cross border auction cycle effects of sovereign bond issuance in the euro area we provide evidence for the euro area of spillovers from foreign public debt auctions into domestic secondary market auction cycles we also confirm existing evidence of such spillovers from domestic issues into the domestic secondary market consistent with a theory of primary dealers limited risk bearing capacity we find that auction cycles from domestic issues are stronger during the recent crisis period whereas cross border effects are stronger in the precrisis period but this evidence is not strong this finding likely reflects the opposing effects of reduced sovereign bond market integration during the crisis and higher yield covariances caused by more market volatility

the bond old bond spread abstract i document the profits on a trade that is long the old 30 year treasury bond and short the new 30 year treasury bond and is rolled over every auction cycle from june 1995 to november 1999 despite the systematic convergence of the spread over the auction cycle the average profits are close to zero the difference in repo market financing rates between the two bonds is a significant cost of carry in this trade i show that variation in the bond old bond spread is driven by the treasury supply of 30 year bonds as well as aggregate factors affecting investors preference for liquid assets

the cap rate 1966 1984 a test of the impact of income tax changes on income property recently fisher lentz and stern 1984 simulated the impact of federal income tax changes on investment in nonresidential real estate their paper and others have identified the impact that past and proposed income tax changes had or will have on real estate by simulating the impact of tax changes on cash flows current discussions of the likely impact of potential tax reform utilize similar partial equilibrium techniques that probably exaggerate the impact of tax changes no one has looked at the actual impact past changes have had on real estate investment returns this paper will test the statistical impact of past tax changes on one estimate of real estate capitalization rates cap rates fisher lentz and stern illustrated the impact of income tax changes on the rent tovalue ratio which is the cap rate in real estate terminology the cap rate is equal to the net operating income divided by value where net operating income is gross potential income less vacancy and collection loss allowance and less operating expenses excluding financing costs and income taxes in this paper a model of the changes in the cap rate for income property from 1966 through 1984 will be developed and used to show the impact of two tax law changes 1976 and 1981 the 1976 law caused construction taxes and interest to be

swap rates and credit quality this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards with counterparties of different default risk the promised cash flows of a swap are discounted by a switching discount rate that at any given state and time is equal to the discount rate of the counterparty for whom the swap is currently out of the money that is a liability the impact of credit risk asymmetry and of netting is presented through both theory and numerical examples which include interest rate and currency swaps this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards this extends the valuation model for defaultable claims proposed by duffie and singleton 1994 to cases in which the two counterparties have asymmetric default risk the extension permits a reexamination of the impact of credit risk on swap rates while the valuation model applies to all forms of contingent claims in which both contracting parties are at risk to default such as forward contracts we focus on swaps for purposes of illustration for example consider a 5 year interest rate swap between a given party paying a floating rate such as the london inter bank offered rate libor and another counterparty paying a fixed rate replacing the given fixed rate counterparty with a lower quality counterparty whose bond yields are 100 basis points higher increases the swap rate by roughly 1 basis point using our model and typical parameters for libor rate processes this credit impact on swap rates is approximately linear within the range of normally encountered credit quality for a 5 year currency swap given a foreign exchange rate with 15 percent volatility our model shows the impact of credit risk asymmetry on the market swap rate to be roughly 10 fold greater than that for interest rate swaps that is approximately 10 basis points in swap rate per 100 basis points in bond yield credit spread the main goal of this article is to provide a simple and theoretically consistent model allowing such computations

uncovering the common risk free rate in the european monetary union summary we introduce longitudinal factor analysis lfa to extract the common risk free crf rate from a sample of sovereign bonds of countries in a monetary union since lfa exploits the typically very large longitudinal dimension of bond data it performs better than traditional factor analysis methods that rely on the much smaller cross sectional dimension european sovereign bond yields for the period 2006 2011 are decomposed into a crf rate a default risk premium and a liquidity risk premium our empirical findings suggest that investors chase both credit quality and liquidity and that they price double default risk on credit default swaps copyright 2013 john wiley sons ltd

