Options
Cotter, John
Preferred name
Cotter, John
Official Name
Cotter, John
Research Output
Now showing 1 - 9 of 9
- PublicationAnatomy of a Bail-inTo mitigate potential contagion from future banking crises, the European Commission recently proposed a framework which would provide for the bail-in of bank creditors in the event of failure. In this study, we examine this framework retrospectively in the context of failed European banks during the global financial crisis. Empirical findings suggest that equity and subordinated bond holders would have been the main losers from the €535 billion impairment losses realized by failed European banks. Losses attributed to senior debt holders would, on aggregate, have been proportionally small, while no losses would have been imposed on depositors. Cross-country analysis, incorporating stress-tests, reveals a divergence of outcomes with subordinated debt holders wiped out in a number of countries, while senior debt holders of Greek, Austrian and Irish banks would have required bail-in.
327Scopus© Citations 30 - PublicationAn empirical analysis of dynamic multiscale hedging using wavelet decompositionThis paper investigates the hedging effectiveness of a dynamic moving window OLS hedging model, formed using wavelet decomposed time-series. The wavelet transform is applied to calculate the appropriate dynamic minimum-variance hedge ratio for various hedging horizons for a number of assets. The effectiveness of the dynamic multiscale hedging strategy is then tested, both in-and out-of-sample, using standard variance reduction and expanded to include a downside risk metric, the time horizon dependent Value-at-Risk. Measured using variance reduction, the effectiveness converges to one at longer scales, while a measure of VaR reduction indicates a portion of residual risk remains at all scales. Analysis of the hedge portfolio distributions indicate that this unhedged tail risk is related to excess portfolio kurtosis found at all scales.
878Scopus© Citations 51 - PublicationCommodity Futures Hedging, Risk Aversion and the Hedging HorizonThis paper examines the impact of investor preferences on the optimal futures hedging strategy and associated hedging performance. Explicit risk aversion levels are often overlooked in hedging analysis. Applying a mean-variance hedging objective, the optimal futures hedging ratio is determined for a range of investor preferences on risk aversion, hedging horizon and expected returns. Wavelet analysis is applied to illustrate how investor time horizon shapes hedging strategy. Empirical results reveal substantial variation of the optimal hedge ratio for distinct investor preferences and are supportive of the hedging policies of real firms. Hedging performance is then shown to be strongly dependent on underlying preferences. In particular, investors with high levels of risk aversion and a short horizon reduce the risk of the hedge portfolio but achieve inferior utility in comparison to those with low risk aversion.
1057 - PublicationDownside Risk and the Energy Hedger’s HorizonIn this paper, we explore the impact of investor time-horizon on an optimal downside hedged energy portfolio. Previous studies have shown that minimum-variance hedging effectiveness improves for longer horizons using variance as the performance metric. This paper investigates whether this result holds for different hedging objectives and effectiveness measures. A wavelet transform is applied to calculate the optimal heating oil hedge ratio using a variety of downside objective functions at different time-horizons. We demonstrate decreased hedging effectiveness for increased levels of uncertainty at higher confidence intervals. Moreover, for each of the different hedging objectives and effectiveness measures studied, we also demonstrate increasing hedging effectiveness at longer horizons. While small differences in effectiveness are found across the different hedging objectives, time horizon effects are found to dominate confirming the importance of considering the hedgers horizon. The findings suggest that while downside risk measures are useful in the computation of an optimal hedge ratio that accounts for unwanted negative returns, hedging horizon and confidence intervals should also be given careful consideration by the energy hedger.
491 - PublicationLong-Run international diversification(University College Dublin. Geary Institute, 2015-02-27)
; ; Prevailing wisdom in finance suggests long-run investors have a competitive advantage, since they can ride out short-run fluctuations and mispricing, and pursue illiquid investments. This paper investigates if this advantage holds in a portfolio context, examining benefits of international diversification across short- and longrun horizons. Employing a multi-horizon non-parametric filter, increased long-run correlations between international equity markets are detailed, even for synchronized markets. A model replicating the temporal aggregation properties of intermarket correlation is developed, indicating that short-run correlations are downward biased by frictions. Finally, the impact on portfolio allocation is investigated, demonstrating decreased risk reduction benefits in the long-run.427 - PublicationCredit Default Swaps as Indicators of Bank Financial Distress(University College Dublin. Geary Institute, 2016-01-07)
; ; We examine the ability of CDS contracts written on individual banks to provide market discipline. Changes in CDS spreads are found to represent a robust signal of bank failure, thus providing indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Consistent results are detailed for both senior and subordinated CDS spreads. Our results hold for various cohorts, for excess and idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk.564 - PublicationEurozone bank resolution and Bail-In-Intervention, triggers and writedownsThe European Union has recently introduced the Single Resolution Mechanism (SRM) to provide a consistent set of rules concerning Eurozone bank resolution. In this study, we retrospectively examine the implications of the SRM for Eurozone banks during the global financial crisis. Empirical results indicate that large, systemically important Eurozone banks would have exclusively required equity writedowns to cover impairment losses. However, to ensure adequate capitalization post bail-in, the majority of large, listed banks would have required conversion to equity for all subordinated and some senior debt creditors. Depositors would not have experienced writedowns in any of the banks examined. Given the subjective nature of resolution triggers outlined in the SRM, we also study the potential benefits of market and balance sheet dependent triggers. While our findings suggest some weak evidence of a capacity to differentiate between failed and surviving banks, the results are indicative of the difficulties in mandating predefined quantitative resolution triggers.
542 - PublicationThe Intervaling Effect on Higher-Order Co-Moments(University College Dublin. Geary Institute, 2016-01-14)
; ; This paper investigates the sensitivity of higher-order co-moments for different return measurement intervals. The levels of systematic skewness and kurtosis are found to be significantly influenced by the length of return interval. An asset preferred because of its positive co-skewness and low co-kurtosis when measured in one particular interval may have negative co-skewness or high co-kurtosis for another interval. We find the intervaling effect varies according to the level of price adjustment delay as proxied by market capitalization and illiquidity. Findings persist for intervals of up to twelve months, and are consistent during both volatile and stable periods.352 - PublicationAnatomy of a Bail-InTo mitigate potential contagion from future banking crises, the European Commission recently proposed a framework which would provide for the bail-in of bank creditors in the event of failure. In this study, we examine this framework retrospectively in the context of failed European banks during the global financial crisis. Empirical findings suggest that equity and subordinated bond holders would have been the main losers from the e535 billion impairment losses realized by failed European banks. Losses attributed to senior debt holders would, on aggregate, have been proportionally small, while no losses would have been imposed on depositors. Cross-country analysis, incorporating stress-tests, reveals a divergence of outcomes with subordinated debt holders wiped out in a number of countries, while senior debt holders of Greek, Austrian and Irish banks would have required bail-in.
576