This study examines the relationships between stock fundamental ratios and idiosyncratic volatility from 1993 to 2010 for Australian Securities Exchange listed companies. The portfolio analysis results show that high idiosyncratic volatility companies tend to be small (measured by size), highly leveraged (measured by interest cover ratio), low profitability (measured by return on equity and ear...

Introduction This paper primarily examines the advantages of bond mutual funds over portfolios of directly held bonds for both institutional and individual investors. First, we review the structural advantages of bond mutual funds, which, compared with separately managed and laddered portfolios of individual bonds, generally provide greater diversification; more regular cash flows that promote ...

In this paper, we aim at 1. giving formulas of prices and replicating-strategies of defaultable securities(e.g., bonds, swaps, derivatives) in incomplete market, and 2. giving “solvable” examples of quantile hedging strategies in incomplete market. Considering an incomplete market that consists of tradable assets and an unhedgeable defaultable security, whose non-predictable default time has st...

Poor financial health of intermediaries coincides with low asset prices and high risk premiums. Is this because matter for prices, or their correlates economy-wide aversion? In the first case, return predictability should be more pronounced classes in which households are less active. We provide evidence supporting prediction, suggesting that a quantitatively sizable fraction premium variation ...

Agency mortgage-backed securities (MBSs) with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) delivery flexibility. This trading environment generates distinctive effects on MBS pricing trading: (i) Although cheapest-to-deliver (CTD) issues present TBA absent from SP by design, heterogeneity associated CT...

We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets f...

We study security issuers’ decisions on whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Our analysis reveals how buyers’ power may render the pooling of suboptimal — both privately and socially particular, potential gains from trade are large. Pooling then reduces elasticity volume relevant part payoff distribution, exacerba...