sustainability aid and material welfare in small south pacific island economies 1900 1990 abstract the paper discusses the concept of sustainability and puts forward the argument that conventional notions of what constitutes economic development cannot be applied mechanistically to the very small island economies of the pacific in practice what matters is whether the entitlement of island communities to rent incomes remains sustainable this in turn requires that labor access to the modern capitalist economies of the region continues or is opened up and that the major regional powers continue to subsidize consumption levels in the small island countries unless or until those countries achieve a satisfactory level of rent income both of these conditions hinge upon the long run political commitment of aid donor governments to the welfare of island communities and on the skills of island politicians and officials in negotiating and maneuvering for access to aid funds from competing donors

assessing the impact of the exchange rate and its volatility on canadian pork and live swine exports to the united states and japan a model of a representative canadian pork exporter is developed to examine the impacts of the exchange rate and its volatility on pork and live swine exports the pork export supply equation is expressed as a function of the expected level of real exchange rate and a time varying variance of real exchange rate an ar p model is used to represent the expected real exchange rate and a garch p q model is used to generate the time varying variance the same model is used to examine the sensitivity of pork exports to japan from canada the united states and denmark the parameters of all pork and live swine export equations have theoretically consistent signs and many are significant that is the domestic price in the exporting country has a negative effect on exports because it is a major input price in the exporter s cost function while the price in the market of destination has a positive effect the level of the exchange rate has a positive impact on pork exports while the volatility of the exchange rate has a negative impact most of the volatility parameters are not significant

international evidence on crude oil price dynamics applications of arima garch models abstract we examine the usefulness of several arima garch models for modeling and forecasting the conditional mean and volatility of weekly crude oil spot prices in eleven international markets over the 1 2 1997 10 3 2009 period in particular we investigate the out of sample forecasting performance of four volatility models garch egarch and aparch and figarch over january 2009 to october 2009 forecasting results are somewhat mixed but in most cases the aparch model outperforms the others also conditional standard deviation captures the volatility in oil returns better than the traditional conditional variance finally shocks to conditional volatility dissipate at an exponential rate which is consistent with the covariance stationary garch models than the slow hyperbolic rate implied by the figarch alternative

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

modelling the link between commodity prices and exchange rates the tale of daily data this paper examines daily data on exchange rates and the prices of three commodities traded on the winnipeg commodity exchange the temporal patterns of commodity prices and exchange rates are shown to be similar daily data are significantly non normal with garch models capturing the processes generating the data commodity prices and exchange rates are examined for cointegration using recent tests proposed by johansen and juselius 1990 currency depreciation is shown to granger cause commodity price inflation this information might be useful to central bankers concerned with reducing general price inflation through targeting commodity price inflation it also suggests that macro events have important effects on commodity markets in canada

normal mixture diffusion with uncertain volatility modelling short and long term smile effects this paper introduces a parameterization of the normal mixture diffusion nmd local volatility model that captures only a short term smile effect and then extends the model so that it also captures a long term smile effect we focus on the binomial nmd parameterization so called because it is based on simple and intuitive assumptions that imply the mixing law for the normal mixture log price density is binomial with more than two possible states for volatility the general parameterization is related to the multinomial mixing law in this parsimonious class of complete market models option pricing and hedging is straightforward since model prices and deltas are simple weighted averages of black scholes prices and deltas but they only capture a short term smile effect where leptokurtosis in the log price density decreases with term in accordance with the stylised facts of econometric analysis on ex post returns of different frequencies and the central limit theorem however the last part of the paper shows that longer term smile effects that arise from uncertainty in the local volatility surface can be modeled by a natural extension of the binomial nmd parameterization results are illustrated by calibrating the model to several euro us dollar currency option smile surfaces

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

var methods for the dynamic impawn rate of steel in inventory financing under autocorrelative return abstract this paper proposes the way of setting the dynamic impawn rate by dividing the impawn periods into different risk windows in an efficient financial market the return is hypothetically independent while in a pledged inventory market where spot transactions predominate the return is auto correlative therefore the key to setting the impawn rate is to predict the long term risk in this experiment using the database of spot steel we established a model with the formula ar 1 garch 1 1 ged forecasting the var of steel during the different risk windows in the impawn period through a method of out of sample and got the impawn rate according with the risk exposure of banks the results of our experiment indicated that the introduction of coefficient k into the model can significantly improve bank risk coverage and reduce its efficiency loss besides the impawn rate obtained by the model correlates positively with the lowest price in the future risk windows

conditional var estimation using pearson s type iv distribution abstract this paper presents a new value at risk var estimation model for equity returns time series and tests it extensively on stock indices of 14 countries two most important stylized facts of such series are volatility clustering and non normality as a result of fat tails of the return distribution while volatility clustering has been extensively studied using the garch model and its various extensions the phenomenon of non normality has not been comprehensively explored at least in the context of var estimation a combination of extreme value theory evt and garch has been explored to analyze financial data showing non normal behavior this paper proposes a combination of the pearson s type iv distribution and the garch 1 1 approach to furnish a new method with superior predictive abilities the approach is back tested for the entire sample as well as for a holdout sample using rolling windows

