Component Of Spread Research Articles

Across-the-Curve Credit Spread Indices

This note presents a preliminary approach to the design of an across-the-curve credit spread index (AXI). The index is a measure of the recent average cost of wholesale unsecured debt funding for publicly listed U.S. bank holding companies and their commercial banking subsidiaries. This may be a useful benchmark for bank lending and related derivatives risk management applications. The index is a weighted average of credit spreads for unsecured debt instruments with maturities ranging from overnight to five years, with weights that reflect both transactions volumes and issuance volumes. We provide preliminary illustrative output of the bond-based component of AXI using TRACE secondary-market price and volume data from 2002–2019. We have only extremely preliminary estimates of the short-maturity (money-market) spread component.

The U.S. Term Structure and Return Volatility in Emerging Stock Markets

This paper examines the predictive power of the U.S. term structure over return volatility in emerging stock markets. Decomposing the term structure of U.S. Treasury yields into two components, the expectations factor and the maturity premium, we show that the U.S. term structure indeed contains predictive information over emerging stock market volatility, even after controlling for country specific factors including turnover and market size. While we observe heterogeneous patterns across emerging markets in terms of their predictability with respect to the U.S. term structure, we find that the market’s expectation of future short term rates, implied by the expectations factor, serves as a stronger predictor of stock market volatility compared to the maturity premium component of the yield spread. We also find that the U.S. term structure has gained further predictive value following the global financial crisis, particularly for the BRICS nations of China, Russia, and S. Africa. Overall, our findings suggest that policymakers and investors can utilize interest rate signals from the U.S. Treasury yields to make projections over stock market volatility in their local markets, however, distinguishing between the two components of the yield curve could provide additional forecasting power depending on the country of focus.

Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market

We investigate the empirical relationship between liquidity costs and Post Earnings Announcement Drift, using a sample of 93 zero-leverage firms listed on the FTSE 350 index over the time period 2000–2015. We discover that illiquidity levels are significantly enhanced around both the earnings and post announcement period, in both the short and long run. Once we decompose the bid-ask spread components during the earnings announcements, we observe that the adverse selection costs are significantly increased, whereas the inventory holding and order processing costs remain unchanged. We conclude that Post Earnings Announcement Drift is related with information asymmetry for zero-leverage firms.

Source- vs topographic-forcing in pyroclastic currents: the case of the Orvieto-Bagnoregio Ignimbrite, Vulsini, central Italy

The main pyroclastic flow unit of the Orvieto-Bagnoregio Ignimbrite (Vulsini, central Italy) provides a striking example of increasing thickness with distance from the vent, accompanied by opposite size-distance trends for lithic and juvenile clasts. Lithic clasts show normal lateral grading, while dense (1120-1400 kg/m 3 ) scoria clasts show inverse lateral grading. The latter trends are attributed to the opposite density contrast with respect to the flow medium of gas and fine particles and put a constraint to the minimum density of the transporting flow. Thus, the study example approaches the high-concentration, non-turbulent end-member of pyroclastic currents. By applying the topological aspect ratio approach, we infer a forced behavior of the parent flow in proximal to intermediate settings, due to sustained feeding with high mass discharge rate at source. In distal settings, the source-forced regime was enhanced by topographic forcing due to channeling along radial topographic lows, thus resulting in increasing bulk density and runout of the current. By analogy with the mobility of dry debris flows, the sliding component of transport prevailed in proximal to intermediate settings, accounting for the prevailing tendency of the pyroclastic current to transport than to deposit, thus forming a relatively thin deposit with normal lateral grading of lithics. The spreading component dominated downcurrent, resulting in increasing pyroclast accumulation (up to tens of meters of thickness) and delayed deposition of coarsest scoria clasts as far as the final runout.

