WORKING PAPERS 2009

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2009-47

A Century of Bond Ratings as a Business

Ludovic Moreau

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Abstract
Historical accounting datasets about a leader of the bond rating industry have been gathered in order to provide an unprecedented long term view on this business. To better judge of the dynamics at play, similar data for representatives of older and broader business fields is also introduced. Overall, this empirical discussion plays down the importance of regulatory « licenses » given to bond rating firms and puts forward the coming of a « modern » business model where issuers pay for ratings.
Mot(s) clé(s)
Industry study, bond ratings, financial regulation
2009-46

Evaluation of Hedge Fund Returns Value at Risk Using GARCH Models

Sabrina Khanniche

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Abstract
The aim of this research paper is to evaluate hedge fund returns Value-at-Risk by using GARCH models. To perform the empirical analysis, one uses the HFRX daily performance hedge fund strategy subindexes and spans the period March 2003 – March 2008. I found that skewness and kurtosis are substantial in the hedge fund returns distribution and the clustering phenomenon is pointed out. These features suggest the use of GARCH models to model the volatility of hedge fund return indexes. Hedge fund return conditional variances are estimated by using linear models (GARCH) and non-linear asymmetric models (EGARCH and TGARCH). Performance of several Value at Risk models is compared; the Gaussian VaR, the student VaR, the cornish fisher VaR, the normal GARCH-type VaR, the student GARCH-type VaR and the cornish fisher GARCH-type VaR. Our results demonstrate that the normal VaR underestimates accurate hedge fund risks while the student and the cornish fisher GARCH-type VaR are more reliable to estimate the potential maximum loss of hedge funds.
Mot(s) clé(s)
Hedge Fund, Value at Risk, GARCH models.
2009-45

Évaluation de la prime de risque de change dans un contexte régional : une analyse multi-variée du MEDAFI

Khaled Guesmi

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Abstract
In this paper, we use the segmented conditional ICAPM (International Capital Asset Pricing Model) to study the emerging stock markets integration. To address this issue, we apply the asymmetric multivariate version of GARCH-BEKK with structural break of the variance. It allows to specify the dynamics of conditional second moments and determinates the contribution of each risk factor in establishing the total premium. The model is estimated for the period March 1996-June 2008, simultaneously for five markets: the world market and four emerging markets. Our results support the partial segmentation of the market studied. In fact, local risk factors contribute significantly in explaining stock market returns.
Mot(s) clé(s)
International asset pricing, equity risk premium, financial integration, Emerging Markets, Asymmetric Multivariate GARCH.
2009-44

Une méta-analyse de l’impact des subventions sur le prix mondial du coton

David Guerreiro

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Abstract
Malgré le nombre relativement important d'études sur les impacts des subventions sur le prix mondial du coton, il n’existe pas de consensus concernant la quantification de ces effets. L'objectif de cet article est, par le biais de la méta-analyse, d'expliquer la source de l'hétérogénéité de ces résultats, de donner des indications quant aux variables à inclure afin de modéliser la dynamique du prix mondial, mais aussi de présenter le chiffrage des effets des subventions qu'apporte notre méta-analyse. Nous montrons que les principales sources de variations entre les études se trouvent dans les valeurs retenues pour les élasticités de l’offre et la demande, dans le montant retenu pour les subventions, ainsi que dans la prise en compte (ou non) de certains caractères indispensables. Une modélisation appropriée requiert ainsi une estimation précise des élasticités et la prise en compte de certains facteurs constitutifs du prix mondial du coton tels que les niveaux de stocks ou le prix du polyester.
Mot(s) clé(s)
Meta-regression analysis (MRA), cotton, subsidies, agriculture.
2009-43

Slow oil shocks and the “weakening of the oil price macroeconomy relationship”

Théo Naccache

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Abstract
Many papers have been documenting and analysing the asymmetry and the weakening of the oil price – macroeconomy relationship as off the early eighties. While there seems to be a consensus about the factors causing the asymmetry, namely adjustment costs which offset the benefits of low energy prices, the debate about the weakening of the relationship is not over yet. Moreover, the alternative oil price specifications which have been proposed by Mork (1989), Lee et al. (1995), and Hamilton (1996) to restore the stability of the relationship fail to Granger cause output or unemployment in post-1980 data. By using the concept of accelerations of the oil price, we show that the weakening of this relationship corresponds to the appearance of slow oil price increases, which have less impact on the economy. When filtering out these slow oil price variations from the sample, we manage to rehabilitate the causality running from the oil price to the macroeconomy and show that far from weakening, the oil price accelerations – GDP relationship has even been growing stronger since the early eighties.
Mot(s) clé(s)
Oil prices, Gross Domestic Product, recursive causality tests.
2009-42

Agent-based Computational Economics: a Methodological Appraisal

Paola Tubaro

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Abstract
This paper is an overview of "Agent-based Computational Economics (ACE)", an emerging approach to the study of decentralized market economies, in methodological perspective. It summarizes similarities and differences with respect to conventional economic models, outlines the unique methodological characteristics of this approach, and discusses its implications for economic methodology as a whole. While ACE rejoins the reflection on the unintended social consequences of purposeful individual action which is constitutive of economics as a discipline, the paper shows that it complements state-of the-art research in experimental and behavioral economics. In particular, the methods and techniques of ACE have reinforced the laboratory finding that fundamental economic results rely less on rational choice theory than is usually assumed, and have provided insight into the importance of market structures and rules in addition to individual choice. In addition, ACE has enlarged the range of inter-individual interactions that are of interest for economists. In this perspective, ACE provides the economist‘s toolbox with valuable supplements to existing economic techniques rather than proposing a radical alternative. Despite some open methodological questions, it has potential for better integration into economics in the future.
Mot(s) clé(s)
Agent-based Computational Economics, Economic Methodology, Experimental Economics.
2009-41

Regulatory versus Informational Value of Bond Ratings: Hints from History ...

