why do we smile on the determinants of the implied volatility function abstract we report simple regressions and granger causality tests in order to understand the pattern of implied volatilities across exercise prices we employ all calls and puts transacted between 16 00 and 16 45 on the spanish ibex 35 index from january 1994 to april 1996 transaction costs proxied by the bid ask spread seem to be a key determinant of the curvature of the volatility smile moreover time to expiration the uncertainty associated with the market and the relative market momentum are also important variables in explaining the smile

the economic determinants of interest rate option smiles we address three questions relating to the interest rate options market what is the shape of the smile what are the economic determinants of the shape of the smile do these determinants have predictive power for the future shape of the smile and vice versa we investigate these issues using daily bid and ask prices of euro interest rate caps floors we find a clear smile pattern in interest rate options the shape of the smile varies over time and is affected in a dynamic manner by yield curve variables and the future uncertainty in the interest rate markets it also has information about future aggregate default risk our findings are useful for the pricing hedging and risk management of these derivatives

variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

impacts of tourism and fiscal expenditure on remote islands in japan a panel data analysis japan consists of many small inhabited islands in addition to four main islands we examine the impact of fiscal expenditure and the number of tourists on per capita taxable income in remote islands using panel data analyses the results show that both fiscal expenditure and population size have significant positive impacts on per capita taxable income whereas the number of tourists does not have statistically significant impact they indicate that tourism development would not work as a substitute for financial support from the government in other words continuous financial support may be needed to maintain the islands economies

testing dependence between gdp and tourism s growth rates abstract the main aim of this paper is to link the economic behaviour and statistical properties of gdp and tourism receipts growth rates through modelling the dependence to that end two developed economies such as the united kingdom non tourist oriented and spain tourist oriented and an emerging economy such as croatia tourist oriented are considered as case studies therefore a copula based garch approach is employed to describe the dependence structure between gdp and tourism receipts growth rates in this respect any causality and cointegration between tourism and gdp could justify public policies that promote a more efficient public resource allocation in the tourism industry additionally evidence of dependence between growth rates can justify the extent and direction of these policies results indicate that there is a significant asymmetric and positive dependence between tourism and gdp growth rates for the three countries studied though only for croatia is it time varying over time

tourism as a long run economic growth factor the spanish case this paper examines the role of tourism in the spanish long run economic development the tourism led growth hypothesis is confirmed through cointegration and causality testing the results indicate that at least during the last three decades economic growth in spain has been sensible to persistent expansion of international tourism the increase of this activity has produced multiplier effects over time external competitivity has also been proved in the model to be a fundamental variable for spanish economic growth from the empirical analysis it can be inferred the positive effects on income that government policy in the adequacy of supply as well as in the promotion of tourist activity may bring about

the contribution of tourism development to economic growth in the korean economy abstract this study investigates the causal relations between tourism growth and economic expansion for the korean economy by using engle and granger two stage approach and a bivariate vector autoregression var model two principle results emerge from this study first the results of a cointegration test indicate that there is no long run equilibrium relation between two series second the outcomes of granger causality test imply the one way causal relationship of economic driven tourism growth the hypothesis of tourism led economic growth is not held in the korean economy this consequence is supported by testing the sensitivity of causality test under different lag selections along with the optimal lag

the impacts of tourism energy consumption and political instability on economic growth in the mena countries using panel data of 24 countries in the middle east and north african mena region from 2001 to 2009 the purpose of this study is to examine the impacts of tourism energy consumption and political instability on economic growth within the neoclassical growth framework to address the objective of this study we utilise both the static panel data approach as well as the dynamic generalised method of moments gmm estimator to examine the impact of candidate variables our results show that energy consumption and tourism significantly contribute to the economic growth of countries in the mena region hence our study lends some support to the existence of the tourism led growth and energy led growth hypotheses in the region in line with our expectation our estimation results also reveal that political instability impedes the process of economic growth and development in the mena region therefore macroeconomic policies to promote expansion in tourism and energy consumption will directly stimulate economic growth additionally efforts to help the region overcome its history of political instability would attract more international tourist arrivals and further invigorate economic growth

does tourism influence economic growth a dynamic panel data approach on average tourism specialized countries grow more than others this is not consistent with the core of modern economic growth theory that suggests that economic growth is linked to sectors with high tech intensity and large scale in this article we use appropriate panel data methods to study the relationship between tourism and economic growth in general we show that tourism is a positive determinant of economic growth both in a broad sample of countries and in a sample of poor countries however contrary to previous contributions tourism is not more relevant in small countries than in a general sample this is a fully modified version of a working paper co authored by one of the authors

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

modelling the domestic and foreign tourist arrivals to tamil nadu india in recent years due to the indian federal government s and tamil nadu state government s various initiatives and promotional activities foreign and domestic tourist arrivals in tamil nadu are on the increase this article aims to model the monthly tourist arrivals foreign as well as domestic in tamil nadu for monthly time series data during the period 1998 to 2002 using univariate time series models as both time series show strong seasonal patterns we also investigate the possibility of seasonal unit roots in the domestic and foreign tourist arrivals series the results show that significant growth in domestic and foreign arrivals takes place during the months december to january growth rate for domestic tourist arrivals is positive during april and may but is negative for the foreign tourist arrivals during april and insignificant during may such information would be very useful to the tamil nadu government and the tourism industry in maximizing the usage of available tourist spot infrastructure

