Regime switching models can match the tendency of financial markets to often change their behavior abruptly and the phenomenon that the new behavior of financial variables often persists for several periods after such a change. While the regimes identified by regime switching models are identified by an econometric procedure, they often intuitively match different periods in regulation, policy,...

Financial markets represent one of the most complex environments for business and there are a lot of types of external factors which impact their dynamics. The recent financial turbulence materialized by the global financial crisis 2008-2009 and the European sovereign debt crisis (2010-2012) made serious pressure on financial markets that proved their fragility and sensitivity in a different ma...

The inevitably large influence of fast-growing China and India on global financial markets creates a global interest in their getting their capital account liberalisation right (Tseng and Cowen, 2006; Winters and Yusuf, 2007; Bussière and Mehl, 2008). Both economies have set further capital account opening as their medium-term policy goal (RBI, 2006; SAFE, 2008). An understanding of the challen...

Public disclosures can level information asymmetry in financial markets by removing informed traders’ advantage, or can exacerbate asymmetry by further increasing these traders’ knowledge of the firm. This study finds evidence of the latter phenomenon in earnings conference calls, where management releases new information, and financial analysts on the call immediately respond and question mana...

One important reason for the global impact of the 2007–2009 financial crisis was massive illiquidity in combination with an extreme exposure of many financial institutions to liquidity needs and market conditions. As a consequence, many financial instruments could not be traded anymore; investors ran on a variety of financial institutions, particularly in wholesale markets; financial institutio...

Sometimes you just have to clench your teeth and go for the differential matrix algebra. And the central limit theorems. Together with the maximum likelihood techniques. And the static mean variance portfolio theory. Not forgetting the dynamic asset pricing models. And these are just the tools you need before you can start making empirical inferences in financial economics.” So wrote Ruben Lee,...

We study the point of transition between complete and incomplete financial models thanks to Dirichlet Forms methods. We apply recent techniques, developped by Bouleau, to hedging procedures in order to perturbate parameters and stochastic processes, in the case of a volatility parameter fixed but uncertain for traders; we call this model Perturbed Black Scholes (PBS) Model. We show that this mo...

1. First, a number of financial markets—often called over-the-counter or “OTC” markets—are actually best described by a typical search and bargaining model; in these markets, investors have to locate a counterparty themselves, and once they find a suitable trading partner the two are free to trade at any mutually agreeable price. Hence, these models represent the most natural framework to study...

– We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset fluctuations: “fat tails” and correlations in the scale of fluctuations. These aspects, although not included in the pricing models, are very precisely reflected in t...