Ludovic Moreau

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Abstract
A multivariate analysis can be used in order to investigate the relationship between bond yields, ratings and standard control variables. Replicating such a test on a number of cross-sections may evidence a possible impact of financial regulations relying on ratings. Datasets for American corporate bond issues allow a focus on two key events of the development of rating driven regulations: the valuation of bank and life insurance portfolios introduced in the 1930’s and the net capital requirements for broker dealers introduced in the 1970’s. The “value” of bond ratings does show some improvement once these regulations have been passed.
Mot(s) clé(s)
Bond ratings, bond yields, financial regulation.
2009-40

Who will go down this year ? The Determinants of Promotion and Relegation in European Soccer Leagues

Jean-Baptiste Dherbecourt, Bastien Drut

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Abstract
Contributing to the lively debate on closed leagues (North American model) versus open leagues (European model) in professional sport league, this paper aims at determining the drivers of promotion and relegation in the major European soccer leagues. Using a large and original dataset (for example: club’s link with a billionaire, club listed in the stock market, etc.) and logistic regressions, our results show that institutional factors matter to settle in the elite. It also indicates that open leagues system in European soccer championships is de facto very similar to closed leagues system. Furthermore, our forecasting model can be of interest for soccer investors or bookmakers.
Mot(s) clé(s)
Economics of Sport, Organization of Sports Leagues, Soccer, Promotion and Relegation, Economic Forecasting, Regional Economy, Billionaires, Stock Market.
2009-39

The Balassa-Samuelson model in general equilibrium with markup variations

Romain Restout

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Abstract
This contribution embeds the Balassa-Samuelson hypothesis in a general equilibrium model that combines monopolistic competition and markup variations to examine the determinants of relative prices of nontradables. The model emphasizes the role of markup variations as an important aspect driving relative price movements. Variations in the markup makes fiscal policy non-neutral and provides a strong magnification mechanism for shocks to productivity. The empirical evidence of these predictions are examined by using a panel cointegration framework. On the whole, the econometric findings support theoretical implications, suggesting that our model is more closely in line with data relative to the supply-side Balassa-Samuelson framework that abstracts from variations in the degree of competition.
Mot(s) clé(s)
Balassa-Samuelson effect, Monopolistic competition, Fiscal policy
2009-38

The effect of Sovereign Wealth Funds’ investments on stock markets

Hélène Raymond

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Abstract
This study assesses the reaction of stock markets, when Sovereign Wealth Funds (SWFs) announce that they have taken a stake in a listed company. It adds useful empirical results to the debate on the effect of SWFs on financial markets, which remains so far largely reliant on guess work. We perform an event study using a sample of 50 SWF acquisitions of equity stakes in listed companies around the world, from May 2005 to April 2008. According to our results, the announcement of an acquisition by a SWF has a transitory positive impact on the share price of the target company, but there is no lasting effect. This stands in contrast to the results obtained in the academic literature for the investments of private equity funds, and to a lesser extent pension funds. The tests conducted on a sub-sample of announcements targeting banks only made during the subprime crisis (between July 2007 and April 2008) do not exhibit more lasting effects. This may suggest that markets are not convinced that SWFs alone are capable of restoring the position of the banks concerned. These results are however subject to some caveats, and notably, the relatively small size of the sample as well as a selection bias in favour of transparent SWFs, due to the lack of information on other funds
Mot(s) clé(s)
Sovereign Wealth Funds, Event Study
2009-37

The Dynamic Properties of Alternative Assumptions on Price Adjustment in New Keynesian Models

Safouane Ben Aïssa, Olivier Musy

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Abstract
This paper presents a classification of the different new Phillips curves existing in the literature as a set of choices based on three assumptions: the choice of the structure of price adjustments (Calvo or Taylor), the presence of backward indexation, and the type of price contracts (fixed prices or predetermined prices). The paper suggests study of the dynamic properties of each specification, following different monetary shocks on the growth rate of the money stock. We develop the analytical form of the price dynamics, and we display graphics for the responses of prices, output, and inflation. We show that the choice made for each of the three assumptions has a strong influence on the dynamic properties. Notably, the choice of the price structure, while often considered as unimportant, is indeed the most influential choice concerning the dynamic responses of output and inflation.
Mot(s) clé(s)
New Keynesian Phillips Curves, Taylor Price Rule, Calvo Price Rule, Fixed Prices, Predetermined Prices, Disinflation policy
2009-36

Disinflationary boom in a price-wage spiral model

Olivier Musy, Jean-Christophe Pereau

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Abstract
This paper analyses the impact of the disinflation policy timing on the sign and the magnitude of the sacrifice ratio in a modified price and wage staggered model of Blanchard (1986). When wages are updated every four quarters and prices every two quarters, we show that a “cold-turkey” disinflation is associated to an output boom when the policy is implemented during the last period of life of the wage contract and a recession the other quarters.
Mot(s) clé(s)
Disinflation policy, Shock timing, Sacrifice ratio, Price and wage staggered contracts
2009-35

Libéralisme Économique et Croissance: Le Cas de Six Pays Méditerranéens

Rami Abdelkafi, Ali Chkir, Hatem Derbel

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Abstract
This paper is dedicated to study the impact of economic freedom on economic growth. We use the methodology of panel data for the case of six Mediterranean developing countries. Our results show that the index of economic freedom in the process of development is not necessarily efficient in these developing countries. Therefore these countries need economic policies to precede the process of economic liberalization.
Mot(s) clé(s)
État, Pays en développement, Liberté économique et Croissance
2009-34

Are Banking Systems Increasingly Fragile ? Investigating Financial Institutions’ CDS Returns Extreme Co-Movements

