Browsing by Author "Lee, Han-Hsing"

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Default Risk, Liquidity Risk, and Equity Returns: Evidence from the Taiwan Market
(2013-01-01)
Chen, Che-Min
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Lee, Han-Hsing
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管理科學系
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資訊管理與財務金融系註：原資管所+財金所
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Department of Management Science
The authors' empirical results indicate that default risk has some power to explain equity returns on the Taiwanese stock market, but it does not contain other important price information uncorrelated with the prevailing three or four risk factor models. Furthermore, compared to the U.S. market, the timing of distress returns is different. The short-term return reversal in the first month is less pronounced for the return differential between portfolios having high and low default risk, but the reversal lingers for a longer period of time. Overall, the book-to-market ratio, rather than the liquidity effect, plays a crucial role in explaining the default risk in equity returns.
EMPIRICAL STUDIES OF STRUCTURAL CREDIT RISK MODELS AND THE APPLICATION IN DEFAULT PREDICTION: REVIEW AND NEW EVIDENCE
(2009-12-01)
Lee, Han-Hsing
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Chen, Ren-Raw
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Lee, Cheng-Few
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資訊管理與財務金融系註：原資管所+財金所
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Department of Information Management and Finance
This paper first reviews empirical evidence and estimation methods of structural credit risk models. Next, an empirical investigation of the performance of default prediction under the down-and-out barrier option framework is provided. In the literature review, a brief overview of the structural credit risk models is provided. Empirical investigations in extant literature papers are described in some detail, and their results are summarized in terms of subject and estimation method adopted in each paper. Current estimation methods and their drawbacks are discussed in detail. In our empirical investigation, we adopt the Maximum Likelihood Estimation method proposed by Duan [Mathematical Finance 10 (1994) 461-462]. This method has been shown by Ericsson and Reneby [Journal of Business 78 (2005) 707-735] through simulation experiments to be superior to the volatility restriction approach commonly adopted in the literature. Our empirical results surprisingly show that the simple Merton model outperforms the Brockman and Turtle [Journal of Financial Economics 67 (2003) 511-529] model in default prediction. The inferior performance of the Brockman and Turtle model may be the result of its unreasonable assumption of the flat barrier.
Have Domestic Institutional Investors Become as Market Savvy as Foreign Investors? Evidence from the Taiwan Options Market
(2014-06-01)
Chiu, Wan-Chien
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Lee, Han-Hsing
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Wang, Chih-Wei
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資訊管理與財務金融系註：原資管所+財金所
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Department of Information Management and Finance
Previous empirical studies indicate that informed investors can predict future index returns. In emerging markets like Taiwan, previous research documents that only foreign institutional investors can predict next-day index returns of the host country. Unlike previous empirical results, we find that in more recent periods, the put/call ratio of domestic institutional investors shows significant predictive power for daily TAIEX returns, except during the 2008 financial crisis. In contrast, the put/call ratio of foreign institutional investors has weak predictability for the TAIEX returns prior to the severe global market downturn in late 2008. We further explore the intraday lead-lag relationship among index returns and put/call ratios of different trader types. Our results show that only the trading of domestic institutional investors possesses predictive capability for intraday TAIEX returns prior to the 2008 financial crisis. During the 2008 financial crisis, intraday TAIEX returns significantly lead option trades of foreign and domestic institutional investors, suggesting that although institutional investors closely watch and react to market fluctuations, they are unable to predict market movement beforehand.
ON THE RATE OF CONVERGENCE OF BINOMIAL GREEKS
(2011-06-01)
Chung, San-Lin
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Hung, Weifeng
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Lee, Han-Hsing
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Shih, Pai-Ta
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資訊管理與財務金融系註：原資管所+財金所
This study investigates the convergence patterns and the rates of convergence of binomial Greeks for the CRR model and several smooth price convergence models in the literature, including the binomial Black-Scholes (BBS) model of Broadie M and Detemple J (1996), the flexible binomial model (FB) of Tian YS (1999), the smoothed payoff (SPF) approach of Heston S and Zhou G (2000), the GCRR-XPC models of Chung SL and Shih PT (2007), the modified FB-XPC model, and the modified GCRR-FT model. We prove that the rate of convergence of the CRR model for computing deltas and gammas is of order O(1/n), with a quadratic error term relating to the position of the final nodes around the strike price. Moreover, most smooth price convergence models generate deltas and gammas with monotonic and smooth convergence with order O(1/n). Thus, one can apply an extrapolation formula to enhance their accuracy. The numerical results show that placing the strike price at the center of the tree seems to enhance the accuracy substantially. Among all the binomial models considered in this study, the FB-XPC and the GCRR-XPC model with a two-point extrapolation are the most efficient methods to compute Greeks. (C) 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:562-597, 2011
Product market competition and credit risk
(2013-02-01)
Huang, Hsing-Hua
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Lee, Han-Hsing
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資訊管理與財務金融系註：原資管所+財金所
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Department of Information Management and Finance
This study theoretically and empirically investigates effects of product market competition on credit risk. We first develop a real-options-based structural model in a homogeneous oligopoly and show that credit spreads are positively related to the number of firms in an industry. The disparity of firm size in an industry is relevant to both product market competition and credit risk, and we therefore extend the model to an asymmetric duopoly case. In particular, we demonstrate that credit spreads of relatively small (large) firms within an industry are positively (negatively) related to Herfindahl-Hirschman index, and the relative firm size in an industry is an important determinant of credit risk. The models' implications are empirically scrutinized by a reduced-form hazard model and generally supported. By performing out-of-sample analyses, the results demonstrate that firm size together with the interaction terms between intra-industry firm size dummies and competition intensity can effectively predict default. (C) 2012 Elsevier B.V. All rights reserved.