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the dynamics of stock index and stock index futures returns in rational efficiently functioning markets the returns on stock index and stock index futures contracts should be perfectly contemporaneously correlated this study investigates the time series properties of 5 minute intraday returns of stock index and stock index futures contracts and finds that sp however the effect is not completely unidirectional with lagged stock index returns having a mild positive predictive impact on futures returns

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

macro determinants of volatility and volatility spillover in energy markets abstract we analyze the time varying volatility and spillover effects in crude oil heating oil and natural gas futures markets by incorporating changes in important macroeconomic variables and major political and weather related events into the conditional variance equations we allow asymmetric responses to random disturbances in each market as well as to good and bad economic news related to the overall economy results show the presence of asymmetric effects in both random disturbances and macroeconomic variables a bidirectional volatility spillover effect is found between natural gas and crude oil and between the natural gas and heating oil markets crude oil volatility is found to increase following major political financial and natural events seasonality and day of the week effects are found in the crude oil and heating oil markets

a model of aid impact in some south pacific microstates abstract this paper investigates the impact of foreign aid on the economic structure of the recipient economy using a two sector general equilibrium model underlying assumptions are designed to mirror a number of stylized facts about a group of south pacific microstates known as mirab countries two variants of the model are constructed to reflect these countries unequal access to overseas labor markets qualitative results reveal the likelihood of a structural transformation of the economy akin to that known as dutch disease namely the relative contraction of the tradables sector quantitative results confirm the plausibility of this outcome

futures trading information and spot price volatility evidence for the ftse 100 stock index futures contract using garch abstract this paper examines the impact of trading in the ftse 100 stock index futures on the volatility of the underlying spot market to examine the relationship between information and volatility as subject neglected in previous studies the garch family of techniques is used the results suggest that futures trading has led to increased volatility but that the nature of volatility has not changed post futures the finding of price changes being integrated pre futures but being stationary post futures implies that the introduction of futures has improved the speed and quality of information flowing to the spot market

forecasting realized volatility with linear and nonlinear univariate models in this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the s p 500 and ftse 100 futures as a proxy for daily volatility we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intraday returns we also consider a simple algorithm based on bagging bootstrap aggregation in order to specify the models analysed in this paper

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

macro economic aspects of the effectiveness of foreign aid on the two gap model home goods disequilibrium and real exchange rate misalignment we construct an open economy disequilibrium model to assess the welfare effects of aid in different macroeconomic regimes aid is shown to have different effects in different unemployment regimes because it increases the social costs of wage price rigidities in the classical regime but decreases them in the keynesian unemployment regime a link is made with the two gap model but we highlight the role of real exchange rate misalignment failure to clear the nt goods market

market serial correlation on a small security market a note this note reports on an empirical investigation into the relative importance of different explanations of market serial correlation market serial correlation taken as the first order serial correlation in the logarithmic differences of a market index may apparently be explained by the serial correlation of individual stock returns the other less apparent explanation advanced in the literature concerns nonsynchronous trading in individual stocks recently perry 9 and atchinson butler and simonds 1 1 have shown that there seems to be yet an additional unexplained component present that tends to induce serial correlation in portfolio returns at least in u s data in this paper the actual contribution of these explanations to the first order autocorrelation of changes in the value weighted market index on a markedly thin security market the helsinki stock exchange hese 2 in finland will be examined the hese is a specific case in the sense that its trading procedure may create additional first order market serial correlation we will show that the rules of the exchange produce additional intraday nonsynchroneity in stock returns and thus aggravate the problem of market serial correlation an attempt to assess the importance of this additional cause of market serial correlation will also be made in 1966 lawrence fisher 7 observed that an index return calculated on the basis of the latest recorded trading prices will tend to be serially correlated if share prices tend to react similarly to certain types of news this will be the case when some share prices react almost immediately whereas others simply because of an absence of trading will experience a reaction delay if nonsynchronous trading is taken to be the first cause of market serial correlation the second one is the serial correlation of individual stock returns cohen hawawini maier schwartz and whitcomb 6 review the literature on why individual stock returns especially in thin markets may be serially corre

equity market neutral hedge funds and the stock market an application of score driven copula models in this article we study the time varying market neutrality of equity market neutral hedge funds we use data from the hedge fund research equity market neutral index hfrx eh which represents

the dynamic implications of foreign aid and its variability abstract the paper examines the effects of aid and its volatility on consumption investment and the structure of production in the context of an intertemporal two sector general equilibrium model calibrated using data for aid dependent countries in africa a permanent flow of aid mainly finances consumption rather than investment consistent with the historical failure of aid inflows to translate into sustained growth large aid flows are associated with higher real exchange rates and smaller tradable sectors because aid is a substitute for tradable consumption aid volatility results in substantial welfare losses providing a motivation for recent discussions of aid architecture stressing the need for greater predictability of aid these results are also consistent with evidence from cross country regressions of manufactured exports presented later in the paper

