Do economic news releases affect tail risk? Evidence from an emerging market

Γκίλλας, Κωνσταντίνος; Konstantatos, Christoforos; Τσαγκανός, Αθανάσιος; Siriopoulos, Costas

doi:10.1016/j.frl.2020.101727

Cited by 13 publications

(10 citation statements)

References 38 publications

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“…It suggests that CRAs capture the different strategies applied by firms with different inherent risks and assign asymmetric rating levels. It is also consistent with the conclusions of Hao et al (2011) and Gkillas et al (2020), who show that external information has an asymmetric relationship with firm risks.…”

Section: Theoretical Modelsupporting

confidence: 91%

“…These results capture an asymmetric relationship between CRAs' external opinions (i.e., credit ratings) and firms' solicitation strategy. Gkillas et al (2020) find that the information reflected by news has an asymmetric impact on firm risks (i.e., different impact according to the risk quantile). Our results reveal another perspective of asymmetry referring to the interaction between entities who receive the external opinions (i.e., rated firms) and entities who release those opinions (i.e., CRAs).…”

Section: Regression Testmentioning

confidence: 94%

“…The firm risk observed later one justifies the risk asymmetry associated with different solicitation behaviour. Gkillas et al (2020) show evidence of an asymmetric relationship between firm risk and news releases at different risk levels. We contribute to their study by showing that the asymmetry in the information-risk relationship also exists in the context of interaction among different entities and may be a consequence of the self-selection nature of the information release.…”

Section: Introductionmentioning

confidence: 93%

“…Credit ratings are an essential source of external information which is significantly linked with firm risks. Similar to other sources such as economic news (Gkillas et al, 2020), technology shocks (Kogan and Dimitris, 2014) and firm fundamentals (Campello and Chen, 2010), credit ratings also have a reflection on firm risk but with a more complicated way as a consequence of blending payment models. Our theoretical model and the corresponding empirical results capture an asymmetric relationship between firm risk and external signals: due to the information asymmetry, firms have more knowledge about their own risk level than CRAs and investors do; therefore, firms have asymmetric strategies on whether to solicit external assessment.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Is solicitation status related to rating conservatism and rating quality?

Zhao

Moreira

Wang

2021

Journal of International Financial Markets, Institutions and Mo

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Section: Theoretical Modelsupporting

confidence: 91%

Section: Regression Testmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Is solicitation status related to rating conservatism and rating quality?

Zhao

Moreira

Wang

2021

Journal of International Financial Markets, Institutions and Mo

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“…As far as the econometric approaches are concerned, it must be mentioned that there are primarily two approaches for computing tail risks. One is associated with option-implied measures, while the other is based on the underlying returns data (Gkillas et al, (2020)). .…”

Section: Introductionmentioning

confidence: 99%

Predictability of tail risks of Canada and the U.S. Over a Century: The role of spillovers and oil tail Risks☆

Salisu

Gupta

Pierdzioch

2022

The North American Journal of Economics and Finance

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Motivated by the long standing strong economic ties between Canada and the United States (U.S.), we examine whether such relations can be extended to their stock-market tail risks using over a century of monthly data, while also accounting for the role of tail risks of other advanced economies such as France, Germany, Japan, Italy, Switzerland, and the United Kingdom (U.K.) as well as the role of oil-market tail risk. We employ the Conditional Autoregressive Value at Risk (CAViaR) model developed by Engle and Manganelli (2004) to measure tail risks, where we estimate four variants (Adaptive, Symmetric absolute value, Asymmetric slope and Indirect GARCH) of the CAViaR model to compute the 5% Value-at-Risk (VaR). We then use model diagnostics such as the Dynamic Quantile test (DQ) test, %Hits and Regression Quantile (RQ) statistic to determine the model that best fits the data. Relying on the "best" tail-risk model and a predictive model that additionally accounts for the salient features of the tail-risk data, we find a strong positive relation between the stock-market tail risks of Canada and the U.S., consistent with risk spillovers between the two economies. Our findings hold for various out-of-sample forecast horizons. We also find contrasting evidence for the oil-market tail risk, whose effect is positive for Canada (being a net oil exporter) and negative for the U.S. (being a net oil importer). Further results obtained after accounting for the role of tail risks of other advanced economies combined using a principal-component analysis reveal a positive relation with the U.S. and negative one for Canada, supporting the diversification potential of the latter in the presence of tail risks of advanced economies other than the U.S. Our findings have implications for investors and policymakers, and are robust to alternative VaR measures.

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