The Determinants of Recovery Rates on Defaulted Corporate Securities: Why do Fallen Angels recover more than Original High Yield Issues?

Regression analysis has shown that recovery rates are determined by a variety of conditions at the time of default. These conditions can be broken into five major categories: (1) a security's seniority within the capital structure of the defaulting firm, (2) the type of default event, (3) firm-specific factors, (4) industry-specific factors, and (5) macroeconomic factors. Expectations of these inputs determine the expected recovery rate if default were to occur, thereby determining credit ratings and security prices. Although it is widely understood how recovery rate estimates influence credit rating assignments (the higher the expected recovery rate, the higher the assigned credit rating), no research, to the best of my knowledge, has investigated the reasons why higher rated securities recover more than lower rated securities in the event of default. Specifically, this paper will empirically investigate why securities originally rated investment grade, fallen angels, recover more than securities originally rated high yield in the event of default.

Bahamas and Barbados: empirical evidence of interest rate pass-through

Includes bibliography

The evolution of mating rates in Pieris napi

In the green-veined white butterfly (Pieris napi), females obtain direct fitness benefits from mating multiply and studies have shown that fitness increases seemingly monotonically with number of matings. The reason is that at mating males transfer a large nutritious gift (a so called nuptial gift) to the females that the females use to increase both their fecundity and lifespan. In addition, if exposed to poor food conditions as larvae, females mature at a smaller size compared to males. Accordingly, it was suggested that smaller females could compensate for their size through nuptial feeding by, for instance, mating more frequently. We did not find any support for that hypothesis. On the contrary, larger females remated sooner and had a higher lifetime number of matings. Neither were smaller females able to compensate in any other way, because singly mated females and multiply mated females suffered to the same extent from their smaller size. This thesis also shows that despite the positive relationship between fitness and number of matings, there is a large variation in female mating frequency in wild populations and about every second female mates only once or twice. This variation is not dependent on how often females get courted by males, because female mating frequency was shown not to be affected by male courtship intensity. Hence, the reason for the low mating frequency could either be that males have evolved the ability to manipulate females to mate at a suboptimal rate as a measure of protection against sperm competition, or alternatively, that female mating rate is suppressed by some costs. Using two selection lines, artificially selected for either a high or a low mating rate, we showed that the variation in mating rate was mainly a female trait because which line the females were from affected their mating rate whereas which line the male was from did not. This implies that females mate at a low rate due to hidden costs or due to constraints. The same study also showed that females with a high "intrinsic" mating rate lived shorter, but only when denied remating. This led us to test the hypothesis that the cost females face is to have the ability to mate at a high rate but the cost is only paid when remating opportunities are scarce. However, we found no support for such an idea, because females with a high intrinsic mating rate held in a cold environment where the butterflies were prevented from flying and feeding did not live shorter. Neither was there an effect of a female’s mating rate on her ability to quickly break down and convert male nutrient gifts into egg material. Female mating rate did, on the other hand, affect dispersal tendency, with low mating rate females being more inclined to fly between different habitats. The underlying reason for this is still to be explored.

The Effects of Altered Prenatal Melatonin Signaling on Adult Behavior and Hippocampal Gene Expression of the Male Rat: A Circadioneuroendocrine-Axis Hypothesis of Psychopathology

Disturbances in melatonin - the neurohormone that signals environmental darkness as part of the circadian circuit of mammals - have been implicated in various psychopathologies in humans. At present, experimental evidence linking prenatal melatonin signaling to adult physiology, behavior, and gene expression is lacking. We hypothesized that administration of melatonin (5 mg/kg) or the melatonin receptor antagonist luzindole (5 mg/kg) to rats in utero would permanently alter the circadian circuit to produce differential growth, adult behavior, and hippocampal gene expressionin the male rat. Prenatal treatment was found to increase growth in melatonin-treated animals. In addition, subjects exposed to melatonin prenatally displayed increased rearing in the open field test and an increased right turn preference in the elevated plusmaze. Rats administered luzindole prenatally, however, displayed greater freezing and grooming behavior in the open field test and improved learning in the Morris water maze. Analysis of relative adult hippocampal gene expression with RT-PCR revealed increasedexpression of brain-derived neurotrophic factor (BDNF) with a trend toward increased expression of melatonin 1A (MEL1A) receptors in melatonin-exposed animals whereas overall prenatal treatment had a significant effect on microtubule-associated protein 2(MAP2) expression. Our data support the conclusion that the manipulation of maternal melatonin levels alters brain development and leads to physiological and behavioral abnormalities in adult offspring. We designate the term circadioneuroendocrine (CNE)axis and propose the CNE-axis hypothesis of psychopathology.