rents selling prices and financing premiums this paper examines the effects of below market financing on rents and selling prices of residential income properties a recursive model is used to estimate rent and price equations in order to determine the effect of favourable financing on each variable the results indicate that below market financing has a negative effect on rent and a positive effect on selling price average monthly rent per unit with below market financing is about 43 less than the average rent with current market financing the degree of capitalisation of the financing premium as indicated by cash equivalence in the selling price is less than 100 per cent the average financing premium reflected in the selling price is 4818 various factors including differences in marginal and average costs and leverage effects are presented to explain these results

the effects of tax reform on real estate some empirical results this paper uses data on publicly traded real estate firms to examine the effects of two major tax reforms specifically we analyze the effects of the 1976 and 1986 tax reform acts tras on the risks and returns of real estate investment trusts reits and other real estate firms using intervention analysis since reits have been a dominant force in the real estate equity markets and since they are treated differently for tax purposes than corporations investing in real estate we examine the two groups of firms separately while there exists much popular press literature which discusses the impact of tax reform on real estate little empirical work has directly examined the market s response to these changes 2 most previous work undertaken to examine the potential impact of tax changes has used simulation modeling to estimate the effects on real estate firms values e g fisher and lentz 1986 hendershott follain and ling 1986 a review of the simulation literature is presented in follain and brueckner 1986 turning away from the simulation technique nourse 1987 uses appraisal data to empirically estimate how the 1976 and 1981 tax laws affect capitalization rates i e net income divided by value for real estate in contrast with the existing literature we use market data to evaluate the empirical effects of the 1976 and 1986 law changes the empirical results provide insights into the interaction between tax laws and the market for real estate assets in the next section of the paper we discuss the historical background of the 1976

measuring sovereign risk spillovers and assessing the role of transmission channels a spatial econometrics approach abstract we contribute to the literature on international risk spillovers by developing a unified framework based on spatial econometrics that enables us to address the following questions i what are the effective transmission channels real linkages and informational channels of international risk spillovers across countries and or regions ii what are the most dominant ones and iii which countries are most at risk for their environment and which are suffering the most from international exposure our analysis based on 41 advanced and emerging economies from 2008q1 to 2012q4 shows that among the considered channels for explaining international spillovers of sovereign bond spreads the informational channel is of utmost importance our results challenge previous findings from the literature in which the empirical strategy did not accommodate altogether important features of country spillovers such as the co existence of multiple transmission channels in the presence of contemporaneous and time lagged interactions ultimately our stress testing analysis reveals important insights on countries prone either to international spillovers international exposure or both at the regional and the worldwide level

liquidity maturity and the yields on u s treasury securities the efrect8 of aaaet liquidity on expected retuma for ts with infinite maturities toc ka are eumined for bonda treuury notes and bills with matched maturities of lellll than 6 months the yield to maturity ill higher on notes which have lower liquidity the yield di1ferential between notes and billa is a decreuing and convex function of the time to maturity the results provide a robult confirmation of the liquidity effect in auet pricing this paper studies empirically the effects of the liquidity of capital assets on their prices amihud and mendelson 1986 1989 proposed that liquidity affects asset prices because investors require a compensation for bearing transaction costs transaction costs paid whenever the asset is traded form a sequence of cash outflows the discounted value of this cost stream proxies for the value 1088 due to illiquidity which lowers the asset s value for any given cash flow that the asset generates 1 as a result the return on assets should be an increasing function of their illiquidity other things equal for stocks the illiquidity effect is expected to be strong because their transaction cost sequence is infinite amihud and mendelson 1986 1989 demonstrated that common stocks with lower liquidity yielded significantly higher average returns after controlling for risk and for other factors these results on the importance of liquidity in the pricing of stocks raise additional questions i does the liquidity effect depend on the specific controls used by amihud and mendelson 1986 1989 1 ii does illiquidity have a similarly strong effect on the pricing of bonds whose maturities are finite and iii if liquidity affects bond yields how is this effect related to the bond s time to maturity

