References of "Lehnert, Thorsten 50002191"
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See detailA Note on Stein’s Overreaction Puzzle
Lin, Yuehao; Lehnert, Thorsten UL

in Decisions in Economics and Finance (in press)

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical ... [more ▼]

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical results are in line with their argument that the variance under risk-neutral measure is more persistent than the variance under physical measure due to a negative variance risk premium. But our results do not support their argument that the more persistent variance is able to qualitatively explain Stein’s findings. We show theoretically that the persistence of the volatility cannot amplify the movements of long-term variance to short-term fluctuations in variance, and, therefore, conclude that Stein’s overreaction puzzle is still unsolved. [less ▲]

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See detailModel Uncertainty and Pricing Performance in Option Valuation
Bams, Dennis; Blanchard, Gildas; Lehnert, Thorsten UL

in The Journal of Derivatives (in press)

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See detailTHE MARKET SKEWNESS-RETURN RELATIONSHIP, Plenary Talk
Lehnert, Thorsten UL

Scientific Conference (2019, September 25)

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See detailFear and Euphoria
Lehnert, Thorsten UL

Scientific Conference (2019, August 28)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

Scientific Conference (2019, July 09)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

E-print/Working paper (2019)

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See detailFlight to Equity and the Market Skewness Risk Premium
Lehnert, Thorsten UL

E-print/Working paper (2019)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

Scientific Conference (2019, May 30)

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See detailSkewness Risk Premium: Theory and Empirical Evidence
Lin, Yuehao; Lehnert, Thorsten UL; Wolff, Christian UL

in International Review of Financial Analysis (2019), 63

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium ... [more ▼]

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium, which is constructed to be the difference between the physical and the risk-neutral skewness. In an empirical application of the model using more than 20 years of data on S&P500 index options, we find that, in line with theory, risk-averse investors demand risk-compensation for holding stocks when the market skewness risk premium is high. However, when we characterize periods of high and low risk aversion, we show that in line with theory, the relationship only holds when risk aversion is high. In periods of low risk aversion, investors demand lower risk compensation, thus substantially weakening the skewness-risk-premium-return trade off. [less ▲]

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See detailEnergy Systemic Risk
Decet, Romain; Lehnert, Thorsten UL

Scientific Conference (2019, April 06)

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See detailAsset Pricing Implications of Good Governance
Lehnert, Thorsten UL

in PLoS ONE (2019), 14 (4)(e0214930), 1-14

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See detailBig Moves of Mutual Funds
Lehnert, Thorsten UL

in Eurasian Economic Review (2019), 9(1), 1-27

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See detailCorporate Governance and Skewness in Stock Returns
Berglund, Tom; Lehnert, Thorsten UL; Rolle, Gudrun

E-print/Working paper (2019)

This paper analyzes the relationship between corporate governance and idiosyncratic skewness of stock returns. We test this hypothesis by analyzing the impact of external as well as internal governance ... [more ▼]

This paper analyzes the relationship between corporate governance and idiosyncratic skewness of stock returns. We test this hypothesis by analyzing the impact of external as well as internal governance provisions, and are thus able to provide an overall understanding of the relationship between governance and firm-specific return asymmetries. Our results show that better governance leads to a reduction in idiosyncratic skewness in relatively non-competitive industries. In relatively competitive industries, governance has less to no impact on firm-specific return skewness. Furthermore, an overall increase in transparency, quality and disclosure of information, proxied through the Sarbanes Oxley Act, reduces relative idiosyncratic skewness. Our findings can be regarded as detrimental for shareholders, who have a preference for positive idiosyncratic skewness. The evidence contributes to a debate, which suggests that – at the end of the day – an act like Sarbanes-Oxley, which was intended to protect shareholders from accounting errors and frauds and to improve the accuracy of corporate disclosures, comes at the expenses of shareholders. The reduction of idiosyncratic skewness through better governance collides with shareholder’s preference for idiosyncratic and positively skewed stock returns, which present a lottery like upside option of monetary gains and value creation through the right tail. This side effect of governance is also in line with the literature that highlights potential costs of corporate governance. [less ▲]

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See detailFear and Euphoria
Lehnert, Thorsten UL

E-print/Working paper (2019)

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See detailIslamic Finance and Economic Growth: New Evidence
Lehnert, Thorsten UL

Scientific Conference (2019, January 24)

While extensive work has shown that conventional banking development is generally conducive to economic growth, there are only a limited number of studies that investigate the impact of Islamic banking ... [more ▼]

While extensive work has shown that conventional banking development is generally conducive to economic growth, there are only a limited number of studies that investigate the impact of Islamic banking. Importantly, the literature on conventional banking claims that a reverse causality from economy performance to banking may exists, but existing studies on Islamic banking fail to address this potential endogeneity problem. This paper tackles this problem and explores the relationship between Islamic banking development and economic performance in a sample of 32 developed and developing countries based on data spanning the 2000 to 2016 period. The findings show that, although Islamic banks are considered small relative to the total size of the financial sector, Islamic banking is positively correlated with economic growth even after controlling for financial structure, macroeconomic factors and other variables. The outcome is robust across different econometric specifications like pooling OLS, fixed effects, panel data with over-identified GMM, and dynamic difference GMM. The results are confirmed on two different indicators of Islamic banking and hold for different time periods. [less ▲]

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See detailThe Impact of Feedback Trading on Option Prices
Lehnert, Thorsten UL

Scientific Conference (2018, September 20)