Dima Rahman

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Abstract
This paper investigates potential contagion among the major financial institutions in developed economies. Using Credit Default Swaps (CDS) premia as a measure of credit or counterparty risk, our analysis focuses on the extreme co-movements of Financial Institutions' default contracts during the high level of stress undergone by the CDS markets in the aftermath of the 2007 sub-prime crisis. Our approach is twofold: first, under different tail dependence scenarios, we calibrate several multivariate linear propagation models of constant correlation. Our Monte Carlo simulation study finds evidence of contagion for Financial Institutions- notably in the US-and captures a non-normal dependence structure in the tails for the traded contracts. Second, we estimate a multivariate Dynamic Conditional Correlation-GARCH (DCC-GARCH) model, and demonstrate significant ARCH and GARCH effects, as well as time-varying correlations in CDS spreads variations. Our overall analysis rejects the assumption of constant correlation. More importantly, it advocates changing structures in tail dependence for CDS series during times of financial turmoil as an important feature of banks’ increased fragility.
Mot(s) clé(s)
Bank fragility, Counterparty risk, Financial crises, Extreme co-movements, Conditional correlation, Multivariate GARCH, Monte Carlo simulation
2009-33

Options introduction and volatility in the EU ETS

Julien Chevallier, Yannick Le Pen, Benoît Sévi

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Abstract
To improve risk management in the European Union Emissions Trading Scheme (EU ETS), the European Climate Exchange (ECX) has introduced option instruments in October 2006 after regulatory authorization. The central question we address is: can we identify a potential destabilizing effect of the introduction of options on the underlying market (EU ETS futures)? Indeed, the literature on commodities futures suggest that the introduction of derivatives may either decrease (due to more market depth) or increase (due to more speculation) volatility. As the identification of these effects ultimately remains an empirical question, we use daily data from April 2005 to April 2008 to document volatility behavior in the EU ETS. By instrumenting various GARCH models, endogenous break tests, and rolling window estimations, our results overall suggest that the introduction of the option market had no effect on the volatility in the EU ETS. These finding are robust to other likely influences linked to energy and commodity markets.
Mot(s) clé(s)
EU ETS, Option prices, Volatility, GARCH, Rolling Estimation, Endogenous Structural Break Detection
2009-32

Essai sur les déterminants empiriques de développement des marchés obligataires

Jamel Boukhatem

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Abstract
Based on the methodology adopted by Eichengreen and Luengnaruemitchai (2004), Luengnaruemitchai and Ong (2005), Borensztein and al. (2006), and Eichengreen and al. (2006), this study analyse the development of local bond markets. We show that the development of bond markets is a phenomenon with multiple dimensions. The contribution of our study is threefold. First, we do not limit our analysis to Asian and Latin-American emerging countries, we consider although countries from the Middle East and Africa according to data availability. Then we introduce other factors to better understand the development of bond markets. Finally, we present a dynamic version of the determinants of bond market development.
Mot(s) clé(s)
Bond markets, economic factors, institutional factors, economic policy, dynamic panel data, GMM system
2009-31

Hedging residual value risk using derivatives

Sylvain Prado

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Abstract
In the leasing industry the lessor faces a risk, at the end of the contract, in not recovering su¢ cient capital value from resale of the asset. We propose a model to hedge residual value risk using the Gaussian copula methodology. After discussing residual value risk and credit risk modelization, a new derivative product is introduced and analyzed; the Collateralized Residual Values (CRV). The model is applied to an European auto lease portfolio of operating lease contracts pertaining to a major company. Our results indicate that the financial product is easy to customize, and to implement through the contract characteristics and the level of correlation.
Mot(s) clé(s)
Residual value risk, credit risk, credit derivatives, factor modeling, copula
2009-30

The impact of stock spams on volatility

Taoufik Bouraoui

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Abstract
This paper is dedicated to study the impact of stock spams through the analysis of the variations of volatility. We use the methodology of event studies on a sample of hundred ten firms. The results show positive and significant changes in volatility during 12 days of the event window; a widening of the variation [lowest price - highest price] was noticed following the consignment of messages by the spammers. The sending of stock spams affected the behaviour of investors, indicating thus that the spamming activity is a lucrative business.
Mot(s) clé(s)
Stock spam, event studies, volatility, penny stock
2009-29

A systemic approach to financial regulation: a European perspective

Michel Aglietta, Laurence Scialom

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Abstract
The global financial crisis has pinpointed the relevance and the virulence of systemic risk in modern innovative finance. It is grounded in the propensity of credit markets to drift to extremes in close correlation with asset price spikes and slumps. In turn, such a propensity is nurtured by the heuristic behaviour of market participants under severe uncertainty. While plagued by disaster myopia, market participants spread systemic risk. Such adverse conditions have been magnified by financial innovations that have made finance predatory and capable of capturing regulators to annihilate prudential policies. Malfunctioning in finance is so deep and disorders are so widespread that sweeping reforms are the order of the day, if financial stability is viewed as a primary public concern. In this paper we argue that macro prudential policy should be the linchpin of relevant reforms. Being a top-down approach, it impinges both upon monetary policy and micro prudential policy. Central banks should pursue a dual objective of price and financial stability. Bank supervisors should broaden their oversight on a much larger perimeter, encompassing all systematically important institutions. Counter cyclical capital provisions should be required and linked to the control of aggregate credit supply. Leveraged institutions without deposit base should be subject to incentives for a much stricter liquidity management. To stem regulatory capture, prompt corrective action should be enlarged in its scope and adapted to mark-to-market financial intermediaries. Implementing macro prudential policy entails institutional changes. Central banks, bank supervisors and other financial regulators need to work much closer than beforehand, because the spread of systemic risk is not deterred by institutional and geographical frontiers. The changes to make are particularly stringent in Europe, where national parochialism makes the resolution of orderly cross-border bank crisis all but impossible.
Mot(s) clé(s)
2009-28

