sovereign ratings and their asymmetric response to fundamentals abstract the evolution of sovereign ratings is strongly asymmetric as downgrades tend to be deeper and faster than upgrades in other words once a country loses its initial status it takes a long time to recover it using s p data we characterize rating cycles in terms of their duration and amplitude then we study whether the reaction of this agency to new domestic economic and financial information is also different during upgrade and downgrade phases our results indicate that favorable fundamentals could be helpful in terms of smoothing and slowing down rating downgrades whereas they do not seem to accelerate rating upgrades

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

globalisation institutional structures and real estate markets in central european cities this paper examines the urban development process in post socialist cities of budapest prague and warsaw in the context of economic globalisation and societal transformation several factors have helped to shape the post socialist cities of central europe since the end of the 1980s these include political transformation economic change restitution privatisation price liberalisation and decentralisation of local government it is argued that local government administrative and planning structures have been ill prepared in meeting the requirements of international investment capital in a co ordinated and effective manner institutional constraints has promoted an organic form of urban development primarily determined through the international demand for and supply of commercial and retail space

good ipos draw in bad inelastic banking capacity and hot markets we posit that screening ipos requires specialized labor which is in fixed supply a sudden increase in demand for ipo financing increases the compensation of ipo screening labor this results in reduced screening encouraging sub marginal firms to enter the ipo market further fueling the demand for screening labor the model s conclusions are consistent with empirical findings of increased underpricing during hot markets positive correlation between issue volume and underpricing and with tipping points between hot and cold markets finally the model makes sharp predictions relating the ipo market to fundamental values of firms and to investment banking returns

economic policy uncertainty and sovereign credit rating decisions panel quantile evidence for the eurozone we employ a panel quantile framework that quantifies the relative importance of quantitative and qualitative factors across the conditional distribution of sovereign credit ratings in the eurozone area we find that regulatory quality and competitiveness have a stronger impact for low rated countries whereas gdp per capita is a major driver of high rated countries a reduction in the current account deficit leads to a rating or outlook upgrade for low rated countries economic policy uncertainty impacts negatively on credit ratings across the conditional distribution however the impact is stronger for the lower rated countries in other words the creditworthiness of low rated countries takes a much bigger hit than that of high rated countries when european policy uncertainty is on the rise

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

evaluation of investor behaviour in urban regeneration the financing of urban regeneration and levering of private sector investment remains a major policy issue this article utilising the results of a behavioural survey analyses the motivations of

the role and behaviour of commercial property investors and developers in french urban regeneration the experience of the paris region summary this paper provides an analysis of the factors underlying private investment decisions concerning property development with specific reference to urban regeneration in the french context it is based on the results of a behavioural survey and mca analysis of the behaviour patterns and motivations of active private investors and developers in the french commercial property markets and their involvement in french urban regeneration initiatives the pattern of investment and development activity over the 1997 2002 french property market recovery period has been studied and a typology of actors set up based on their investment policy for these property markets the findings indicate that property investors in urban regeneration essentially seek speculative developments and short term investments

a public good approach to credit ratings from concept to reality abstract from the onset of the 2008 2009 financial crisis to the subsequent european sovereign debt crisis credit rating agencies have been assigned considerable blame reforming the credit rating industry has hence become an important policy issue in addition to the regulatory efforts in the context of accepting the for profit business model of ratings there is a growing realization that credit ratings bear the characteristics of a public good financial market participants need reliable transparent and independent assessment of credit risks credit ratings are therefore better viewed as an infrastructure matter however the proposed regulations seem to have missed this point this paper introduces a new approach to credit ratings undertaken by the risk management institute at the national university of singapore that is predicated on the provision of credit ratings as a public good with a public good alternative in place the currently predominant for profit business model may be counterbalanced

last bank standing what do i gain if you fail banks are highly leveraged institutions potentially attracted to speculative lending even without deposit insurance a counterbalancing incentive to lend prudently is the risk of loss of charter value which depends on future rents we show in a dynamic model that current concentration does not reduce speculative lending and may in fact increase it in contrast a policy of temporary increases in market concentration after a bank failure by promoting a takeover of failed banks by a solvent institution is very effective by making speculative lending decisions strategic substitutes it grants bankers an incentive to remain solvent subsequent entry policy fine tunes the trade off between the social costs of reduced competition and the gain in stability

asset portfolio securitizations and cyclicality of regulatory capital this paper analyzes the level and cyclicality of regulatory bank capital for asset portfolio securitizations in relation to the cyclicality of capital requirements for the underlying loan portfolio as under basel ii iii we find that the cyclicality of capital requirements is higher for i asset portfolio securitizations relative to primary loan portfolios ii ratings based approach rba relative to the supervisory formula approach iii given the rba for a point in time rating methodology relative to a rate and forget rating methodology and iv under the passive reinvestment rule relative to alternative rules capital requirements of the individual tranches reveal that the volatility of aggregated capital charges for the securitized portfolio is triggered by the most senior tranches this is due to the fact that senior tranches are more sensitive to the macroeconomy an empirical analysis provides evidence that current credit ratings are time constant and that economic losses for securitizations have exceeded the required capital in the recent financial crisis

