“Asset pricing models in the aftermath of the financial crisis”

Thursday, 24 November 2011

8.30 a.m - 9.00 a.m.	Registration
9.00 a.m - 9.15 a.m.	Introductory remarks Peter Praet, Member of the Executive Board of the European Central Bank
	Session 1: Contagion and dynamic correlations Chair: Thomas Werner (European Central Bank)
9.15 a.m. - 9.55 a.m.	Dynamic correlations, estimation risk and portfolio management during the financial crisis paper [1.3 MB] L.Garcia-Alvarez* (CEMFI) and R. Luger (Georgia State University) Discussant: A. Thomadakis (University of Surrey)
9.55 a.m. - 10.35 a.m.	Pricing two trees when mildew infests the orchard: how does contagion affect general equilibrium asset prices? paper N. Branger (Westfälische Wilhelms-Universität Münster), H. Kraft (Goethe-Universität Frankfurt) and C. Meinerding* (Goethe-Universität Frankfurt) Discussant: J. Beutel (Universität Mannheim)
10.35 a.m. - 11 a.m.	Coffee break
	Session 2: Risks in sovereign bond markets Chair: Chris Yeates (Bank of England)
11 a.m. - 11.40 a.m.	Macroeconomic uncertainty, difference in beliefs and bond risk premia paper A. Buraschi (Imperial College London) and P. Whelan* (Imperial College London) Discussant: R. Guimarães (Bank of England)
11.40 a.m. - 12.20 p.m.	Credit and liquidity risks in euro-area sovereign yield curvespaper [2.42 MB] A. Monfort (CREST and Banque de France) and J.-P. Renne* (Banque de France) Discussant: H. Dewachter (Nationale Bank van België/Banque Nationale de Belgique)
12.20 p.m. - 1 p.m.	A measure of liquidity risk in a sovereign debt marketpaper E. Berenguer (Universidad Pablo de Olavide), R. Gimeno* (Banco de España) and J.M. Nave (Universidad Castilla la Mancha) Discussant: M. Pericoli (Banca d’Italia)
1 p.m. - 2.30 p.m.	Lunch
	Session 3: Stock markets Chair: Robert Woods (Bank of England)
2.30 p.m. - 3.10 p.m.	The cross -section of credit risk premia and equity returns paper N. Friewald (Vienna University of Economics and Business), C. Wagner* (Vienna University of Economics and Business) and J. Zechner (Vienna University of Economics and Business, CEPR and ECGI) Discussant: P. Uysal (École Polytechnique Fédérale de Lausanne)
3.10 p.m. - 3.50 p.m.	Dynamic present values and the intertemporal CAPM paper B. Eraker* (Wisconsin School of Business) and W. Wang (Wisconsin School of Business) Discussant: P. Six (Rouen Business School)
3.50 p.m - 4.20 p.m.	Coffee break
	Session 4: Derivatives Chair: Diego Rodríguez Palenzuela (European Central Bank)
4.20 p.m - 5 p.m.	A closed-form solution for outperformance options with stochastic correlation and stochastic volatility paper J. Marabel Romo (BBVA and University of Alcalá) Discussant: D. Giamouridis (Athens University of Economics and Business)
5 p.m. - 5.40 p.m.	Are CDS auctions biased? paper S. Du* (Stanford University) and H. Zhu (Stanford University) Discussant: V. Fardeau (Federal Reserve Board)
	* Presenting author

Venue and dates

ECB premises in Frankfurt am Main, 24 November 2011

Submission deadline for papers

15 September 2011

Purpose

The main objective of the workshop is to provide a forum for researchers in the field of economics to discuss new developments in asset pricing. During the recent financial crisis, movements in asset prices which brought turmoil to financial markets were surprising for most market participants and central bankers. The tensions here spread to the real economy, resulting in the largest economic recession in developed economies since the Second World War.

The recent crisis has revealed a strong need to gain a better understanding of how assets are priced when different market frictions and behavioural phenomena are present. Asset prices reflect the magnitude of the underlying risk for an investment as well as the price of this risk, namely the price charged by market participants to hold that risk. Retrospectively, it would appear that certain risks, most prominently systemic risk (i.e. the risk that a shock in one segment of the financial markets spreads to other segments), were either largely ignored or considered too low. Furthermore, over-optimistic expectations may have pushed the price of risk to unreasonably low levels. As tensions in financial markets intensified, liquidity in some market segments became very scarce and collateral requirements for financial transactions were raised, thereby raising questions as to how well liquidity and counterparty risk had been priced and whether risk management practices had been adequate.

The workshop aims to discuss recent academic literature on the issues mentioned, looking in particular at the monetary policy implications.