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See detailData Filtering Rules in Option Valuation
Bams, Dennis; Blanchard, Gildas; Lehnert, Thorsten UL

E-print/Working paper (2018)

The choice of data filtering rules are, next to model selection and parameter calibration, an important step in an option pricing exercise. We illustrate the implications of data filtering rules, by ... [more ▼]

The choice of data filtering rules are, next to model selection and parameter calibration, an important step in an option pricing exercise. We illustrate the implications of data filtering rules, by investigating three alternative renowned filtering rules in the context of pricing European S&P 500 index options. Different filtering rules result in strongly diverging samples, which carry different information and therefore lead to different parameter estimates. This is illustrated for the Ad Hoc Black-Scholes model. No filtering rule is, in terms of pricing performance, superior on the whole range of options. Instead, each filtering rule is specialized toward better pricing of options types that were included in the calibration sample at the costs of excluded options. Included options are unable to perfectly represent the properties and characteristics of excluded options. In particular, option prices are heterogeneous in the maturity dimension, which is a major driving force underlying the impact of exclusion filters on pricing performance. Additionally, small deviations from the put-call parity strongly affect parameter estimates as well as the accompanying pricing performance. These results emphasize the prominent role of filtering rules as an important implicit choice for an option pricing model calibration. [less ▲]

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See detailModel Uncertainty and Pricing Performance in Option Valuation
Bams, Dennis; Blanchard, Gildas; Lehnert, Thorsten UL

E-print/Working paper (2018)

The objective of this paper is to evaluate option pricing model performance at the cross sectional level. For this purpose, we propose a statistical framework, in which we in particular account for the ... [more ▼]

The objective of this paper is to evaluate option pricing model performance at the cross sectional level. For this purpose, we propose a statistical framework, in which we in particular account for the uncertainty associated with the reported pricing performance. Instead of a single figure, we determine an entire probability distribution function for the loss function that is used to measure option pricing model performance. This methodology enables us to visualize the effect of parameter uncertainty on the reported pricing performance. Using a data driven approach, we confirm previous evidence that standard volatility models with clustering and leverage effects are sufficient for the option pricing purpose. In addition, we demonstrate that there is short-term persistence but long-term heterogeneity in cross-sectional option pricing information. This finding has two important implications. First, it justifies the practitioner’s routine to refrain from time series approaches, and instead estimate option pricing models on a cross-section by cross-section basis. Second, the long term heterogeneity in option prices pinpoints the importance of measuring, comparing and testing option pricing model for each cross-section separately. To our knowledge no statistical testing framework has been applied to a single cross-section of option prices before. We propose a methodology that addresses this need. The proposed framework can be applied to a broad set of models and data. In the empirical part of the paper, we show by means of example, an application that uses a discrete time volatility model on S&P 500 European options. [less ▲]

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See detailAsset Pricing Implications of Good Governance
Lehnert, Thorsten UL

E-print/Working paper (2018)

Some of the world’s poorest countries have demonstrated that political leadership and practical policies make a difference. Good governance could help to strengthen accountability, enhance participation ... [more ▼]

Some of the world’s poorest countries have demonstrated that political leadership and practical policies make a difference. Good governance could help to strengthen accountability, enhance participation and break down inequalities. Furthermore, a country’s quality of government has a positive effect on the development of its financial market and equity returns. In particular, it lowers equity volatility and, therefore, the costs of equity financing, which further helps to reduce inequalities. While price jumps are prevalent in stock markets all over the world, previous literature provides little guidance about the international nature of jumps and its relationship with country characteristics. Jumps are found to be far less systematic than the smooth (non-jump) component of country price indexes. Hence, if jumps are more idiosyncratic, governance should primarily affect the jump risk component of stock market volatility. This is good news for international investors, because diversification provides insurance against jumps. Relying on an equilibrium asset-pricing model in an economy under jump diffusion, I decompose the moments of the returns of international stock markets into a diffusive (systematic) risk and a (idiosyncratic) jump risk part. Using stock market data for a balanced panel of 52 countries, my results suggest that risk governance is an important determinant of (idiosyncratic) jump risk. Stock markets in poorly governed countries are characterized by higher volatility and more negative return asymmetry, primarily driven by the higher jump risk. Among the different governance indicators analyzed, the regulatory quality, the government effectiveness and the control of corruption appear to be most important. Results are robust to the inclusion of various controls for other country- or market-specific characteristics. My results have important policy implications. [less ▲]

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See detailIslamic Banking and Economic Growth: New Evidence
Kchouri, Bilal UL; Lehnert, Thorsten UL

E-print/Working paper (2018)

While extensive work has shown that conventional banking development is generally conducive to economic growth, there are only a limited number of studies that investigate the impact of Islamic banking ... [more ▼]

While extensive work has shown that conventional banking development is generally conducive to economic growth, there are only a limited number of studies that investigate the impact of Islamic banking. Importantly, the literature on conventional banking claims that a reverse causality from economy performance to banking may exists, but existing studies on Islamic banking fail to address this potential endogeneity problem. This paper tackles this problem and explores the relationship between Islamic banking development and economic performance in a sample of 32 developed and developing countries based on data spanning the 2000 to 2016 period. The findings show that, although Islamic banks are considered small relative to the total size of the financial sector, Islamic banking is positively correlated with economic growth even after controlling for financial structure, macroeconomic factors and other variables. The outcome is robust across different econometric specifications like pooling OLS, fixed effects, panel data with over-identified GMM, and dynamic difference GMM. The results are confirmed on two different indicators of Islamic banking and hold for different time periods. [less ▲]

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