the european bond markets under emu in this paper we document how in the wake of monetary unification the markets for euro area sovereign and private sector bonds have become increasingly integrated issuers and investors alike have come to regard the euro area bond market as a single one primary and secondary bond markets have become increasingly integrated on a pan european scale issuance of corporate bonds has taken off on an unprecedented scale in continental europe in the process both investors and issuers have reaped the considerable benefits afforded by greater competition in the underwriting of private bonds and auctioning of public ones and by the greater liquidity of secondary markets bond yields have converged dramatically in the transition to emu the persistence of small and variable yield differentials for sovereign debt under emu indicates that euro area bonds are still not perfect substitutes however to a large extent this does not reflect persistent market segmentation but rather small differentials in fundamental risk liquidity differences play at most a minor role and this role appears to arise partly from their interaction with fundamental risk the challenges still lying ahead are numerous they include the imbalance between the german dominated futures and the underlying cash market the vulnerability of the cash markets prices to free riding and manipulation by large financial institutions the possibility of joint bond issuance by euro area countries the integration of clearing and settlement systems in the euro area bond market and the participation of new accession countries issuers in this market copyright 2004 oxford university press

unfair fair value in illiquid markets information spillover effects in times of crisis we investigate the effects of write downs on market prices and volumes under fair value accounting we also examine the prominent role that illiquidity plays in exacerbating the direct and spillove

yield spreads on emu government bonds government bond spreads we provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the united states are more pronounced for bonds issued by italy and spain liquidity factors play a smaller role so policies meant to increase financial market efficiency do not appear sufficient to deliver a seamless bond market in the euro area the risk of default is a small but important component of yield differentials movements which signal market perceptions of fiscal vulnerability impose market discipline on national fiscal policies and may be reduced only by further convergence in debt ratios lorenzo codogno carlo favero and alessandro missale

economic policy uncertainty and risk spillovers in the eurozone this paper focuses on the impact of economic policy uncertainty on risk spillovers within the eurozone and contributes to these two growing literatures to this end we adapt the two step procedure developed by adrian and brunnermeier forthcoming in the framework of financial systemic risk to the sovereign bond market accordingly we attempt i to measure the extent to which distress affecting one given country s sovereign spreads can affect the eurozone s bond market as a whole and then ii to identify the determinants of risk spillovers by estimating a panel data model with macroeconomic state variables and economic policy uncertainty epu indices introduced by baker et al 2013 as regressors epu indices considered concern the four largest eurozone countries i e germany france italy and spain as well as the united states the model is estimated with quarterly data for ten countries representing the bulk of debt issuances within the eurozone over a period ranging from q4 2008 to q2 2013 which is characterized by historically high dispersion of sovereign bond spreads either across time or across countries our results support the idea that economic policy uncertainty in the core economies of the eurozone i e germany and france as well as in the largest periphery countries i e italy and spain can create an environment likely to exacerbate the transmission of risk arising from abnormal developments of individual countries sovereign spreads to the eurozone bond market as a whole in this respect our results plead for larger effort of eurozone leaders to reduce the uncertainty surrounding their economic policy in periods of crisis not only to avoid adverse effects on their own economies but also to reduce the risk of a destabilization of the eurozone sovereign bond market as a whole

liquidity reconstitution and the value of u s treasury strips an apparent pricing anomaly exists in the market for u s treasury strips zerocoupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero coupon strips created from coupon payments in addition to documenting this phenomenon this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation u s treasury strips are zero coupon bonds created from either the principal or individual coupons of u s treasury bonds if the maturity date and face value are identical the cash flows for a strip derived from a principal payment are identical to the cash flows for a strip derived from a coupon payment however the two instruments almost always trade at significantly different prices for a recent sample 5 31 91 the mean percentage difference in price is greater than 1 2 with some differences greater than 2 7 this is an apparent anomaly since securities with identical cash flows should trade at the same price although coupon strips and principal strips have identical cash flows at maturity closer inspection reveals two differences the two instruments have different degrees of liquidity and different reconstitution characteristics previous studies have documented the effect of liquidity on prices in other markets amihud and mendelson 1986 1989 find that common stocks with differences in liquidity have significantly different risk adjusted rates of return silber 1991 studies restricted stock offerings and documents substantial price discounts on these illiquid securities vis a vis identical stocks that trade in the open market 1 in a study of u s treasury bills and treasury bonds with remaining maturities of less than six months amihud and mendelson 1991 find that differences in liquidity contribute to differences in prices between matched pairs of bills and bonds of the same