A test of the Bolton-Scheinkman-Xiong hypothesis of how speculation affects the vesting time of options granted to directors

This paper investigates empirically the Bolton, Scheinkman, and Xiong (2006) hypothesis, according to which initial shareholders may provide incentives to managers to take actions that stimulate speculative bubbles. We test this hypothesis with data on up to 8,544 directors and up to 1,677 companies between 2004-2008. Using vesting time as a measure of the short-term performance weighting in CEO compensation and various alternative measures of the extent of speculation, the findings support the hypothesis: vesting time decreases with more intensive speculation. The results prove robust in various empirical model specifications.

NRAS and BRAF mutations in primary cutaneous melanoma: A comparison of mutation rates between radial and vertical growth phases in individual tumors

Primary cutaneous melanoma is a cancer arising from melanocytes in the skin. In recent decades the incidence of this malignancy has increased significantly. Mortality rates are high for patients with tumors measuring over a few millimeters in thickness. Response rates to conventional radiation and chemotherapy are very low in patients with metastatic melanoma. New therapies targeting melanoma’s aberrant cell signaling pathways such as the MAP Kinase pathway are being developed. Mutations of NRAS and BRAF genes are quite common in cutaneous melanoma and lead to constitutive activation of the MAP Kinase pathway. This study tests the hypothesis that NRAS and BRAF mutations increase as a tumor progresses from the noninvasive radial growth phase (RGP) to the invasive vertical growth phase (VGP). Laser capture microdissection was used to obtain separate, pure tumor DNA samples from the RGP and VGP of thirty primary cutaneous melanomas. PCR was used to amplify NRAS exon 2 and BRAF exon 15 tumor DNA. The amplified DNA was sequenced and analyzed for mutations. An overall mutation rate of 74% was obtained for the twenty-three melanomas in which there were complete sequence results. With the exception of one melanoma NRAS and BRAF mutations were mutually exclusive. All seven NRAS exon 2 mutations involved codon 61. Three of these melanomas had mutations in both the RGP and VGP. The remaining four tumors were wild type for NRAS exon 2 in the RGP but mutated in the VGP. Of the fifteen BRAF exon 15 mutated melanomas all but one involved codon 600. Twelve of the fifteen BRAF exon 15 mutations were the T1799A type. Nine of the fifteen BRAF mutated tumors had the same mutation in both the RGP and VGP. Five of fifteen melanomas had wild type RGP DNA and BRAF exon 15 mutated VGP DNA. A single melanoma had BRAF exon 15 mutated DNA in the RGP and wild type DNA in the VGP. Overall, these results suggest a trend toward the acquisition of NRAS and BRAF mutations as cutaneous melanomas change from a noninvasive to an invasive, potentially deadly cancer.^

Molecular phylogeny analysis of fiddler crabs: test of the hypothesis of increasing behavioral complexity in evolution.

