structural changes in volatility and stock market development evidence for spain abstract in this paper we review the factors that lead to changes in stock market volatility and use alternative methodologies of endogenous breakpoint detection in order to analyze whether the volatility of the spanish stock market has changed significantly over the period 1941 2001 this period corresponds to years of profound development of both the financial and the productive sides of the economy in this country the analysis of the spanish stock market suggests that volatility has behaved in a different manner over the period 1941 2001 after three decades of low volatility a structural break in volatility is detected in 1972 coinciding with the opening of the spanish economy from 1972 to 2001 the years of more intense financial development the stock market presents a higher level of volatility and lower persistence this effect is partly attributable to the increased growth of trading volume brought about by the economic development process

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

detecting multiple breaks in financial market volatility dynamics the paper evaluates the performance of several recently proposed tests for structural breaks in the conditional variance dynamics of asset returns the tests apply to the class of arch and sv type processes as well as data driven volatility estimators using high frequency data in addition to testing for the presence of breaks the statistics identify the number and location of multiple breaks we study the size and power of the new tests for detecting breaks in the conditional variance under various realistic univariate heteroscedastic models change point hypotheses and sampling schemes the paper concludes with an empirical analysis using data from the stock and fx markets for which we find multiple breaks associated with the asian and russian financial crises these events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks copyright 2002 john wiley sons ltd

structural breaks dynamic correlations asymmetric volatility transmission and hedging strategies for petroleum prices and usd exchange rate abstract this paper investigates the influence of structural changes on the asymmetry of volatility spillovers asset allocation and portfolio diversification between the usd euro exchange market and each of six major spot petroleum markets including wti europe brent kerosene gasoline and propane using the bivariate dcc egarch model with and without structural change dummies the results provide evidence of significant asymmetric volatility spillovers between the u s dollar exchange rate and the petroleum markets moreover the model with the structural breaks reduces the degree of volatility persistence and leads to more appropriate hedging and asset allocation strategies for all pairs considered thus the findings have important implications for financial risk management

the specification of the probability functions in tullock s rent seeking contest abstract in his model of a rent seeking contest tullock g 1980 efficient rent seeking in buchanan j m tollison r d tullock g eds toward a theory of the rent seeking society texas a and m university press college station pp 97 112 uses a simple concrete specification for the probability functions which determine the probability that a player wins the contest given the bids made by the players we discuss in general terms a set of conditions that can be imposed on probability functions in this game next we show that the specification chosen by tullock is the unique one that satisfies these conditions

structural breaks and garch models of exchange rate volatility we investigate the empirical relevance of structural breaks for garch models of exchange rate volatility using both in sample and out of sample tests we find significant evidence of structural breaks in the unconditional variance of seven of eight us dollar exchange rate return series over the 1980 2005 period implying unstable garch processes for these exchange rates and garch 1 1 parameter estimates often vary substantially across the subsamples defined by the structural breaks we also find that it almost always pays to allow for structural breaks when forecasting exchange rate return volatility in real time combining forecasts from different models that accommodate structural breaks in volatility in various ways appears to offer a reliable method for improving volatility forecast accuracy given the uncertainty surrounding the timing and size of the structural breaks copyright 2008 john wiley sons ltd

the strategic equivalence of rent seeking innovation and patent race games abstract we establish the strategic equivalence of a variety of rent seeking contests innovation tournaments and patent race games the results allow us to disentangle negative and positive externalities and to apply theorems and results intended for rent seeking games to other games and vice versa we conclude with several examples that highlight the practical utility of our results

breaks and outliers when modelling the volatility of the u s stock market this study analyses volatility persistence of the u s stock market after taking into account the role of breaks and outliers by employing a wavelet based algorithm it identifies several outliers which are comfortably associated with major events such as the black monday and the asian crisis there is also evidence of clustering of breaks and a substantial variation in the properties of the identified segments

