Article#1: The failure of Lehman Brothers and its impact on other financial institutions.
The article interested in Dow Jones Industrial Average (DJIA) in the Lehman Brothers crisis by using the specific dates such as the day that Lehman Brothers announced their first quarterly loss until the day that Lehman Brothers filed for bankruptcy. In 2008, the failure of Lehman Brothers impacted not only the large primary bank but also savings, loans, and brokerage firm (Mark & Abdullah, 2012). This article traces the 3 years of daily stock return from the beginning of the year 2006 till the end of the year 2008 by forming the portfolio based on the firms’ Standard Industrial Code (SIC) and also the portfolio of the publicly traded financial institutions which had primary dealer status according to the New York Federal Reserve list on 15 September 2006. This article compares the effect of differences formed portfolio in the many event dates. The results show that in four differences event date, the portfolio is increasing and decreasing depending on the news. If the news is in a positive way such as the day that Korean Development Bank (KDB) announced that it was having a discussion with Lehman brothers regarding a possible investment in their firm, the portfolio is increasing and vice versa. I find the study and hypothesis of this article are very informative for learning of the fluctuation of the stock.
Article#2: Derivatives in bankruptcy: some reasons from Lehman Brothers.
The article talks about the beginning of the crisis, how the Lehman Brothers and other organization such as government cope with the problems, and also what is the effect of the action. Anyway, most of the article talks about the mechanism of derivatives. The resolution of the Lehman’ derivative contracts can classify in three types.First, most counterparties selected to terminate the contract as soon as possible after Lehman’s bankruptcy filing because holding the opening contracts could be a lose-lose situation. Second, some counterparties chose neither to terminate nor to continue making payments. Third, some counterparties who have lost their money on the contracts are trying to avoid paying the full value of their obligation. From this article, the effect is not staying only for Lehman brothers but it widespread to other company. At that time, the government attempted to curb the run on money market funds because the numerous investors withdrew their investment, fearing of loss in the money which relating to Lehman Brothers insolvency. The Lehman Brothers’ crisis teaches a lot of lessons for not only the investors but also the financial institution. Sometimes government support has been vital in keeping the market for structured securities alive (Henry, 2010).
Article#3 The impact of large-scale asset purchases on the S&P500 index, long-term interest rates and unemployment.
This article shows the remaining effect of Lehman Brothers that the government should settle. After the bankruptcy of Lehman Brothers, the Federal Reserve moved rapidly to reduce the federal funds rate. This shows that the US economy needs to be stabilized. The Federal Reserve Bank initiated three round of monetary policy which known as quantitative easing (QE) and encourages the investment spending. There are many arguments that disagree with this policy. After that the Federal Reserve Bank still using the QE policies. They launched not only one time but also three times. As a result of QE strategies, the balance sheet of Fed has expanded from about $1 trillion of assets prior to the crisis to over $4 trillion during the third quarter of 2014 (Ramaprasad & A.G. & Mary, 2015). This article carefully studies the QE impacting long-term interest rates, a stock market, and unemployment. The result of the hypothesis shows that the QE did not impact the 10-year note rate. The impact of QE on equities has been significant only the high volatility regime and the implications for unemployment did just in the low volatility regime. The article concludes that the Fed’s channel of QE that initially targeted the lowering of long-term interest rates was less successful than the targeting of equities that turned out to be more successful.
Article#4 The Lehman Brothers effect and bankruptcy cascades.
The main point of this article is about the Lehman default event which quantified as an almost immediate effect in the creditworthiness of all financial institution in the society because everybody believes that the Lehman is a too-big-to-fail financial institution. This article developed the structural model of correlated multi-firm default which leads to contagious jumps in credit spreads of business partners and assumed that all the properties have the effective credit rating which follows the dynamics of co-evolution with the credit rating of the other firms in economic network. The amplification effect is the direct consequence of the collective linkage between the firm credit ratings in our society which is organized dangerously.The article concludes that the U.S. government declined to bail out Lehman makes the firm subsequently failed. Creditors suffered from significant losses and made an adverse effect on the market even the government tried to persuade investors to continue doing business with Lehman. After that government intervened by providing an emergency loan to the primary insurance company but it makes the situation worse because this loan becomes the company most senior debt and implied losses for previously senior creditors. This situation does not remain only in the U.S. money market funds. The crisis affects the world’s financial market (Sieczka & Sornette & Holyst, 2011).
Article#5 Long-range dependence in the risk-neutral measure for the market on Lehman Brothers collapse
The discussion of this article is the long-range dependence in the risk-neutral stock return process of the S&P500 index options market. The long-range dependence has been repeatedly used to describe properties of financial time series such as stock prices, foreign exchange rates, market indices, and commodity prices. The relevance of these properties in the context of financial modeling, their relation with the basic principles of financial theory and possible economic explanations for their presence in financial time series. There are a variety of markets, instruments, and periods such as excess volatility, heavy tails, an absence of autocorrelations in returns, volatility clustering, and volume or volatility correlation. The model that was used in this article to observe the long-range dependence together with fat-tails is the parametric model of fractional Levy process along with the option pricing model. This article applied the mathematical equation to find the less error model to explain the market risk-neutral price process. From the empirical, the long-range dependence in the risk-neutral process of S&P500 index options market.Moreover, the long-range dependence becomes stronger in the Lehman crisis season than the case of one month before the Lehman Brothers collapse. This article may obtain a better arbitrage-free model which remains further research (Shin Kim, 2016).
References
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