how important is the term structure in implied volatility surface modeling evidence from foreign exchange options we claim that previously proposed parametric specifications that linearly approximate the term structure of the implied volatility surface ivs in option prices fail to capture important information regarding the expectations of market participants this paper proposes a parametric specification for describing the ivs that allows flexible modeling of the term structure through a nelson and siegel 1987 factorization recently proposed by diebold and li 2006 in the context of yield curve modeling the specification is tested on implied volatilities from the over the counter foreign exchange options market where contracts with long expiries are actively traded and thus the term structure dimension of the surface should be very important we first show that the proposed volatility specification can consistently and remarkably improve our ability to describe the surface on any given day we then establish the economic relevance of the incremental information captured by our proposed specification by showing that it can produce more accurate forecasts of implied volatility that can support long term profitable trading strategies in the absence of transaction costs

exports and economic growth evidence from 19th century europe abstract cointegration and granger causality tests on data for six european countries from around the middle of the 19th century to 1913 show that exports and gnp were cointegrated and granger causally related with export led growth in italy norway and sweden

revisiting the tourism led growth hypothesis for turkey using the bounds test and johansen approach for cointegration abstract this paper empirically revisits and investigates the tourism led growth tlg hypothesis in the case of turkey by employing the bounds test and johansen approach for cointegration using annual data from 1960 2006 although gunduz and hatemi j 2005 is the tourism led growth hypothesis valid for turkey applied economics letters 12 499 504 support the tlg hypothesis for turkey suggesting unidirectional causation from tourism to economic growth by making use of the leveraged bootstrap causality tests and ongan and demiroz 2005 the contribution of tourism to the long run turkish economic growth ekonomick casopis journal of economics 53 9 880 894 suggest bidirectional causality between international tourism and economic growth in turkey this study does not find any cointegration between international tourism and economic growth in turkey therefore unlike the findings of gunduz and hatemi j 2005 and ongan and demiroz 2005 this study rejects the tlg hypothesis for the turkish economy since no cointegration was found and error correction mechanisms plus causality tests cannot be run for further steps in the long term

tourism and economic growth nexus revisited a panel causality analysis for the case of the mediterranean region abstract tourism is perceived as an important source of foreign exchange that is used for financing economic growth this study offers a modern approach to tourism led growth and investigates the causal relationship between tourism and economic growth in the european asian and african countries that border the mediterranean sea the study uses panel data for the period 1998 2011 and adopts a panel granger causality analysis developed by dumitrescu and hurlin 2012 to assess the contribution tourism makes to economic growth in each country the results indicate that the direction of causality between tourism and economic growth depends on the country group and tourism indicator furthermore the european countries are better able to generate growth from tourism in the mediterranean region

recovering probability distributions from option prices this article derives underlying asset risk neutral probability distributions of european options on the s p 500 index nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices alternative optimization specifications produce approximately the same implied distributions a new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distribution is proposed since the crash the risk neutral probability of a three four standard deviation decline in the index about 36 percent 46 percent over a year is about 10 100 times more likely than under the assumption of lognormality recently the increasing popularity of derivatives and some highly publicized failures to control risk have led to increased efforts to find reasonable methods to measure the sensitivity of large institutional derivatives portfolios to extreme events merely because such events are rare is not sufficient to ignore them since on the few occasions when they do occur significant amounts of money can change hands potentially wiping out profits accumulated over long prior periods a key assumption behind methods of estimation is the joint probability distribution of constituent underlying asset returns this has long been a concern of financial economists since probability assumptions are critical to much of their research during the last quarter century heretofore probability distributions of stock market returns have typically been estimated from historical time series unfortunately common hypotheses may not capture the probability of extreme events and the events of interest are rare or may not be present in the historical record even though they are clearly possible

on the empirical relationship between tourism and economic growth abstract this paper studies the dynamics of economic growth and tourism evolution for 80 countries during the period 1995 2016 the variables representing economic and tourism growth are growth rates of per capita gdp and international tourist arrivals per inhabitant respectively using the concept of economic regime the paper introduces a notion of distance between the dynamical paths of different countries then a minimal spanning tree and a hierarchical tree are constructed to detect groups of countries sharing similar performance the two main clusters we find can be interpreted as two groups of countries with high and low performance in the tourism sector and are coherent with the business cycle the evolution of such clusters shows three main stylized facts certain countries move across clusters the low performance cluster tends to span while the high performance one tends to be more compact the distance between the two groups increases in time

investigating the influence of tourism on economic growth and carbon emissions evidence from panel analysis of the european union the study investigates the influence of tourism on economic growth and co2 emissions in the empirical analysis unit root and cointegration tests using panel data of european union countries from 1988 to 2009 are performed to examine the long run equilibrium relationship among tourism co2 emissions economic growth and foreign direct investment fdi results from panel cointegration techniques and fixed effects models indicate that a long run equilibrium relationship exists among these variables furthermore tourism co2 emissions and fdi have high significant positive effect on economic growth economic growth in turn shows a high significant positive impact on co2 emissions while tourism and fdi incur a high significant negative impact on co2 emissions

does tourism effectively stimulate malaysia s economic growth abstract this study attempts to further verify the validity of the tourism led growth hypothesis in malaysia using a multivariate model derived from the solow growth theory it employs annual data from 1975 to 2011 we find that economic growth tourism and other determinants are cointegrated specifically tourism has a positive impact on malaysia s economic growth both in the short run and in the long run the granger causality test indicates that tourism granger causes economic growth all this provides the empirical support for the tourism led growth hypothesis in malaysia in light of this any policy initiative that promotes tourism could contribute to malaysia s economic growth