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

does the market understand rating shopping predicting mbs losses with initial yields we study rating shopping on the mbs market outside of aaa losses are higher on single rated tranches than on multi rated ones and yields predict future losses for single rated tranches but not for multi rated ones conversely ratings have less explanatory power for single rated tranches these results suggest that single rated tranches have been shopped whereby pessimistic ratings never reach the market for aaa rated mbs by contrast 93 receive two or three such ratings and those ratings agree 97 of the time this ratings convergence suggests that agencies cater to investors who cannot purchase a tranche unless it has multiple aaa ratings

institutions in british property research a review this paper surveys approaches to the study of institutions as used in recent commercial property research in britain institutional analysis can be approached from mainstream economics power str

rating the raters are reputation concerns powerful enough to discipline rating agencies abstract credit rating agencies cras are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products in response to this accusation cras argue that such an attitude would be too dangerous for them since their reputation is at stake the objective of this article is to examine the validity of this argument within a formal model are reputation concerns sufficient to discipline rating agencies we show that the reputation argument only works when a sufficiency large fraction of the cra income comes from other sources than rating complex products by contrast when rating complex products becomes a major source of income for the cra we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough we provide some empirical support for this prediction by showing that ceteris paribus the proportion of subprime residential mortgage backed securities rmbs that were rated aaa by the three main cras indeed increased over the last eight years we analyze the policy implications of our findings and advocate for a new business model of cras that we call the platform pays model

the value of delegated quality control this paper studies the case in which a firm delegates quality control to an independent monitor in a repeated game consumers trust provides incentives to acquire information about whether the good is defective and withhold defective goods from sale if third party reports are observable to consumers delegation lessens the first and dispenses with the second moral hazard concern but also creates agency costs internal quality control is optimal only if trades are sufficiently frequent and consumer information is sufficiently precise this result holds in the presence of the possibility of collusion fully non verifiable presale information and economies of scale in external quality control

countering decline of industrial sites do local economic development policies target the neediest places local economic development is a much used tool for the regeneration of urban areas although the designation and effectiveness of local economic development policies has been studied extensively in

ratings quality over the business cycle credit rating agencies cras have long held that reputational concerns discipline their behavior the value of reputation however depends on economic fundamentals that vary over the business cycle in a model of ratings incorporating endogenous reputation and a market environment that varies we find that ratings quality is countercyclical specifically a cra is more likely to issue less accurate ratings when fee income is high competition in the labor market for analysts is tough and securities default probabilities are low persistence in economic conditions can diminish our results while mean reversion exacerbates them the presence of naive investors reduces overall quality but quality remains countercyclical finally we demonstrate that competition among cras yields similar results

correlated demand shocks and price wars during booms the supergame theoretic model of price competition rotemberg and saloner 1986 is re examined in the case of serially correlated demand shocks the equilibrium price is shown to exhibit the same counter cyclical movement as in the i i d case if the discount factor and the number of firms satisfy certain relationship

does sovereign risk in local and foreign currency differ abstract sovereign debt in local currency has been considered safer than in foreign currency the literature offers scant guidance as to why such a gap existed or why it has slowly and steadily diminished over the past two decades we suggest and empirically test five hypotheses we find fx reserves and original sin greater financing in local currency to consistently be robust determinants of the gaps in local and foreign currency ratings as for why the gap has declined we identify as important factors the surge in global reserves and to a lesser extent the decline of original sin

urban regeneration and the development industry healey p 1991 urban regeneration and the development industry reg studies 25 97 108 this paper examines a key assumption of urban policy in britain in the 1980s this assumption is that urba

cdos and the financial crisis credit ratings and fair premia abstract we study risk and return characteristics of cdos using the market standard models we find that fair spreads on cdo tranches are much higher than fair spreads on similarly rated corporate bonds our results imply that credit ratings are not sufficient for pricing which is surprising given their central role in structured finance markets this illustrates limitations of the rating methodologies that are solely based on real world default probabilities or expected losses and do not capture risk premia we also demonstrate that cdo tranches have large exposure to systematic risk and thus their ratings and prices are likely to decline substantially when credit conditions deteriorate

