The aim of this paper is to discuss the hedging techniques that a company based in an emerging market country can use to hedge the risk associated with jet fuel or kerosene. The company can be an airline company or a market intermediary offering contracts on this important commodity. An empirical analysis reveals two main directions for minimum risk hedging: one is to cross-hedge directly the c...

We analyse the links between credit default swap (CDS) and bond spreads and try to determine which one is the leading market in the price discovery process. To do that, we construct a sample of CDS premia and bonds spreads on a generic 5-year bond, for 17 financials and 18 sovereigns. First, we run VECM estimations, showing that the CDS market has a lead over the bond market over the whole samp...

This paper investigates the transmission of price and volatility spillovers across the New York, London, Frankfurt and Paris stock markets under the framework of the multivariate EGARCH model. The model is extended to allow dynamic conditional correlations, with the correlations allowed to change with the introduction of the Euro. By using daily closing prices recorded at 16:00 London time (pse...

Article history: Received 11 September 2014 Received in revised form 17 April 2015 Accepted 25 April 2015 Available online 2 May 2015 Westudy the impact of sovereign risk on the credit risk of the non-financial corporate sector in the Eurozone using credit default swap data. We show that an increase in sovereign credit spreads is associated with a statistically and economically significant incr...

This article examines how differently the same dealer quotes in the inter-dealer and customer foreign exchange markets that have different market structures. The model first predicts that customer spreads are generally wider than inter-dealer ones due to less transparency in the customer market. The model also predicts that since customers are believed to be less informed than dealers, the diff...

We show that investor recognition and bonding associated with cross-listing on a U.S. exchange are distinct effects using a sample of Canadian firms . In contrast to the post-listing decline documented in the literature, we find that cross-listed firms with a single class of shares enjoy a permanent increase in valuation if they attract and maintain investor recognition over time. Valuations of...

This paper investigates empirically the interrelationships between the daily stock market returns of the Nikkei 225, DAX and Dow Jones Industrial index. Contrary to former work this paper uses the succession of the markets in time to form different econometric models. In this way it is possible to detect causality not only from the US to foreign countries but in some cases vice versa. The obser...

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper analyzes the Corporation of Foreign Bondholders (CFB), an association of British investors holding bonds issued by foreign governm...

This paper shows that the probability of exercise of convertible bonds issued against a firm’s stock directly affects the liquidity of the stock itself. Using the ratio of absolute stock return to its dollar volume as a proxy for stock liquidity I demonstrate that there is a direct and positive relationship between conversion probability and stock liquidity while controlling for firm size, book...

This paper investigates sudden changes in volatility in the stock markets of new European Union (EU) members by utilizing the iterated cumulative sums of squares (ICSS) algorithm. Using weekly data over the sample period 1994–2006, the time period of sudden change in variance of returns and the length of this variance shift are detected. A sudden change in volatility seems to arise from the evo...