"Loan syndication involves a repeated game between lead banks and syndicate members. Lead banks do not use their private information to exploit syndicate participants but rather focus on accurately certifying loan quality. Using borrowers' financial ratios (shifts in Altman's Z scores) after origination to proxy for bank private information, we find that lead banks syndicate larger proportions of loans that subsequently do not experience lower Z scores. Performance pricing covenants under which borrowers commence to pay higher spreads if ratios (or credit ratings) deteriorate constitute a positive signal reducing agency costs and are associated with higher proportions of syndication." Copyright (c) 2010 Financial Management Association International.
The unprecedented global pandemic of COVID-19 has greatly impacted the stock market in terms of both price reactions and the influences of volatility. Using a sample of 46 stocks listed in the Stock Exchange of Thailand, in this paper, an event study technique is developed considering idiosyncratic volatility to analyze the reactions of stock prices and market volatility in Thailand during the period of the pandemic. The empirical results suggest that most securities in the Thai stock market have been adversely affected by the pandemic, as reflected in the abnormal returns compared to the period before the COVID-19 outbreak. This is mainly attributable to the curtailed economic activities induced by the pandemic as well as policy responses such as social distancing, quarantine and temporary market shutdown. Nevertheless, stocks in different sectors have been shown to have varied in terms of price responses, as some businesses may have benefitted from the pandemic. In terms of market volatility, the cumulated abnormal volatility (CAV) calculated in the paper suggests that volatility in the Stock Exchange of Thailand (SET) was significantly higher during the event window of COVID-19.
Covenants in corporate bonds and loan agreements mitigate agency conflicts between borrowers and lenders and may provide a signal of borrower quality to help resolve information asymmetry. Performance pricing covenants in bank loans specify automatic adjustments to loan spreads based on borrowers’ subsequent performance. Our covenant signaling framework views interest‐decreasing performance pricing as a tight covenant associated with borrowers’ private information on improved future performance accompanied by reduced credit risk. This positive signal is associated with larger positive loan announcement returns and greater improvements in future borrower performance. Further, in addition to signaling value, we find that the spread impact of this class of covenant also depends on its option value and reduction in transaction costs.
This study employed the RISK simulation to estimate the net portfolio value of a longterm investment in a diversified asset allocation. The simulations take into consideration the risk associated with that investment as presented a number of possible investment scenarios in fixed income and equity securities. The possible set of portfolio weights for combinations of the different securities are considered in each simulation. The model constraint is that asset weights in the portfolio must add up to one. The simulations construct future scenarios by randomly choosing past scenarios and assigning higher probabilities to more recent years. Further, the estimated future value of the investment is then deflated with the deflation factor to determine the present value in today's Thai baht. For each simulated scenario, the model presents the risk associated with the investment -the value at risk (VaR) -which captures the maximum possible expected portfolio value. Finally, the paper further develops the portfolio optimization technique to determine optimal asset allocation in achieving the desired investment goal to assist retirees when planning their retirement funds by considering any risk associated with simulated scenarios.
Contribution/Originality:This study contributes to the existing literature by employing a risk-based model, known as the Monte Carlo simulation and portfolio optimization, to construct the optimal portfolio for retirement planning in Thailand.
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