Information Acquisition and Secondary Market Liquidity

We develop a structural model to quantify the effects of informational and noninformational frictions on bond market liquidity. We decompose the liquidity component of the yield spread into two parts: one caused by information asymmetry between current and new bond investors, and the other caused by noninformational frictions that generate additional transaction costs. Our calibrated model matches the observed turnover ratios across different rating classes. We find that information asymmetry accounts for 0.59% to 1.86% of the yield spread for investment-grade bonds and 3.46% to 11.20% for high-yield bonds. Liquidity injection may hurt market liquidity by inducing more informed trading.

Term Spread의 분해와 구성요소의 경기예측력 분석

Term Spread의 분해와 구성요소의 경기예측력 분석

Workshop on Incorporating Wildlife Compartments in FMD Simulation Modelling

An expert meeting, held in 2019, was organised between EFSA and FAO with the objective to discuss the integration of a wildlife compartment in the current EuFMDis model. Experts in the field of mathematical modelling, animal disease spread models, virology, veterinary epidemiology and animal health discussed i) features and structure of the current EuFMDis model ii) EFSA's models used on spread of animal diseases and simulation modelling iii) ENETWILD project and interface between domestic populations (e.g. pigs) and wildlife (e.g. wild boar) iv) available data sources for simulating spread and control of FMD in different wildlife species and iv) EFSA's SIGMA project (standardised data collection). It was concluded that the addition of a wildlife spread component in the EuFMDis is a priority in order to evaluate contingency plans associated with wildlife. Two scenarios were proposed, and key issues were identified to integrate the wildlife spread component in the EuFMDis model. It was concluded that control measures may be parametrised for FMD and maybe for other diseases, but available data are limited.

Empirical Credit Spread Components of Banks and their Coverage in Structural Models – An Integrated Analysis

During the global financial crisis and euro crisis, credit spreads of European banks have increased sharply, which has not only been attributed to default risk. Credit spreads can be estimated empirically or using structural models. In the KMV model, a firm defaults if the market value of assets falls below the Default Point (DP) based on liabilities. The Distance-to-Default (DD) measures how many standard deviations the asset value is away from DP. Based on DD, Moody's Analytics calculates a physical probability of default, the Expected Default Frequency (EDF). The paper analyzes the relation between the KMV structural model and empirical credit spread components. In addition to default risk, empirical credit default swap (CDS) spreads compensate risk-averse investors for liquidity risk and common spread risk. Default risk can generally be divided into a diffusion and jump component. Fundamental structural models cover default by a continuous decrease in the asset value below the default barrier, while unexpected jumps or (liquidity) shocks – such as bank runs – are not captured. Comparing model-based bank EDFs and empirical CDS-implied default probabilities, with a special focus on financial market and liquidity crises, the residual risks are derived. In contrast, previous studies primarily consider non-financial firms and phases of low financial market volatility. The present empirical study is the first integrated analysis of the determinants of one-year CDS spreads and the EDF of European banks from 2004 to mid-2015. Using a panel regression with time fixed effects, the residual impact on the logarithmized CDS-implied default probability, that cannot be explained by the logarithmized EDF, is decomposed into a systematic and idiosyncratic component. Since the global financial crisis and especially during the euro crisis, the EDF structural model assesses the default probabilities of European banks to be lower than the CDS market does – due to market-wide risks. The systematic residual impact increases substantially at the outbreak of both financial market and liquidity crises. At the onset of the global financial crisis and euro crisis, in particular market-wide liquidity risks imply a stronger increase in CDS spreads compared to EDFs. Combining market-based signals from European bank CDS spreads with model-based signals in an integrated analysis, the risk of a financial market crisis is derived. Market-wide indicators of funding and liquidity risk provide a statistically significant and economically important explanatory power for the systematic residual impact. Moreover, the risk premium is an essential determinant. Compared to alternative crisis indicators, the systematic residual impact achieves an equally good and during the euro crisis even better performance.