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

forecasting the var of crude oil market do alternative distributions help abstract accurate modeling of the empirical distribution of crude oil market returns is extremely important in estimating risk measures in addition to several commonly used distributions alternative distributions are explored in this study some of which account for the asymmetry and heavy tails simultaneously found in distributions and contain more tail parameters to separately depict the right and left tails when forecasting the value at risk var of crude oil markets during highly volatile periods seven backtests are also conducted to compare the var forecasting accuracy among different distributions the empirical results indicate that a highly volatile environment challenges the commonly used distributions and the four risk models based on commonly used distributions are rejected about 27 to 38 of the time the alternative distributions i e skewed general error distributions sged generalized hyperbolic skewed student t distributions ghst and generalized asymmetric student t gast distributions generally produce more accurate var measurement and gast gives the best measurement accuracy the empirical results imply that risk managers or policymakers should further consider more flexible distributions such as sged ghst or gast in particular when quantifying or managing the risk in turbulent market times

volatility persistence in crude oil markets financial market participants and policy makers can benefit from a better understanding of how shocks can affect volatility over time this study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets brent west texas intermediate wti and organization of petroleum exporting countries opec between january 2 1985 and june 17 2011 we identify outliers using a new semi parametric test based on conditional heteroscedasticity models these large shocks can be associated with particular event patterns such as the invasion of kuwait by iraq the operation desert storm the operation desert fox and the global financial crisis as well as opec announcements on production reduction or us announcements on crude inventories we show that outliers can bias i the estimates of the parameters of the equation governing volatility dynamics ii the regularity and non negativity conditions of garch type models garch igarch figarch and hygarch and iii the detection of structural breaks in volatility and thus the estimation of the persistence of the volatility therefore taking into account the outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

market timing with option implied distributions a forward looking approach we address the empirical implementation of the static asset allocation problem by developing a forward looking approach that uses information from market option prices to this end we extract constant maturity s p 500 implied distributions and transform them to the corresponding risk adjusted ones then we form optimal portfolios consisting of a risky and a risk free asset and evaluate their out of sample performance we find that the use of risk adjusted implied distributions times the market and makes the investor better off than if she uses historical returns distributions to calculate her optimal strategy the results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account not surprisingly the reported market timing ability deteriorated during the recent subprime crisis an extension of the approach to a dynamic asset allocation setting is also presented this paper was accepted by wei xiong finance

some empirical evidence on the time series properties of four uk asset prices in this paper the authors examine the time series behavior of four u k asset prices and estimate two types of models for the differenced series much previous research has found the presence of time varying heteroskedasticity in the error process for asset prices a linear model with gqarch errors is compared to a joint bilinear model with gqarch errors the latter choice motivated by the ability of bilinear models to capture turbulent behavior the adequacy of these models is determined by examining simulations and also employing test statistics the forecasting performance of the two models is also compared copyright 1996 by the london school of economics and political science

models of stock returns a comparison in this paper a discrete mixture of normal distributions is proposed to explain the observed significant kurtosis fat tails and significant positive skewness in the distribution of daily rates of returns for a sample of common stocks and indexes stationarity tests on the parameter estimates of this discrete mixture of normal distributions model revealed significant differences in the mean estimates that can explain the observed skewness and significant differences in the variance estimates that can explain the observed kurtosis an alternative explanation for the observed fat tails is the symmetric student model the result of a comparison between the models is that the discrete mixture of normal distributions model has substantially more descriptive validity than the student model for many years both financial economists and statisticians have been concerned with the description of stock market returns the form of the distribution of stock returns is a crucial assumption for mean variance portfolio theory theoretical models of capital asset prices and the prices of contingent claims for example understanding the behavior of the variance is essential to option pricing models empirical tests of asset pricing models and the efficient markets hypothesis draw statistical inferences that are also conditional on distributional assumptions the most convenient assumption for financial theory and empirical methods is that the distribution of security rates of return be multivariate normal with parameters that are stationary over time since the normal distribution is stable under addition any arbitrary portfolio of stocks will also be normally distributed with the additional assumption of risk aversion mean variance theory follows furthermore the assumptions of normality and parameter stationarity are required for most of the econometric techniques typically used in empirical research tests of the normality hypothesis on the daily returns of the dow jones industrial stocks by fama 121 revealed more kurtosis fatter tails than that predicted from a sample of independent and identically distributed normal variates fama concluded from this evidence that the distribution of price changes conforms better to the stable paretian distribution with characteristic exponent

