The stock price effects for the domestic competitors of foreign acquisition targets in the US are found to be significantly positive. These results imply that signals of favorable industry conditions conveyed through cross-border acquisitions dominate any perceived changes in competitive balance. Consistent with the information-signaling hypothesis, the stock price effects are more favorable for relatively small competitors, for rivals with stock returns that are highly correlated with the target’s stock returns, when the targets experience favorable stock price effects, in technologically-intense industries, for rivals with poor prior performance, and with related acquisitions. Consistent with the competitive hypothesis, the stock price effects are less favorable with high degrees of financial leverage and when the acquirers already have a presence in the US.

We investigate how banking market competition, informational opacity, and sensitivity to shocks have changed over the last three decades by examining the persistence of firm-level rents. We develop propagation mechanisms with testable implications to isolate the sources of persistence. Our analysis suggests that different processes underlie persistence at the high and low ends of the performance distribution. Our tests suggest that impediments to competition and informational opacity continue to be strong determinants of persistence; that the reduction in geographic regulatory restrictions had little effect on competitiveness; and that persistence remains sensitive to regional/macroeconomic shocks. The findings also suggest reasons for the recent record profitability of the industry.

In this paper we decompose the interest rate swap yield curves of 10 major currencies into their common factors and find that the first two factors, interpreted as parallel shift and rotation, explain between 97.1% and 98.6% of the variation in the interest rate swap rates across all 10 currencies. The main contribution of the paper however is that we then model these two factors as simplified synthetic factors so that they may be used to develop an innovative approach to the computation of Value-at-Risk (VaR) for a portfolio of interest rate swaps.

This paper demonstrates that the use of GARCH-type models for the calculation of minimum capital risk requirements (MCRRs) may lead to the production of inaccurate and therefore inefficient capital requirements. We show that this inaccuracy stems from the fact that GARCH models typically overstate the degree of persistence in return volatility. A simple modification to the model is found to improve the accuracy of MCRR estimates in both back- and out-of-sample tests. Given that internal risk management models are currently in widespread usage in some parts of the world (most notably the USA), and will soon be permitted for EC banks and investment firms, we believe that our paper should serve as a valuable caution to risk management practitioners who are using, or intend to use this popular class of models.