Political turmoil and the impact of foreign orders on equity prices

This paper examines whether foreign investors possess an information advantage over local investors in the Turkish stock market between 2007 and 2015. We find that foreign investors have an information advantage in 24 stocks, corresponding to seven percent of the sample firms. Foreign investors’ information advantage tends to prevail primarily during a period of political instability, which started with the Gezi Park protests in June 2013. The adverse selection component of the foreign trade spreads, which reflects a permanent change in stock prices, rises significantly after June 2013, by 66 bps. Our results suggest that domestic investors’ funding constraints, which limit their ability to impart their information on stock prices, may give foreign investors a relative information advantage during periods of political turmoil.

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default -- the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.

Bank Credit Risk Events and Peers’ Equity Value

This paper documents a negative cross-transmission of bank-idiosyncratic credit risk events to the equity value of peers comprising other banks, insurance and real estate firms inter alia. Large jumps in the idiosyncratic component of bank CDS spreads significantly reduce the equity value of peers, particularly on the event day. The negative externality does not hinge on the “information connectedness” between the two entities as proxied by characteristics such as common core line of business, common country or region, and inter-country common legal tradition. The negative externality is stronger in turmoil market conditions when risk-aversion levels are higher and/or investors are subject to pessimism. The more fragile the risk profile of the event bank and peer firm prior to the event the stronger the cross-transmission. The findings lend support to the wake-up call paradigm at micro level, and are insightful towards a better assessment of the vulnerability of the financial system.

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default -- the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.

Investigating the Open Access Experience of Lecturers during Their Teaching from Home

Open access has become an essential component of spreading and sharing scholarly knowledge. It has become a significant alternative to traditional publishing options. This is because scholarly works such as journal articles, that are available via open access channels, are more likely to be read by the research community. This research investigate how lecturers use open access information to during their online teaching. A qualitative approach will be employed which includes interviews with Humanities Faculty lecturers. The approach is used to explore, interpret and report on the lived experiences of lecturers and to offer insights into their use of using open access information during their teaching from home.

An Analysis of Sovereign Credit Risk Premia in the Euro Area: Are They Explained by Local or Global Factors?

We study the determinants of sovereign credit risk in the euro area in a time period that includes the financial and sovereign debt crisis, as well as the unconventional monetary policy adopted by the European Central Bank. First, we detect the presence of commonality in sovereign credit spreads of different countries, justifying the search for the common factors that drive CDS prices. Building on the work of Longstaff et al. (2011), we employ the econometric model used in Cecchetti (2017) to decompose sovereign credit default swap spreads into expected default losses and risk premia, finding evidence of a significant contribution of the latter component. We use the model to understand to what extent the variations in CDS spreads and in the two embedded components of selected euro-area countries are more linked to local or euro area economic variables. The results point to the importance of both global and local factors, which have a greater impact on the risk premium component. Finally, we estimate the contribution of the objective probability and risk premium components of redenomination risk (as measured by the ISDA basis) to the related CDS spread components, detecting some differences between countries.