how resilient is la reunion in terms of international tourism attractiveness an assessment from unit root tests with structural breaks from 1981 2015 even if local policymakers increasingly claim that tourism is one of the key factors of future economic development for the french small island la reunion international tourist arrivals are observed to be locked in a stagnation phase since the beginning of the 2000s starting from this stylised fact this article aims to study if this phenomenon results from major external events hurting this economy regularly next by using univariate unit root procedures with structural breaks we test for evidence of permanent or transitory effects of external shocks on international tourist inflows total by source markets and by category over the period 1981 2015 finally the empirical analysis allow us to reject the null of a unit root then stagnation of tourism arrivals to la reunion is not due to exogenous shocks but probably results from endogenous impediments within the domestic tourism industry and unsuitable public policies

coarse thinking and persuasion we present a model of uninformative persuasion in which individuals think coarsely they group situations into categories and apply the same model of inference to all situations within a category coarse thinking exhibits two features that persuaders take advantage of i transference whereby individuals transfer the informational content of a given message from situations in a category where it is useful to those where it is not and ii framing whereby objectively useless information influences individuals choice of category the model sheds light on uninformative advertising and product branding as well as on some otherwise anomalous evidence on mutual fund advertising

time varying linkages between tourism receipts and economic growth in south africa the causal link between tourism receipts and gdp has recently become a major focus in the tourism economics literature results obtained in recent studies about the causal link appear to be sensitive with respect to the countries analysed sample period and methodology employed considering the sensitivity of the causal link we use rolling window and time varying coefficient estimation methods to analyse the parameter stability and granger causality based on a vector error correction model vecm when applied to south africa for the period 1960 2011 the findings are as follows results from the full sample vecm indicate that there is no granger causality between tourism receipts and gdp while the findings from the time varying coefficients model based on the state space representation show that tourism receipts have positive predictive content for gdp for the entire period with the exception of the period between 1985 and 1990 full sample time varying causality tests show bidirectional strong causal

the predictive power of implied volatility evidence from 35 futures markets abstract using data from 35 futures options markets from eight separate exchanges we test how well the implied volatilities ivs embedded in option prices predict subsequently realized volatility rv in the underlying futures we find that for this broad array of futures options iv performs well in a relative sense for a large majority of the commodities studied the implieds outperform historical volatility hv as a predictor of the subsequently rv in the underlying futures prices over the remaining life of the option indeed in most markets examined regardless of whether it is modeled as a simple moving average or in a garch framework hv contains no economically significant predictive information beyond what is already incorporated in iv these findings add to previous research that has focused on currency and crude oil futures by extending the analysis into a very broad array of contracts and exchanges our results are consistent with the hypothesis that futures options markets in general with their minimal trading frictions are efficient

economies of scale in the australian tourism industry the measurement of economies of scale in the tourism industry has not been done to this point as tourism is not a specific industry according to international statistical standards among many industries related to tourism four sectors accommodation transport retail trade and recreational services across six states and two territories from 1997 to 2007 are studied as they contribute nearly 70 of tourism output in australia by comparing regression results from the cobb douglas c d production function and the translog production function we find that there is evidence of increasing returns in transport retail trade and recreational services at the industry level however accommodation is characterized by constant returns to scale at the industry level as accommodation is responsible for the biggest share of tourism output this suggests that overall the tourism sector is not characterized by increasing returns we also find that the degrees of returns to scale from the c d and translog product

tourism led growth hypothesis in the top ten tourist destinations new evidence using the quantile on quantile approach this paper examines the empirical validity of the tourism led growth hypothesis in the top ten tourist destinations in the world china france germany italy mexico russia spain turkey the united kingdom and the united states using the quantile on quantile qq approach and a new index of tourism activity that combines the most commonly used tourism indicators this methodology recently introduced by sim and zhou 2015 provides an ideal framework with which to capture the overall dependence structure between tourism development and economic growth the empirical results primarily show a positive relation between tourism and economic growth for the ten countries considered with substantial variations across countries and across quantiles within each country the weakest links are noted for china and germany possibly because of the limited importance of the tourism sector relative to other major economic activities in those countries important country specific policy implications may be drawn from these findings

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

expected returns risk premia and volatility surfaces implicit in option market prices abstract this article presents a pure exchange economy that extends rubinstein 1976 to show how the jump diffusion option pricing model of merton 1976 is altered when jumps are correlated with diffusive risks a non zero correlation between jumps and diffusive risks is necessary in order to resolve the positively sloped implied volatility term structure inherent in traditional jump diffusion models our evidence is consistent with a negative covariance producing a non monotonic term structure for the proposed market structure we present a closed form asset pricing model that depends on the factors of the traditional jump diffusion models and on both the covariance of the diffusive pricing kernel with price jumps and the covariance of the jumps of the pricing kernel with the diffusive price we present statistical evidence that these covariances are positive for our model the expected stock return jump and diffusive risk premiums are non linear functions of time

the cross sectional relation between conditional heteroskedasticity the implied volatility smile and the variance risk premium abstract this paper estimates how the shape of the implied volatility smile and the size of the variance risk premium relate to parameters of garch type time series models measuring how conditional volatility responds to return shocks markets in which return shocks lead to large increases in conditional volatility tend to have larger variance risk premia than markets in which the impact on conditional volatility is slight markets in which negative positive return shocks lead to larger increases in future volatility than positive negative return shocks tend to have downward upward sloping implied volatility smiles also differences in how volatility responds to return shocks as measured by garch type models explain much but not all of the variations in excess kurtosis and multi period skewness across different markets