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

price movements and price discovery in futures and cash markets r isk transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity working 1962 evans 1978 p 80 and silber 1981 risk transfer refers to hedgers using futures contracts to shift price risk to others price discovery refers to the use of futures prices for pricing cash market transactions working 1948 wiese 1978 p 87 and lake 1978 p 161 the significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities this paper examines the characteristics of price movements in cash or spot markets and futures markets for storable commodities section ii presents an analytical model of simultaneous price dynamics which suggests that over short intervals of time the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract greater elasticity fosters more highly correlated price changes and thereby facilitates the risk transfer function the elasticity of supply of arbitrage services is constrained by among other things storage and transaction costs thus futures contracts will not in general provide perfect risk transfer facilities over short time horizons the essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices hoffman 1932 pp 258259 the model in section ii provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery in section iii we develop a model based on section ii which is appropriate for estimating the lead lag relationship between cash prices and futures prices section iv presents empirical estimates of the parameters of the model for seven different storable commodities wheat corn oats frozen orange juice concentrates copper gold and silver the cost of arbitrage between cash and futures differs across these commodities for this reason we are not surprised to find inter commodity differences in the correlation of short run price changes and in the substitutability of futures contracts for cash market positions with respect to the price discovery function of futures markets we find that while futures markets dominate cash markets cash prices do not merely echo futures prices there are reverse information flows from cash markets to futures markets as well

volatility forecasting with range based egarch models we provide a simple yet highly effective framework for forecasting return volatility by combining exponential generalized autoregressive conditional heteroscedasticity models with data on the range using standard and poor s 500 index data for 1983 2004 we demonstrate the importance of a long memory specification based on either a two factor structure or fractional integration that allows for some asymmetry between market returns and volatility innovations out of sample forecasts reinforce the value of both this specification and the use of range data in the estimation we find substantial forecastability of volatility as far as 1 year from the end of the estimation period contradicting the return based conclusions of west and cho and of christoffersen and diebold that predicting volatility is possible only for short horizons

dynamic conditional score models a review of their applications abstractin this paper applications of dynamic conditional score dcs models are reviewed and those models are discussed in relation to classical time series models from the literature dcs models

a new pearson type qmle for conditionally heteroscedastic models this article proposes a novel pearson type quasi maximum likelihood estimator qmle of garch p q models unlike the existing gaussian qmle laplacian qmle generalized non gaussian qmle or lad estimator our pearsonian qmle pqmle captures not just the heavy tailed but also the skewed innovations under strict stationarity and some weak moment conditions the strong consistency and asymptotic normality of the pqmle are obtained with no further efforts the pqmle can be applied to other conditionally heteroscedastic models a simulation study is carried out to assess the performance of the pqmle two applications to four major stock indexes and two exchange rates further highlight the importance of our new method heavy tailed and skewed innovations are often observed together in practice and the pqmle now gives us a systematic way to capture these two coexisting features

on the informational flow between financial markets abstract this paper investigates the informational flow from the world s stock markets to the small finnish stock and stock index futures markets our results indicate that the returns of the world s stock markets are reflected more strongly in the finnish stock index futures market than in the finnish stock market this is apparently due to trading mechanisms short selling restrictions and thin trading in the helsinki stock exchange thus our evidence suggests that results concerning the informational flow between the world s financial markets may be significantly underestimated if purely stock market returns are used in the tests

on the riskiness of the world s stock markets abstract the main aim of this paper is to study the riskiness of the world s stock markets this is carried out by applying the concepts of the two main asset pricing models the capital asset pricing model capm and the arbitrage pricing model apm certain obvious risk categories among world stock markets exist three major potential reasons for the existence of these different risk categories are reported firstly economic trade and currency areas seem to affect the riskiness of different stock markets with north american european and oceanic stock exchanges quite clearly creating their own separate factors secondly the level of institutional development of a given market also appears to be a factor determining its riskiness thin stock markets such as those of finland and mexico seem to exhibit a different price behaviour of their own thirdly the combined effect of different time zones and efficiency is discussed especially in the case of the uk stock markets vs other european stock markets

estimating the structure of industrial water demands the case of canadian manufacturing this study considers water use by canadian manufacturing firms the estimation of water demands is based on a detailed cross sectional survey of establishment level observations on water prices quantities and expenditures industrial water use is modeled as having four components intake treatment prior to use recirculation and discharge average values for the estimated own price elasticity for water intake range from 0 1534 to 0 5885 water recirculation is found to be a substitute for both water intake and water discharge this confirms that expanding the use of economic incentives e g effluent fees may be effective in encouraging firms to reduce their water use while increasing in plant recirculation