야간 선물거래의 도입과 시장마찰의 변동: KOSPI 200 선물을 중심으로

This paper investigates the impact of starting overnight trading for KOSPI 200 futures on market frictions in regular trading hours. On November 16, 2009, Korea Exchange the extended trading hours by starting overnight trading via Chicago Mercantile Exchange GLOBEX system. Thus non-trading hours out of 24 hours is reduced from 17.75 hours to 6.75 hours. We utilize this event as a natural experiment to investigate whether market frictions in regular trading has changed due to the reduction in non-trading hours. Stoll(2000) points out that the more compensation is need to be paid to liquidity providers in the market, as market friction gets bigger. That is why market friction can be measured by trading costs that are paid for immediacy to liquidity providers. Since any factor that restricts trading activity and increases trading costs can be considered as market friction, we can regard periodical closures in an exchange as a factor of market friction. The existence of periodical closures itself restricts trading activity. The extension of trading hours via starting overnight trading might expand the opportunity of trading and, thus, affect market frictions. Using intraday data measured by a 60-minute interval, we examine changes in total frictions and it’s components, real friction and informational friction during KOSPI 200 furures’regular trading hours before and after the event. The real friction is defined as the component of trading costs that consume real resources of liquidity providers (e.g. order processing costs and inventory holding costs). Meanwhile the informational friction is defined as the components of trading costs that redistribute investors’wealth without consuming real resources of liquidity providers (e.g asymmetric information costs). We measure total friction as the sensitivity of trading costs to the absolute value of order imbalances. Real friction (informational friction) is measured by the sensitivity of trading costs to expected (unexpected) component of the absolute value of order imbalances. This method of measurement is based on information-based market microstructure theory including Hasbrouck (1991). According to the theory, the unexpected component of order flows is more likely to impound private information than the expected component. We divide a trading day into six 60-minute intervals and use Quoted Spread Ratio (QSR) and Effective Spread Ratio (QSR) in order to measure trading costs. The changes in market frictions that has occurred after the event can be summarized as follows: Total frictions and real frictions have decreased, but informational frictions has not changed. The reason for this result is deduced as follows: As overnight trading increases investors’trading opportunity, the need for closing positions before the market close in order to evade overnight portfolio risk and making trades reflecting accumulated information just after the market open has decreased. This lessen order imbalances and thus, reduces real costs of liquidity providers such as order processing or inventory holding components of spreads during regular trading session. As regular trading session’s informational environment like the arrival rate of informed traders and their trading activity are not affected by the increased trading opportunity via overnight, asymmetric information costs, and thus informational frictions are likely to be unaffected.

Літологічна характеристика алювію руслової фації ранньоплейстоценової тераси пра-Стрию в розрізі Болехів

The article highlighted main lithologic characteristics of channel facies alluvium, which is the most ancient within Morshynska hill of pra-Stryi terrace. Upper and central layers of alluvium section are found to have lenticular structure fixing lines of shallow (up to 1.0–1.2 m) palaeochannels 4–5 wide. Granulometric composition of alluvium of channel facies varies little up the incision. Its main component is the pebble and its content except the first one exceeds 50%. The content of other less spread components of the alluvial layer remains almost unchanged. The fact that there are no vivid changes in the granulometric composition of alluvium testifies the stability of conditions of accumulation of sediments in the bed course of palaeoflow. Petrographic composition of coarse fraction appeared to be immensely homogeneous due to the dominance of Carpathian sandstones. In particular, all boulders are composed of light-to-dark, fine-to-medium grained sandstones. Siltstones and silicites appear in the composition of pebble and gravel only, their content is insignificant and ranges from 1 to 6 %. Siltstones are yellowish-white and yellowish-brown, and silicites are dark grey and almost black. Analysis of roundness of coarse fraction alluvium has shown the predominance of fine-to-medium rounded grains in its content that, in its turn, testifies to long-distance transportation of fragmental matter. Besides, better roundness of clast is traced up the section. In particular, the number of poorly rounded clast in the boulders is decreasing and even well-rounded grains are appearing; the content of pebbles shows the decrease of poorly rounded clast and gradual increase of well-rounded pebbles. The samples of disc-like shape prevail in sampling material. Only boulders of sample 3 do not contain them at all. Samples of other shapes are less spread; first of all, it is spheroid and roller fragments. The lower part of the alluvium thickness contains the smallest amount of them. The content of blade fragments is the most consistent. Measurements of the imbrication of fragments testified them to have moved in the lower part of the alluvium thickness from northwest to the southeast that coincides with hypothetic flow of palaeo-Stryi during the formation of the terrace under investigation. The predominant direction of the palaeoflow in the upper part of alluvium accumulations has changed; there dominates the direction from southwest to northeast, which is closer to the direction of palaeo-Sukil flow. Taking into account relatively coarse content of alluvium, particularly, significant content of boulders and big pebbles and predominance of well-rounded fragments practically in all samples, it can be assumed that alluvium deposited in the bed of the pra-Stryi river, that flowed along the Carpathian escarpment to the southeast to the Svicha river during the formation of the terrace. Change in the direction of palaeoflow in the upper part of alluvium stratum may point out a local change in the direction of this river flow. Key words: terrace, pra-Stryi, alluvium, granulometric composition, petrographic composition, roundness, shape of fragments, Carpathian material.