Modelling oil price expectations: evidence from survey data

Georges Prat, Remzi Uctum

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Abstract
Using Consensus Forecast survey data on WTI oil price expectations for three and twelve month horizons over the period November 1989 – December 2008, we find that the rational expectation hypothesis is rejected and that none of the traditional extrapolative, regressive and adaptive processes fits the data. We suggest a mixed expectation model defined as a linear combination of these traditional processes, which we interpret as the aggregation of individual mixing behavior and of heterogenous groups of agents using simple processes. This approach is consistent with the economically rational expectations theory. We show that the target price included in the regressive component of this model depends on macroeconomic fundamentals whose effects are subject to structural changes. The estimation results led to validate the mixed expectational model for the two horizons.
Mot(s) clé(s)
Expectations formation, oil price
2009-27

Une adresse à Mayfair ou Vendôme: la rationalité spatiale des Hedge Funds

Yamina Tadjeddine

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Abstract
With financial globalization, there has been a thorough reorganization of financial activities. A new geography of finance has emerged with, first of all, activities being transferred from the historical heart of big cities to the peripheral areas. Alternative asset management that has emerged in Europe in the past ten years is undoubtedly the paradox example of this suburbanization movement. We notice a high level of spatial concentration in the historical heart of Paris and London. Hedge Funds, particularly independent organizations choose Upper Class area. To provide an understanding of the future dynamics of the location of financial activities we need to redefine the notion of financial market. To provide an understanding of this location of alternative activities we need to redefine the socio-economic characteristics of hedge funds. The specific nature of this activity – highly skilled employees, high value-added knowledge services, lack of public information – justify concentration in order to take advantage of informational externalities and of the presence of specialized companies. An address in Mayfair or at Place Vendôme counts in the world of hedge funds.
Mot(s) clé(s)
Financial Institution, Financial Geography, Informational Externalities
2009-26

The Location of Financial Activities: the Impact of New Technologies and the Financial Crisis

Gunther Capelle-Blancard, Yamina Tadjeddine

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Abstract
The location of financial activities is traditionally characterized by a great deal of inertia. However, the boom in new information and communication technologies, the globalization of economies and the 2007-08 financial crisis have considerably modified the geography of finance. Financial globalization has, first of all, had a heavy impact on the level of spatial concentration / dispersion of activities. The dynamics have not acted in a uniform way – schematically speaking three levels can be distinguished. On the urban scale, financial activities have been spread out (suburbanization), while on the regional scale or the national scale, due to financial globalization, financial activities have been more tightly grouped. Lastly, on the international scale, a movement of dispersion has mainly been observed, along with a specialization of financial centers. The 2007-08 financial crisis might well accentuate this last effect and cause an upheaval in world hierarchy. Actually, the financial centers that are most elastic to the economic situation – London, New York and tax havens – are massively losing jobs, while the stock markets in Shanghai, Hong Kong and Bombay are now upstaging them as major players.
Mot(s) clé(s)
Financial Geography, International Financial Centers, Globalization, Informational Externalities
2009-25

The dynamics of U.S. equity risk premia: lessons from professionals'view

Alain Abou, Georges Prat

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Abstract
Semi-annual surveys carried out by J. Livingston on a panel of experts have enabled us to compute the expected returns over the time span 1-semester and 2-semesters ahead on a portfolio made up of US industrial stocks. We calculated about 3000 individual ex-ante equity risk premia over the period 1952 to 1993 (82 semesters) defined as the difference between these expected stock returns and the risk-free forward rate given by zero coupon bonds. Unlike any other study, our contribution is to analyse premia deduced from surveys data, at the micro level, per date and over a long period. Three main conclusions may be drawn from our analysis of these ex-ante premia. First, the mean values of these premia are closer to the predictions derived from the consumption-based asset pricing theory than the ones obtained for the ex-post premia. Second, the experts' professional affiliation appears to be a significant criterion in discriminating premia. Third, in accordance with the Arbitrage Pricing Theory, individual ex-ante premia depend both on macroeconomic and idiosyncratic common factors: the former are represented by a set of macroeconomic variables observable by all agents, and the latter by experts’ personal forecasts about the future state of the economy, as defined by expected inflation and industrial production growth rate.
Mot(s) clé(s)
Stock price expectations, equity risk premium, survey micro data
2009-24

On the realized volatility of the ECX CO2 emissions 2008 futures contract: distribution, dynamics and forecasting

Julien Chevallier, Benoît Sévi

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Abstract
The recent implementation of the EU Emissions Trading Scheme (EU ETS) in January 2005 created new financial risks for emitting firms. To deal with these risks, options are traded since October 2006. Because the EU ETS is a new market, the relevant underlying model for option pricing is still a controversial issue. This article improves our understanding of this issue by characterizing the conditional and unconditional distributions of the realized volatility for the 2008 futures contract in the European Climate Exchange (ECX), which is valid during Phase II (2008-2012) of the EU ETS. The realized volatility measures from naive, kernel-based and subsampling estimators are used to obtain inferences about the distributional and dynamic properties of the ECX emissions futures volatility. The distribution of the daily realized volatility in logarithmic form is shown to be close to normal. The mixture-of-distributions hypothesis is strongly rejected, as the returns standardized using daily measures of volatility clearly departs from normality. A simplified HAR-RV model (Corsi, 2009) with only a weekly component, which reproduces long memory properties of the series, is then used to model the volatility dynamics. Finally, the predictive accuracy of the HAR-RV model is tested against GARCH specifications using one-step-ahead forecasts, which confirms the HAR-RV superior ability. Our conclusions indicate that (i) the standard Brownian motion is not an adequate tool for option pricing in the EU ETS, and (ii) a jump component should be included in the stochastic process to price options, thus providing more efficient tools for risk-management activities.
Mot(s) clé(s)
CO2 Price, Realized Volatility, HAR-RV, GARCH, Futures Trading, Emissions Markets, EU ETS, Intraday data, Forecasting
2009-23

