Papers by Lawrence Kryzanowski
SSRN Electronic Journal, 2017
On the basis of the documented oligopolistic structure of the CDS and Loan CDS markets, we formul... more On the basis of the documented oligopolistic structure of the CDS and Loan CDS markets, we formulate a Cournot-type oligopoly market equilibrium model on the dealer side in both markets. We also identify significantly positive and persistent earnings from a simulated portfolio of a very large number of matured contracts in the two markets with otherwise identical characteristics, which are robust in the presence of trading costs. The oligopoly model predicts that such profitable portfolios are consistent with the oligopoly equilibrium solution and cannot be explained by alternative absence or limits of arbitrage theories.
Using a partial equilibrium model where the margin level is defined to be equivalent to the settl... more Using a partial equilibrium model where the margin level is defined to be equivalent to the settlement interval, we show that the effects of the margin requirement on both prices and price volatilities of bond futures depend on the autoregressive covariance structure of the interest rate process and on the margin level. While such effects are predictable, they may reverse themselves during the life of the futures contract. This result may explain the prolonged and unresolved debate in the literature about the empirical relationship between margin levels and volatility. This result confirms in part and generalizes the theoretical results of Hartzmark (1986) and Kupiec and Sharpe (1991). We also show by using simulations that margin requirements, as proxied by the settlement interval, have a positive effect on volatility and futures prices, and that they induce a leverage effect. Other results are that the futures price decreases with volatility, and that futures on longer term bonds have higher volatility. Margin Requirements, Bond Futures Prices and Volatilities 1.
This paper extends the literature dealing with the option to invest in a duopoly market for a lea... more This paper extends the literature dealing with the option to invest in a duopoly market for a leader-follower setting. A restrictive assumption embodied in the models in the current literature is that investment opportunities are semi-proprietary in that the two identified or positioned firms are guaranteed to hold at least the follower's position. More competition is realistically captured in our model by introducing the concept of hidden rivals so that the places in the market can be taken not only by positioned firm but also by these hidden competitors. The value functions and the optimal triggers for the positioned firms differ materially in settings with(out) the presence of hidden rivals. Unlike existing models, our model allows for (a)symmetric market shares and investment costs for the leader and the follower. Cooperative entrance by the two positioned firms is also modeled.
The Journal of Trading, 2017
We use the volume synchronized probability of informed trading (VPIN) to evaluate the performance... more We use the volume synchronized probability of informed trading (VPIN) to evaluate the performance of different trading strategies in an order-driven simulated market. The performance of this nonparametric metric is assessed in terms of informed traders exploiting its weaknesses when mimicking the trade behavior of uninformed traders and in its protection of market makers from the risk of trading with an informed trader. We show that an informed trader can accumulate a larger position while a pooling equilibrium holds by exploiting the VPIN structure, that the VPIN has a high rate of false-positives, and that it may detect informed trading under certain conditions.
We investigate how the optimal corporate debt maturity is influenced by the strength of creditor ... more We investigate how the optimal corporate debt maturity is influenced by the strength of creditor rights and the efficiencies of contract enforcement mechanisms. Using a correlated random effects specification, we find that across 42 countries stronger creditor rights are associated with shorter corporate debt maturities while greater contract enforcement leads to longer maturities. These empirical results are consistent with the differing effects of creditor rights and contract enforcement on the choice of corporate maturity predicted by our model. Our results are robust to using different measures of debt maturity, individual components of creditor rights and different measures of contract enforcement. Our results are mostly driven by developed country debt and hold with the inclusion of various controls.
The European Journal of Finance, 2021
We investigate if macro-level social capital, which captures the notions of trust and honesty, ha... more We investigate if macro-level social capital, which captures the notions of trust and honesty, has any effects on corporate payout policy. We find that firms situated in U.S. states (or counties) with higher levels of social capital (SC) have higher dividend payouts (DP). These results survive a battery of robustness tests dealing with inference and various forms of endogeneity. We find that the positive SC-DP association is more prominent when monitoring is weak. We also find that the positive SC-DP association remains when we account for internal social capital, political corruption, federal and state income taxes, and other possible dividend clienteles such as in-state pension funds and pension-age populations. Our study contributes to the literatures that regional locations and social considerations constitute clienteles who affect important corporate strategic decisions such as corporate payouts.
Finance Research Letters, 2020
Elsevier has created a COVID-19 resource centre with free information in English and Mandarin on ... more Elsevier has created a COVID-19 resource centre with free information in English and Mandarin on the novel coronavirus COVID-19. The COVID-19 resource centre is hosted on Elsevier Connect, the company's public news and information website. Elsevier hereby grants permission to make all its COVID-19-related research that is available on the COVID-19 resource centre-including this research content-immediately available in PubMed Central and other publicly funded repositories, such as the WHO COVID database with rights for unrestricted research re-use and analyses in any form or by any means with acknowledgement of the original source. These permissions are granted for free by Elsevier for as long as the COVID-19 resource centre remains active.
Journal of Financial Research, 2020
Business & Society, 2020
Using U.S. Department of Justice data on state-level political corruption, we find that, consiste... more Using U.S. Department of Justice data on state-level political corruption, we find that, consistent with the Harmful Corruption Environment Hypothesis (HCEH), firms situated in states with higher levels of corruption incur higher costs of equity (CoEs). These results are robust for additional controls, propensity score matching, use of instrumental variables, exogenous shocks, and alternate measures for main dependent and primary independent research variables. Our study extends the stream of literature that investigates the influence of local ethical or trust factors on CoE and complements works by El Ghoul and colleagues and Gupta and colleagues.
