Highlights in July 2008

Does Industry-wide Distress Affect Defaulted Firms? - Evidence From Creditor Recoveries 
(winner of FAMA-DFA Best Paper Award)

The current credit turmoil in the US markets has impacted stock and bond markets globally. Several banks are faced with huge losses on their mortgage and loan portfolios and as a consequence have had to seek additional capital.

Temasek Holdings as well as several other sovereign wealth funds such as Qatar Investment Authority have invested in troubled financial service firms such as Merrill Lynch and Barclays. 

One of the important aspects of this crisis is the claim by many banks that their credit portfolios are trading at ‘fire sale’ prices or at steep discounts relative to their true value, which in turn results in their stock prices also being below its fundamental value. 

Is this justified? Can assets trade below true value? more