Browsing by Author "Gaspar, Raquel M."
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- Accuracy of european stock target pricesPublication . Almeida, Joana; Gaspar, Raquel M.Equity researches are conducted by professionals, who also provide buy/hold/sell recommenda- tions to investors. Nowadays, target prices determined by nancial analysts are publicly available to investors, who may decide to use them for investment purposes. Studying the accuracy of such analysts' forecasts is, thus, of paramount importance. Based upon empirical data on 50 of the biggest (larger capitalisation) European stocks over a 15{year period, from 2004 to 2019 and using a panel data approach, this is the rst study looking at overall accuracy in European stock markets. We nd that Bloomberg's 12-month consensus target prices have no predictive over future market prices. Panel results are robust to company xed e ects and sub-period analysis. These results are in line with the (mostly US-based) evidence in the literature. Extending common practice, we perform a comparative accuracy analysis, comparing the accu- racy of target prices with that of simple capitalisations of current prices. It turns out target prices are not better in forecasting, than simple capitalisations. More interestingly, by analysing also the relationship between both measures { target prices and capitalised prices { we nd evidence that capitalised prices partially explain how target prices are determined. Even when considering individual regressions, accuracy is still very low, but varies considerably across stocks.
- Accuracy of european stock target pricesPublication . Almeida, Joana; Gaspar, Raquel M.Equity studies are conducted by professionals, who also provide buy/hold/sell recommendations to investors. Nowadays, target prices determined by financial analysts are publicly available to investors, who may decide to use them for investment purposes. Studying the accuracy of such analysts’ forecasts is, thus, of paramount importance. Based upon empirical data on 50 of the biggest (larger capitalisation) European stocks over a 15-year period, from 2004 to 2019, and using a panel data approach, this is the first study looking at overall accuracy in European stock markets. We find that Bloomberg’s 12-month consensus target prices have no predictive power over future market prices. Our panel results are robust to company fixed effects and subperiod analysis. These results are in line with the (mostly US-based) evidence in the literature. Extending common practice, we perform a comparative accuracy analysis, comparing the accuracy of target prices with that of simple capitalisations of current prices. It turns out target prices are not better at forecasting than simple capitalisations. When considering individual regressions, accuracy is still very low, but it varies considerably across stocks. By also analysing the relationship between both measures—target prices and capitalised prices—we find evidence that, for some stocks, capitalised prices partially explain how target prices are determined.
- CDOs in the light of the current crisisPublication . Gaspar, Raquel M.; Schmidt, ThorstenThis paper proposes a top-down model for pricing Collateralized Debt Obligation (CDOs). Our proposal is both treatable and realistic, in the sense we are able to obtain closed-form solutions to single tranche CDOs and capturing extreme credit events. We use as key ingredients the so-called (T, x)-bonds, as proposed in Filipovic, Overbeck, and Schmidt (2008), but generalize their affine specificationby including shot-noise processes. Our claim is that affine diffusions combined with shot-noise processes lead to an improved modeling of CDO spreads in comparison to existing affine jump-diffusion models. The proposed approach allows in particular for better capturing the possibility of extreme events, like the ones underlying the current crisis. We illustrate our results with a very concrete (simple) instance of our class of models. Finally, we identify the connections between the top-down and bottom-up approaches for modeling credit risk, within our class of models. Concretely, we show that even when taking a bottom-up approach the aggregate loss process would be a process of affine shot-noise type.
- Consumer confidence and stock markets 'returnsPublication . Gaspar, Raquel M.; Jiaming, XuThis study provides new insights on the relationship between changes in consumer con dence indices worldwide and the performance of European, United States and Chinese stock markets, during the period from 2007 to 2021. We look both into global and industry returns. For the full-time period, we nd stock market returns tend to be positively correlated with changes in consumer con dence indices, with signi cant two-way Granger causal impacts between the two variables for Europe and the United States. For the Chinese stock market we nd less pronounced and only one-way impact { changes in consumer con dence indices can Granger explain Chinese stock returns, but not vice versa. In fact, Chinese stock returns only help explaining changes in East Asian consumer con dence index. These results are robust across industries. For the Covid pandemic sub-period, we nd some negative correlations between stock market returns and changes in consumer con dence indices. This is particularly evident in China, but it also happens in Europe and United States, at least for some industries, including Health Care. Overall, the connection between the stock market performance and changes in consumer con dence is lower for USA and European stock markets, but it is higher for the Chinese stock market, in terms of the number of signi cant outcomes.