measuring and forecasting regional environmental and economic efficiency in italy abstractenvironmental and economic efficiency has being receiving growing attention among researchers in general terms this concept is related to the capability of the economic systems to employ natural resources efficiently so as to increase economic and human wealth this clearly implies that both the economic and ecological aspects of decisions ought to be considered bearing this in mind this article considers economic and ecological performance together by applying data envelopment analysis and the malmquist productivity index to investigate the efficiency of the 20 italian regions from 2004 to 2011 the results reveal that the northern regions have been more efficient than the southern ones highlighting the strong geographical differences between the two furthermore this article uses the grey system theory to forecast regional economic and environmental efficiency the results of the forecasting analysis show that the north south duality remains strong and will possibly increase since the r

tourism trade and growth the case of cyprus although the relationship between international trade and economic growth has found a wide application area in the literature over the years this can not be said about tourism and growth or trade and tourism this study employs the bounds test for cointegration and granger causality tests to investigate a long run equilibrium relationship between tourism trade and real income growth and the direction of causality among themselves for cyprus results reveal that tourism trade and real income growth are cointegrated thus a long run equilibrium relationship can be inferred between these three variables on the other hand granger causality test results suggest that real income growth stimulates growth in international trade both exports and imports and international tourist arrivals to the island furthermore growth in international trade both exports and imports also stimulates an increase in international tourist arrivals to cyprus and finally real import growth stimulate growth in real export

the weekend effect on the distribution of stock prices abstract evidence of weekend effects on the distribution of security returns suggests that returns are generated by a process operating closer to trading time rather than calendar time in contrast accumulation of interest over the weekend follows a calendar time process since both the variance of returns and the interest rate are important parameters of the black scholes option pricing model this paper suggests that the model be stated to account for this by utilizing a trading time variance and a calendar time interest rate empirical evidence indicates that this allows the model to better explain market option prices

stochastic volatility option pricing this paper examines alternative methods for pricing options when the underlying security volatility is stochastic we show that when there is no correlation between innovations in security price and volatility the characteristic function of the average variance of the price process plays a pivotal role it may be used to simplify fourier option pricing techniques and to implement simple power series methods we compare these methods for the alternative mean reverting stochastic volatility models introduced by stein and stein 1991 and heston 1993 we also examine the biases in the black scholes model that are eliminated by allowing for stochastic volatility and we correct some errors in the stein and stein 1991 analysis of this issue empirical evidence on underlying asset prices and on their derivatives strongly suggests that asset price volatility is stochastic the pricing of options under this condition is therefore an important problem in this paper we study alternative option pricing methods that account for stochastic volatility we are particularly concerned with power series methods which we show to be quite accurate and easy to implement for alternative volatility specifications we point out their relation with recently proposed exact methods this permits a precise assessment of the approximation involved in the simple power series approach and of the impact of stochastic volatility on option prices following garman 1976 stochastic volatility option prices must satisfy a bivariate fundamental partial differential equation pde in the two state variables security price and volatility since volatility is not spanned by assets in the econ omy the volatility risk may not be eliminated by arbitrage methods therefore its market price explicitly enters into the pde the associated risk premium is owen graduate school of management vanderbilt university nashville tn 37203 and universita di siena facolta di scienza economiche e bancarie 53100 siena italy respectively part of this research was supported from a grant from the dean s fund and the financial markets research center at the owen school of management vanderbilt university some of this research was completed while roma was visiting the anderson graduate school of management ofthe university of california at los angeles we thank participants of the finance accounting and economics workshop at the owen school of management vanderbilt university for useful comments we appreciate the suggestions of roger huang craig lewis ron masulis and walter torous we thank joanne ball for editorial

tourism development and economic growth a closer look at panels abstract this paper applies the new heterogeneous panel cointegration technique to re investigate the long run comovements and causal relationships between tourism development and economic growth for oecd and nonoecd countries including those in asia latin america and sub sahara africa for the 1990 2002 period on the global scale after allowing for the heterogeneous country effect a cointegrated relationship between gdp and tourism development is substantiated it is also determined that tourism development has a greater impact on gdp in nonoecd countries than in oecd countries and when the variable is tourism receipts the greatest impact is in sub sahara african countries additionally the real effective exchange rate has significant effects on economic growth finally in the long run the panel causality test shows unidirectional causality relationships from tourism development to economic growth in oecd countries bidirectional relationships in nonoecd countries but only weak relationships in asia our empirical findings have major policy implications

assessing the importance of international tourism for the turkish economy a social accounting matrix analysis abstract the international tourism sector has grown rapidly in turkey since the 1980s and turkey ranks among the top ten countries in terms of tourist arrivals and receipts previous studies on international tourism in turkey are partial equilibrium studies which emphasized the importance of the sector for foreign exchange earnings employment creation and economic growth the social accounting matrix sam modeling approach is superior to partial equilibrium analysis as it takes into account intersectoral linkages this paper analyzes the contribution of international tourism to the turkish economy using two sams for 1996 and 2002 respectively two analyses are conducted using the sam impact model i sectoral comparison of gdp elasticities and ii sam impact analysis of international tourism on output value added and employment the results show that the gdp elasticity of international tourism is relatively low and the impact of foreign tourist expenditures on domestic production value added gdp and employment in turkey are modest the results imply the possibility of leakage of foreign tourist expenditures out of the economy

stock price distributions with stochastic volatility an analytic approach we study the stock price distributions that arise when prices follow a diffusion process with a stochastically varying volatility parameter we use analytic techniques to derive an explicit closed form solution for the case where volatility is driven by an arithmetic ornstein ublenbeck or ar1 process we then apply our results to two related problems in the finance literature 1 options pricing in a world of stochastic volatility and 2 the relationship between stochastic volatility and the nature of fat tailes in stock price distributions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

