Lisana B. Martinez

The (In)Visible Hand in the Libor Market: An Information Theory Approach

This paper analyzes several interest rates time series from the United Kingdom during the period 1999 to 2014. The analysis is carried out using a pioneering statistical tool in the financial literature: the complexity-entropy causality plane. This representation is able to classify different stochastic and chaotic regimes in time series. We use sliding temporal windows to assess changes in the intrinsic stochastic dynamics of the time series. Anomalous behavior in the Libor is detected, especially around the time of the last financial crisis, that could be consistent with data manipulation.

A Permutation Information Theory Tour Through Different Interest Rate Maturities: The Libor Case

This paper analyses Libor interest rates for seven different maturities and referred to operations in British pounds, euros, Swiss francs and Japanese yen, during the period 2001–2015. The analysis is performed by means of two quantifiers derived from information theory: the permutation Shannon entropy and the permutation Fisher information measure. An anomalous behaviour in the Libor is detected in all currencies except euros during the years 2006–2012. The stochastic switch is more severe in one, two and three months maturities. Given the special mechanism of Libor setting, we conjecture that the behaviour could have been produced by the manipulation that was uncovered by financial authorities. We argue that our methodology is pertinent as a market overseeing instrument.

Efficiency and Credit Ratings: A Permutation-Information-Theory Analysis

The role of credit rating agencies has been under severe scrutiny after the subprime crisis. In this paper we explore the relationship between credit ratings and informational efficiency of a sample of thirty nine corporate bonds of US oil and energy companies from April 2008 to November 2012. For that purpose, we use a powerful statistical tool relatively new in the financial literature: the complexity-entropy causality plane. This representation space allows to graphically classify the different bonds according to their degree of informational efficiency. We find that this classification agrees with the credit ratings assigned by Moodys. Particularly, we detect the formation of two clusters, that correspond to the global categories of investment and speculative grades. Regarding to the latter cluster, two subgroups reflect distinct levels of efficiency. Additionally, we also find an intriguing absence of correlation between informational efficiency and firm characteristics. This allows us to conclude that the proposed permutation-information-theory approach provides an alternative practical way to justify bond classification.

Firm-Level Determinants of the Financing Decisions of Small and Medium Enterprises: Evidence from Argentina

ABSTRACT This article studies the determinants of the financing decisions of small and medium enterprises (SMEs), which we characterize through three cases: trade-off behavior, pecking order, and extreme aversion to debt. We test our hypotheses using a dataset of firms from Bahía Blanca (Argentina) for two years: 2006 and 2010. We find that firm characteristics related to information asymmetries, such as firm age, size, and legal form; and personal factors, such as owner’s age and education; and perception of emotional bankruptcy costs, are relevant variables in SME financing behavior. The recognition of extreme aversion to debt motivates reconsideration of the underleverage problem of SMEs.

The Impact of the Financial Crisis on the Long-Range Memory of European Corporate Bond and Stock Markets

This paper investigates the presence of long memory in corporate bond and stock indices of six European Union countries from July 1998 to February 2015. We compute the Hurst exponent by means of the DFA method and using a sliding window in order to measure long range dependence. We detect that Hurst exponents behave differently in the stock and bond markets, being smoother in the stock indices than in the bond indices. We verify that the level of informational efficiency is time-varying. Moreover we find an asymmetric impact of the 2008 financial crisis in the fixed income and the stock markets, affecting the former but not the latter. Similar results are obtained using the R/S method.

Sovereign Bond Spreads Evolution in Latin American Countries

This paper presents an empirical analysis related to sovereign bond spreads variations of seven Latin American countries during 2000 to 2012. The self-organizing maps methodology allows identifying the similarities among the financial markets evolutions. Moreover, we detect the impact of the Argentina financial crisis and the recent contagion effect of the last financial crisis over the emerging region during the year 2009.

Are European sovereign bond spreads in concordance with macroeconomic variables evolution

The last great financial crisis which arose in the middle of 2007 in the USA produced contagion effects over others economies. The purpose of this paper is focused on analyzing the evolution of a set of economic variables of 17 European countries since 1991 until 2013. Sovereign bond spreads are also considered to compare the incidence of the financial crisis over the economies considering macroeconomics fundamentals and fixed bonds.,Self-organizing maps (SOMs) are used to achieve the purpose of the research. With this methodology, it is possible to analyze the evolution of the macroeconomic fundamentals of each country, obtaining particular and general conclusions according to the position of each country in the SOM. Moreover, the countries are compared between them and with its respective sovereign bond spreads level for each year of analysis.,The impact of the crisis is different between the countries was analyzed. Belonging to the European Monetary Union is an interesting characteristic of some of the most affect economies.,This research presents wide implications for the economies to control the most vulnerable economic variables in front of financial crisis to prevent the contagion effect. The inclusion of more economic variables and countries could enhance the study.,This research analyzes the relationship between macroeconomic variables and sovereign bond spreads using an infrequent methodology. The results obtained are valuable because they highlight how the present crisis has differently affected the European countries.

Delving into the Secular Stagnation Hypothesis: A Firm-Level Analysis of the Private Sector’s Excess Savings in Advanced Economies

We document a persistent increase in excess savings (defined as the difference between gross savings and capital formation) and a steady decline of gross capital formation in a sample of non-financial firms from developed countries. These patterns developed even before the financial breakdown of 2007 reinforcing the case for a secular stagnation hypothesis. They go along with a deleveraging process and a decrease in the share of operating assets in total assets. We discuss three possible explanations for this long-term behavior: financial constraints, operative volatility, and the weakening of business dynamism itself.

Sovereign Bond Spreads and Economic Variables of European Countries Under the Analysis of Self-organizing Maps

This paper presents an empirical analysis related to sovereign bond spreads and a set of economic variables since 1999 until 2013 for a sample of European countries. The analysis is carried out using an original tool in the financial literature: Self-Organizing Maps. This representation is able to cluster countries-years according to the similarities between their main macroeconomic fundamentals. We find interesting groups of countries and we relate them with their level of sovereign bond spreads. The results reflect the incidence of the last financial crisis over the economies and the effect over the eurozone.

What are the causes of the growing trend of excess savings of the corporate sector in developed countries? An empirical analysis of three hypotheses

This paper analyzes annual accounting data for a sample of 5,000 publicly traded manufacturing firms from Germany, France, Italy, Japan, and the United Kingdom. The analysis uses data from 1997 to 2011 and finds an increasing trend of excess savings (defined as the difference between gross saving and capital formation) and a gradual decline of gross capital formation. This trend is accompanied by a steady deleveraging process and a decrease in the share of operating assets in total assets. This process is more acute among the more credit constrained, the more volatile, and the less dynamic firms.