

The future of the euro

Euro

Quality spreads in the bond market

Bonds ; Corporate bonds ; Government securities

The Tobin tax

Taxation ; Foreign exchange

Stock return and interest rate risk at Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) with the stated objective of promoting home ownership by improving the availability of mortgage financing for private households. These enterprises engage in two separate and distinct lines of business: (i) assembling and marketing pools of mortgages on which they guarantee the timely payments of principal and interest and (ii) purchasing mortgage assets for their own portfolio, mostly funded with debt securities. This article examines the sensitivity of the returns on GSEs' equity shares to realizations of interest rate risk. The study shows that the market value of Fannie Mae's and Freddie Mac's equity is vulnerable to increases in short-term interest rates and changes in the term spread (the difference between the long-term and short-term interest rates).Stock market ; Government-sponsored enterprises ; Mortgage loans

Extracting inflation expectations from bond yields

Government securities