Zeno Adams

Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach

In this paper, we develop a state-dependent sensitivity value-at-risk (SDSVaR) approach that enables us to quantify the direction, size, and duration of risk spillovers among financial institutions as a function of the state of financial markets (tranquil, normal, and volatile). Within a system of quantile regressions for four sets of major financial institutions (commercial banks, investment banks, hedge funds, and insurance companies) we show that while small during normal times, equivalent shocks lead to considerable spillover effects in volatile market periods. Commercial banks and, especially, hedge funds appear to play a major role in the transmission of shocks to other financial institutions. Using daily data, we can trace out the spillover effects over time in a set of impulse response functions and find that they reach their peak after 10 to 15 days.

The Sources of Risk Spillovers among U.S. REITs: Financial Characteristics and Regional Proximity: Sources of Risk Spillovers among U.S. REITs

In this article, we estimate the risk spillovers among 74 U.S. Real Estate Investment Trusts (REITs) using the state�?dependent sensitivity value�?at�?risk approach. This methodology allows for the quantification of the spillover size as a function of a companys financial condition. We show that the size of risk spillovers is more than twice as large when REITs are in financial distress and find evidence for the impact of geographical proximity. Our results provide new insights concerning the relevance of geographical diversification for REITs and have important implications for the investment and risk management decisions of real estate investors, mortgage lenders, home suppliers and policy makers.

Has Crude Oil Become a Financial Asset? Evidence from Ten Years of Financialization

The financialization of crude oil markets over the last decade has changed the behavior of oil prices in fundamental ways. In this paper, we uncover the gradual transformation of crude oil from a physical to a financial asset. Although economic demand and supply factors continue to play an important role, recent indicators associated with financialization have emerged since 2008. We show that financial variables have become the main driving factors explaining the variation in crude oil returns and volatility today. Our findings have important implications for portfolio analysis and for the effectiveness of hedging in crude oil markets.

Estimating the Arbitrage Pricing Theory Factor Sensitivities Using Quantile Regression

One of the main insights from over 50 years of portfolio theory is the fact that investors should not hold single securities but should invest in large portfolios. The idiosyncratic risks that affect asset returns on an individual level cancel out so that only systematic risks affecting all assets in the economy have to be considered. The capital asset pricing model (CAPM) (Sharpe 1964; Lintner 1965; Black 1972) laid the cornerstone for the theory of asset pricing which has been replaced in the following years by the Fama-French model (Fama and French 1993) and the arbitrage pricing theory (APT) starting with Ross (1976).1