Issuers’ credit risk and pricing of warrants in the recent financial crisis
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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in: Journal of Risk Finance, Jahrgang 16, Nr. 4, 17.08.2015, S. 444-462.
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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TY - JOUR
T1 - Issuers’ credit risk and pricing of warrants in the recent financial crisis
AU - Schertler, Andrea
AU - Störch, Saskia
N1 - Publisher Copyright: © 2015, © Emerald Group Publishing Limited.
PY - 2015/8/17
Y1 - 2015/8/17
N2 - Purpose – The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010. Design/methodology/approach – Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations. Findings – Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations. Research limitations/implications – These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper. Originality/value – Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.
AB - Purpose – The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010. Design/methodology/approach – Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations. Findings – Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations. Research limitations/implications – These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper. Originality/value – Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.
KW - Management studies
KW - Credit spread curve
KW - Crisis
KW - Fama–MacBeth estimations
KW - Warrants
UR - http://www.scopus.com/inward/record.url?scp=84996562113&partnerID=8YFLogxK
U2 - 10.1108/JRF-12-2014-0174
DO - 10.1108/JRF-12-2014-0174
M3 - Journal articles
VL - 16
SP - 444
EP - 462
JO - Journal of Risk Finance
JF - Journal of Risk Finance
SN - 1526-5943
IS - 4
ER -