Although the role of irrationality in the trading choice has been extensively discussed in the li... more Although the role of irrationality in the trading choice has been extensively discussed in the literature, individual characteristics, which are equally crucial, have been neglected. The purpose of this paper is to add a different way of looking with finance by focusing on individuals’ emotions. In particular, this work emphasizes the role of social life in emotional states. We investigated several possible links between psychological factors and trading choices in a sample of non professional agents, which managed a virtual portfolio pretending to be traders. Using a series of daily surveys over a seven week period as well as introductive inventory surveys, we constructed measures of personality traits and emotional moods and correlate these with subjects’ financial choices. Our aim is to find some evidence of the contribution of emotional state to the way to invest, indicating the added value of using an emotional intelligence measure beyond the classic economic theory. JEL classi...
We investigate the effect of founder family influence on hedging and speculation in medium-sized,... more We investigate the effect of founder family influence on hedging and speculation in medium-sized, manufacturing firms in Denmark. On a crude measure of use / non-use of foreign exchange rate, interest rate, and commodity price derivatives we find only a weak indication of differences between founder family firms (firms in which the founder of the firm or members of his/her family are active in the management team, are present in the board of directors, and/or are shareholders of the firm) and other firms. Digging deeper into a subsample of users of foreign exchange derivatives and/or debt denominated in foreign currency, we find that founder family firms not only tend to hedge more extensively, they also tend to speculate more often than other firms. This surprising result is in line with founder families’ lack of monetary diversification and their non-pecuniary investment in the firm (hedging) and in line with strands of the behavioral finance literature that emphasizes the better-...
In this paper, we investigate the contribution of interest rate structured bonds to portfolios of... more In this paper, we investigate the contribution of interest rate structured bonds to portfolios of risk-averse retail investors. We conduct our analysis by simulating the term structure according to a multifactor no-arbitrage interest rate model and comparing the performance of a portfolio consisting of basic products (zero-coupon bonds, coupon bonds and floating rate notes) with a portfolio containing more sophisticated exotic products (like constant maturity swaps, collars, spread and volatility notes). Our analysis, performed under different market environments, as well as volatility and correlation levels, takes into account the combined effects of risk premiums required by investors and fees that they have to pay. Our results show that capital protected interest rate structured products allow investors to improve risk–return trade-off if no fees are considered. With fees, our simulations show that structured products add value to the basic portfolio in a very limited number of cases. We believe our paper contributes to understanding the role of structured products in investors portfolios also in light of the current regulatory debate on the use of complex financial products by retail investors
This paper explores the implications of a housing market bubble for three critical elements of mo... more This paper explores the implications of a housing market bubble for three critical elements of mortgage contract design: difference between term to maturity and amortization period; prepayment options; and, lender recourse in the event of default. Using an extension of classical immunization theory, this paper provides equilibrium conditions demonstrating the risk reduction benefits of shorter term to contract maturity at origination for lenders of long amortization mortgage contracts. In addition, the risks of underpricing prepayment and no recourse default options in the mortgage contract when compared with full recourse mortgage contracts having yield maintenance prepayment penalties are explored by contrasting the ability of US and Canadian mortgage funding systems to withstand a housing market bubble collapse that might occur.
Weather derivatives allow to hedge weather risk that is the financial gain or loss due to variabi... more Weather derivatives allow to hedge weather risk that is the financial gain or loss due to variability in climatic conditions. The market originated in 19982 when the US power community realised that the high volatility of revenues due to weather variability could be controlled and, ...
This research analyzes the relationship between the carbon and the energy market. These two marke... more This research analyzes the relationship between the carbon and the energy market. These two markets are linked together on a regulatory and on a structural basis. The energy sector is the most important industry within the European Emission Trading Scheme (EU ETS): as ...
ABSTRACT In this paper we investigate the contribution of structured bonds to the efficient front... more ABSTRACT In this paper we investigate the contribution of structured bonds to the efficient frontier. We conduct our analysis by simulating the term structure according to a no-arbitrage multifactor model (G2 ) and comparing the performance of basic products (like zero-coupon bond, coupon bond and floating rate notes) with respect to more sophisticated products (like cms, collars, spread and volatility notes). In particular, our analysis considers different initial market environment like interest rate term structure shapes, as well as volatility and correlation in its changes and takes into account how the combined effect of risk-premium required by investors and fees that they have to pay can change the portfolio allocation respect to the one made only of basic securities. Our simulation results show that structured products can be an interesting investment only under particular scenarios. However, in general the return net of the fees in these securities is in average lower than the return in basic securities.
Journal of Multinational Financial Management, 2005
... They find that Finnish funds fees decrease over time and that they are higher for bank manage... more ... They find that Finnish funds fees decrease over time and that they are higher for bank managed funds and older funds. ... As far as fund type is concerned, two different funds classifications are used in Italy: the Bank of Italy and the Assogestioni 5 classifications. ...
PurposeThe purpose of this study is to explore the influence of founder families in medium‐sized ... more PurposeThe purpose of this study is to explore the influence of founder families in medium‐sized manufacturing firms and to investigate the impact of such influence on risk management – more specifically foreign exchange hedging and speculation.Design/methodology/approachThis empirical study uses survey data and publicly available data for descriptive analysis and ordinary least squares/ordered regression analysis.FindingsThe authors find that two thirds of medium‐sized manufacturing firms are founder family firms in which the founder of the firm or members of his/her family are active in the management team, are members of the board of directors, and/or are shareholders of the firm. The study finds no difference between such founder family firms and other firms in terms of the use/non‐use decision related to foreign exchange derivatives but a marked difference in terms of the extent decision. Thus, founder family firms tend not only to hedge but also to speculate more extensively t...
