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Author Jones, Bradley Anthony,
Title Identifying speculative bubbles : a two-pillar surveillance framework / prepared by Brad Jones.
Imprint [Washington, D.C.] : International Monetary Fund, 2014.

View online
View online
Author Jones, Bradley Anthony,
Series IMF working paper ; WP/14/208
IMF working paper ; WP/14/208.
Subject Stocks -- Economic aspects.
Capital market.
Financial risk management.
Financial institutions -- State supervision.
Economic policy.
Economic history.
Alt Name International Monetary Fund. Monetary and Capital Markets Department,
Description 1 online resource (49 pages) : color illustrations.
Note "November 2014."
"Monetary and Capital Markets Department."
Bibliography Note Includes bibliographical references (pages 42-49).
Summary In the aftermath of the global financial crisis, the issue of how best to identify speculative asset bubbles (in real-time) remains in flux. This owes to the difficulty of disentangling irrational investor exuberance from the rational response to lower risk based on price behavior alone. In response, I introduce a two-pillar (price and quantity) approach for financial market surveillance. The intuition is straightforward: while asset pricing models comprise a valuable component of the surveillance toolkit, risk taking behavior, and financial vulnerabilities more generally, can also be reflected in subtler, non-price terms. The framework appears to capture stylized facts of asset booms and busts--some of the largest in history have been associated with below average risk premia (captured by the 'pricing pillar') and unusually elevated patterns of issuance, trading volumes, fund flows, and survey-based return projections (reflected in the 'quantities pillar'). Based on a comparison to past boom-bust episodes, the approach is signaling mounting vulnerabilities in risky U.S. credit markets. Policy makers and regulators should be attune to any further deterioration in issuance quality, and where possible, take steps to ensure the post-crisis financial infrastructure is braced to accommodate a re-pricing in credit risk.--Abstract.
Note Online resource; title from pdf title page ( Web site, viewed November 24, 2014).
Contents Cover; Abstract; Contents; I. Introduction; II. A Review of Measurement and Inference Issues; Boxes; Box 1. Problems in Formal Tests of Speculative Bubbles; Box 2. Problems in Formal Tests of Speculative Bubbles; III. Operationalizing Surveillance of Asset Bubbles: A Two-Pillar Framework; Figures; Figure 1. Sensitivity to Discount Rates for the Fair Value of a Perpetuity; A. The Pricing Pillar; Tables; Table 1. Two-Pillar Framework for Asset Bubble Surveillance; Figure 2. The Rent/Price Ratio and Transaction Volumes: U.S. Housing Market; Figure 3. Empirical Determinants of Stock Returns.
Figure 4. Valuation-based Asset Return PredictabilityFigure 5. Risk Premiums in the Years Before and After the Largest Busts; Figure 6. Risk Premia Preceding Large Busts, and Subsequent Asset Returns; Figure 7. Lead Time between Start of Asset Bust and Onset of Recession; Figure 8. Market-Implied Real Cost of Equity (Time Series); Figure 9. Market-Implied Real Cost of Equity across 25 Countries; Figure 10. Sovereign Bond Risk Premia (Time Series); Figure 11. Sovereign Bond Risk Premia (Cross Section); Figure 12. Yield-Based Expected Returns across Major U.S. Asset Classes.
Figure 13. Average Expected Return across Major U.S. Asset ClassesB. The Quantities Pillar; Figure 14. Current vs. Fair Value Spreads on U.S. High Yield Securities; Figure 15. Structured Credit and ABS Market Issuance; Figure 16. High Yield Share of Credit Issuance Before/After Credit Blow-ups; Figure 17. U.S. Aggregate Net Equity Issuance vs. Equity Valuations; Figure 18. Global IPO Volumes vs. Stock Valuations; Figure 19. Issuance of Risky Credit Products; Figure 20. Annual Sovereign Debt Issuance for First Time Issuers; Figure 21. U.S. Net Stock Issuance.
Figure 22. Activity in Worldwide Equity FinancingFigure 23. Equity Trading Volumes During/After Stock Price Booms; Figure 24. Trading Volumes in U.S. High Yield and Leveraged Loan Markets; Figure 25. Trading Volumes and Real Stock Prices; Figure 26. Fund Flows in the Years Before a Bust; Figure 27. Correlation of Fund Flows and Asset Class Returns; Figure 28. Cumulative Investor Fund Flows: Past 5-Years; Figure 29. Size of Asset Class Funds vs. 5-Year Cumulative Fund Flows; Figure 30. Survey-based vs. Objective Measures of Future U.S. Stock Returns; IV. Concluding Remarks and Future Research.
AnnexesAnnex 1. Standard Testing Techniques for Speculative Bubbles; Annex 2. Estimates of Required/Expected Returns; References.
ISBN 1498345808
OCLC # 896826528
Additional Format 1498332072

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