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

a note on the predictability of finnish stock market returns evidence from stock index futures markets abstract this paper provides further evidence on the predictability of the finnish stock market returns the results show the significant role of index futures returns as an important vehicle in stock market return and volatility prediction

american garch employee stock option valuation abstract we implement a flexible simulation based approach for the fair value of employee stock option eso that accounts for the vesting period departure risk and voluntary suboptimal early exercise we introduce garch effects on the underlying asset and we analyze the price bias with respect to the constant volatility case we also perform a sensitivity analysis with respect to changes in several eso characteristics we compare this valuation with fas 123 method revealing a fas overvaluation finally we value a real eso plan providing the confidence intervals for the estimated eso prices

environmental regulation in an open economy abstract environmental regulation by a large trading country affects the world price of traded commodities a series of second best environmental taxes are derived which explicitly incorporate trade effects for cases which depend on the type of externality the regulating country s commodity trade balance and the presence or absence of trade taxes in the regulated market a coordinated policy solution using both tax and tariff instruments also is derived the practical implications for domestic environmental policy making which emerge from the theoretical results are evaluated

modelling the conditional volatility of commodity index futures as a regime switching process commodity index futures offer a versatile tool for gaining different forms of exposure to commodity markets volatility is a critical input in many of these applications this paper examines issues in modelling the conditional variance of futures returns based on the goldman sachs commodity index gsci given that commodity markets tend to be choppy webb 1987 a general econometric model is proposed that allows for abrupt changes or regime shifts in volatility transition probabilities which vary explicitly with observable fundamentals such as the basis garch dynamics seasonal variations and conditional leptokurtosis the model is applied to daily futures returns on the gsci over 1992 1997 the results show clear evidence of regime shifts in conditional mean and volatility once regime shifts are accounted for garch effects are minimal consistent with the theory of storage returns are more likely to switch to the high variance state when the basis is negative than when the basis is positive the regime switching model also performs well in forecasting the daily volatility compared to standard garch models without regime switches the model should be of interest to sophisticated traders who base their trading strategies on short term volatility movements managed commodity funds interested in hedging an underlying diversified portfolio of commodities and investors of options and other derivatives tied to gsci futures contracts copyright 2001 john wiley sons ltd

methodical madness technical analysis and the irrationality of exchange rate forecasts substantial empirical research documents that exchange rate forecasts are not formed rationally this paper identifies a common technical trading signal the head and shoulders pattern as a potential source of departures from rationality in exchange rate forecasts forecasts based on this pattern are evaluated for daily dollar exchange rates over 1973 to 1994 using two criteria for rationality profitability and efficiency resulting profits replicable in real time are tested for statistical significance using a bootstrap technique we find that the rule is profitable but not efficient since it is dominated by simpler trading rules

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

common persistence in conditional variances since the introduction of the autoregressive conditional heteroskedastic arch model in engle 1982 numerous applications of this modeling strategy have already appeared a common finding in many of these studies with high frequency financial or monetary data concerns the presence of an approximate unit root in the autoregressive polynomial in the univariate time series representation for the conditional second order moments of the process as in the so called integrated generalized arch igarch class of models proposed in engle and bollerslev 1986 in the igarch models shocks to the conditional variance are persistent in the sense that they remain important for forecasts of all horizons this idea is readily extended to a multivariate framework even though many time series may exhibit persistence in variance it is likely that several different variables share the same common long run component in that situation the variables are naturally defined to be co persistent in variance and the co persistent linear combination is interpretable as a long run relationship conditions for co persistence to occur in the multivariate linear garch model are presented these conditions parallel the conditions for linear co integration in the mean as developed by engle and granger 1987 the presence of co persistence has important implications for asset pricing relationships and in optimal portfolio allocation decisions an empirical example relating to the time series properties of nominal u s dollar exchange rates for the deutschemark and the british pound provides a simple illustration of the ideas

a class of nonlinear arch models a class of nonlinear arch models is suggested the proposed class encompasses several functional forms for arch which have been put forth in the literature a lagrange multiplier test is developed to test engle s arch specification against the wider class of models this test provides an easily computed diagnostic check of the adequacy of an arch model after it has been estimated the theory is applied to a number of weekly exchange rate series and we find strong evidence of nonlinear arch

risk behavior and rational expectations in the u s broiler market this study examines the empirical implications of extending the rational expectations hypothesis reh to include price uncertainty a general estimation framework that incorporates both the restrictions on structural parameters and the variance covariance terms is developed garch time series processes are used to generate time varying expectations of both the means and the variances of exogenous variables the empirical application is with a quarterly model of the u s broiler industry the results indicate that the rational expectation of price variance is an important determinant of broiler supply a formal test indicates that the restrictions implied by the reh cannot be rejected

the transmission from equity markets to commodity markets in crises periods abstractthis article investigates the transmission from equity markets to commodity markets during two major financial crises namely the subprime mortgage and the sovereign debt crises we perform an analysis on sub stages from 3 january 2003 to 31 october 2013 to capture the price behaviour of both equity and commodity markets two financial crises indicators vix and cds are used to represent fear of a crisis we find that correlations between commodity and equity markets are time varying and highly volatile during a financial crisis while sharing some common features commodities cannot be considered a homogeneous asset class segmentation characteristics of commodity markets disappear in times of financial crises reducing their substitutability as an investment portfolio for asset diversification purposes through our test for granger causality we find the existence of transmission during a financial crisis volatility spillover effect also plays a major role as transmission mechanisms after the