how does liquidity affect government bond yields the paper explores the determinants of yield differentials between sovereign bonds using euro area data there is a common trend in yield differentials which is correlated with a measure of aggregate risk in contrast liquidity differentials display sizeable heterogeneity and no common factor we propose a simple model with endogenous liquidity demand where a bond s liquidity premium depends both on its transaction cost and on investment opportunities the model predicts that yield differentials should increase in both liquidity and risk with an interaction term of the opposite sign testing these predictions on daily data we find that the aggregate risk factor is consistently priced liquidity differentials are priced for a subset of countries and their interaction with the risk factor is in line with the model s prediction and crucial to detect their effect

economic inefficiency and environmental impact an application to aquaculture production abstract in industries characterized by frequent innovation and high productivity growth substantial variation in produced quantity and input use may occur leading to increased costs an effect that has received little attention is that inefficiency can exacerbate environmental impacts this effect is particularly important if environmentally damaging inputs are overused in addition to increasing firms costs such inefficiency can also increase the environmental impact of the firm s activity this makes the degree of inefficiency in an industry an issue for environmental regulators in this paper we estimate technical and allocative efficiency for a sample of norwegian salmon farmers our results show that both technical and allocative inefficiency on average are significant in explaining the level and variation in farm costs and that the main environmental impact due to inefficiency from the norwegian salmon aquaculture industry has its origin in technical inefficiency

liquidity taxes and short term treasury yields this article investigates differences in yields on identical treasury notes and bills and shows that they reflect differences in liquidity immediacy risk and taxes it proposes an empirical measure for differences in the liquidity risk of notes and bills the volatility ofthe underlying rate times the ratio of bills turnover to notes turnover because differential taxes affect sellers but not buyers of bills and notes the results reject free of informational problems the hypothesis that the notes demand curve is horizontal note bill yield differences also decrease with inventories of notes the less liquid asset

bond returns liquidity and missing data this paper examines holding period returns to constant duration portfolios of u s govern ment notes and bonds and measures the return premium generated by liquidity differences in bonds the approach compares constant duration portfolios constructed in two distinct ways one using only bonds issued in the most recent treasury auction one using all other bonds comparisons of the resulting series are made meaningful by choosing narrow du ration ranges in the portfolio formation procedure this in turn induces a missing data problem in the created time series parameters of return distributions are therefore estimated employing a maximum likelihood framework that explicitly accounts for the missing data it is estimated that recently issued bonds are priced to return a premium of around 55 basis points per annum over otherwise equivalent instruments

sovereign bond yield spreads a time varying coefficient approach abstract we study the determinants of sovereign bond yield spreads across 10 emu countries between q1 1999 and q1 2010 we apply a semiparametric time varying coefficient model to identify to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing we find that at the beginning of emu the government debt level and the general investors risk aversion had a significant impact on interest differentials in the subsequent years however financial markets paid less attention to the fiscal position of a country and the safe haven status of germany diminished in importance by the end of 2006 two years before the fall of lehman brothers financial markets began to grant germany safe haven status again one year later when financial turmoil began the market reaction to fiscal loosening increased considerably the altering in risk pricing over time period confirms the need of time varying coefficient models in this context

a multivariate latent factor decomposition of international bond yield spreads a factor analysis of long term bond spreads is performed by decomposing international interest rate spreads into national and global factors the factors are latent and are assumed to have garch type specifications as well as exhibiting serial dependence an indirect estimator is used to compute estimates of the unknown parameters the sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the kalman predictor the factor model is applied to weekly data on long bond spreads between five countries australia japan germany canada and the uk and the usa over the period 1991 to 1999 the resulting factor decomposition is used to examine the international investor s optimal portfolio decision in a mean variance framework copyright 2000 john wiley sons ltd