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Article

Srinivas Nippani and Dror Parnes

This paper aims to analyze how political brinkmanship impacted Treasury yields during the debt ceiling debate in 2015. The results show that the resignation of the House…

Abstract

Purpose

This paper aims to analyze how political brinkmanship impacted Treasury yields during the debt ceiling debate in 2015. The results show that the resignation of the House Speaker John A. Boehner caused a significant decrease in Treasury bill yields of one- and three-month maturities. The authors robust analysis indicates that these lower yields have saved US taxpayers several billion dollars in extra tax expenses. This paper provides evidence that lack of political brinkmanship can be very advantageous for the taxpayers. This has considerable implications for lawmakers in this post-election year.

Design/methodology/approach

The authors examine the differences in yields between equal maturity short-term Treasury securities and commercial paper using t-tests, non-parametric tests and a robust regression model based on earlier empirical studies.

Findings

This study provides evidence indicating that between September 25, 2015, and up to October 30, 2015, relatively lower Treasury yields resulted from the lack of political brinkmanship, and this has saved the US taxpayers several billion dollars in interest expenses in 2015.

Research limitations/implications

The study showed that lower yields will result from a lack of political brinkmanship, and this resulted in savings of several billions of dollars in interest payments. Considering that both the White House and Congress will be controlled by the same political party, this gives lawmakers a unique opportunity to have less acrimonious debt ceiling debates. The limitation of the study is that it does not consider the impact on foreign exchange markets and other factors which could play a major role.

Practical/implications

Unlike earlier scenarios where default risk increased, followed by credit rating downgrades, there was a quiet confidence this time about a quick resolution. Markets were stable, and this allowed money market participants to invest more confidently even when an upcoming debt ceiling debate is on. Corporations that invested additional cash in money markets for short-term could do it more confidently at that time without fear of default or interest rate risk which could potentially harm the market value of their investments.

Practical/implications

It implies that there will be lower taxpayer costs because of debt ceilings and avoidance of shutdowns of the federal government. It also implies that there could be more confidence in the dollar.

Originality/value

Several earlier studies have examined Treasury default caused by political brinkmanship. This is the first study to examine an event where political brinkmanship appeared possible and then suddenly dissipated in a single day. Political brinkmanship is bad news because it increases taxpayer interest burden as seen from several of the studies above. Therefore, it should be considered good news if no disagreement is evident. This argument serves as our motivation for this paper. As an increase in the chances of default causes an increase in the yield of Treasury bills as earlier studies showed, a decrease in the chance of default caused Treasury bill yields to be that much lower based on the results of this study.

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Article

Dror Parnes

The purpose of this paper is to analyze the differences between the actual mortgage prompt and late payments and their respective expected measures from 2004 to 2010 to…

Abstract

Purpose

The purpose of this paper is to analyze the differences between the actual mortgage prompt and late payments and their respective expected measures from 2004 to 2010 to spot early symptoms of housing crisis.

Design/methodology/approach

This paper explores these discrepancies across the entire US market and along various delinquency lengths of 30, 60 and 90 days. This paper constructs a Bayesian forecasting model that relies on prior distributional properties of diverse time horizons.

Findings

Abnormal mortgage delinquency rates are identified in real time and can be served as early symptoms for housing crisis.

Practical implications

The statistical scheme proposed in this paper can function as a valuable predictive tool for lending institutions, bank audit companies, regulatory bodies and real estate professional investors who examine changes in economic settings and trends in short sale leads.

Social implications

The abnormal mortgage delinquencies can serve as indicators of changes in economic fundamentals and early signs of a mounting housing crisis.

Originality/value

This paper presents a unique statistical technique in the context of mortgage delinquencies.

Details

International Journal of Housing Markets and Analysis, vol. 11 no. 2
Type: Research Article
ISSN: 1753-8270

Keywords

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Article

Dror Parnes and Srinivas Nippani

This study aims to extend the literature by exploring the degrees of integration of both fixed and adjustable mortgage rates and diverse riskless (Treasury) and risky…

Abstract

Purpose

This study aims to extend the literature by exploring the degrees of integration of both fixed and adjustable mortgage rates and diverse riskless (Treasury) and risky (corporate) interest rates in the capital markets from January 1, 2010, until November 7, 2018. This period is uniquely characterized by a sharp conversion on January 20, 2017, from enhanced financial regulation during the Obama administration to major deregulatory ambitions during the first 22 months of the Trump administration.