- Convexity adjustments for ATS modelsPublication . Gaspar, Raquel M.; Murgoci, AgathaPractitioners are used to value a broad class of exotic interest rate derivatives simply by adjusting for what is known as convexity adjustments (or convexity corrections). We start by exploiting the relations between various interest rate models and their connections to measure changes. As a result we classify convexity adjustments into forward adjustments and swaps adjustments. We, then, focus on affine term structure (ATS) models and, in this context, conjecture convexity adjustments should be related of affine functionals. In the case of forward ad¬justments, we show how to obtain exact formulas. Concretely for LIBOR in arrears (LIA) contracts, we derive the system of Riccatti ODE-s one needs to compute to obtain the exact adjustment. Based upon the ideas of Schrager and Pelsser (2006) we are also able to derive general swap adjustments useful, in particular, when dealing with constant maturity swaps (CMS). Our approach bypasses the need for Taylor approximations or unrealistic assumptions. They include exact convexity adjustments previously derived, such as the adjustments associated with Gaussian models, but are far more general as they provide solutions for the entire ATS class of models.
- Correlation between intensity and recovery in credit risk modelsPublication . Gaspar, Raquel M.; Slinko, IrinaWe start by presenting a reduced-form multiple default type of model and derive abstract results on the influence of a state variable X on credit spreads, when both the intensity and the loss quota distribution are driven by X. The aim is to apply the results to a concrete real life situation, namely, to the influence of macroeconomic risks on credit spreads term structures. There has been increasing support in the empirical literature that both the probability of default (PD) and the loss given default (LGD) are correlated and driven by macroeconomic variables. Paradoxically, there has been very little effort from the theoretical literature to develop credit risk models that would include this possibility. A possible justification has to do with the increase in complexity this leads to, even for the “treatable” default intensity models. The goal of this paper is to develop the theoretical framework needed to handle this situation and, through numerical simulation, understand the impact on credit risk term structures of the macroeconomic risks. In the proposed model the state of the economy is modeled trough the dynamics of a market index, that enters directly on the functional form of both the intensity of default λ and the distribution of the loss quota q given default. Given this setup, we are able to make periods of economic depression, periods of higher default intensity as well as periods where low recovery is more likely, producing a business cycle effect. Furthermore, we allow for the possibility of an index volatility that depends negatively on the index level and show that, when we include this realistic feature, the impacts on the credit spread term structure are emphasized..
- Efficiency of microfinance institutions : analysis of Southern African Development Community (SADC) member countriesPublication . Agostinho, Elsa Assiaty de L. A.; Gaspar, Raquel M.Microfinance is seen as an important tool for financial inclusion and the fight against poverty because it has both a social and financial focus. The main objective of this paper is to evaluate the financial and social efficiency of 18 microfinance institutions (MFIs) in the year 2016 from 8 member countries of the Southern African Development Community (SADC). The methodology chosen is the data envelopment analysis (DEA) with variable returns to scale (VRS) using an input-oriented production approach. The results indicate higher scores of financial efficiency than social efficiency. This may suggest that microfinance institutions adopt a more institutionalist approach over the welfarist approach. We also find evidence that providing financial services to women or the entire disadvantaged population is profitable. However, non-bank financial institutions (NBFIs) and non-governmental organizations (NGOs) are more efficient in this regard than credit unions or banks
- Financial distress in european vineyards and olive grovesPublication . Céu, Mário S.; Gaspar, Raquel M.This study focuses on the prediction of financial distress of agricultural firms operating in the vineyards and olive crops sectors in Mediterranean countries, specifically in Portugal, Spain,and Italy, which are considered to be crucial for the production of these crops. The sample size of the study is 5,057 firms. Twelve models are presented, estimated from subsamples of combinations between countries and crops. Logistic regression is used for the estimation of these models.The accuracy of the models is evaluated, taking into account the importance of misclassification costs.Additionally, the areas under the ROC curves are calculated and compared in a dynamic of possible combinations between crops and countries. The study concludes that there are differences between the two sectors, as well as across countries, and suggests that dedicated models for each country or crop may improve the models’accuracy.
- General quadratic term structures of bond, futures and forward pricesPublication . Gaspar, Raquel M.For finite dimensional factor models, the paper studies general quadratic term structures. These term structures include as special cases the affine term structures and the Gaussian quadratic term structures, previously studied in the literature. We show, however, that there are other, non-Gaussian, quadratic term structures and derive sufficient conditions for the existence of these general quadratic term structures for bond, futures and forward prices. As forward prices are martingales under the T-forward measure, their term structure equation depends on properties of bond prices’ term structure. We exploit the connection with the bond prices term structure and show that even in quadratic short rate settings we can have affine term structures for forward prices. Finally, we show how the study of futures prices is naturally embedded in a study of forward prices and show that the difference between the two prices have to do with the correlation between bond prices and the price process of the underlying to the forward contract and this difference may be deterministic in some (non-trivial) stochastic interest rate settings..
- In memoriam: Tomas Björk (1947–2021)Publication . Gaspar, Raquel M.; Khapko, MarianaThis article celebrates the legacy of Tomas Björk. As we reflect on Tomas’ life and career, we explore his personal and professional journey, highlighting his most significant contributions to mathematical finance.
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