Tribes under threat : the collective behavior of firms during the stock market crisis

Due to their unpredictable behavior, stock markets are examples of complex systems. Yet, the dominant analysis of these markets as- sumes simple stochastic variations, eventually tainted by short-lived memory. This paper proposes an alternative strategy, based on a stochastic geometry defining a robust index of the structural dynamics of the markets and based on notions of topology defining a new coef- ficient that identifies the structural changes occurring on the S&P500 set of stocks. The results demonstrate the consistency of the random hypothesis as applied to normal periods but they also show its in- adequacy as to the analysis of periods of turbulence, for which the emergence of collective behavior of sectoral clusters of firms is mea- sured. This behavior is identified as a meta-routine.

Interest rate (in)sensitivity of emerging market corporate debt : economic analysis based on 2002-2015 empirical evidence

Interest rate sensitivity assessment framework based on fixed income yield indexes is developed and applied to two types of emerging market corporate debt: investment grade and high yield exposures. Our research advances beyond the correlation analyses focused on co- movements in yields and/or spreads of risky and risk-free assets. We show that correlation- based analyses of interest rate sensitivity could appear rather inconclusive and, hence, we investigate the bottom line profit and loss of a hypothetical model portfolio of corporates. We consider historical data covering the period 2002 – 2015, which enable us to assess interest rate sensitivity of assets during the development, the apogee, and the aftermath of the global financial crisis. Based on empirical evidence, both for investment and speculative grades securities, we find that the emerging market corporates exhibit two different regimes of sensitivity to interest rate changes. We observe switching from a positive sensitivity under the normal market conditions to a negative one during distressed phases of business cycles. This research sheds light on how financial institutions may approach interest rate risk management, evidencing that even plain vanilla portfolios of emerging market corporates, which on average could appear rather insensitive to the interest rate risk in fact present a binary behavior of their interest rate sensitivities. Our findings allow banks and financial institutions for optimizing economic capital under Basel III regulatory capital rules.