ratings competition in the cmbs market we consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage backed securities cmbs using data from 2002 to 2007 we characterize competition using fitch s aggregate share of cmbs ratings and a measure of fitch s deal specific market share constructed as the probability of fitch being hired for a specific transaction controlling for deal characteristics we find that subordination levels were lower when fitch s aggregate and deal specific market shares were higher which suggests that ratings competition yielded less stringent ratings when fitch was a more significant competitor although this effect dissipates when fitch s market shares were high

territorial competition and property market process an exploratory analysis this paper argues that the emerging research on territorial competition should be supplemented by an explicit consideration of the role of real property and property market process in shaping urb

cointegration analysis of the advertising sales relationship the examination of stochastic properties of the annual advertising and sales data from the lydia pinkham company reveals that the series are cointegrated and therefore possess a long run equilibrium condition according to the estimates of the error correction model of the series in the short run advertising is found to be more responsive than sales in adjustments to eliminate departures from the long run equilibrium condition the author s analysis in general implies that the observed business firms decision rules fixing advertising spending as a percentage of sales revenue may hold as a long run equilibrium condition copyright 1991 by blackwell publishing ltd

on the effect of aggregate uncertainty on certification intermediaries incentives to distort ratings abstract we analyze a certification intermediary s incentives to distort ratings in a model with a monopolistic profit maximizing certification intermediary a continuum of heterogeneous sellers and a competitive market of risk neutral buyers the value of a seller s good is known to the seller and observable by the certifier but not by buyers sellers can choose to get a rating the certification intermediary can reveal a signal of arbitrary precision about the quality of the good in contrast to the existing literature we allow aggregate uncertainty as in the existing literature one rating class is optimal however the certification intermediary does not generally choose a socially optimal cutoff the certifier is more likelyto be too lenient if the distribution of aggregate uncertainty has a lower mean a higher variance and is more left skewed it is more likely to be too strict if the opposite holds

estimating the costs of issuer paid credit ratings we compare the stability and timeliness of credit ratings produced by a traditional issuer paid rating agency moody s investors service and a subscriber paid rater rapid ratings moody s ratings exhibit less volatility but are slower to identify default risk we control for moody s aversion to ratings volatility and still find its ratings lag rapid ratings more importantly accuracy ratios indicate that rapid ratings provides a better ordinal ranking of credit risk we quantify the loss avoidance associated with rapid ratings signals to estimate costs associated with regulatory and contractual systems based on issuer paid ratings the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

tacit collusion under interest rate fluctuations previous literature has shown that demand fluctuations affect the scope for tacit collusion i study whether discount factor fluctuations can have similar effects i find that collusion depends not only on the level of the discount factor but also and more surprisingly on its volatility collusive prices and profits increase with a higher discount factor level but decrease with its volatility these results have important implications for empirical studies of collusive pricing the role that collusive pricing may play in economic cycles and the study of cooperation in repeated games

reputation and competition this paper shows how competition generates reputation building behavior in repeated interactions when the product quality observed by consumers is a noisy signal of firms effort level there are two types of firms and good firms try to distinguish themselves from bad firms although consumers get convinced that firms which are repeatedly successful in providing high quality are good firms competition endogenously generates the outside option inducing disappointed consumers to leave firms this threat of exit induces good firms to choose high effort allowing good reputations to be valuable but its uncompromising execution forces good firms out of the market jel c7 d8

imperfect competition and reputational commitment abstract competition can both aid and hinder reputational commitments for quality these are self sustaining depending on future profits after maintaining or deviating from the commitment and on current costs of sustaining it competition can affect these three elements at different rates

evaluating the links between housing change and economic change housing policy has been a long standing and significant element in the regeneration of cities housing change is seen as an important element of regeneration in itself but is further seen to have wider impacts on the economy of urban areas the dimensions of these impacts are explored in the paper and a framework for evaluating the scale of the spillover effects from housing policy is discussed evidence is drawn largely from the glasgow and scottish experience evidence of the role of housing in facilitating a city response to economic restructuring is argued to be weak but rational policy development requires that it be better understood

traders vs relationship managers reputational conflicts in full service investment banks we present a model that explains why investment bankers struggle to manage conflicts of interest banks can build a type reputation for technical competence by performing complex deals that may not serve their clients interest on the other hand banks can sustain a behavioral reputation by refraining from doing so a behavioral reputation is a luxury reserved for banks that have proven their abilities the model sheds light on conflicts between the trading and advisory divisions of investment banks as well as the consequences of technological change for time variation in the relative strength of behavioral and type reputation concerns

investigating the advertising sales relationship in the lydia pinkham data a bootstrap approach the dynamic relationship between advertising and sales in the annual lydia pinkham data is re evaluated past studies have found a feedback system although one way causality from advertising to sales is expected the bootstrap method is used in this paper as an alternative to the asymptotic method exclusively adopted by past studies the impulse response analysis based on bivariate autoregressive ar model is conducted bootstrap after bootstrap confidence intervals on impulse responses provide evidence that sales do not cause advertising contrary to the findings of past studies comparison of bootstrap after bootstrap prediction intervals calculated from univariate and bivariate ar models further supports this finding overall this paper finds evidence of one way causality from advertising to sales

