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This study aims to investigate the existence of contagion between liquid and illiquid assets in the credit default swap (CDS) market around the recent financial crisis. The authors perform analyses based on vector autoregression model and the dynamic conditional correlation model. The estimation of vector autoregression models reveals that changes in liquid CDS (LCDS) spreads lead to changes in illiquid CDS spreads at least one week ahead during the financial crisis period, whereas the leading direction is reversed during the post-crisis period. Moreover, the results are robust after controlling for structural variables which are proven as determinants of CDS spreads and are empirically supported. This study interprets that information was incorporated first into the LCDSs because of the flight-to-liquidity during the recent crisis period but there is a default contagion effect by reflecting illiquidity-induced credit risk after the crisis. Finally, the dynamic conditional correlation analysis also confirms the main results.

This paper investigates whether equity liquidity and stock return jump are important determinants for the Korean corporate CDS spreads. The previous studies mainly have examined the determinants of CDS spread time series levels, whereas this study focuses on the determinants of changes or differences of CDS spread time series as well as the effecting factors of cross-sectional variations. Using monthly averaged CDS quotes for 29 firms from Jan. 2005 to Nov. 2012, we first demonstrate that the explanatory power for CDS spread changes is improved to about 39% by adding both credit risk-related market variables and firm-level jump variables, contrary to the low explanatory power (approximately 21%) reported by the previous study. However, since the principle component analysis for residuals from the regression shows that a common risk factor exists, it is possible that additional important factor remains. In addition, we demonstrate that stock return volatility is a robust variable to explain the cross-sectional differences in CDS spreads. We also find that the equity liquidity is a robust and significant factor for the cross-sectional differences in CDS spreads after the global financial crisis period. The result implies that, after the recent crisis, investors more actively considered equity illiquidity costs when they hedged their CDS exposures by stocks.

This study examines the model regarding the relation between the expected returns of defaultable asset and default risk factors utilizing CDS (credit default swap). While the previous study estimates the expected returns of CDS using stock price and accounting data, this study introduces new estimation method using CDS term structure. Two factors incorporating market-wide distress risk and recovery risk are considered as the default risk factors. The results of analyzing the Korean corporate CDS market over the sample period from September 2009 to December 2016 are as follows. First, for the expected returns of CDS, there exists the negative risk premium related to market-wide distress risk covariance. Second, the finding of this negative risk premium is robust even after the market risk factors and liquidity factor are controlled for. Third, the negative premium related to recovery risk is observed but it is not statistically significant. These results imply that the investors consider the market-wide distress risk covariance as the main risk factor when pricing the Korean corporate CDSs and they require the reward taking risk as they invest CDS with the lower distress risk covariance. Therefore, our empirical results support the model that the covariance part between individual firm's distress risk and market-wide default risk changes is not diversifiable and thus the investors require the premium for this non-diversifiable risk.

We provide evidence that current CDS slope negatively predicts future stock returns over several months in the Korean market. The entire sample period covers January 2003 through June 2009. The empirical results are as follows. First, when constructing quartile portfolios based on the slope of CDS spreads, we find that predictive power of CDS slope lasts for seven months. In addition, the lower the CDS slope is, the higher average stock return is. Specifically, a slope-based strategy of buying the lowest slope and selling the highest slope makes profits over 2% each month. The profitability is statistically and economically significant even after controlling for some risk factors. We also find that the results are robust to various sub-samples, portfolio-weighting schemes, as well as the number of sorted portfolios. This abnormal return cannot be explained by standard risk factors, default risk, and expectation hypothesis.

The authors aim to understand the driving forces behind the idiosyncratic volatility puzzle in the Korean stock market. The authors study the Korean stock market because previous works report a strong idiosyncratic volatility puzzle in Korea, and the market for the exchange-traded funds (ETFs) including low volatility ETFs has experienced drastic growth in Korea.

Using common stocks listed either on KOSPI or KOSDAQ over the period 1997–2016, the authors estimate idiosyncratic volatility using the Fama–French three-factor model. In addition, based on prior literature, the authors use turnover as a proxy for overvaluation. The authors then study the role of turnover in understanding the idiosyncratic volatility puzzle in Korea.

The authors find that turnover is highly associated with idiosyncratic volatility. Turnover is extremely large among firms with high idiosyncratic volatility and the puzzle disappears after we control for turnover, meaning that turnover subsumes the explanatory power of idiosyncratic volatility for equity returns. The authors also find underperformance of stocks with high turnover and high idiosyncratic volatility exclusively during earnings announcement periods. Overall, our finding implies that the puzzle arises since high idiosyncratic volatility stocks due to high turnover are overvalued and experience correction afterwards.

Literature has suggested explanations based on lottery preferences of investors and market frictions behind the idiosyncratic volatility puzzle. What makes our study distinct from previous work is that we find the role of turnover in understanding the idiosyncratic volatility puzzle using turnover measure as a proxy for overvaluation in the Korean stock market.

The authors examined whether stocks with higher left-tail risk measures earn higher or lower futures returns. Specifically, the authors estimate the cross-sectional principal component of a battery of left-tail risk measures and analyze future returns on stocks with high principal component values. In contrast to finance theories on the risk–return trade-off relationship, the study results show that high left-tail risk stocks have lower future returns. This finding is robust to various left-tail risk measures and controls for other risk factors. Moreover, the negative relationship between the left-tail risk and returns is more pronounced for stocks that are actively traded by retail investors. This empirical result is consistent with behavioral theory that when investors make decisions based on experience, they tend to underweight the likelihood of rare events.