effects of the volatility smile on exchange settlement practices the hong kong case abstract the well documented volatility smile phenomenon in the us options market has affected the option settlement practices of other markets to settle hang seng index hsi options the hong kong stock exchange artificially builds in a piecewise linear smile or sneer volatility function which is determined daily by market makers rather than directly by market forces in this study we investigate the time varying settlement function and find the following economic determinants of the volatility function lag parameters current day hsi returns the distribution of hsi returns transaction costs as proxied by the bid ask spread and the monday effect for evaluation purposes we use as a benchmark the estimated piecewise linear volatility function as directly driven by market forces the comparison analyses show that base volatilities set by market makers run somewhat high while downside slopes are not steep enough this results in the overpricing of the lion s share of traded options an economic determinants analysis of market force driven parameters reveals that market makers can better align artificial volatility parameters both by reducing reliance on the function parameters of prior days and by more precisely accounting for current day hsi returns option time to maturity bid ask spreads and buying pressure

exploring the effects of international tourism on china s economic growth energy consumption and environmental pollution evidence from a regional panel analysis abstract this study explores the effects of international tourism on china s economic growth energy consumption and environmental pollution as proxied by co 2 emissions in a multivariate framework using regional panel data over the period 1995 2011 our findings suggest that the tourism induced ekc hypothesis does not exist in central china and is merely weakly supported in eastern and western china however results show that tourism has a negative impact on co 2 emissions in the eastern region which contradicts with our perception to some extent panel causality tests show that the directions of causality in both short and long runs are mixed among regions nevertheless our findings reveal that tourism causally affects economic growth and co 2 emissions in the long run thus tourism led growth hypothesis is verified under all three scenarios our findings also suggest that in all three regions there is bidirectional causality between economic growth and co 2 emissions overall these results imply that low carbon tourism in china should be continuously supported which provides significant insights to policy makers at various government levels

income and the substitution pattern between domestic and international tourism demand this article analyses the role of income in the decision of participating in the tourism demand within 1 year the tourists who are participating can travel to domestic destinations only abroad destinations only or to both of them such a substitution pattern is modelled using a bivariate probit model the analysis is carried out to the regional level using a survey conducted in 15 european eu 15 countries in addition to the traditional socioeconomic variables the analysis adds new variables to the outbound tourism demand modelling such as the attributes of the place of residence the results show that tourism demand is income elastic however there are marked differences in the income elasticities of the probabilities of travelling domestically or abroad above certain income threshold the substitution pattern between destinations takes part the probability of travelling domestically only remains constant whereas the probability of travelling abroad keeps growing additionally the article prov

tourism and economic development the beach disease abstract this paper analyses empirically the danger of a dutch disease effect in tourism dependent countries in the long run data on 134 countries of the world over the period 1970 2007 is used in a first step the long run relationship between tourism and economic growth is analysed in a cross country setting the results are then checked in a panel data framework on gdp per capita levels that allows to control for reverse causality non linearity and interactive effects it is found that there is no danger of a beach disease effect on the contrary tourism dependent countries do not face real exchange rate distortion and deindustrialisation but higher than average economic growth rates investment in physical capital such as for instance transport infrastructure is complementary to investment in tourism

a comparison of implied and realized volatility in the nordic power forward market abstract in this paper we study implied and realized volatility for the nordic power forward market we create an implied volatility index with a fixed time to maturity this index is compared to a realized volatility time series calculated from high frequency data the results show that the implied volatility has a positive bias against the realized volatility measure indicating that there is a risk premium imposed by option traders the results are consistent with previous research in other markets

quality and endogenous tourism an empirical approach abstract we propose a theoretical model and an empirical study that highlight the role of quality of tourism services and endogenous tourism in long run economic growth we study a theoretical growth model of international trade where tourism is the growth engine and quality of tourism services has a positive impact on long term growth we also provide an empirical analysis to test the relation between tourism quality and economic growth in spain over the period 1970 2010 our results show that in the long run tourist arrivals quality of tourism accommodations and foreign gdp have a positive effect on spanish gdp in the short term changes in economic growth appear to lead to growth in tourist arrivals our findings support a two way causal relationship between real gdp growth and tourism growth in spain

tourism expansion tourism uncertainty and economic growth new evidence from taiwan and korea abstract this study examines the causal relationship between tourism expansion and economic growth in two asian countries taiwan and south korea an egarch m model with uncertainty factors is employed to examine the direction of causality between tourism expansion and economic growth as well as the impulse impacts of uncertainty on both variables the results indicate that the tourism led economic growth hypothesis is supported for taiwan while a reciprocal causal relationship is found for south korea the significant impacts of uncertainty on growth are also identified

a panel data analysis of the effect of corruption on tourism this study empirically tests the hypothesis that corruption has a negative effect on tourism having to pay bribes while on holiday or a business trip increases the costs of travelling to a country where corruption is prevalent tourists are thus more likely to travel to countries where these additional costs do not need to be incurred this hypothesis is tested using a panel data set of over 100 countries and 16 years the results indicate that a 1 point increase in the corruption perception index implying a decrease in corruption results in a 2 to 7 increase in tourist inflows in addition tourist inflows rise with gdp per capita openness and growth and are higher in countries with a temperate climate

is the tourism economic growth nexus time varying bootstrap rolling window causality analysis for the top 10 tourist destinations this article explores the time varying causal nexus between tourism development and economic growth for the top 10 tourist destinations in the world namely china france germany italy mexico t