Fiscal Limits and Sovereign Credit Spreads

Exploiting information contained in the term-structure of sovereign credit spreads, we estimate time-varying fiscal limits – defined as the maximum outstanding debt that can credibly be covered by future primary budget surpluses. Our approach is based on a novel sovereign credit risk model accounting for the joint dynamics of debt, the fiscal limit, and bond prices. The empirical analysis is carried out on ten OECD economies, covering the period from 2007 to 2018. Our fiscal limit estimates feature substantial time-variation. In line with a wide range of empirical evidence, our framework captures the nonlinear sensitivities of credit spreads to fiscal conditions. We also obtain sizeable estimates of sovereign credit risk premiums – the components of sovereign spreads that would not exist if agents were risk-neutral.

An Integrated Analysis of the Fundamental Determinants of Credit Risk Premiums on Corporate Debt

This research investigates the fundamental components of corporate credit spreads through an integrated examination of how well different models, default probability functions, and market factors explain CDS prices. Individual company yield spreads are discovered to be determined by the interrelated risks of cash, income, and valuation insolvency, along with various measures of systematic downside risk. The empirical findings indicate that the priced risk of a jump to and at default is well explained by those fundamentals, including in ex-post tests, although the financial determinants of credit spreads are found to vary significantly across different groups of companies.

Decomposing the term structures of local currency sovereign bond yields and sovereign credit default swap spreads

In this study, we analyze the relationship between the term structures of local currency-denominated sovereign bond yields and foreign currency-denominated sovereign credit default swap (CDS) spreads for developed countries. We develop a consistent pricing model between the term structures of local currency-denominated sovereign bond yields and foreign currency-denominated sovereign CDS spreads, which allows us to decompose these term structures into credit risk and non-credit risk (e.g., convenience yield or liquidity risk). In the euro area countries, we show that the credit risk components are mainly related to local equity markets or the proxy of the regulatory incentive of the global dealer banks. In the core countries of the euro area, the non-credit risk component of the bond spread is related to the proxy of the flight to liquidity at all maturities, and function as convenience yield. During the sovereign debt crisis in the developed European market, in the peripheral countries of the euro area, the non-credit risk component of the bond spread is related to the liquidity risk. At the short end of the term structure, this relation is stronger than that at longer maturity. On the other hand, the relationships between the non-credit risk components of CDS spreads and risk factors are weak and the fluctuations of the CDS spread is mainly driven by the credit risk components in both country groups.

IRIS – Rapid response fire spread forecasting system: Development, calibration and evaluation

This work presents the development of a rapid response forecasting system for the prediction of wildfire spread. Named IRIS, the forecasting system was primarily designed and developed to support the operational fire suppression activities of the Greek Fire Service. It employs a coupled atmosphere-fire modeling system, comprised of a state-of-the-art numerical weather prediction model and an advanced fire spread model, accounting for the two-way interactions between fire and weather. For the implementation of IRIS, a prototype fuel models’ geospatial dataset was constructed for Greece, exploiting high-resolution, open-source pan-European vegetation and land use datasets of the Copernicus Land Monitoring Service. Calibration of the fire spread component of IRIS was carried out by retrospective forecasting of 8 wildfires that took place in Greece during the 2016–2017 fire seasons, while the evaluation of the calibrated forecasting system was conducted by forecasting 4 major wildfires of the 2018 fire season. Our overarching aim was to assess the capacity of IRIS for providing accurate real-time wildfire spread simulations. Results clearly highlight that reasonably accurate fire spread predictions can be obtained by proper calibration of the fire spread component. IRIS will be operationally deployed in Greece during the 2019 fire season, providing 6 h and 24 h wildfire spread forecasts, when necessary, in about 15 min and 60 min, respectively. To our best knowledge, IRIS is one of the few operational fire spread forecasting systems based on coupled atmosphere-fire modeling.