This paper investigates a retrospective on the Journal of Derivatives and Quantitative Studies (JDQS) on its 30th anniversary based on bibliometric. JDQSs yearly publications, citations, impact factors, and centrality indices grew up in early 2010s, and diminished in 2020. Keyword network analysis reveals the JDQS's main keywords including behavioral finance, implied volatility, information asymmetry, price discovery, KOSPI200 futures, volatility, and KOSPI200 options. Citations of JDQS articles are mainly driven by article age, demeaned age squared, conference, nonacademic authors and language. In comparison between number of views and downloads for JDQS articles, we find that recent changes in publisher and editorial and publishing policies have increased visibility of JDQS.

Corporate social responsibility (CSR) actions are expected to reduce information asymmetries and increase legitimacy among the stakeholders of the company, which consequently should have a positive impact on the financial conditions of the firm. Hence, the objective of this paper is to find empirical evidence on the negative relationship between sustainable behavior and the cost of equity, in the specific context of Latin America. To address this issue, some proxies and moderating variables for sustainability are used in our study.

The regression model considers a sample with 252 publicly trading firms and 2,772 firm-year observations, from 2008 to 2018. The generalized method of moments is used to avoid endogeneity problems.

The study finds evidence that firms with higher environmental, social and governance activities disclosed by sustainability reports and assured by external providers decrease their cost of equity, especially if they are in an integrated market as MILA. This finding confirms that agency conflicts between firm's management and stakeholders diminish with higher CSR transparency, leading to a lower cost of capital.

Our research is unique and valuable as, to our knowledge, it is the first study to analyze the impact of sustainable behavior and the cost of equity from companies operating in Latin America.

Las actividades de Responsabilidad Social Empresarial permiten disminuir asimetrías de información e incrementar la legitimidad ante los stakeholders de una empresa, generando impactos positivos financieros para la misma. De hecho, el objetivo del artículo es medir la relación entre el comportamiento sostenible y el Costo de Capital en el contexto empresarial latinoamericano. Para ello, consideramos algunas variables proxy y moderadoras sustentables en nuestro estudio.

El modelo considera una muestra de 252 empresas cotizadas y 2772 observaciones que abarcan el período de 2008 a 2018. Se implementa el Modelo Generalizado de Momentos para evitar problemas de endogeneidad.

Los autores evidencian que empresas con altos niveles de divulgación ambiental, social y gobernanza corporativa a través de reportes de sostenibilidad y asegurados por proveedores externos disminuyen el Costo de Capital, especialmente si cotizan en un mercado integrado como el MILA. Estos hallazgos confirman que se reduce la asimetría de información entre la gerencia y los stakeholders, dado que incrementa la transparencia mediante la Responsabilidad Social Corporativa y ello conduce a un menor Costo de Capital.

Nuestro estudio es único dado que, hasta la fecha, es el primer estudio que analiza el impacto de la divulgación voluntaria de RSE y Costo de Capital de empresas que operan en Latinoamérica.

The study on how macroeconomic factors affect non-performing loans (NPLs) have not been focussed on property loans, which had been amongst the largest contributor of NPLs in many countries. At the same time, whilst there are many studies that focusses on NPLs during the recession and financial crises, not many studies focus on how macroeconomic factors affect property NPLs in a recovering economic environment. The purpose of this study seeks to fill the gap by analysing the relationships between gross domestic product (GDP), interest rates, income, foreign direct investments (FDI), housing prices and taxes on property NPLs with Malaysia as a case study in which NPLs rose for the first time after declining for almost a decade since the 2008–2009 global financial crisis. This study aims to understand the dynamics and direction of causation in relationships.

The author uses the auto regressive distribution lag analysis between the independent variables of GDP, interest rates, housing prices, service taxes, percapita income and FDI affecting the dependent variable of property NPLs from 2009 to 2017, during a unique period of recovering economic environment where NPLs rose for the first time in almost a decade of decline.

This study found that interest rates, housing prices, income, GDP and service taxes were found to possess long cause effects and long run elasticity with NPLs. At the same time, interest rates were found to implicate property NPLs significantly in longer periods, followed by GDP, housing prices, service taxes and income. FDIs were found to be insignificantly negative in implicating property NPLs in the long run.

This paper allows policymakers to understand the dynamic implications of crucial macroeconomic factors in affecting NPLs so that appropriate strategic monetary policies could be formulated towards addressing them. More focus shall be given to addressing the long term implications of these factors on NPLs.

Appropriate strategic monetary policy making can be channelled towards addressing these factors via understanding the short and long term implications of macroeconomic variables on property NPLs. Policymakers can take note of the long cause effects and long run elasticity of average interest rates, housing prices, income levels, GDP and service taxes with property NPLs so that appropriate long term policies can be addressed to control the rise of property NPLs in the country. At the same time, priority should be given towards strengthening of the GDP of the country due to its strongest impact in long term effects with reduction of NPLs in the country.

The insights from the present study suggest policymakers interested in bringing stability in the real estate finance system need to account for the various macroeconomic variables found in this study.

The paper is novel on at least two dimensions. First, this study involves focussing on a unique period of recovering economic environment where NPLs rose for the first time after a decade of decline since recovering from the 2008–2009 global financial crisis. At the same time, this study focusses on property NPLs, which is unique in nature compared to general NPLs. This study had enabled policymakers to better understand the dynamic implications of several macroeconomic variables affecting property NPLs and assist them in strategic monetary policy making.