Fisher, Macaulay et Allais face au "Paradoxe de Gibson"

Jean-Jacques Durand, Georges Prat

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Abstract
According to the quantitative theory of money, an expansion of the money supply leads both to a decrease of interest rates and an increase of the general level of good prices. This negative correlation expected between these two variables being contradicted by the positive correlation observed – pointed out by Gibson and confirmed by further studies - Keynes refers to the so-called “Gibson’s paradox”. I. Fisher proposed an explanation of this “paradox” with the slowness of the adjustments of interest rates to the rate of change in the general price level. However, F.R. Macaulay showed that, since the delays found by Fisher go up far in the past, this implies a necessary correlation between the price level and the weighted average of past rates of change in the price level found by Fisher. This arises the following question: does the correlation between interest rates and the price level result from a fisherian behaviour of agents or, on the contrary, do Fisher’s results are spurious since due to the correlation between price level and interest rates? However, Macaulay’s criticism loses its relevance when the delays are short, as observed during periods of hyperinflation and after the Second World War. With respect to this debate, the merit of the Allais’ Hereditary and Relativist (HR) theory is to suggest a synthesis with his “psychological rate of interest” hypothesis. Depending on past values of the rate of change in price level and production, this latter, which equals the “rate of forgetfulness”, represents the general trend of market interest rates. When the memory is long (i.e. the “rate of forgetfulness” is weak), the psychological rate of interest is necessarily correlated with the price level and then explains the positive correlation – which may be more or less stable due to the production effects – between market interest rates and the price level. But when the memory is short (i.e. the rate of forgetfulness high), the HR theory implies both the disappearance of the correlation between interest rate and the price level and the existence of a positive correlation between interest rate and the rate of change in the price level.
Mot(s) clé(s)
Interest rates, price level, inflation
2009-22

The European used-car market at a glance: Hedonic resale price valuation in automotive leasing industry

Sylvain Prado

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Abstract
In the leasing industry, the risk of loss on sales at the end of the contract term, as well as pricing are critically impacted by the forecasted resale price of the asset (residual value). We apply the Hedonic methodology to European auto lease portfolios, in order to estimate the resale price distribution. The Hedonic approach estimates the price of a good through the valuation of its attributes. Following a discussion on Hedonic prices, we propose an operational model for the automobile resale market. The model is applied to four European countries (France, Germany, Spain and Great Britain), and distributions are calculated on two vehicle versions (Audi A4 & Ford Focus) allowing a comparison of market depreciation patterns and residual value risks.
Mot(s) clé(s)
Hedonic model, residual value, automotive market
2009-21

Nonlinear Stock Price Adjustment in the G7 Countries

Fredj Jawadi, Georges Prat

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Abstract
This paper seeks to address the stock price adjustment toward fundamentals. Using the class of Switching Transition Error Correction Models (STECMs), we show that two regimes describe the dynamics of stock price deviations from fundamentals in the G7 countries over the period 1969-2005. Deviations appear to follow a quasi random walk in the central regime when prices are near fundamentals (i.e. transaction costs being greater than expected gains, the mean reversion mechanism is inactive), while they approach a white noise in the outer regimes (i.e. transaction costs being lower than expected gains, the mean reversion works). As expected when transaction costs are heterogeneous, the STECM shows that stock price adjustments are smooth, implying that the convergence speed is time-varying according to the size of the deviation. Finally, using appropriate indicators, both the magnitudes of under- and overvaluation of stock price and the speed of the mean reversion are exhibited per date in the G7 countries, showing that the dynamics of stock price adjustment is highly dependent on the date and on the country under consideration.
Mot(s) clé(s)
Price, heterogeneous transaction costs, STECMs
2009-20

Être entrepreneur de soi-même après la loi du 4 août 2008: les impasses d'un modèle productif individuel

Nadine Levratto, Evelyne Serverin

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Abstract
The modernization of the economy Act voted in August 4th, 2008 aimed at introducing a new statute of self-entrepreneur, the auto-entrepreneur in French, in order to support an economic policy combining fight against unemployment, search for points of growth and improvement of the purchasing power. The matter of this article is to open the debate about the model of the self-entrepreneur embedded in this new law, by adopting a double point of view: legal as far as the labor is concerned and economic too since it deals with the model of the firm supported by this view. The first section discusses the proclamation of independence of the self-entrepreneur, by highlighting the existence of multiple legal dependences, within the framework of a plurality of jobs on the one hand, and within the exercise of the productive activity itself on the other hand. The second section deals with the contradictions that exist between the legal conception of self-employer on one side, and the growth expectations of the companies, and the entrepreneurship theories on the other.
Mot(s) clé(s)
Self-employment, firm theory, labor contract, multiple jobs
2009-19

Copulas and bivariate risk measures : an application to hedge funds

Rihab Bedoui, Makram Ben Dbabis

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Abstract
With hedge funds, managers develop risk management models that mainly aim to play on the effect of decorrelation. In order to achieve this goal , companies use the correlation coefficient as an indicator for measuring dependencies existing between (i) the various hedge funds strategies and share index returns and (ii) hedge funds strategies against each other. Otherwise, copulas are a statistic tool to model the dependence in a realistic and less restrictive way, taking better account of the stylized facts in finance. This paper is a practical implementation of the copulas theory to model dependence between different hedge fund strategies and share index returns and between these strategies in relation to each other on a "normal" period and a period during which the market trend is downward. Our approach based on copulas allows us to determine the bivariate VaR level curves and to study extremal dependence between hedge funds strategies and share index returns through the use of some tail dependence measures which can be made into useful portfolio management tools.
Mot(s) clé(s)
Hedge fund strategies, share index, dependence, copula, tail dependence, bivariate Value at Risk
2009-18