have the gipsi settled down breaks and multivariate stochastic volatility models for and not against the european financial integration we investigate the integration of the european peripheral financial markets with germany france and the uk using a combination of tests for structural breaks and return correlations derived from several multivariate stochastic volatility models our findings suggest that financial integration intensified in anticipation of the euro further strengthened by the emu inception and amplified in response to the 2007 2008 financial crisis hence no evidence is found of decoupling of the equity markets in more troubled european countries from the core interestingly the uk despite staying outside the emu is not worse integrated with the gipsi than germany or france 2013 elsevier b v

asymmetric rent seeking with more than two contestants this article considers a rent seeking model with n asymmetriccontestants each contestant may have a different valuation ofthe rent or a different relative ability to win the rent oneof the n contestants is selected as the winner based ontullock s probabilistic contest rule with constant returns toscale a pure strategy nash equilibrium solution is obtainedand its consequences are investigated

legal expenditure as a rent seeking game legal expenditures at a civil trial constitute an interesting type of rent seeking contest in civil litigation there is a natural interaction between the objective merits of the case and the outcome of the contest institutions such as fee shifting do not generally have a counterpart in other rent seeking contests the endogenous decision to participate in the rent seeking contest corresponds to the decision by the plaintiff to bring a case and the decision by the defendant to defend it the desirability of fee shifting is very sensitive to the value of the parameter which describes the legal technology

how not to raise money we show that standard winner pay auctions are inept fund raising mechanisms because of the positive externality bidders forgo if they top another s high bid revenues are suppressed as a result and remain finite even when bidders value a dollar donated the same as a dollar kept this problem does not occur in lotteries and all pay auctions where bidders pay irrespective of whether they win we introduce a general class of all pay auctions rank their revenues and illustrate how they dominate lotteries and winner pay formats the optimal fund raising mechanism is an all pay auction augmented with an entry fee and reserve price

less fighting than expected experiments with wars of attrition and all pay auctions while all pay auctions are well researched experimentally we do not have much laboratory evidence on wars of attrition this paper tries to fill this gap technically there are only a few differences between wars of attrition and all pay auctions behaviorally however we find striking differences as many studies our experiment finds overbidding in all pay auctions in contrast in wars of attrition we observe systematic underbidding

optimal timing in the problem of family farm transfer from parent to child an option value approach abstract the optimal time for transferring the family farm from parent to child is modeled in an option value framework it is assumed that parents have the ability to wait and enrich their information set before making the decision when to transfer the farm to a succeeding child rather than making a prompt decision the results indicate that the optimal timing depends on the wedge between the parents critical level of utility and disutility from the farm transfer to a succeeding child the arguments of parents utility function are country culture and family specific

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

on the evolution of prize perceptions in contests abstract we apply an indirect evolutionary approach to players perceived prize valuations in contests evolution in finite populations leads to preferences that overstate the prize s material value and induce overexpenditure we establish an equivalence between evolutionarily stable strategies and the behavior induced by evolutionarily stable preferences

the evolution of preferences and competition a rationalization of veblen s theory of invidious comparisons we examine how preferences evolve by natural selection in a competitive environment similar to that characterizing much of our evolutionary past we find that the evolutionarily stable preferences in this context exhibit a concern not only for absolute payoffs but also for relative payoffs and that this intensifies the degree of competition relative to what obtains when players consider only absolute payoffs we argue that this has consequences for the equilibrium population size we argue that the premise of this analysis is consistent with the available anthropological evidence and that the prediction is broadly consistent with the findings of experimental game theory

shifts in volatility driven by large stock market shocks abstract this paper presents an extension of the stochastic volatility model which allows for level shifts in volatility of stock market returns known as structural breaks these shifts are endogenously driven by large return shocks innovations reflecting large pieces of market news these shocks are identified from the data as being bigger in absolute terms than the values of two threshold parameters of the model one for the negative shocks and one for the positive shocks the model can be employed to investigate different sources of stock market volatility shifts driven by market news without relying on exogenous information in addition to this it has a number of interesting features which enable us to study the effects of large return shocks on future levels of market volatility the above properties of the model are shown based on a study for the us stock market volatility