Although the role of irrationality in the trading choice has been extensively discussed in the li... more Although the role of irrationality in the trading choice has been extensively discussed in the literature, individual characteristics, which are equally crucial, have been neglected. The purpose of this paper is to add a different way of looking with finance by focusing on individuals’ emotions. In particular, this work emphasizes the role of social life in emotional states. We investigated several possible links between psychological factors and trading choices in a sample of non professional agents, which managed a virtual portfolio pretending to be traders. Using a series of daily surveys over a seven week period as well as introductive inventory surveys, we constructed measures of personality traits and emotional moods and correlate these with subjects’ financial choices. Our aim is to find some evidence of the contribution of emotional state to the way to invest, indicating the added value of using an emotional intelligence measure beyond the classic economic theory. JEL classi...
We investigate the effect of founder family influence on hedging and speculation in medium-sized,... more We investigate the effect of founder family influence on hedging and speculation in medium-sized, manufacturing firms in Denmark. On a crude measure of use / non-use of foreign exchange rate, interest rate, and commodity price derivatives we find only a weak indication of differences between founder family firms (firms in which the founder of the firm or members of his/her family are active in the management team, are present in the board of directors, and/or are shareholders of the firm) and other firms. Digging deeper into a subsample of users of foreign exchange derivatives and/or debt denominated in foreign currency, we find that founder family firms not only tend to hedge more extensively, they also tend to speculate more often than other firms. This surprising result is in line with founder families’ lack of monetary diversification and their non-pecuniary investment in the firm (hedging) and in line with strands of the behavioral finance literature that emphasizes the better-...
In this paper, we investigate the contribution of interest rate structured bonds to portfolios of... more In this paper, we investigate the contribution of interest rate structured bonds to portfolios of risk-averse retail investors. We conduct our analysis by simulating the term structure according to a multifactor no-arbitrage interest rate model and comparing the performance of a portfolio consisting of basic products (zero-coupon bonds, coupon bonds and floating rate notes) with a portfolio containing more sophisticated exotic products (like constant maturity swaps, collars, spread and volatility notes). Our analysis, performed under different market environments, as well as volatility and correlation levels, takes into account the combined effects of risk premiums required by investors and fees that they have to pay. Our results show that capital protected interest rate structured products allow investors to improve risk–return trade-off if no fees are considered. With fees, our simulations show that structured products add value to the basic portfolio in a very limited number of cases. We believe our paper contributes to understanding the role of structured products in investors portfolios also in light of the current regulatory debate on the use of complex financial products by retail investors
This paper explores the implications of a housing market bubble for three critical elements of mo... more This paper explores the implications of a housing market bubble for three critical elements of mortgage contract design: difference between term to maturity and amortization period; prepayment options; and, lender recourse in the event of default. Using an extension of classical immunization theory, this paper provides equilibrium conditions demonstrating the risk reduction benefits of shorter term to contract maturity at origination for lenders of long amortization mortgage contracts. In addition, the risks of underpricing prepayment and no recourse default options in the mortgage contract when compared with full recourse mortgage contracts having yield maintenance prepayment penalties are explored by contrasting the ability of US and Canadian mortgage funding systems to withstand a housing market bubble collapse that might occur.
Weather derivatives allow to hedge weather risk that is the financial gain or loss due to variabi... more Weather derivatives allow to hedge weather risk that is the financial gain or loss due to variability in climatic conditions. The market originated in 19982 when the US power community realised that the high volatility of revenues due to weather variability could be controlled and, ...
This research analyzes the relationship between the carbon and the energy market. These two marke... more This research analyzes the relationship between the carbon and the energy market. These two markets are linked together on a regulatory and on a structural basis. The energy sector is the most important industry within the European Emission Trading Scheme (EU ETS): as ...
ABSTRACT In this paper we investigate the contribution of structured bonds to the efficient front... more ABSTRACT In this paper we investigate the contribution of structured bonds to the efficient frontier. We conduct our analysis by simulating the term structure according to a no-arbitrage multifactor model (G2 ) and comparing the performance of basic products (like zero-coupon bond, coupon bond and floating rate notes) with respect to more sophisticated products (like cms, collars, spread and volatility notes). In particular, our analysis considers different initial market environment like interest rate term structure shapes, as well as volatility and correlation in its changes and takes into account how the combined effect of risk-premium required by investors and fees that they have to pay can change the portfolio allocation respect to the one made only of basic securities. Our simulation results show that structured products can be an interesting investment only under particular scenarios. However, in general the return net of the fees in these securities is in average lower than the return in basic securities.
Journal of Multinational Financial Management, 2005
... They find that Finnish funds fees decrease over time and that they are higher for bank manage... more ... They find that Finnish funds fees decrease over time and that they are higher for bank managed funds and older funds. ... As far as fund type is concerned, two different funds classifications are used in Italy: the Bank of Italy and the Assogestioni 5 classifications. ...
PurposeThe purpose of this study is to explore the influence of founder families in medium‐sized ... more PurposeThe purpose of this study is to explore the influence of founder families in medium‐sized manufacturing firms and to investigate the impact of such influence on risk management – more specifically foreign exchange hedging and speculation.Design/methodology/approachThis empirical study uses survey data and publicly available data for descriptive analysis and ordinary least squares/ordered regression analysis.FindingsThe authors find that two thirds of medium‐sized manufacturing firms are founder family firms in which the founder of the firm or members of his/her family are active in the management team, are members of the board of directors, and/or are shareholders of the firm. The study finds no difference between such founder family firms and other firms in terms of the use/non‐use decision related to foreign exchange derivatives but a marked difference in terms of the extent decision. Thus, founder family firms tend not only to hedge but also to speculate more extensively t...
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Papers by Giovanna Zanotti