Agricultural land-use and biological conservation

Frédéric Barraquand, Vincent Martinet

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Abstract
Land use change is a main driver of biodiversity erosion, especially in agricultural landscapes. Incentive-based land-use policies aim at influence land-use pattern, and are usually evaluated with habitat suitability scores, without accounting explicitly for the ecology of the studied population. In this paper, we propose a methodology to define and evaluate agricultural land-use policies with respect to their ecological outcomes directly. We use an ecological-economic model to link the regional abundance of a bird species to the economic context. Policies based on such ecological economics approaches appear to be more efficient than that based on landscape evaluation, from both economic and ecological viewpoints.
Mot(s) clé(s)
Ecological-economic model, agriculture, land-use, landscape, conservation
2009-17

Sovereign Bonds and Socially Responsible Investment

Bastien Drut

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Abstract
While the literature on Socially Responsible Investment (SRI) is mainly focused on the stock market, little attention has been paid to SRI in sovereign bonds. This paper investigates the effect of taking into account socially responsible indicators for countries, the Vigeo Sustainability Ratings (VSR), on the efficient frontier formed with the sovereign bonds of twenty developed countries. It shows that it is possible to increase the portfolios’ VSR rating without significantly harming the risk/return relationship. The analysis then focuses on specific ratings relating to a) the environment, b) social concerns, and c) public governance. The results suggest that socially responsible portfolios of sovereign bonds can be built without a significant diversification cost.
Mot(s) clé(s)
Socially Responsible Investment, Sovereign Bonds, Portfolio Selection, Rating, Spanning Tests, Mean-variance efficiency, Portfolio Choice
2009-16

Fundamentals, Macroeconomic Announcements and Asset Prices

Aymen Belgacem

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Abstract
The aim of this paper is to study the impact of macroeconomic announcements on asset prices, with the objectives of both measuring the average response of stock returns to macroeconomic news surprises, and explaining the sources of such a reaction. To assess the importance of scheduled French and US macroeconomic announcements, Stock returns are analyzed on the French stock market. It is shown that, according to previous studies, there is little evidence of the reaction of the market to those surprises. News about inflation, U.S consumption and real economic activity are specially expected by investors. It confirms the leading role of the U.S. economy and in particular of U.S. consumers in determining the development of the world economy and the dynamics of stock markets. Results also show that unexpected positive surprise in the unemployment rate causes a cut on future excess returns and future dividends. The opposite reaction is observed from the housing starts indicator. The consumer price index appears to have an impact not only on future excess returns, but also on future real interest rates.
Mot(s) clé(s)
Asset Prices; Macroeconomic Announcements, Event-Study
2009-15

Disentangling extrinsic and intrinsic motivations: the case of French GPs dealing with prevention

Yves Arrighi, Philippe Batifoulier, Maryse Gadreau, Bruno Ventelou, Yann Videau

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Abstract
The economic literature attaches great importance to the analysis of "professional motivations", in particular examining the possible crowding-out effects between extrinsic and intrinsic motivations. This article applies these questions to the healthcare professions with a view to providing a fair scaling of the implementation of pay-for-performance policies by public decision-makers. We assemble a panel of 528 independent general practitioners in the "Provence-Alpes-Côte d’Azur" region in France and provide an inter-personal statistical decomposition between extrinsic and intrinsic motivations with regard to preventive actions. The proportion of intrinsic motivations is relatively greater among physicians paid with fixed fees. The significant effect of age describes a U shape which can be interpreted as being the result of a "life cycle of medical motivations". Finally, econometric estimations demonstrate a correlation between a small proportion of intrinsic motivation and a feeling of injustice with regard to the reforms. The cross-sectional nature of the data does not allow us to draw any conclusions concerning the direction of the causality. But the above correlation would seem to support the theory that the implementation of a policy based on monetary incentives towards performance is perceived as being offensive and may be accompanied by a reduction in intrinsic motivations in medical practice.
Mot(s) clé(s)
General practitioners, Motivations, Prevention, Payment for performance, Intrinsic and extrinsic incentives, France
2009-14

Why do firms borrow on a short-term basis ? Evidence from European countries

Valérie Oheix, Dorothée Rivaud-Danset

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Abstract
This paper investigates empirically the use of short-term bank loans by firms. We face two analytical frameworks. According to the corporate finance theory, short-term and long-term ebts are substitutes, while in the credit channel literature they are distinct and complementary vehicles. We estimate a model that explains the level of short-term bank debt, using panel data from the BACH database for six European countries (1989-2003). Our results indicate that the two types of bank loans are complements. They show that short-term bank debt should be analysed as a specific vehicle that finances current assets, as in the credit channel literature.
Mot(s) clé(s)
corporate short-term debt, debt maturity structure, credit channel
2009-13

Leveraged Buy Out: Dynamic agency model with write-off option

Ouidad Yousfi

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Abstract
We present a dynamic agency model in which the LBO fund may write the entrepreneur's project off at the end of the starting stage to invest in a competitive project. The two partners provide unobservable efforts in both stages to enhance the productivity of the acquired company. We show that under restrictive conditions, the debt-equity contracts induce the entrepreneur and the LBO fund to provide the first best efforts under restrictive conditions in the two stages. Moreover, the write-off threat boosts the incentives of the entrepreneur and the LBO fund such that they provide high efforts. If the compensation cost is exogenous, the sharing rule of this cost depends on the quality of the competitive project. The entrepreneur and the bank share the amount of compensation if it is not very profitable. Otherwise, the whole amount of compensation is pledged to the entrepreneur. If the compensation's amount is endogenous, in order to induce the entrepreneur to provide high effort, the optimal financial contracts must give her the entire compensation's revenue.
Mot(s) clé(s)
Leveraged Buy Out, incentives, exit, write-off option, double moral hazard
2009-12

Are conventions solutions? Contrasting visions of the relationship between convention and uncertainty

Franck Bessis, John Latsis, Guillemette de Larquier

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Abstract
This paper maps out different conceptions and dynamic accounts of convention developed within game theory, Post Keynesian economics and the économie des conventions. These accounts are distinguished in terms of the way in which they conceive of uncertainty (as probabilistic or radical).
Mot(s) clé(s)
2009-11

Deterrence of a criminal team: how to rely on its members’shortcomings ?