competition and bias we attempt to measure the effect of competition on bias in the context of analyst earnings forecasts which are known to be excessively optimistic because of conflicts of interest our natural experiment for competition is mergers of brokerage houses which result in the firing of analysts because of redundancy e g one of the two oil stock analysts is let go and other reasons such as culture clash we use this decrease in analyst coverage for stocks covered by both merging houses before the merger the treatment sample to measure the causal effect of competition on bias we find that the treatment sample simultaneously experiences a decrease in analyst coverage and an increase in optimism bias the year after the merger relative to a control group of stocks consistent with competition reducing bias the implied economic effect from our natural experiment is significantly larger than estimates from ols regressions that do not correct for the endogeneity of coverage this effect is much more significant for stocks with little initial analyst coverage or competition

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

international tourism higher education and economic growth the case of north cyprus this study investigates the long run equilibrium relationship between international tourism higher education growth real income growth and the direction of causality among these variables for the turkish republic of northern cyprus which is not recognised by any country other than turkey results reveal that international tourism and higher education are in a long run equilibrium relationship with real income growth international tourism and higher education have an inelastic yet positively significant impact on real income growth in the long run period finally the results of the present study reveal that both the tourism led growth and the higher education led growth hypotheses are confirmed for north cyprus

corporate governance tourism growth and firm performance evidence from publicly listed tourism firms in five middle eastern countries this study explores the under researched relationship between corporate governance and firm performance in tourism companies we employ instrumental variable modelling using 2sls for publicly listed firms in five countries in the middle east board independence is found to be positively related to firm performance and stock performance suggesting that having independent directors among board members will improve overall firm performance board size shows opposing results large boards enhance firm profitability however small boards exhibit more efficient stock performance finally we support the tourism led growth hypothesis in our selected sample these findings have empirical implications for policy makers governments and academics

the demand for international tourism in the mediterranean region the paper studies the demand for international tourism in the mediterranean region first a review of the most important attempts to model econometrically the demand for international tourism in the past is given followed by a formal presentation of the proposed theoretical model in particular a version of the almost ideal demand system aids is adopted and a description of the variables involved and their sources together with the estimation procedure are provided the diagrammatic analysis performed contributes to a better understanding of the evolution of the dependent variable over time the results with respect to the expenditure as well as to the own and cross price elasticities may be regarded as econometrically satisfactory and a reasonable economic explanation is given

causality between exports and economic growth abstract this paper utilizes granger causality tests in investigating the relationship between exports and national income from a consistent data set for 47 developing countries in africa new empirical results as well as suggestions for future research are presented

predictable dynamics in implied volatility surfaces from otc currency options recent empirical studies report predictable dynamics in the volatility surfaces that are implied by observed index option prices such as those prescribed by general equilibrium models using an extensive data set from the over the counter options market we document similar predictability in the factors that capture the daily variation of surfaces implied by options on 25 different foreign exchange rates we proceed to demonstrate that simple vector autoregressive specifications for the factors can help produce accurate out of sample forecasts of the systematic component of the surface at short horizons profitable delta hedged positions can be set up based on these forecasts however profits disappear when typical transaction costs are taken into account and when trading rules on wide segments of the surface are sought

museum and monument attendance and tourism flow a time series analysis approach this article takes a time series analysis approach to evaluate the directions of causality between tourism flows on the one side and museum and monument attendance on the other we consider italy as a case study and analyse monthly data over the period january 1996 to december 2010 all the considered series are seasonally integrated and co integration links emerge we focus on the error correction mechanism among co integrated time series to detect the directional link s of causality clear cut results emerge bi directional causality exists in the long run dynamics but it is the long run dynamics of visits to museums and monuments that mainly adjust to tourism variables arrivals overnights average stays in the short run there are some causal effects going from the cultural sites attendance to tourism dynamics the nonstationary nature of time series their co integration relationships and the direction of causal links suggest specific implications for tourism and cultural policies

oil prices tourism income and economic growth a structural var approach for european mediterranean countries abstract in this study a structural var model is employed to investigate the relationship among oil price shocks tourism variables and economic indicators in four european mediterranean countries in contrast with the current tourism literature we distinguish between three oil price shocks namely supply side aggregate demand and oil specific demand shocks overall our results indicate that oil specific demand shocks contemporaneously affect inflation and the tourism sector equity index whereas these shocks do not seem to have any lagged effects by contrast aggregate demand oil price shocks exercise a lagged effect either directly or indirectly to tourism generated income and economic growth the paper does not provide any evidence that supply side shocks trigger any responses from the remaining variables results are important for tourism agents and policy makers should they need to create hedging strategies against future oil price movements or plan for economic policy developments

trading and liquidity on the tokyo stock exchange a bird s eye view the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity to the market specialists offer simultaneous and tight quotes to both buy and sell and supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions in contradistinction the tse has no exchange designated liquidity suppliers instead liquidity is provided through a public limit order book and liquidity is organized through restrictions on maximum price changes between trades that serve to slow down trading in this article we examine the efficacy of the tse s trading mechanisms at providing liquidity our analysis is based on a complete record of transactions and best bid and best offer quotes for most stocks in the first section of the tse over a period of 26 months we study the size of the bid ask spread and its cross sectional and intertemporal stability intertemporal patterns in returns volatility volume trade size and the frequency of trades and market depth based on the response of quotes to trades and the frequency of trading halts and warning quotes the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity in the market and to maintain a private limit order book with the public s limit orders on the tse exchange designated intermediaries saitori log limit orders and match them to incoming market orders but provide no market making services in the united states specialists offer simultaneous and tight quotes to both buy and sell on the tse public limit orders constitute the available bids and offers in the united states specialists supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions 1 on the tse the market mechanism places limits on the magnitude of consecutive price

