Arce, O. (Óscar)

Search Results

Now showing 1 - 2 of 2
  • Thumbnail Image
    Short Sales Constraints and Financial Stability: Evidence from the Spanish 2011 Ban
    (2012) Mayordomo, S. (Sergio); Arce, O. (Óscar)
    This paper studies the main effects of the short sales ban implemented in August 2011 in the Spanish stock market along two dimensions: financial stability and market performance. Regarding the first, we show that short positions were a significant determinant of the probability of default of medium-sized banks before the ban. We find that, by weakening the contagion effect coming from the sovereign risk, the ban helped stabilise the probability of default of medium-sized banks, an effect which is not significant in the case of the largest banks and non-financials. Nonetheless, the stabilising power of the ban came at the cost of a large decline in the relative liquidity, trading volumes and price information efficiency of medium-sized banks stocks.
  • Thumbnail Image
    Credit-Risk Valuation in the Sovereign CDS and Bonds Markets: Evidence from the Euro Area Crisis
    (2012) Peña, J. I. (Juan Ignacio); Mayordomo, S. (Sergio); Arce, O. (Óscar)
    We analyse the extent to which prices in the sovereign credit default swap (CDS) and bond markets reflect the same information on credit risk in the context of the current crisis of the European Monetary Union (EMU). We first document that deviations between CDS and bond spreads are related to counterparty risk, common volatility in EMU equity markets, market illiquidity, funding costs, flight-to-quality, and the volume of debt purchases by the European Central Bank (ECB) in the secondary market. Based on this we conduct a state-dependent price-discovery analysis that reveals that the levels of the counterparty risk and the common volatility in EMU equity markets, and the banks agreements to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price discovery process. On the other hand, the funding costs, the flight-to-quality indicator and the volume of debt purchases by the ECB worsen the efficiency of the bond market.