Journal of Corporate Finance, 2016
Using a unique, large, and partially hand-collected panel database of U.S. closed-end funds (CEFs... more Using a unique, large, and partially hand-collected panel database of U.S. closed-end funds (CEFs) during 1994–2013, we examine relations between board effectiveness and board structure. CEF boards with higher percentages of independent directors are associated with lower expense ratios and different CEF benchmark-adjusted returns, but not with CEF premiums. Thus, independent directors are more effective in monitoring and influencing fund performance measures that are less complex and more directly controllable (fees versus CEF returns). These results are consistent with theoretical and empirical findings in the literature that interested directors can better monitor and control firms with high degrees of information asymmetry, uncertainty, and require specialized knowledge to operate. Our results suggest that CEFs with higher board ownerships are better aligned with shareholders' interests. Ownerships of directors are positively and significantly associated with most variables that are expected to indicate greater value from the monitoring of directors. Using a dynamic panel two-step system generalized method of moments estimator, our results are robust in the presence of endogeneity concerns (reverse causality, unobserved heterogeneity, and simultaneity).
Finance Research Letters, 2017
We examine the correlations between bond markets, stock markets and currency forwards during the ... more We examine the correlations between bond markets, stock markets and currency forwards during the quantitative easing (QE) programs launched by the U.S. Federal Reserve. Using DCC-GARCH models, we document a spillover impact of QE on the international financial markets and find that these correlations differ by QE period across developed and emerging countries. Our findings provide new insights into the impact of unconventional monetary policy regimes on the relationships between various international financial asset markets.
Advances in Quantitative Analysis of Finance and Accounting, Dec 1, 2013
Mutual fund returns exhibit a nonlinear structure due to investment restrictions, and the use of ... more Mutual fund returns exhibit a nonlinear structure due to investment restrictions, and the use of option(-like) and dynamic trading strategies. SDF-based nonlinear risks are priced in the cross-section for Canadian equity mutual funds for 1988-2008. Improvement in the significantly negative unconditional performances for individual funds and portfolios with the use of conditional nonlinear SDF-based benchmarks is altered somewhat with the addition of a pricing restriction on the SDF mean. Risk-adjusted performance is related to management fees and fund (no) loads, and unrelated to fund age and size. These results have implications for the availability of scale economies and levels of competition in Canadian versus other mutual fund markets.
Journal of Empirical Finance, 2016
The negative relationship between realized idiosyncratic volatility (RIvol) and future returns un... more The negative relationship between realized idiosyncratic volatility (RIvol) and future returns uncovered by Ang et al. (2006) for the U.S. market has been attributed to return reversals. For the Canadian market where return reversals are considerably less important, we find that RIvol is positively related to future returns, even after controlling for risk loadings, illiquidity and reversals. Unlike the findings of Bali et al. (2001) for the U.S. market, we find that the relationship between extreme positive returns (MAX) and future returns for the Canadian market is positive and that idiosyncratic volatility continues to be consistently positively related to future returns after controlling for MAX. We find evidence that suggests that reversals for stocks with extreme daily returns are confined to (typically small) stocks with low institutional holdings.
Multinational Finance Journal, 1998
Financial support from FCAR (Fonds pour la formation de chercheurs et l'Aide à la Recherche), SSH... more Financial support from FCAR (Fonds pour la formation de chercheurs et l'Aide à la Recherche), SSHRC (Social Sciences and Humanities Research Council of Canada) and the Concordia FRDP (Faculty Research and Development Programme) are gratefully acknowledged. We appreciate comments and suggestions by Yakov Amihud, Didier
Multinational Finance Journal, 1997
In this article, we examine dynamic relationships between volatility and various microstructure m... more In this article, we examine dynamic relationships between volatility and various microstructure measures of trade activity and quoted liquidity for each component stock in the Toronto Stock Exchange 35 Index and for the Toronto 35 Index Participation Shares. When volatility is conditioned on number of trades and quoted liquidity, trading volume provides no incremental explanatory power. Thus, the number of trades appears to be a better proxy for information flow. Furthermore, investigation into partitioned volume suggests that the number of trades is more effective than the unexpected volume in explaining volatility. Measures of quoted liquidity also play a significant role in explaining intra day volatility. Bid-ask spreads and quote depth are positively and negatively related to volatility, respectively. Consistent with the lack of information signal, no trade outcomes are negatively related to volatility (JEL G10).
New International Perspectives, 2010
International Review of Economics & Finance, 1995
This paper investigates the abnormal returns, volatility, and residual risk premium behavior of s... more This paper investigates the abnormal returns, volatility, and residual risk premium behavior of screen-sorted portfolios during the Canadian stock market Crash of 1987. The screens include beta, P/E ratio, size, dividend yield, and the leverage ratio. The “news” effect of the volatility shock is assessed directly by examining the abnormal returns and indirectly by examining changes in the ex ante
Canadian Journal of Administrative Sciences / Revue Canadienne des Sciences de l'Administration, 2009
978) study was replicatedfor a larger number of linear risk tolerance (LRT) CAPM relationships, a... more 978) study was replicatedfor a larger number of linear risk tolerance (LRT) CAPM relationships, a d & r a different (Canadian) data set and (imperjict) market setting. Sincefew statistically signfuant differences werefound between the eight LRT-CAPM assetpricing equutions based on the bi-vatiatt equalzty oftheir mean vectors ofestimates oftht d -f i e e rutes and the rewardr f i bearing tisk, thefindtngs o f h s t d y sup port Grauer's finding that no LRT-CAPM clearly dominates all fhe other contedrs.
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Papers by Lawrence Kryzanowski