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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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See detailMarket Skewness Risk, Risk Aversion and the Cross-Section of Stock Returns
Bams, Dennis; Honarvar, Iman; Lehnert, Thorsten UL

E-print/Working paper (2018)

Previous research suggests that the cross section of stock returns has substantial exposure to risks captured by higher moments of market returns, implied by S&P500 index option prices. However, assuming ... [more ▼]

Previous research suggests that the cross section of stock returns has substantial exposure to risks captured by higher moments of market returns, implied by S&P500 index option prices. However, assuming that risk aversion is time-varying, a risk-based explanation would suggest that the exposure is priced in periods of high risk aversion, while it is not necessarily priced/weaker in periods of low risk aversion. We find that for market skewness and kurtosis, this hypothesis is not supported by the data. We find that each of the higher moment prices of risk is time-varying and has significantly different patterns under different market conditions, proxied by a measure of investors’ relative risk aversion. In particular, in line with our reasoning, our results suggest that only in down-markets (high risk aversion periods), the exposure to the market volatility innovations is priced significantly negative in the cross-section of stocks, while it is not priced in up-markets (low risk aversion periods). In contrast, we find that in down-markets, market skewness and kurtosis are not priced risk factors, while the price of market skewness risk is significantly negative and the price of kurtosis risk is positive in up-markets. However, the previously reported results for skewness and kurtosis are counterintuitive, strictly violate the risk compensation principles and, therefore, do not support a risk-based explanation. The results persist even after controlling for the Fama-French and Carhart factors. [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 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 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 detailEBC network
Lehnert, Thorsten UL

Scientific Conference (2018, June 12)

Detailed reference viewed: 27 (0 UL)
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Peer Reviewed
See detailGovernance and Price Jumps
Lehnert, Thorsten UL

Scientific Conference (2018, June 07)

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

Scientific Conference (2018, April 05)

Detailed reference viewed: 21 (5 UL)
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Peer Reviewed
See detailLarge portfolio risk management and optimal portfolio allocation with dynamic elliptical copulas
Lehnert, Thorsten UL; Jin, Xisong

in Dependence Modeling (2018), 6(1), 19-46

Detailed reference viewed: 76 (4 UL)
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See detailBig Moves of Mutual Funds
Lehnert, Thorsten UL

E-print/Working paper (2018)

Detailed reference viewed: 42 (1 UL)
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See detailThe Search for Yield: Implications to Alternative Investments
Lehnert, Thorsten UL; Kräussl, Roman UL; Rinne, Kalle UL

in Journal of Empirical Finance (2017), 44(-), 227-236

Detailed reference viewed: 117 (11 UL)
See detailAlternative Investments, Special Issue of the Journal of Empirical Finance
Lehnert, Thorsten UL; Kräussl, Roman UL

Book published by Elsevier (2017)

Detailed reference viewed: 111 (0 UL)
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See detailDoes Oil and Gold Price Uncertainty matter for the Stock Market?
Lehnert, Thorsten UL; Bams, D.; Blanchard, G. et al

in Journal of Empirical Finance (2017), 44(-), 270-285

Detailed reference viewed: 90 (5 UL)
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See detailRisk Aversion, Sentiment and the Cross-Section of Stock Returns
Lehnert, Thorsten UL

Presentation (2017, November 29)

Detailed reference viewed: 58 (5 UL)
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See detailRisk Aversion, Sentiment and the Cross-Section of Stock Returns
Lehnert, Thorsten UL

Presentation (2017, November 14)

Detailed reference viewed: 15 (2 UL)
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See detailRisk Aversion, Sentiment and the Cross-Section of Stock Returns
Lehnert, Thorsten UL

Presentation (2017, October 13)

Detailed reference viewed: 16 (2 UL)
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Peer Reviewed
See detailBig Moves of Mutual Funds
Lehnert, Thorsten UL

Scientific Conference (2017, September 28)

Detailed reference viewed: 39 (5 UL)
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Peer Reviewed
See detailRisk Aversion, Sentiment and the Cross-Section of Stock Returns
Lehnert, Thorsten UL

Scientific Conference (2017, August 23)

Detailed reference viewed: 21 (2 UL)
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Peer Reviewed
See detailGovernance and Price Jumps
Lehnert, Thorsten UL

Scientific Conference (2017, May 18)

Detailed reference viewed: 17 (2 UL)