foreign informational lobbying can enhance tourism evidence from the caribbean there exist legal channels for informational lobbying of u s policymakers by foreign principals foreign governments and private sector principals frequently and intensively use this institutional channel to lobby on trade and tourism issues this paper empirically studies whether such lobbying effectively achieves its goal of trade promotion in the context of caribbean tourism and suggests the potential for using foreign lobbying as a vehicle for development panel data are used to explore and quantify the association between foreign lobbying by caribbean principals and u s tourist arrivals to caribbean destinations a variety of sensitivity analyses support the finding of a strong association the policy implications are obvious and potentially important for developing countries

testing for linear and nonlinear granger causality in the stock price volume relation linear and nonlinear granger causality tests are used to examine the dynamic relation between daily dow jones stock returns and percentage changes in new york stock exchange trading volume we find evidence of significant bidirectional nonlinear causality between returns and volume we also examine whether the nonlinear causality from volume to returns can be explained by volume serving as a proxy for information flow in the stochastic process generating stock return variance as suggested by clark s 1973 latent common factor model after controlling for volatility persistence in returns we continue to find evidence of nonlinear causality from volume to returns

is the tourism led growth hypothesis valid after the global economic and financial crisis the case of spain 1957 2014 abstract since the first paper on the subject was published in 2002 the tourism led growth hypothesis tlgh has constituted one of the most predominant topics in tourism literature spain is a leading country in the tourism industry and one where this hypothesis has been tested with several studies confirming the relationship between spain s tourism development and its economic growth however the existing studies for spain do not take into account recent turbulences such as the global financial and economic crisis and the arab spring uprisings that have shocked tourism markets this paper re examines the tlgh for the spanish case in the light of these events in order to investigate the robustness of the relationship between tourism and economic growth

market frictions and the pricing of sovereign credit default swaps abstract this paper contributes to the general understanding of how sovereign cds prices are formed by studying the information content of pricing errors generated by a non arbitrage model we implement a price discrepancy measure in the spirit of the noise measure introduced by hu et al 2013 in the treasury bond market and analyze its main determinants in panel data analysis the main results show that sovereign cds pricing errors are systematically related to higher bid ask spreads the evidence in this paper also suggests that exits of capital arbitrage during distressed periods as measured by changes in net offsetting can be associated to larger pricing errors in sovereign cds from advanced economies thereby supporting the main claims of the limit to arbitrage theories these findings are robust for the most common cds pricing models employed in the industry and different estimation techniques

investigating causality in international air freight and business travel the case of australia few studies have examined the link between air cargo and business travel despite there being a generally accepted understanding that these two variables are inextricably related to each other thi

is tourism an engine for economic recovery theory and empirical evidence abstract the purpose of this study is to examine the causal relationships between tourism development and economic growth for this purpose the dumitrescu and hurlin 2012 technique was employed to analyze the casual link between tourism development and economic growth in seven european countries the results showed that there is bidirectional causality between growth in tourism receipts and economic growth suggesting that economic growth and tourism development are interdependent and that tourism development stimulates economic growth and vice versa in these countries theoretical and practical implications are discussed within the realms of growth conservation feedback and neutrality hypotheses

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

the implied volatility smirk in the vxx options market abstractthe vxx option market has grown in popularity alongside the vxx etn market in activity and size of oustanding positions yet there is no complete vxx option pricing model this paper is the

do aussie markets smile implied volatility functions and determinants if options are correctly priced the interpretation of volatility in the black scholes model as identifying the volatility of the underlying asset is violated the empirical relation between the model implied volatility and the degree to which the option is in the money moneyness has been reported as resembling a u shape or smile for options on currencies and more of a smirk for options on equities in this article using multivariate time series analysis and employing an impulse response function we investigate the structural relationships and dynamics of the volatility smile in relation to the option liquidity key features of the underlying asset and market momentum our findings confirm evidence of a number of biases in the black scholes model consistent with chou et al 2011 in regard to liquidity in both the underlying and the option itself and with pena et al 1999 as to the importance of the option time to maturity as well as delineating such biases as they co relate both with

the surface of implied firm s asset volatility abstract this paper analyzes the surface of cds implied firm s asset volatility at the aggregate market level using a sample of european investment grade firms during the 2007 2014 period the term structure of asset implied volatilities is backed out from the term structure of cds spreads while the moneyness dimension is proxied by the ratio of the default barrier to asset value we find both a downward sloping term structure and a negative skew principal component analysis on the entire volatility surface shows that the first four components interpreted as a level a term structure a skew and a moneyness related curvature mode capture 86 of the daily variation in asset implied volatility we also find that the term structure slope is related to market and funding illiquidity investors risk aversion informational frictions demand supply factors and momentum

loyalty based portfolio choice i evaluate the effect of loyalty on individuals portfolio choice using a unique dataset of retirement contributions i exploit the statutory difference that in 401 k plans stand alone employees can invest directly in their division while conglomerate employees must invest in the entire firm including all unrelated divisions consistent with loyalty employees of stand alone firms invest 10 percentage points 75 more in company stock than conglomerate employees support is also found using variation in loyalty between different groups of employees across and within firms the cost to employees of loyalty is large amounting to nearly a 20 loss in retirement income

