Dissection of the capital markets with financial risks : empirical analysis of equity, debt, and derivative markets = 자본시장에 내재된 금융리스크에 관한 실증적 연구 : 주식, 채권, 파생상품 시장을 중심으로empirical analysis of equity, debt, and derivative markets
To better understand the dynamics of the asset prices in the financial markets, identifying and testing the role of the financial risks embedded in the asset price are critical. In this thesis, we analyze the financial capital markets in the modern finance system through the lens of the various financial risks. In the second chapter, we focus on identifying the new systematic risk that is significantly priced in the Korean equity market. Specifically, we theoretically identify the existence of new systematic risk, then empirically discover the new source of the risk is systematically priced by employing empirical asset pricing tests: Political event risk. We extend the empirical analysis of the financial risks in equity markets to markets of the United States. After the global financial crisis from late 2007, the existence and managing systemic risk is highlighted by academics, bankers, and regulators. In the second chapter, we test the systemic risk as the potential new source of the systematic risks in the equity markets. As a result, we find the empirical evidences that the systemic risk is historically identified as the systematic risks in the U.S. equity markets. In the fourth chapter, we investigate how the same sovereign credit risk is priced in different types of financial markets, bond (debt) and Credit Default Swap (CDS) (derivative) markets. The difference between the CDS spreads (price) and the bond spreads is called the CDS-BS basis, which captures the discrepancy of the same credit risk, and is studied to explain why such discrepancy exists using the Markov switching regressions. Then, we exploit the price discovery measure to discover the relative market efficiency in terms of the informational advantage. Lastly, we analyze the role of credit risk in the structured product markets, represented by Korean Equity Linked Securities (ELS). In this chapter, we find empirical evidences that the credit risk of the issuer is incorporated in the returns of the ELS. ELS that is issued by higher credit risk issuer provides higher ELS coupon rates to compensate the investors for extra credit riskiness. Especially, we exploit the new method to capture the returns of the ELS without using any price dynamic model assumption that causes potential mispricing or bias results.