The current phylogenetic hypothesis for the evolution and biogeography of fiddler crabs relies on the assumption that complex behavioral traits are assumed to also be evolutionary derived. Indo-west Pacific fiddler crabs have simpler reproductive social behavior and are more marine and were thought to be ancestral to the more behaviorally complex and more terrestrial American species. It was also hypothesized that the evolution of more complex social and reproductive behavior was associated with the colonization of the higher intertidal zones. Our phylogenetic analysis, based upon a set of independent molecular characters, however, demonstrates how widely entrenched ideas about evolution and biogeography led to a reasonable, but apparently incorrect, conclusion about the evolutionary trends within this pantropical group of crustaceans. Species bearing the set of "derived traits" are phylogenetically ancestral, suggesting an alternative evolutionary scenario: the evolution of reproductive behavioral complexity in fiddler crabs may have arisen multiple times during their evolution. The evolution of behavioral complexity may have arisen by coopting of a series of other adaptations for high intertidal living and antipredator escape. A calibration of rates of molecular evolution from populations on either side of the Isthmus of Panama suggest a sequence divergence rate for 16S rRNA of 0.9% per million years. The divergence between the ancestral clade and derived forms is estimated to be approximately 22 million years ago, whereas the divergence between the American and Indo-west Pacific is estimated to be approximately 17 million years ago.

A simple test of the vicarious trial-and-error hypothesis of hippocampal function.

Vicarious trial-and-error (VTE) is a term that Muenzinger and Tolman used to describe the rat's conflict-like behavior before responding to choice. Recently, VTE was proposed as a mechanism alternative to the concept of "cognitive map" in accounts of hippocampal function. That is, many phenomena of impaired learning and memory related to hippocampal interventions may be explained by behavioral first principles: reduced conflicting, incipient, pre-choice tendencies to approach and avoid. The nonspatial black-white discrimination learning and VTE behavior of the rat were investigated. Hippocampal-lesioned and sham-lesioned animals were trained for 25 days (20 trials per day) starting at 60 days of age. Each movement of the head from one discriminative stimulus to the other was counted as a VTE instance. Lesioned rats had fewer VTEs than sham controls, and the former learned much more slowly or never learned. After learning, VTE frequency declined. Male and female rats showed no significant differences in VTE behavior or discrimination learning.

Preventing the rise of sovereign borrowing costs in the Eurozone: what can the ESM and the ECB achieve? Egmont Paper No. 56, November 2012

This paper focuses on the possible instruments for ‘ex-ante’/’preventive’/’precautionary’ interventions which can be deployed by the ESM and the ECB in order to prevent a debt crisis in a eurozone country. The potential of Eurobonds will also be discussed in this crisis management perspective. The first part of this paper traces the underlying trends of the evolution of interest rates in eurozone countries over the last decades. The second part discusses the principles of a preventive intervention in sovereign bond markets for the purpose of lowering borrowing costs of countries facing refinancing constraints; the limits and main issues of an ex-ante intervention will be underlined. In the third part, the properties of the ESM’s precautionary financial assistance and secondary market support facility will be discussed in details. The ECB preemptive intervention policies and, in particular, the OMT will be analyzed in the fourth part of the paper. The most likely course of action – a combined intervention by the ESM and the ECB – will be discussed in the fifth part. Finally, I will point out the core challenges of introducing Eurobonds as additional instruments to mitigate the rise of borrowing costs in the short term.

Portugal. In economics, we call it conflict of interest! CEPS Commentary, 12 April 2013

Faced with limited options for coming up with the funds needed to pay off the next instalment on its bailout loan, Portugal is advised in this Commentary by economist Leonor Coutinho to trim the number of public sector employees, in combination with an increase in public sector working hours, among the lowest in Europe. In her view, these measures will have the best long-term implications both in terms of fiscal sustainability and of labour productivity, and may finally allow the country to resume the catching-up process that has been stalled since the start of EMU.

Did quantitative easing affect interest rates outside the US? New evidence based on interest rate differentials. CEPS Working Document No. 416/January 2016

This paper explores the effects of non-standard monetary policies on international yield relationships. Based on a descriptive analysis of international long-term yields, we find evidence that long-term rates followed a global downward trend prior to as well as during the financial crisis. Comparing interest rate developments in the US and the eurozone, it is difficult to detect a distinct impact of the first round of the Fed’s quantitative easing programme (QE1) on US interest rates for which the global environment – the global downward trend in interest rates – does not account. Motivated by these findings, we analyse the impact of the Fed’s QE1 programme on the stability of the US-euro long-term interest rate relationship by using a CVAR (cointegrated vector autoregressive) model and, in particular, recursive estimation methods. Using data gathered between 2002 and 2014, we find limited evidence that QE1 caused the break-up or destabilised the transatlantic interest rate relationship. Taking global interest rate developments into account, we thus find no significant evidence that QE had any independent, distinct impact on US interest rates.