the tourism economy causality in the united states a sub industry level examination abstract this study analyzes the relationships between the performance of four tourism related industries airlines casinos hotels and restaurants and gdp in the u s using cointegration and granger causality tests the results show no cointegration between economic growth and industry performance in the u s this suggests that mechanisms to increase the revenue of tourism related industries can potentially be successful in the long run even in the face of sustained economic stagnation the results also indicate a temporal causal hierarchy among industry performance which could be a good tool for timing and prioritizing the allocation of resources among industries to ensure better overall tourism and economic outcomes investors and managers could also use this temporal hierarchy to identify the best timing for investments and business strategies by observing performance trends of industries higher on the temporal hierarchy

implied volatility surface predictability the case of commodity markets abstract recent literature seek to forecast implied volatility derived from equity index foreign exchange and interest rate options using latent factor and parametric frameworks motivated by increased public attention borne out of the financialization of futures markets in the early 2000s we investigate if these extant models can uncover predictable patterns in the implied volatility surfaces of the most actively traded commodity options between 2006 and 2016 adopting a rolling out of sample forecasting framework that addresses the common multiple comparisons problem we establish that for energy and precious metals options explicitly modeling the term structure of implied volatility using the nelson siegel factors produces the most accurate forecasts

does a common currency promote countries growth via trade and tourism the main aim of this study is to contribute to the debate on the effects of a common currency in particular the impact of a common currency on growth via trade and tourism is explored for a panel dataset which includes 179 countries as destination and 30 oecd countries as origin over the period 1995 2006 this research contributes to previous work in three ways i tourism is included as an additional channel for a common currency to promote growth ii the heterogeneity of countries is addressed by dividing the sample into three groups of countries by income and iii up to date data including the case of the euro are considered the results obtained suggest that a common currency strengthens economic growth by promoting not only international trade but also tourism

exploring the regional distribution of tourism and the extent to which there is convergence abstract in this paper we test the hypothesis of convergence in a set of twelve of the main tourism source markets of spain over a time period that ranges from january 2000 to september 2015 we analyse the potential convergence by following an econometric strategy consisting of three different methodologies firstly we test for the presence of full convergence in the dataset by means of the panel stationary test developed by hadri 2000 next we conduct a robustness check for the full convergence hypothesis by considering the potential existence of structural breaks in the dataset through the test proposed by carrion i silvestre et al 2005 finally the hypothesis of club convergence philips and sul 2007 is also tested the results point to absence of full convergence even when controlling for structural breaks while three different clubs of convergence are found we discuss potential policy implications that can be extracted from these results

the bounds test approach for cointegration and causality between financial development international trade and economic growth the case of cyprus this study employs the bounds test for co integration and granger causality tests to investigate the long run equilibrium relationship and the direction of causality between financial development international trade and real income growth for the cyprus economy the results of the study reveal that financial development as measured by broad money m2 international trade and real income growth are cointegrated thus a long run equilibrium relationship can be inferred among these three variables on the other hand granger causality test results suggest that in cyprus the growth in real income stimulates the growth of international trade both exports and imports and the growth of money supply furthermore growth in imports of goods and services also stimulates a growth in exports of goods and services of cyprus although this result contradicts our initial expectations it indicates the importance of capital inflows in cyprus that plays a major role in financing the investments mainly in the tourism

whom do you trust investor advisor relationships and mutual fund flows i provide a measure for the value that investors place on trust and relationships in asset management by examining mutual fund flows around announced changes in the ownership of fund management companies i find a decline in flows of around 7 of fund assets in the year following the announcement date resulting primarily from fund outflows retail investors and investors in funds with higher expense ratios are most responsive to ownership changes providing evidence that such investors appear to place a significant value on trust and are more likely to respond to a relationship disruption by withdrawing their assets

exploring the role of the realized return distribution in the formation of the implied volatility smile abstract this article explores the role of the realized return distribution in the formation of the observed implied volatility smile using the framework of an adaptive expectations model according to this framework investors update their expectations of future events through which options are priced by incorporating information from the underlying asset traded in the spot market our study is conducted at the level of cumulants which provide a complete description of investors expectations and can be considered as largely non parametric with a minimal set of assumptions for the stochastic process that drives asset returns the empirical results based on the s p 500 index support the significance of the realized distribution in the formation of the implied volatility smile

valuation of american call options on dividend paying stocks empirical tests abstract this paper examines the pricing performance of the valuation equation for american call options on stocks with known dividends and compares it with two suggested approximation methods the approximation obtained by substituting the stock price net of the present value of the escrowed dividends into the black scholes model is shown to induce spurious correlation between prediction error and 1 the standard deviation of stock return 2 the degree to which the option is in the money or out of the money 3 the probability of early exercise 4 the time to expiration of the option and 5 the dividend yield of the stock a new method of examining option market efficiency is developed and tested

growth effects of leisure tourism and the level of economic development abstractthis study examines 1 whether leisure tourism can contribute to economic growth and 2 if it does whether its growth effects are constant across levels of economic development leisure tourism differs from business tourism in the causal relation with economic growth in addition the natural and heritage related resources for leisure tourism are limited and not reproducible this notion has a significant implication for the relationship between the growth effects of leisure tourism and the level of economic development thus the current study focuses on leisure tourism and controls for the effects of business tourism as an economy grows the growth effects of leisure tourism are expected to diminish due to a lack of continued productivity improvement in the tourism industry the empirical findings in this research reveal that leisure tourism contributes to economic growth at an early stage of economic development but its contribution becomes weaker as the economy develops