Eric Langlais

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Abstract
In this paper, we assume that a criminal organization is an agency where the Principal and the Agent have different sensibilities towards the risk of arrestation and punishment, and at the same time have different skills with respect to general organization tasks, crime realization or detection avoidance activities (i.e. allowing to reduce the probability of detection). In this set up, we first compare two regimes of exclusive sanctions (either the sanctions are borne by the Principal/beneficiary of the crime, or they are borne by the Agent/perpetrator of the crime), and we analyze the comparative efficiency of the various instruments which are at the disposal of public authorities to prevent corporation in criminal activities (frequency of control and level of monetary penalties). Finally, we study a case with joint liability.
Mot(s) clé(s)
Criminal teams, corporate criminality, state dependent risk aversion, deterrence, monetary penalties versus detection
2009-10

Défaut de paiement stratégique et loi sur les défaillances d’entreprises

Bertrand Chopard, Eric Langlais

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Abstract
L’enseignement qui est habituellement retenu des travaux empiriques réalisés à la suite de La Porta, Lopez-de-Silanes, Shleifer et Vishny (1997), est qu’il convient de promouvoir un haut niveau de protection juridique des créanciers. A l’inverse de cette recommandation, certains pays européens (Royaume-Uni, Allemagne) ont pourtant récemment réformé leurs dispositifs touchant au droit des défaillances dans un sens qui les rapprochent de pays qui traditionnellement privilégient la préservation des emprunteurs (Etats-Unis, France). Ce papier propose une analyse du bénéfice social d’une telle orientation du droit de la défaillance, dans un modèle stylisé où la capacité de remboursement de l’emprunteur est une information privée. On étudie tout d’abord l’effet de l’orientation des règles juridiques (système pro-créanciers versus pro-débiteurs) sur le comportement des parties au contrat en fonction du type de concurrence bancaire. Nous discutons ensuite les instruments à la disposition des autorités judiciaires afin de garantir que l’évolution d’un système pro-créanciers vers un système pro-débiteurs dégage un bénéfice social. Nos résultats suggèrent qu’il existerait, en fonction de l’objectif assigné au droit, une cohérence entre l’orientation des dispositifs encadrant la défaillance et l’intensité de la concurrence bancaire.
Mot(s) clé(s)
2009-9

On unilateral divorce and the "selection of marriages" hypothesis

Eric Langlais

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Abstract
This paper revisits the issue of the unilateral divorce law, taking into account that: 1/ the decisions to engage in marriage and then to divorce or to stay married are fundamentally sequential decisions; 2/ household consumption has a large joint component, generating economies of scale. The unilateral divorce law is modelled through the combination of exclusive rights on the marriage dissolution and a monetary transfer to the parent having custody of the children. We analyze the influence of alternative compensation rules both in the short run (probability and efficiency of divorce) and in the long run (selection of marriages). We also show that a decrease in the costs of divorce proceedings has by no means commonplace consequences on marriage ontracting; particularly when consideration of parent's altruism and child support is introduced, more marriages are contracted when the cost of divorces decreases.
Mot(s) clé(s)
marriage models, unilateral divorce law, the parents'altruism and protective measures for children
2009-8

Legal Interpretative Process and Litigants’Cognitive Biases

Bruno Deffains, Eric Langlais

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Abstract
For contemporary legal theory, law is essentially an interpretative and hermeneutics practice (Ackerman (1991), Horwitz (1992)). A straightforward consequence is that legal disputes between parties are motivated by their divergent interpretations regarding what the law says on their case. This point of view fits well with the growing evidence showing that litigants’ cognitive performances display optimistic bias or self-serving bias (Babcock and Lowenstein (1997)). This paper provides a theoretical analysis of the influence of such a cognitive bias on pretrial negotiations. However, we also consider that this effect is mitigated because of the litigants’ confidence in their own ability to predict the verdict; we model this issue assuming that litigants are risk averse in the sense of Yaari (1987), i.e. they display a kind of (rational) probability distortion which is also well documented in experimental economics. In a model à la Bebcuck (1984), we show that the consequences of self-serving bias are partially consistent with the "optimistic model", but that parties’ risk aversion has more ambiguous/unpredictable effects. These results contribute to explaining that the beliefs in the result of the trial are not sufficient in themselves to understand the behaviors of litigants. As suggested by legal theory, the confidence the parties have in their beliefs is probably more important.
Mot(s) clé(s)
litigation, self-serving bias, risk aversion
2009-7

Defining sustainability objectives

Vincent Martinet

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Abstract
Two of the challenges of thinking sustainability are how to deal with potentially conicting issues and how to ensure intergenerational equity. In practice, policymakers define sustainability objectives by setting thresholds that act as constraints on indicators. When defining a specific objective, they usually do not take into account either potential conflicts with other objectives or the diffculty to achieve all of them over time. In this paper, we propose an approach that defines sustainability objectives represented by a set of constraints on indicators and their associated thresholds. This approach meets the challenges of sustainability because objectives are defined such that all the constraints can be satisfied at all times. The thresholds are interpreted as minimal rights to be guaranteed to all generations, in a Rawlsian equity perspective. To define them, we have developed a criterion, which is, from a mathematical point of view, a "generalized" maximin. Applying the criterion is a two-step process. Firstly, the set of achievable objectives, given the endowment of the economy, is defined, revealing the necessary trade-offs between them. Secondly, a static optimization of sustainability preferences on that set results in the proposed definition of sustainability objectives. We illustrate this approach by applying it to a canonical model often used to investigate sustainability issues (Dasgupta-Heal-Solow model; Review of Economic Studies 1974). We emphasize the relevance of this approach because it rationalizes the practice of using indicators to deal with sustainability in terms of the given challenge. We also discuss how to apply our approach to real sustainability issues.
Mot(s) clé(s)
sustainability, indicators, intergenerational equity, criterion, minimal rights, viability
2009-6

