A VARMA analysis of the causal relations among stock returns, real output, and nominal interest rates

Article Abstract:

A negative relation between common stock returns and inflation has been shown in previous research, with it argued that the relation is the result of a more fundamental one between real activity and expected inflation. It has been argued further that stock returns signal changes in real activity, resulting in expected inflation being affected, but that changes in real activity result in changes in money supply growth, further affecting expected inflation. Each link in the causal chain proposed has been analyzed separately by empirical tests, but here the relations among stock returns, real activity, inflation and money supply changes are investigated simultaneously using a vector autoregressive moving average (VARMA) model, the results of which strongly support the previously-proposed reversed causality model.

Methods, Stocks, Stock-exchange, Stock exchanges, Interest rates, Financial research

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Bank debt restructurings and the composition of exchange offers in financial distress

Article Abstract:

This article examines the relation between bank debt forgiveness and the structure of public debt exchange offers in financial distress. I find that the structure of exchange offers and the likelihood of an offer's success are significantly related to whether the bank participates in the restructuring transaction. Exchange offers made in conjunction with bank concessions are characterized by significantly greater reductions in public debt outstanding and significantly less senior debt offered to bondholders. Overall, the results suggest that the structure of a firm's public and private claims significantly affects the firm's ability to modify its capital structure in financial distress. (Reprinted by permission of the publisher.)

Analysis, National debt, Public debts, External debt relief, Debt relief, Debt financing (Corporations), Debt financing, Bank loans

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The losses realized in bank failures

Article Abstract:

This paper examines the losses realized in bank failures. Losses are measured as the difference between the book value of assets and the recovery value net of the direct expenses associated with the failure. I find the loss on assets is substantial, averaging 30 percent of the failed bank's assets. Direct expenses associated with bank closures average 10 percent of assets. An empirical analysis of the determinants of these losses reveals a significant difference in the value of assets retained by the FDIC and similar assets assumed by acquiring banks. (Reprinted by permission of the publisher.)

Commercial Banks, Federal savings institutions, Banking industry, Finance, Bank failures, Bank assets

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