Spillovers to small business credit risk

in Small Business Economics (2020)

Do large credit risk shocks spill over to small businesses and affect their real economic activity? Using information on small business credit risk, we find that small businesses show increased default ... [more ▼]

Do large credit risk shocks spill over to small businesses and affect their real economic activity? Using information on small business credit risk, we find that small businesses show increased default and bankruptcy rates following a shock to a customer industry. On an industry level, the shock to a customer industry is followed by a decrease in industry markups, disproportionate closure of firms, and cutbacks in inventories. Our analysis quantifies the elevated credit risk among small businesses and suggests a non-negligible 0.83% increase in expected losses on a diversified loan portfolio following a credit risk shock. This study provides banks and supervisors with greater clarity on timing and on the extent of elevated small business credit risk. It also allows them to assess the exposure of a bank portfolio to fluctuations in small business default rate. Such improved default prediction reduces credit rationing to the small business economy. [less ▲]

Member, Management Board, European Banking Center Network

Diverse speeches and writings (2020)

Associate Editor, Journal of International Financial Markets, Institutions and Money

Diverse speeches and writings (2020)

Skewness Risk Premium: Theory and Empirical Evidence

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 ▲]

Organiser, European Banking Center (EBC) Network Conference

Scientific Conference (2019, March)

The Determinants of CoCo Bond Prices

in Journal of Derivatives (2019)

Associate Editor, Pacific Basin Finance Journal

in Wolff, Christian (Ed.) pacific basin (2019)

Skewness Risk Premium: Theory and Empirical Evidence

in International Review of Financial Analysis (2019)

Associate Editor, Journal of International Financial Markets, Institutions and Money

Diverse speeches and writings (2019)

Associate Editor, Bank and Bank Systems

Diverse speeches and writings (2018)