Abstract This paper offers a rational explanation for the puzzling empirical fact that stock returns decrease with an increase in volatility of liquidity. We model liquidity as stochastic price impact process and define premium additional return necessary to compensate multiperiod investor adverse trading. The demonstrates fully rational, utility maximizing, risk-averse can take advantage time-varying by adapting his trades state provide new evidence supportive model.

Abstract We study the empirical determinants of Credit Default Swap (CDS) spreads through quantile regressions. In addition to traditional variables, such as implied volatility, put skew, historical stock return, leverage, profitability, and ratings, results indicate that CDS premiums are strongly determined by illiquidity costs, measured absolute bid‐ask spreads. The regression approach reveals high‐risk firms more sensitive changes in explanatory variables low‐risk firms. Furthermore,...

We study the determinants of Credit Default Swap (CDS) spreads through quantile regressions. The results indicate that CDS are strongly determined not only by traditional theoretical variables, such as implied volatility and put skew, but also illiquidity costs. However, contrary to stocks or bonds, we show transaction costs should be measured absolute, rather than relative, bid-ask spreads. regressions reveal significant heterogeneity in response low-risk versus high-risk firms, with both...

This paper analyzes the impact of wind power generation on mean and variance electricity wholesale spot prices in Portugal. The Portuguese market is a natural setting to measure effect intermittent renewable prices, as share total load demand one largest world. Using daily data from 2007 2014, we estimate an ARX-EGARCHX model where enter exogenous explanatory variables for price. results show that reduces average price level, while it increases volatility. Both volatility effects are...

Many electricity markets are experiencing profound changes due to the large-scale deployment of renewable energy. This paper analyzes effect wind and hydro power on wholesale prices. We focus Spanish market high penetration hydro, also availability data water stored in dams. estimate impact generation price level volatility through an ARX-GARCHX model. The results show that these two different renewables have impacts prices: intermittent increases volatility, while dispatchable reduces it....

This paper offers a rational explanation for the puzzling empirical fact that stock returns decrease in volatility of liquidity. We model liquidity as stochastic price impact process and define premium additional return necessary to compensate multi-period investor adverse trading. The demonstrates fully rational, utility maximizing, risk averse can take advantage time-varying by adapting his trades state A higher more opportunity time is therefore associated with lower required premium....

Abstract This paper studies how the state of banking sector influences stock returns nonfinancial firms. We consider a two‐factor pricing model, where first factor is traditional market excess return and second change in average distance to default commercial banks. find that this bank priced cross section U.S. Controlling for beta, expected top quintile risk exposure on 2.83% higher than bottom quintile.

We compare the performance of local versus foreign institutional investors using a comprehensive data set equity holdings in 32 countries during 2000-2010 period. find that institutions perform as well on average, but only domestic show trading pattern consistent with an information advantage. Our results suggest smart-money effect subject to higher asymmetry, non-English speaking countries, less efficient stock markets, poor investor protection, or high levels corruption. The advantage is...

This paper investigates the motivations of Credit Rating Agencies (CRAs) to change their ratings, and consequences those changes. We propose a new measure ratings stability that summarizes information in transition matrix into single scalar number. find intensity with which CRAs varies through time. In particular, rating changes are more intense during economic bad times. Surprisingly, periods stronger not associated higher accuracy. Instead, we anticipation corporate bond issuance. These...

Abstract The Portuguese stock market provides a natural experimental area to analyse theories of optimal price per share. Its characteristics suggest that prices should be very low. Using sample 20 stocks from the main Stock Index 1999 2010, we observe corporations indeed seek extremely low share through splits and similar actions. However, find low‐price are actually less liquid than high‐price stocks. Furthermore, trade at lower valuation ratios. Our results do not support any existing on...

This paper studies how the state of banking sector influences stock returns nonfinancial firms. We consider a two-factor pricing model, where first factor is traditional market excess return and second change in average distance to default commercial banks. find that this bank priced cross-section U.S. Controlling for beta, expected top quintile risk exposure on 2.83% higher than bottom quintile.

The Portuguese stock market provides a natural experimental area to analyse theories of optimal price per share. Its characteristics suggest that prices should be very low. Using sample 20 stocks from the main Stock Index 1999 2010, we observe corporations indeed seek extremely low share through splits and similar actions. However, find low-price are actually less liquid than high-price stocks. Furthermore, trade at lower valuation ratios. Our results do not support any existing on therefore...

There is an ongoing trend of deregulation and integration electricity markets in Europe North America. This change market structure has naturally affected the interaction between agents contributed to increasing commoditization electric power. paper focuses on one specific market, Iberian Electricity Market (MIBEL). In particular, we assess persistence prices test whether it changed over time. We consider each hour day separately, that is, analyze 24 time-series day-ahead hourly for Portugal...

This paper studies the relation between liquidity and optimal portfolio allocations. Given that problem of a constant relative risk aversion investor does not have closed-form solution, we use nonparametric approach to estimate Using sample NYSE stocks from 1963-2000, find weight in small is strongly increasing at short daily weekly horizons. result consistent for three different measures liquidity: price impact, dollar volume, turnover. However, influence choice large stocks, nor longer...

The growth of intermittent renewable power generation has been drawing attention to the design balancing markets. Portugal is an interesting case study because, while wind already accounts for a high fraction demand (23 %), there are still no economic incentives efficient forecast (wind costs passed end consumers). We analyze evolution market from 2012 2016. Using actual provided by Portuguese TSO, we find imbalance in range 2 4 EUR/MWh. These results surprisingly suggest that, even with...

The growth of intermittent renewable power generation has been drawing attention to the design balancing markets. Portugal is an interesting case study because wind already accounts for a high fraction demand (23% in 2012-2016), but still there are no economic incentives efficient forecasting (wind costs passed end consumers). We analyze evolution market from 2012 2016. Using actual data, we find around 2 euros per MWh generated energy. One main reason these low existence robust transmission...

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