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Essays on Credit Risk

Guo Nielsen, Caren LU (2015) In 0460-0029 Lund Economic Studies no. 190
Abstract
This dissertation covers the issues related to credit risk that stem from the recent financial crisis and that are concerned by investors, financial intermediaries, and governments. The results of the research have important implications for asset managers, such as using the information from the credit risk market to rebalance stock portfolios, and for policy makers in regulating or bailing out banks.

The first paper, Hidden in the factors? The effect of credit risk on the cross-section of equity returns, disentangles the “distress puzzle” or the opposite, i.e. the existence of a positive cross-sectional relationship between credit risk and stock returns, as well as investigates whether market β, size, value, and momentum... (More)
This dissertation covers the issues related to credit risk that stem from the recent financial crisis and that are concerned by investors, financial intermediaries, and governments. The results of the research have important implications for asset managers, such as using the information from the credit risk market to rebalance stock portfolios, and for policy makers in regulating or bailing out banks.

The first paper, Hidden in the factors? The effect of credit risk on the cross-section of equity returns, disentangles the “distress puzzle” or the opposite, i.e. the existence of a positive cross-sectional relationship between credit risk and stock returns, as well as investigates whether market β, size, value, and momentum effects are attributed to a positive credit risk effect. The second paper, Banks' credit portfolio choice and risk-based capital regulation, studies banks' risk taking in relation to credit risk. I regard a bank as its assets' manager, develop a model of portfolio allocation among assets with different levels of credit risk, and examine the impact of risk-based capital regulation on banks' asset risk. The third paper, TARP and market discipline: Evidence on the moral hazard effects of bank recapitalizations (with Jens Forssbæck), examines the moral hazard effect of government bailout. Specifically, we examine the possible moral hazard effect of the U.S. Troubled Asset Relief Program (TARP) by assessing its impact on the extent of market discipline exerted by uninsured debt-holders on participating and non-participating bank holding companies, and the impact of crisis on the market discipline. (Less)
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author
supervisor
opponent
  • Molyneux, Philip, Bangor University
organization
publishing date
type
Thesis
publication status
published
subject
keywords
Asset pricing, equity returns, size effect, value effect, momentum effect, credit risk effect, credit default swap, banks, asset risk, credit risk, portfolio choice, risk-based capital regulation, bank bailouts, moral hazard, distress risk, capital injections, TARP, CPP, market discipline, financial crisis
in
0460-0029 Lund Economic Studies no. 190
pages
167 pages
defense location
Holger Crafoord EC3:210, Tycho Brahes väg 1, Lund
defense date
2015-12-11 14:15
ISSN
0460-0029
language
English
LU publication?
yes
id
b6d4bf2c-b00a-4664-bad1-21ac2a4b8c49 (old id 8166948)
date added to LUP
2015-11-20 11:35:55
date last changed
2016-09-19 08:44:59
@misc{b6d4bf2c-b00a-4664-bad1-21ac2a4b8c49,
  abstract     = {This dissertation covers the issues related to credit risk that stem from the recent financial crisis and that are concerned by investors, financial intermediaries, and governments. The results of the research have important implications for asset managers, such as using the information from the credit risk market to rebalance stock portfolios, and for policy makers in regulating or bailing out banks. <br/><br>
 The first paper, Hidden in the factors? The effect of credit risk on the cross-section of equity returns, disentangles the “distress puzzle” or the opposite, i.e. the existence of a positive cross-sectional relationship between credit risk and stock returns, as well as investigates whether market β, size, value, and momentum effects are attributed to a positive credit risk effect. The second paper, Banks' credit portfolio choice and risk-based capital regulation, studies banks' risk taking in relation to credit risk. I regard a bank as its assets' manager, develop a model of portfolio allocation among assets with different levels of credit risk, and examine the impact of risk-based capital regulation on banks' asset risk. The third paper, TARP and market discipline: Evidence on the moral hazard effects of bank recapitalizations (with Jens Forssbæck), examines the moral hazard effect of government bailout. Specifically, we examine the possible moral hazard effect of the U.S. Troubled Asset Relief Program (TARP) by assessing its impact on the extent of market discipline exerted by uninsured debt-holders on participating and non-participating bank holding companies, and the impact of crisis on the market discipline.},
  author       = {Guo Nielsen, Caren},
  issn         = {0460-0029},
  keyword      = {Asset pricing,equity returns,size effect,value effect,momentum effect,credit risk effect,credit default swap,banks,asset risk,credit risk,portfolio choice,risk-based capital regulation,bank bailouts,moral hazard,distress risk,capital injections,TARP,CPP,market discipline,financial crisis},
  language     = {eng},
  pages        = {167},
  series       = {0460-0029 Lund Economic Studies no. 190},
  title        = {Essays on Credit Risk},
  year         = {2015},
}