Iuliana Ismailescu

Credit Default Swaps and the Market for Sovereign Debt

This paper analyzes the determinants and effect of credit default swap (CDS) trading initiation on sovereign bonds in 54 countries, focusing on market completeness, price efficiency and borrowing costs. We find that CDS initiation enhances market completeness in the majority of countries in our sample. Our results suggest that for high default risk and low financial openness countries, CDS initiation provides significant price efficiency benefits in the underlying market. In addition, we find that CDS initiation reduces risk premiums to investment-grade sovereigns while increasing borrowing costs for sub-investment-grade economies. CDS trading initiation is more likely following increases in local stock index volatility and the volatility risk premium and decreases in foreign currency reserves and the local currency exchange rate with the USD. Our results are robust to CDS initiation endogeneity controls constructed with these factors.

Redemption Fees and the Risk-Adjusted Performance of International Equity Mutual Funds

In the wake of the market timing and late trading mutual fund scandals, many mutual funds adopted redemption fees to limit market timing. In this paper we investigate the impact of redemption fees on the risk-adjusted performance of U.S. based international equity funds, the very funds that many market timers used. We find three interesting results. First, using event study methodology we find that after the introduction of redemption fee there is a significant increase in the risk-adjusted fund performance. Second, we find that funds that introduced larger-size redemption fees have significantly better performance after the introduction of the redemption fee than other funds. Third, we find that the main reason for the improvement in fund performance after the introduction of the redemption fee is due to lower amounts of cash being held by the fund after the redemption fee. In sum our results suggest that implementation of redemption fees are performance enhancing for international equity funds. As such, long-term investors of international equity funds should actively look for international equity funds that have redemption fees.

DETERMINANTS OF THE TIME-VARIATION IN EMERGING- MARKET CLOSED-END FUND PREMIUMS: A COMPARISON BETWEEN EQUITY AND BOND FUNDS

This paper explores the determinant factors of the time-variation in emerging markets closed-end fund premiums, price returns, and NAV returns. After controlling for variables previously proposed in the emerging market closed-end funds literature, such as the U.S. stock market risk, local stock market return, and the percentage change in exchange rates, two hypothesis are used to explain the variation in fund premiums: the U.S. investor sentiment and the market segmentation theory. The results of the time-series analyses show that country funds, regional equity funds, and global bond funds are influenced quite differently by the suggested factors.