Design/methodology/approach

The authors use the augmented Dickey and Fuller and the Phillips and Perron unit root tests to examine time series stationarity and the Johansen cointegration rank and the Stock-Watson common trends tests to inspect various cointegrations and regressions of time series pairs to explore different effects. The authors deploy these techniques over the entire time frame, as well as for distinct sub-periods of similar length.

Findings

The authors conclude that a deregulatory setting favors cointegration between mortgage and non-corporate capital markets. However, an enriched regulatory environment supports cointegration between mortgage and corporate capital markets. In addition, the Dodd-Frank Wall Street Reform and Consumer protection Act from July 21, 2010, created a unique though short-term effect on the relationships between Treasury and corporate bonds and fixed-rate mortgages.

Practical implications

The journey contributes to the overall understanding of the interactions among US financial markets. They are considered efficient, competitive and fully developed if their prices quickly adjust to economic changes and regulatory transformations.

Originality/value

The authors study the degrees of integration of various conventional and adjustable mortgage rates and different fixed and floating interest rates in the US capital markets from January 1, 2010, until November 7, 2018. This recent time frame has yet to be examined in the economic literature. This period is also characterized by a sharp transformation on January 20, 2017, from enhanced financial regulation during the Obama administration to major deregulatory drives during the first 22 months of the Trump administration.

Details

Journal of Financial Economic Policy, vol. 11 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

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Article

Dror Parnes

This study seeks to explore developments in corporate creditworthiness before and after ownership events.

Abstract

Purpose

This study seeks to explore developments in corporate creditworthiness before and after ownership events.

Design/methodology/approach

The paper uses the Blockholders database of Dlugosz, Fahlenbrach, Gompers, and Metrick, and three credit quantities, and deploys a standard event study methodology to examine the relation to corporate creditworthiness.

Findings

The paper discovers that ownership‐construction is generally associated with prior‐ and post‐improvement in creditworthiness, while a block‐destruction is typically surrounded by deterioration in corporate creditworthiness. The paper also finds proper evidence for a relation between the construction or destruction of managerial block and future developments in corporate creditworthiness. The paper further realizes that outside shareholders exhibit higher impact than inside block‐holders on later variations in credit risk.

Research limitations/implications

The paper is unable to conduct further robustness checks with structural credit methodologies due to the reduced number of valid observations.

Originality/value

Market participants can utilize the conclusions to better predict future trends in corporate creditworthiness.

Details

International Journal of Managerial Finance, vol. 7 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

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Article

Dror Parnes

The author assembles three hypothetical regulatory regimes and deploys computer simulations to contrast different banking systems based on conventional strategies for…

Abstract

Purpose

The author assembles three hypothetical regulatory regimes and deploys computer simulations to contrast different banking systems based on conventional strategies for appointing risk-based capital minimum thresholds. The paper aims to discuss these issues.

Design/methodology/approach

The author instigates cascading failure models within numerous directed graphs and measures the inflicted costs, the accumulated bank failures, and the general robustness of the networks following various economic shocks.

Findings

The author finds that a homogeneous regulatory regime is an inferior approach. However, a selected too-big-to-fail scheme portrays the best defensive banking model with the lowest number of total bank failures and the fewest banks' costs and social costs.

Research limitations/implications

The author can only theoretically examine this topic.

Originality/value

The author overcomes some obstacles in prior studies including the use of a large and complex network and the proportional allocation of funds upon a bank failure.

Details

Journal of Financial Economic Policy, vol. 6 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

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Article

Dror Parnes

The purpose of this paper is to theoretically examine under what circumstances economic cycles advance or deter corporate defaults.

Abstract

Purpose

The purpose of this paper is to theoretically examine under what circumstances economic cycles advance or deter corporate defaults.

Design/methodology/approach

The theoretical inferences are authenticated through Monte Carlo simulations.

Findings

It is found that an ongoing catastrophe dominates other macroeconomic conditions and forces corporate failures. In contrast, when a catastrophe is unlikely, a constant economy permits no‐defaults merely as an unstable equilibrium, yet a stochastic economy allows rival firms to remain operational within a stable general disequilibrium and under a wide range of economic conditions.

Research limitations/implications

This topic can only be theoretically examined.

Practical implications

The paper's findings assert that moderate economic variability typically discourages corporate defaults. These inferences convey high significance for regulators and policy makers.

Originality/value

The paper shows that in a perfect competition, economic waves can change the hierarchy of competitive advantages among rival firms and could help distressed firms to emerge.

Abstract

Details

Managerial Finance, vol. 38 no. 3
Type: Research Article
ISSN: 0307-4358

Abstract

Details

The Journal of Risk Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1526-5943

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