http://repub.eur.nl/res/aut/558/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/15823/ 2004-08-01T00:00:00Z The purpose of this article is to show how institutional and evolutionary economics provide better insights as to why some firms survive and others do not than does neoclassical economics. At the heart of the evolutionary theory is the view that new firms are a manifestation of diversity and that their subsequent survival is shaped by the selection process. Despite immense institutional and historical differences across different economic systems such as those in North America, Japan and Europe, evolutionary economics explains the role that diversity, selection and learning plays in economic development. We use a Dutch data set and a model on who survives and who does not to explain this role. http://repub.eur.nl/res/pub/1081/ 2003-08-07T00:00:00Z We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies. http://repub.eur.nl/res/pub/1082/ 2003-08-07T00:00:00Z We value rating-triggered step-up bonds with three methods: (i) the Jarrow, Lando and Turnbull (1997, JLT) framework, (ii) a similar framework using historical probabilities and (iii) as plain vanilla bonds. We find that the market seems to value single step-up bonds according to the JLT model, while it values multiple step-up bonds as plain vanilla bonds. Further, step-up feature market premiums are more volatile than JLT and historical premiums, and the JLT model approximates market premiums always better than the historical method. Finally, most step-up bonds offer a cushion against rating migrations via dampened price movements. http://repub.eur.nl/res/pub/1083/ 2003-08-07T00:00:00Z In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery rate http://repub.eur.nl/res/pub/6713/ 2003-02-13T00:00:00Z We consider eight different measures (issued amount, coupon, listed, age, missing prices, price volatility, number of contributors and yield dispersion) to approximate corporate bond liquidity and use a five-variable model to control for maturity, credit and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity measures. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity measures shows that some ways to measure liquidity are better than others. http://repub.eur.nl/res/pub/6715/ 2003-02-06T00:00:00Z We value rating-triggered step-up bonds with three methods: (i) the Jarrow, Lando and Turnbull (1997, JLT) framework, (ii) a similar framework using historical probabilities and (iii) as plain vanilla bonds. We find that the market seems to value single step-up bonds according to the JLT model, while it values multiple step-up bonds as plain vanilla bonds. Further, step-up feature market premiums are more volatile than JLT and historical premiums, and the JLT model approximates market premiums always better than the historical method. Finally, most step-up bonds offer a cushion against rating migrations via dampened price movements. http://repub.eur.nl/res/pub/172/ 2002-02-27T00:00:00Z Abstract: In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery rate. Keywords: credit default swaps, credit derivatives, credit risk, default risk, default-free interest rates http://repub.eur.nl/res/pub/15882/ 2000-02-01T00:00:00Z The purpose of this paper is to examine whether the dynamics of industrial organization differ in the Netherlands from what has emerged as a Stylized Fact in other countries. Because the Netherlands has pursued a unique set of institutions and policies comprising what has become known as the Polder Model, the factors leading to firm failure may systematically differ from those in other countries. We address this question using a longitudinal database from Statistics Netherlands (CBS) that identifies over two thousand firms in manufacturing and then tracks their performance over time. http://repub.eur.nl/res/pub/1586/ 1999-03-31T00:00:00Z We present a new framework for the joint estimation of the default-free government term structure and corporate credit spread curves. By using a high-quality data set of German mark denominated bonds, we show that this yields more realistic spreads than conventionally obtained spread curves that result from subtracting independently estimated government and corporate term structures. The estimated spread curves are now smooth functions of time to maturity, as opposed to the twisting curves one gets from the traditional method, and are less sensitive to model specifications. Moreover, the implied corporate term structures have tighter confidence intervals. http://repub.eur.nl/res/pub/7777/ 1998-01-31T00:00:00Z The purpose of this paper is to show how institutional and evolutionary economics provide better insights as to why some firms survive and others do not than does neoclassical economics. At the heart of the evolutionary theory is the view that new firms are a manifestation of diversity and that their subsequent survival is shaped by the selection process. Despite immense institutional and historical differences across these different economic systems such as those in North America, Japan and Europe, evolutionary economics explains the role that diversity, selection and learning plays in economic development. We use a Dutch data set and a model on who survives and who doesn't to explain this role. http://repub.eur.nl/res/pub/7801/ 1997-01-13T00:00:00Z Recent studies show that the likelihood of survival differs significantly across firms. Both firm and industry characteristics are hypothesized to account for this heterogenity. Using a longitudinal database of manufacturing firms we investigate whether firm or industry characteristics dominate. Our evidence suggests that both firm- and industry-specific characteristics shape new-firm survival during the first years subsequent to entry. However, in the longer run, most of the industry factors have little influence on the likelihood of survival, but firm-specific characteristics still exert a considerable influence in shaping firm survival rates.