Mesure de la performance des banques dans une zone d'ancrage monétaire: cas de la France et des pays de l'UMOA

Akassi Sandrine Kablan

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Abstract
Our study aims at measuring banking system efficiency for France and WAMU, by isolating environmental specificities to each region. Our results show that the two banking systems have quite close efficiency scores about 80%. As their french counterparts, WAMU banks are efficient; however this assertion is true in regarding the environment in which they evolve. Indeed, those banks transform collected deposits in short term loans or loans to big foreign corporations, that they are sure to recover lent amounts. This situation has the following effect: a significant part of entreprises (smal and medium ones) are under funded. The comparison of the two banking systems lead us to suggest that monetary and financial authorities implement reforms. Those reforms inspired by french ones and adapted to the WAMU specificity and environement, would help the banking system of the zone to effectively play its financial intermediary role.
Mot(s) clé(s)
anchorage monetary zone, banking efficiency, stochastic frontier analysis
2009-5

Une mesure financière de l’importance de la prime de risque de change dans la prime de risque boursière

Salem Boubakri

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Abstract
This study tests an international extension of the Asset Pricing Model (CAPM) based on the coexistence of two risk causes. The first cause is linked to the market portfolio and the second one is required by expectations about the variation of exchange rates. Through an application to various developed and emerging countries, we show that the exchange risk premium in the ICAPM is statistically and economically significant and contribues to the formation of the total risk premium by using the conditional approach of exchange rate variations.
Mot(s) clé(s)
Exchange risk premium, Purchasing Power Parity, conditional International Capital Asset Pricing Model (ICAPM)
2009-4

Media Bias in Financial Newspapers: Evidence from Early 20th Century France

Vincent Bignon, Antonio Miscio

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Abstract
The financial market was very developed in France in the years before World War I and subsequently many newspapers provided information to investors. Yet, contemporaries blamed the inaccuracy and biases of the financial press. This study implements a quantitative test to assess this judgment. The results show that although the firms’ media coverage were impacted by the fact that firms paid to appear in newspapers, the performance of the firms selected by the media was pretty good. A better explanation of the bias is then that newspapers choose firms according to their editorial policy and that they were able to make firms paid for that.
Mot(s) clé(s)
Media coverage, financial newspapers, media bias, information on the financial market
2009-3

The Crux of the Matter: Ratings and Credit Risk Valuation at the heart of the Structured Finance Crisis

Michel Aglietta, Ludovic Moreau, Adrian Roche

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Abstract
The 2007/2008 global credit crisis was born out of opaque securitization transactions. Introducing structured products risk estimation techniques shows how the most basic investment analysis could not be done without detailed and updated knowledge on the assets of the pool. Access to such details was crucial for investors to perform an autonomous valuation, the lack of which led to a pervading acceptance of ratings at face value. The crisis brought numerous delusions to naïve users of these privately issued opinions. Coming back to the central role that investor played during the previous speculative episode and introducing a theoretical discussion on the dynamics of market finance, it is shown that trusting market discipline and due diligence was bound to end up being misguiding. Given that unprecedented rating volatility brought a share of the blame game to rating firms, strategies that would aim at securing an informed use of ratings are finally outlined.
Mot(s) clé(s)
financial crisis, credit risk, rating agencies
2009-2

Cigarette Money and Black Market Prices around the 1948 German Miracle

Vincent Bignon

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Abstract
This paper is an empirical study of the distribution of black prices among 120 Bavarian locations at two dates, the beginning of July, 1947 and the end of June, 1948. It shows huge differences in the liquidity of those goods either when measured with the coefficient of variation or the number of locations in which those goods were traded. The main finding is that liquidity of cigarette was very high either when measured by the coefficient of variation and or the number of counties that traded them. This made them special, even when compared with a pure fiat object such as the US dollar. Consistently with the insights of the modern theory of money, the high liquidity of cigarettes is indicative of its use as money.
Mot(s) clé(s)
2009-1

Médecins généralistes à faibles revenus : une préférence pour le loisir ?

Anne-Laure Samson

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Abstract
Cet article s'intéresse à l'existence d'une importante minorité de médecins généralistes à faibles revenus. 5 à 7% de l'ensemble des médecins généralistes ont des revenus nets mensuels inférieurs à 1,5 SMIC. Leurs faibles revenus persistent sur une grande partie de leur carrière. Ces médecins sont plus fréquemment des femmes et des médecins exerçant dans des départements où la densité médicale est forte mais où la qualité de vie est également meilleure. Nous évaluons dans quelle mesure les revenus plus faibles de ces médecins résultent de leur plus grande préférence pour le loisir. Une analyse économétrique permet de tester s'ils travaillent peu par choix ou parce qu'ils y sont contraints. Nous estimons un modèle en taux de croissance qui permet d'étudier leur réaction à un choc de demande. Nous montrons qu'ils ne réagissent jamais à une variation positive de la demande, alors que cela pourrait contribuer à augmenter le niveau de leurs revenus. Leur activité n'est sensible qu'à des variations négatives de la demande. Ils diminuent leur activité lorsqu'ils y sont contraints. Les médecins à faibles revenus sont des médecins qui choisissent de travailler peu : répondre à la hausse de la demande de soins en augmentant leur activité réduirait leur utilité. Cette très faible activité reflète un avantage de la profession de médecin libéral : les médecins peuvent choisir de travailler peu.
Mot(s) clé(s)
GPs, self-employed, low-income physicians, target income, work-leisure trade-off, longitudinal data
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