Az egyensúlyi ráták unicitása és a bérráta pozitivitása a Neumann-modell általánosításaiban (Uniqueness of equilibrium rates and the positive value of the wage rate in generalizations from the Neumann model)

Cikkünk arról a paradox jelenségről szól, hogy a fogyasztást explicit módon megjelenítő Neumann-modell egyensúlyi megoldásaiban a munkabért meghatározó létszükségleti termékek ára esetenként nulla lehet, és emiatt a reálbér egyensúlyi értéke is nulla lesz. Ez a jelenség mindig bekövetkezik az olyan dekomponálható gazdaságok esetén, amelyekben eltérő növekedési és profitrátájú, alternatív egyensúlyi megoldások léteznek. A jelenség sokkal áttekinthetőbb formában tárgyalható a modell Leontief-eljárásra épülő egyszerűbb változatában is, amit ki is használunk. Megmutatjuk, hogy a legnagyobbnál alacsonyabb szintű növekedési tényezőjű megoldások közgazdasági szempontból értelmetlenek, és így érdektelenek. Ezzel voltaképpen egyrészt azt mutatjuk meg, hogy Neumann kiváló intuíciója jól működött, amikor ragaszkodott modellje egyértelmű megoldásához, másrészt pedig azt is, hogy ehhez nincs szükség a gazdaság dekomponálhatóságának feltételezésére. A vizsgált téma szorosan kapcsolódik az általános profitráta meghatározásának - Sraffa által modern formába öntött - Ricardo-féle elemzéséhez, illetve a neoklasszikus növekedéselmélet nevezetes bér-profit, illetve felhalmozás-fogyasztás átváltási határgörbéihez, ami jelzi a téma elméleti és elmélettörténeti érdekességét is. / === / In the Marx-Neumann version of the Neumann model introduced by Morishima, the use of commodities is split between production and consumption, and wages are determined as the cost of necessary consumption. In such a version it may occur that the equilibrium prices of all goods necessary for consumption are zero, so that the equilibrium wage rate becomes zero too. In fact such a paradoxical case will always arise when the economy is decomposable and the equilibrium not unique in terms of growth and interest rate. It can be shown that a zero equilibrium wage rate will appear in all equilibrium solutions where growth and interest rate are less than maximal. This is another proof of Neumann's genius and intuition, for he arrived at the uniqueness of equilibrium via an assumption that implied that the economy was indecomposable, a condition relaxed later by Kemeny, Morgenstern and Thompson. This situation occurs also in similar models based on Leontief technology and such versions of the Marx-Neumann model make the roots of the problem more apparent. Analysis of them also yields an interesting corollary to Ricardo's corn rate of profit: the real cause of the awkwardness is bad specification of the model: luxury commodities are introduced without there being a final demand for them, and production of them becomes a waste of resources. Bad model specification shows up as a consumption coefficient incompatible with the given technology in the more general model with joint production and technological choice. For the paradoxical situation implies the level of consumption could be raised and/or the intensity of labour diminished without lowering the equilibrium rate of the growth and interest. This entails wasteful use of resources and indicates again that the equilibrium conditions are improperly specified. It is shown that the conditions for equilibrium can and should be redefined for the Marx-Neumann model without assuming an indecomposable economy, in a way that ensures the existence of an equilibrium unique in terms of the growth and interest rate coupled with a positive value for the wage rate, so confirming Neumann's intuition. The proposed solution relates closely to findings of Bromek in a paper correcting Morishima's generalization of wage/profit and consumption/investment frontiers.