labor market adjustment in small open economies the case of micronesia abstract the paper uses the bertram poirine four sector framework to examine the labor market effects of a decline in external aid in a small open island economy it provides empirical evidence drawn from the federated states of micronesia to reject the notion that aid supported public expenditure crowds out opportunities for indigenous private sector development instead the paper argues that the future development of small island economies will depend on their access to overseas job markets and the continuation of aid inflows and remittances

a conditional variance model for daily deviations of an exchange rate a model for the distribution of daily deviations of an exchange rate is suggested the distribution is gaussian with a variance that depends on previous deviations the model is applied to the exchange rate of the u s dollar to special drawing rights

the european exchange rate mechanism and the volatility of the sterling deutschemark exchange rate sterling membership of the erm focused interest on the sterling deutsche mark exchange rate with commentators predicting a reduction in exchange rate volatility this paper analyzes the sterling deutsche mark rate pre and post erm entry and finds that erm membership significantly reduced volatility this reduction in volatility is characterized by the disappearance of arch effects evident prior to erm membership the paper argues that the disappearance of arch is probably associated with a reduction in activity of speculators particularly technical analysts copyright 1993 by royal economic society

stock index futures arbitrage in finland theory and evidence in a new market abstract this paper examines the pricing of stock index futures contracts on the new finnish market the striking feature of the finnish market is that there is no institutional framework for short selling of stocks this has been suggested to be the most important reason for the underpricing futures contracts persistent mispricing would however imply that also early and delayed unwindings have value which increases the arbitrage profits several rollover profits are reported in this study this suggest that current stock owners have not yet begun trading on the finnish futures market on a large scale

aid and the dutch disease macroeconomic management when everybody loves you abstract countries that undertake serious and sustained programs of stabilization and structural adjustment should expect to attract significant new inflows of capital from donor countries and international institutions while apparently beneficial those flows can work at crosspurpose with other goals of the policy reforms in particular abundant foreign exchange loans can force an appreciation of the real exchange rate often through domestic inflation rather than a nominal appreciation in addition since the government is almost always the recipient of these loans it can crowd out the private sector if it increases its aggregate demand for domestic goods and services if the crowding out is accomplished by tight monetary policy it will fall primarily on private investment rather than consumption this paper shows that both of these problems have surfaced in ghana a country that has become a favorite of donors after demonstrating a serious commitment to policies promoted by the world bank and international monetary fund the paper also suggests modifications in macroeconomic policy that would help lower inflation and boost private investment

evaluating the impact of specific environmental regulations on exports there is clear concern in developing and transition economies that new and proposed changes in environmental policies and regulations will reduce exports the existing trade and environment literature however provides little empirical guidance for policy makers to evaluate sector specific trade impacts of environmental regulatory changes to assist with such analysis this paper develops a microeconomic framework that can be used to evaluate the impact of changed environmental regulations on exports the results provide clear empirical guidance to understand when the impact of such changes are likely to be relatively small and when the impacts are larger

heteroskedasticity in stock return data volume versus garch effects this paper provides empirical support for the notion that autoregressive conditional heterqskedasticity arch in daily stock return data reflects time dependence in the process generating information flow to the market daily trading volume used as a proxy for information arrival time is shown to have significant explanatory power regarding the variance of daily returns which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns furthermore arch effects tend to disappear when volume is included in the variance equation the autoregressive conditiqnal heteroskedasticity arch process of engle 1982 has been shown to provide a good fit for many financial return time series 1 arch imposes an autoregressive structure on conditional variance allqwing volatility shocks to persist over time this persistence captures the propensity of returns of like magnitude to clu ter in time and can explain the well documented nonnormality and nonstability of empirical asset return distributions see especially fama 1965 an appealing explanation for the presence of arch is based upon the hypothesis that daily returns are generated by a maiture of distributions in which the rate of daily information arrival is the stochastic mixing variable as suggested by diebold 1986 gallant hsieh and tauchen 1988 and stock 1987 1988 arch might capture the time series properties e g serial correlation of this mixing variable hqwever this linkage has not been broadly documented with the datia the objective of this study is to examine the validity of this explanation for daily stock returns the empirical strategy exploits the implication of the mixture model that the variance of daily price increments is heteroskedastic specifically positively related to the rate of daily information arrival using daily trading volume as a proxy for the mixing variable we show that for a sample of 20 common stocks arch effects vanish when volume is included as an explanatory variable in the conditional variance equation

short run exchange rate uncertainty in latin america this paper to obtain an ex ante measure of exchange rate uncertainty in 11 latin american countries as a preliminary issue the purchasing power parity ppp condition is tested using engle and granger two step procedure and johansen method the argument is that exchange rate uncertainty could be lower if ppp holds in the long run the expected exchange rate uncertainty is estimated according to an extended version of the autoregressive conditionally heteroscedastic arch model the results show that the arch adjusment produces more efficient estimates in seven countries and that the acceptance of ppp has little effect on exchange rate uncertainty

