In this paper we analyze the source and level of the marketing gains when structured debt securities are sold at yields that reflect only their credit ratings, or specifically at the yield on an equivalently rated reference bond. We distinguish between credit ratings that are based on probabilities of default and ratings that are based on the expected default losses. We show that the marketing ...

For a dynamic limit order market, we present a Markov perfect equilibrium with Edgeworth cycles. In equilibrium, when sellers enter the market consecutively, the best quote decreases tick by tick, then jumps more than one tick, creating a hole in the book. The next quote rebounds to the less aggressive level, and the same cycle starts over again. Holes can relate to the high kurtosis of transac...

This paper examines the relationship between the board structure of UK firms and the accuracy of individual analysts’ earnings forecasts with respect to information asymmetry and agency theory. We hypothesize that managers of firms complying with the recommendations of The Code of Best Practice may have “less to hide” and, subsequently, provide more information to outsiders (including analysts)...

This paper uses a simple model of mean-variance capital markets equilibrium with proportional transactions costs to analyze the competition of stock markets for investors. We assume that equity trading is costly and endogenize transactions costs as variables strategically influenced by stock exchanges. Among other things, the model predicts that increasing financial market correlation leads to ...

Empirical estimates of the benefit of financial intermediation are constructed by examining the role played by local banks in facilitating syndicated loans to borrowers in emerging market countries. Assuming that local banks possess a superior monitoring ability, the market is ideal for studying the value of intermediation since cross-border lending into emerging markets is plagued by particula...

Article history: Received 12 July 2010 Received in revised form 5 May 2011 Accepted 12 May 2011 Available online 18 May 2011 Traditional credit risk models adopt the linear correlation as a measure of dependence and assume that credit losses are normally-distributed. However some studies have shown that credit losses are seldom normal and the linear correlation does not give accurate assessment...

U.S. commercial banks are increasingly using credit scoring models to underwrite small business credits. This paper discusses this technology, evaluates the research findings on the effects of this technology on small business credit availability, and links these findings to a number of research and public policy issues. JEL classification: G21, G28, G34, L23

This note shows that oligopolistic loan competition with discriminatory pricing is inefficient when competing banks differ in their ability to screen borrowers: banks with better screening abilities win too small market shares. This result contrasts with a finding by Spence (1976) who showed that an oligopoly with price discrimination achieves first–best efficiency. JEL classification: D43; D82...

We estimate the effect of social capital on the ability of households to insure consumption after unexpected negative shocks. Many theoretical models argue that strong ties to extended family members and to one’s community help protect families when an adult becomes ill or disabled. Using household-level longitudinal data on Indonesian families, we test whether consumption declines less after a...

Custodians play a key but discrete role in the global financial market infrastructure. In Europe, they are licensed as “credit institutions ”, legal requirement for European deposit-taking institutions, and therefore face same prudential requirements “traditional” banks. However, their business model risk profile different from those of traditional banks since core activity does not encompass b...