Suchergebnisse

The Institut Louis Bachelier, in cooperation with the Fondation du Risque, the Europlace Institute of Finance and the Louis Bachelier «Finance and Sustainable Growth» Laboratory, is pleased to invite you to the 9th Financial Risks International Forum. In the current context, this year's forum will focus on « New Challenges Facing the Investment Management Industry». The aim of this conference is to highlight the methodological and regulatory challenges confronting the investment management industry. The financial crisis and its aftermath have resulted in reflection on the tools and practices of investment managers. The economic and financial environment is challenging, marked by low interest rates, increased volatility, and new economic and demographic risks. Standard practices such as the use of traditional risk management models, benchmarks, quantitative backtests, are being called into question. End investors require more governance and socially responsible investment practices. Regulatory complexity is a constantly evolving concern for the industry. Questions have been raised about potential incentive problems created by delegated management, and financial stability risks posed by the asset management industry.

European sovereign bonds are especially sensitive to the political news flow. Consistent to the current sentiment, market makers adjust factor models in their quotation systems to be prepared for short-term market reactions in the most liquid instruments. We present a correlation influence network case study to make the signs of these factor betas transparent using intraday data analysis. This shows the sentiment of the most active market participants.

We revisit the discussion of market sentiment in European sovereign bonds using a correlation analysis toolkit based on influence networks and hierarchical clustering. We focus on three case studies of political interest. In the case of the 2016 Brexit referendum, the market showed negative correlations between core and periphery only in the week before the referendum. Before the French presidential elections in 2017, the French bond spread widened together with the estimated Le Pen election probability, but the position of French bonds in the correlation blocks did not weaken. In summer 2018, during the budget negotiations within the new Italian coalition, the Italian bonds reacted very sensitively to changing political messages but did not show contagion risk to Spain or Portugal for several months. The situation changed during the week from October 22 to 26, as a spillover pattern of negative sentiment also to the other peripheral countries emerged.

We revisit the discussion of market sentiment in European sovereign bonds using a correlation analysis toolkit based on influence networks and hierarchical clustering. We focus on three case studies of political interest. In the case of the 2016 Brexit referendum, the market showed negative correlations between core and periphery only in the week before the referendum. Before the French presidential elections in 2017, the French bond spread widened together with the estimated Le Pen election probability, but the position of French bonds in the correlation blocks did not weaken. In summer 2018, during the budget negotiations within the new Italian coalition, the Italian bonds reacted very sensitively to changing political messages but did not show contagion risk to Spain or Portugal for several months. The situation changed during the week from October 22 to 26, as a spillover pattern of negative sentiment also to the other peripheral countries emerged.

European sovereign bonds are especially sensitive to the political news flow. Consistent to the current sentiment, market makers adjust factor models in their quotation systems to be prepared for short-term market reactions in the most liquid instruments. We present a correlation influence network case study to make the signs of these factor betas transparent using intraday data analysis. This shows the sentiment of the most active market participants.

From 2004 to 2015, the market perception of the sovereign risks of euro area government bonds experienced several different phases, reflected in a clear time structure of the correlation matrix between the yield changes. "Core" and "peripheral" bonds cluster in a bloc-like structure, but the correlations between the blocs are timedependent and even become negative in periods of stress. Using noise-filtered partial correlation influences, this time-dependency can be evaluated and visualized using network graphs. Our results support the view that market-implied spillover risks have decreased since the European rescue and stability mechanisms came into force in 2011. EFSF bond issues have been trading as part of the "core" bloc since 2011. In 2015, spillover risks reappeared during the Eurogroup's negotiations with Greece, although the periphery yields did not show risk spreads that were as large as those in 2012.