evidence of nonlinearity in daily stock returns this article applies a newly developed statistical technique to time series of daily rates of return of 15 common stocks the technique involves estimating the bispectrum of the observed time series the bispectrum is defined as the double fourier transform of the third order cumulant function if the process generating rates of return is linear with independent innovations then the skewness of the bispectrum will be constant the article describes a test that can detect nonconstant skewness in the bispectrum hence if the test rejects constant skewness a nonlinear process is implied as a consequence the test can distinguish between white noise and purely random noise the results suggest that daily stock returns are generated by a nonlinear process

equilibrium pollution taxes in open economies with imperfect competition abstract this paper argues that imperfect competition in global markets creates a strategic interaction between governments that can lead to the inefficient distortion of pollution taxes this distortion can be decomposed into a rent capture effect and a pollution shifting effect the rent capture effect lowers equilibrium taxes as each country attempts to gain a competitive advantage over its trading partner and thereby capture foreign rent through net exports the pollution shifting effect raises equilibrium taxes as each country attempts to transfer production and its associated pollution to the other country this effect vanishes if pollution is perfectly transboundary because shifted pollution causes as much damage to the domestic environment as does domestic pollution the net effect on symmetric equilibrium taxes is negative except in the special case of perfect competition with no transboundary pollution in this case the two effects are mutually offsetting and the nash equilibrium is efficient when pollution is at least partially transboundary there also arises the usual transboundary externality and this reinforces the negative net strategic effect giving rise to equilibrium taxes that are lower than what is globally efficient

rolling sampled parameters of arch and levy stable models in this paper an asymmetric autoregressive conditional heteroskedasticity arch model and a levy stable distribution are applied to some well known financial indices dax30 ftse20 ftse100 and sp500 using a rolling sample of constant size in order to investigate whether the values of the estimated parameters of the models change over time although there are changes in the estimated parameters reflecting that structural properties and trading behaviour alter over time the arch model adequately forecasts the one day ahead volatility a simulation study is run to investigate whether the time variant attitude holds in the case of a generated arch data process revealing that even in that case the rolling sampled parameters are time varying

aid and dutch disease in the south pacific and in other small island states abstract the impact of aid on the macro economy is ambiguous aid that increases expenditure may cause real exchange rate appreciation however if the capital stock in the traded goods sector rises then output might not contract and if investment in the non traded goods sector is relatively productive then real exchange rate appreciation could be avoided we examine aid inflows in 10 pacific island states and find them to produce a variety of outcomes applying our model to other small island states around the world we analyse the country specific characteristics that determine the macroeconomic impact of aid and draw policy conclusions

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

time varying volatility spillover between chinese fuel oil and stock index futures markets based on a dcc garch model with a semi nonparametric approach abstract this paper reveals some new evidence on the volatility spillover between fuel oil and stock index futures markets in china by considering its time variant feature time varying effect is specified by the legendre polynomials in a dcc garch model moreover the semi nonparametric snp approach accounting for marginal excess kurtosis and asymmetry is applied we find different time evolving patterns of volatility spillover across multiple periods due to the structural breaks the direction of mean volatility spillover is found to be bilateral moreover the strength of mean volatility spillover shows that the effect from stock index to fuel oil futures is much stronger than the other way around this implies that the stock index futures market plays a leading role in information processing these findings have important implications for the fuel oil stakeholders as well as risk management

modelling the impact of central bank intervention on exchange rate volatility under inflation targeting this article empirically investigates the effect of central bank s foreign exchange interventions on the level and volatility of the uganda shilling us dollar exchange rate ugx usd under an infla

modelling s p 100 volatility the information content of stock returns abstract theoretical models that relate volatility to the quantity of information are extended to a multi asset setting and it is deduced that stock returns may or may not have incremental information when modelling index volatility depending on the sources of information that move stock prices the first empirical study that can help resolve this theoretical uncertainty is presented a detailed analysis of the daily volatility of the s p 100 index from 1984 to 1998 shows there is some incremental volatility information in the returns from the 100 shares that define the index this evidence is obtained from arch models that incorporate leverage effects dummy variables for the 1987 crash and aggregate measures of stock return volatility significant differences between estimated volatilities are found for various stock measures and sub periods

the temporal price relationship between s p 500 futures and the s p 500 index this paper empirically examines the intraday price relationship between s p 500 futures and the s p 500 index using minute to minute data three stage least squares regression is used to estimate lead and lag relationships with estimates for expiration days of the s p 500 futures compared with estimates for days prior to expiration the results suggest that futures price movements consistently lead index movements by twenty to forty five minutes while movements in the index rarely affect futures beyond one minute

stock market volatility and the crash of 1987 evidence from six emerging markets abstract this paper studies volatility risk premia and the persistence of volatility in six emerging stock markets before and after the 1987 stock market crash the empirical investigation is conducted by means of the garch in the mean model garch m and monthly data from argentina greece india mexico thailand and zimbabwe between january of 1976 and august of 1994 results indicate changes in the arch parameter risk premia and persistence of volatility before and after the 1987 crash but these noted changes are not uniform and depend upon the individual markets factors other than the 1987 crash may also be responsible for the changes

general equilibrium effects of environmental policy a cge modeling approach estimation of emission control cost functions is often carried out in a partial equilibrium framework i e under the assumption that emission control measures have negligible effects on input and output prices in this paper a computable general equilibrium model is used for simulation of the impact on factor prices and resource allocation of reductions of so infx sup no infx su and co2 emissions thus the model includes markets for tradable emission permits and the equilibrium prices of permits reflect the marginal costs of emission control the results suggest that major emission reductions are likely to have general equilibrium effects and thus that emission control cost functions that fail to take these effects into account may give a distorted picture of the economic impact of emission control

asymmetric predictability of conditional variances we show that there is an asymmetry in the predictability of the volatilities of large versus small firms using both univariate and multivariate arma garch m parameterizations we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms conversely however shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the samuelson hypothesis in futures markets an analysis using intraday data this paper considers the samuelson hypothesis which argues that the futures price volatility increases as the futures contract approaches its expiration utilizing intraday data from 20 futures markets in six futures exchanges we find strong support for the samuelson hypothesis in agricultural futures however the samuelson hypothesis does not hold for other futures contracts we also provide supporting evidence that the negative covariance hypothesis is the key factor for the empirical support of the samuelson hypothesis in addition our findings remain largely unaltered even after we control for seasonality and liquidity effects

intraday volatility in the stock index and stock index futures markets we examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets our results indicate a strong intermarket dependence in the volatility of the cash and futures returns price innovations that originate in either the stock or futures markets can predict the future volatility in the other market we show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken the findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index our results have implications for understanding the pattern of information flows between the two markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market interactions in returns and volatilities between spot and forward shipping freight markets abstract the lead lag relationship in both returns and volatilities between spot and futures markets has been investigated extensively in the financial economics literature only a limited number of such studies have appeared on forward markets primarily due to the lack of easy access to empirical data this paper uses a unique database in over the counter forward freight agreements ffa to investigate the issue the underlying commodity is non storable being that of a shipping service with the additional feature of transactions costs being higher in the spot market in comparison to the forward market these features have interesting implications for the markets at the practical level the better understanding of the mean and variance dynamics can improve risk management and budget planning decisions

sustainable development in pacific micro economies abstract this paper argues that the central economic problem for a number of very small pacific island economies is the preservation and enhancement of their status as rentier societies and the relatively high living standards vis a vis other developing countries which go with the status the thrust of most development planning in the region with its focus on sustainable expansion of productive activity is misdirected in these small countries it is not productive activity but rent entitlements which must be sustained and reproduced over time aid philately and migrant remittances are not merely supplements to local incomes they are the foundations of the modern economy insofar as conventional development projects crowd out aid and remittance entitlements their impact is immiserizing criticism is offered of a recent argument for returning to sustainable subsistence economies

multicrop production decisions in western irrigated agriculture the role of water price applying a model of the multioutput firm econometric results are reported for irrigated production in four multistate regions of the american west cross sectional microdata from the farm and ranch irrigation survey and limited dependent variable methods are used to estimate crop choice supply land allocation and water demand functions for field crops farm level water demand is decomposed into the sum of crop level water demands and crop level demands are further separated into an extensive margin land allocations and intensive margin short run water use response to water price measured as groundwater pumping cost occurs primarily at the extensive margin

are daily and weekly load and spot price dynamics in australia s national electricity market governed by episodic nonlinearity in this article we use half hourly spot electricity prices and load data for the national electricity market nem of australia for the period from december 1998 to june 2009 to test for episodic nonlinearity in the dynamics governing daily and weekly cycles in load and spot price time series data we apply the portmanteau correlation bicorrelation and tricorrelation tests introduced in hinich 1996 to the time series of half hourly spot prices and load demand from 7 12 1998 to 30 06 2009 using a fortran 95 program we find the presence of significant third and fourth order nonlinear serial dependence in the weekly load and spot price data in particular but to a much more marginal extent in the daily data

bridging the gap between the distribution of realized ecu volatility and arch modelling of the euro the garch nig model summary this paper bridges the gap between traditional arch modelling and recent advances on realized volatilities based on a ten year sample of five minute returns for the ecu basket currencies versus the us dollar we find that the realized volatilities constructed from the summation of the high frequency intraday squared returns conditional on the lagged squared daily returns are approximately inverse gaussian ig distributed while the distribution of the daily returns standardized by their realized volatilities is approximately normal moreover the implied daily garch model with normal inverse gaussian nig errors estimated for the ecu returns results in very accurate out of sample predictions for the three years of actual daily euro us dollar exchange rates copyright 2002 john wiley sons ltd