Research papers

We would welcome the submission of papers on the following themes:

• Liquidity risk and supply and demand effects
  The impact of liquidity conditions in financial markets on asset pricing became highly relevant during the financial crisis. For example, for many asset classes, the question emerged of how to price financial instruments in an illiquid trading environment. Thus, measuring liquidity risk and including it in asset pricing models became of crucial importance. The crisis also showed that supply and demand conditions in financial markets are highly pertinent for better explaining price movements and may be significantly influenced by fiscal and monetary policies. For example, in sovereign bond markets, increased issuance activity was sometimes not matched by a rise in investor demand.
• OTC markets and counterparty risk
  In many financial markets, the majority of trades are conducted over-the-counter (OTC). This means that prices do not result from an automatic matching of submitted orders, but are determined by the quotes proposed by dealers. Moreover, the presence of a dealer may involve an additional increase in the magnitude and/or cost of counterparty risk, especially in derivatives markets. It is very important that the impact of such a market structure on financial asset prices, not least in an environment of low liquidity and high uncertainty, is taken into account in asset pricing models.
• Detecting price misalignments in real time
  From a policy perspective, it is important to disentangle movements in asset prices associated with higher levels of risk from those which reflect changes in the attitude of investors towards risk. Therefore, a better understanding of the formation of misalignments and bubbles in asset prices is important for the assessment of price signals. In this context, potential drivers of risk aversion and the role of heterogeneous agents and heterogeneous beliefs in asset pricing could be interesting.
• Interlinkages among various financial markets
  A major challenge for market participants and policy-makers is a situation whereby various markets suddenly appear to show an unusually strong interconnection. Financial markets which prior to the crisis looked segmented now moved “in tune”, as the risks originating in one market quickly spread to others. In addition, investor portfolios turned out to be less well-diversified than previously thought because of this contagion. The changing nature of the relationships among assets is a big challenge for asset pricing and, thus, the objective here is to better understand the interlinkages across market segments and the role of institutional channels in explaining asset prices.

Papers should be sent by e-mail as PDF files to AssetPricing2011@ecb.europa.eu. Each submission should include an abstract and the e-mail address of the corresponding author. Authors of submitted papers will receive notification by the end of September 2011.

Expenses

The travel expenses of presenting authors will be reimbursed. Participants from central banks and other official institutions are generally expected to cover their own expenses.

Organisational issues

The workshop is planned to be organised as a one-day event from 9 a.m. until 6 p.m. on 24 November 2011. A dinner is planned for the evening of 23 November.

The organising committee of the workshop includes Gonzalo Camba-Méndez, Stefano Corradin, Magdalena Grothe, Manfred Kremer, Diego Rodríguez Palenzuela, Martin Scheicher, Thomas Werner (all ECB) and Chris Yeates (Bank of England).

The workshop will be conducted in cooperation with the Bank of England.

Further information may be obtained from:

Thomas Werner, Deputy Head of Division
Capital Markets/Financial Structure Division, Directorate General Economics, ECB
E-mail: Thomas.Werner@ecb.europa.eu Tel: +49 69 1344 8707

Gonzalo Camba-Méndez, Principal Economist
Capital Markets/Financial Structure Division, Directorate General Economics, ECB
E-mail: Gonzalo.Camba-Mendez@ecb.europa.eu Tel: +49 69 1344 6481

Magdalena Grothe, Economist
Capital Markets/Financial Structure Division, Directorate General Economics, ECB
E-mail: Magdalena.Grothe@ecb.europa.eu Tel: +49 69 1344 5360

Chris Yeates, Manager
Macro Financial Analysis Division, Bank of England
E-mail: Chris.Yeates@bankofengland.gsi.gov.uk Tel: +44 207 601 5489

 

Conference dates:	Thursday, 24 November 2011 Dinner on Wednesday, 23 November 2011
Conference venue:	European Central Bank Eurotower, second floor, CVI Kaiserstrasse 29 60311 Frankfurt am Main Germany Tel.: +49 69 1344 0 Fax: +49 69 1344 6000
Dinner venue:	Restaurant Opéra Opernplatz 1 60313 Frankfurt am Main Dress code: business attire
Conference language:	English
Programme:	The conference programme may be changed without notice.
Programme committee:	Gonzalo Camba-Méndez, Stefano Corradin, Magdalena Grothe, Manfred Kremer, Diego Rodríguez Palenzuela, Martin Scheicher, Thomas Werner (all ECB) and Chris Yeates (Bank of England)
Contact persons:	ECB Directorate General Economics Capital Markets and Financial Structure Division Agnese Apine Tel: +49 69 1344 6503 Fax: +49 69 1344 6514 E-mail: agnese.apine@ecb.europa.eu ECB Directorate Communications Publishing, Events and Protocol Division Silke Köhler Tel.: +49 69 1344 8671 Fax: +49 69 1344 5775 E-mail: EVP-Events@ecb.europa.eu