ratings shopping and asset complexity a theory of ratings inflation abstract many identify inflated credit ratings as one contributor to the recent financial market turmoil we develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation in the model asset issuers can shop for ratings observe multiple ratings and disclose only the most favorable before auctioning their assets when assets are simple agencies ratings are similar and the incentive to ratings shop is low when assets are sufficiently complex ratings differ enough that an incentive to shop emerges thus an increase in the complexity of recently issued securities could create a systematic bias in disclosed ratings despite the fact that each ratings agency produces an unbiased estimate of the asset s true quality increasing competition among agencies would only worsen this problem switching to an investor initiated ratings system alleviates the bias but could collapse the market for information

contracting to compete for flows abstract we present a model in which asset managers design their contracts to attract flows of investor capital we find that they make their contracts depend on public information e g credit ratings or benchmark indices as a way to attract flows rather than as a way to mitigate incentive problems as has been emphasized in the literature unfortunately asset managers competition for flows triggers a race to the bottom asset managers use public information in their contracts even though it is socially inefficient this inefficiency arises because contracting on public information prevents risk sharing

disclosure policy and industry fluctuations this paper examines voluntary disclosures in a repeated oligopoly and their association with price setting behavior and industry profits along industrial fluctuations the analysis focuses on the collectively optimal equilibrium among oligopoly firms we show that in industries that are highly concentrated or feature low cost of capital nondisclosure is prevalent and results in stable product prices and high profit margins otherwise firms may selectively disclose to soften competition in the product market under partial disclosure firms withhold information during sharp industry expansions or declines consequently the disclosure policy dampens the dissemination of shocks to the industry this paper was accepted by mary barth accounting

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

credit rating industry a helicopter tour of stylized facts and recent theories the recent subprime crisis and the ongoing euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens as a consequence we have seen an explosion of the economic literature on the industry the objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry

financing property s contribution to regeneration attracting investment and finance into inner city and other renewal areas poses particular difficulties and is frequently reliant on strong public sector commitment through special incentives or other mechanisms to provide the conditions to lever private sector activity this paper initially links the concept of market failure and the rationale for regeneration and examines policy responses from uk european and us perspectives followed by a consideration of public and private sector financing approaches international perspectives draw particularly upon the use of tax based mechanisms in regeneration notably those used in the us in the european context the paper highlights implications for regeneration stemming from the interpretation of state aid rules and competition policy conclusions reflect upon the complexity of regeneration and the importance of the different stakeholders within the regeneration process

collusion over the business cycle we present a theory of collusive pricing for markets in which demand alternates stochastically between fast growth boom and slow growth recession phases we show that 1 the most collusive prices are weakly procyclical countercyclical when demand growth rates are positively negatively correlated through time and 2 the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases we also offer a generalization of rotemberg and saloner s 1986 model interpreting their findings in terms of transitory demand shocks that occur within broader business cycle phases

a theoretical framework for the functioning of the dutch property market in this article a theoretical framework will be presented to aid understanding of the functioning of property markets more particularly the dutch property market it will be argued that traditional urban economic theories are not able to explain the structure and processes of the built environment in the dutch case we are confronted with two problems first to find a way in which urban economic theories designed for a context of cities in great britain and the us can be used to explain urban development that takes place in the different context of dutch cities and secondly to formulate a set of hypotheses appropriate for the dutch property market the hypotheses concern the strategies of individual actors on the property market and the underlying factors it is concluded that in general the relation between institutional structure and property development has been neglected both because of insufficient attention from economic scientists and because empirical research is very complicated

bank ratings what determines their quality this paper examines the quality of credit ratings assigned to banks by the three largest rating agencies we interpret credit ratings as relative assessments of creditworthiness and define a new ordinal metric of rating error based on banks expected default frequencies our results suggest that on average large banks receive more positive bank ratings particularly from the agency to which the bank provides substantial securitization business these competitive distortions are economically significant and contribute to perpetuate the existence of too big to fail banks we also show that overall differential risk weights recommended by the basel accords for investment grade banks bear no significant relationship to empirical default probabilities harald hau sam langfield and david marques ibanez

honest certification and the threat of capture abstract this paper derives conditions under which reputation enables certifiers to resist capture these conditions alone have strong implications for the industrial organization of certification markets 1 honest certification requires high prices that may even exceed the static monopoly price 2 honest certification exhibits economies of scale and constitutes a natural monopoly 3 price competition tends to a monopolization the results derive from a general principle of reputation models that favors concentration this principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms