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Papers on Failure, Merger, and Drop Prediction, and Option Trading.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Papers on Failure, Merger, and Drop Prediction, and Option Trading./
Author:	Xiao, Yitian.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2020,
Description:	84 p.
Notes:	Source: Dissertations Abstracts International, Volume: 82-12, Section: A.
Contained By:	Dissertations Abstracts International82-12A.
Subject:	Finance. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=28263008
ISBN:	9798738651274

Papers on Failure, Merger, and Drop Prediction, and Option Trading.
Xiao, Yitian.

Papers on Failure, Merger, and Drop Prediction, and Option Trading. - Ann Arbor : ProQuest Dissertations & Theses, 2020 - 84 p.

Source: Dissertations Abstracts International, Volume: 82-12, Section: A.

Thesis (Ph.D.)--University of California, Davis, 2020.

This item must not be sold to any third party vendors.

An existing logit model is extended to predict corporate failures. The unemployment rate is a good proxy of macroeconomic performance to be included in the model and is significant together with its interaction with the leverage. The economy seemingly has a slow and lasting effect on the performance of an individual firm. Younger firms are more likely to fail than older firms, and the significance of the effect of age increases with the prediction horizon. Tangibility of assets is another driver of failures but more in the long run, which could be because higher tangibility implies lower liquidity according to how tangibility is constructed.The failure prediction model is further extended to be used to predict two main different reasons for firms to stop trading in the market, mergers and drops. The two types of exits have similarities in some firm characteristics and differ in others. Firms exiting the market due to mergers in general have better performance than those exiting the market due to drops, and this is reflected in their stock returns. Portfolios are constructed using the highest predicted merger and drop probabilities. The alphas of those portfolios are stable and significant. Specifically, there can be a monthly alpha as high as 0.8% by longing the merger portfolio, and an even higher monthly alpha of 4.3% by shorting the drop portfolio. The alphas are robust and consistent but not taking into consideration trading costs or restrictions.The options market enables traders to hedge positions in asset markets, thereby reducing risk exposure. Traders can choose from many different strike prices -- analogous to the coverage level in an insurance contract -- when hedging. The hedging motive leads a typical hedger to take positions slightly out of the money. There is a cointegration relationship between the changes in the options' weighted average strike and in their underlying index. Option strikes move further from the underlying index when the implied volatility is higher. The results imply that hedging is a fundamental to the value of option. Moreover, the gambling motivation could be a good supplement to explain the stylized facts.

ISBN: 9798738651274Subjects--Topical Terms:

542899
Finance.
Subjects--Index Terms:

Corporate failure prediction model

Papers on Failure, Merger, and Drop Prediction, and Option Trading.
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300 $a 84 p.
500 $a Source: Dissertations Abstracts International, Volume: 82-12, Section: A.
500 $a Advisor: Hilscher, Jens.
502 $a Thesis (Ph.D.)--University of California, Davis, 2020.
506 $a This item must not be sold to any third party vendors.
520 $a An existing logit model is extended to predict corporate failures. The unemployment rate is a good proxy of macroeconomic performance to be included in the model and is significant together with its interaction with the leverage. The economy seemingly has a slow and lasting effect on the performance of an individual firm. Younger firms are more likely to fail than older firms, and the significance of the effect of age increases with the prediction horizon. Tangibility of assets is another driver of failures but more in the long run, which could be because higher tangibility implies lower liquidity according to how tangibility is constructed.The failure prediction model is further extended to be used to predict two main different reasons for firms to stop trading in the market, mergers and drops. The two types of exits have similarities in some firm characteristics and differ in others. Firms exiting the market due to mergers in general have better performance than those exiting the market due to drops, and this is reflected in their stock returns. Portfolios are constructed using the highest predicted merger and drop probabilities. The alphas of those portfolios are stable and significant. Specifically, there can be a monthly alpha as high as 0.8% by longing the merger portfolio, and an even higher monthly alpha of 4.3% by shorting the drop portfolio. The alphas are robust and consistent but not taking into consideration trading costs or restrictions.The options market enables traders to hedge positions in asset markets, thereby reducing risk exposure. Traders can choose from many different strike prices -- analogous to the coverage level in an insurance contract -- when hedging. The hedging motive leads a typical hedger to take positions slightly out of the money. There is a cointegration relationship between the changes in the options' weighted average strike and in their underlying index. Option strikes move further from the underlying index when the implied volatility is higher. The results imply that hedging is a fundamental to the value of option. Moreover, the gambling motivation could be a good supplement to explain the stylized facts.
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653 $a Tangibility of assets
653 $a Hedging
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710 2 $a University of California, Davis. $b Agricultural and Resource Economics. $3 1676824
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793 $a English
856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=28263008