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

real options and demographic decisions abstract the theory of real options is used to incorporate the influence of uncertainty on demographic decision making the decision to have children is formulated as an investment using portfolio theory the timing of the decision to have a child is modelled as a real options decision with uncertainty affecting a woman s ability to exercise the option to wait in order to delay or space births an increase and reduction in uncertainty on this option is explored compared to the widely used net present value npv framework the real options approach roa better explains the process of demographic decision making in poor countries

income and employment effects of micro credit programmes village level evidence from bangladesh micro credit programmes having made their mark in providing credit and other development services to the poor in a non traditional way are able to make significant changes in a rural economy this article attempts to quantify the village level impacts of the three most important micro credit programmes of bangladesh namely grameen bank bangladesh rural advancement committee brac and bangladesh rural development board s brdb rd 12 project descriptive and econometric analyses show that these programmes have positive impacts on income production and employment particularly in the rural non farm sector also growth in self employment has been achieved at the expense of wage employment which implies an increase in rural wages the article emphasises that an upward shift in the labour demand curve is required for both improved productivity and wage gains on a sustainable basis which can only be supported through a structural transformation of the rural economy

real options and demographic decisions empirical evidence from east and west germany iyer and velu 2006 have convincingly argued that contemporary analyses of fertility behaviour fail to explain why a woman or a couple will choose to postpone childbirth and in particular to consider the role of uncertainty in this regard they have addressed this lacuna in the literature by using a real options approach to model fertility decisions by relating uncertainty experienced by individuals to the likelihood of childbirth however they did not present empirical evidence since the theory implies the existence of two offsetting effects of uncertainty on fertility decisions a positive insurance effect and a negative option value effect it is not easy to reject the theory on the basis of empirical analysis when one of these effects offsets the other we construct such a test for east and also west germany during that country s reunification which takes advantage of the fact that because of the country s strong welfare system the insurance effect should be dominated by the option value effect thereby suggesting that the net relationship should be negative the results provide rather strong support for the real options link especially for eastern germany

rent risk and replication preference adaptation in winner take all markets abstract we study the evolution of an economy where agents who are heterogeneous with respect to risk attitudes can either earn a certain income or enter a risky rent seeking contest we assume that agents behave rationally given their preferences but that the population distribution of preferences evolves over time in response to material payoffs we show that in particular initial distributions with full support converge to stationary states where all types are still present although rents are perfectly dissipated in material terms at a steady state efficiency is greater than if everybody had been risk neutral since risk lovers specialize in rent seeking

power monotonicity in detecting volatility levels change we show that the cusum and lm tests for structural change in the volatility process enjoy monotonic power the framework is general including many recently proposed non stationary garch type models the result is in contrast to the well known issue of non monotonic power for the cusum based tests for changing mean simulations and an empirical example provide further support

the persistence of volatility and stock market fluctuations this paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices it demonstrates that volatility is only weakly serially correlated implying that shocks to volatility do not persist these shocks can therefore have only a small impact on stockmarket prices since changes in volatility affect expected required rates of return for relatively short intervals these findings lead us to be skeptical of recent claims that the stock market s poor performance during the 1970 s can be explained by volatility induced increases in risk premia this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

long term risk management of nuclear waste a real options approach in this paper we investigate the optimal timing for deep geological disposal of nuclear waste our model is based on the real options approach to investment under uncertainty in this context the problem is similar to the optimal exercise policy for a perpetual american spread option the potential usefulness of such a model for actual decision making on a sensitive issue is illustrated by some numerical simulations

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

measuring crisis risk using conditional copulas an empirical analysis of the 2008 shipping crisis the shipping crisis starting in 2008 was characterized by sharply decreasing freight rates and sharply increasing financing costs we analyze the dependence structure of these two risk factors employing a conditional copula model as conditioning factors we use the supply and demand of seaborne transportation we find that crisis risk strongly increased already about 1 year before the actual crisis outburst and that the shipping crisis was predominantly driven by an oversupply of transport capacity therefore market participants could have prevented or alleviated the consequences of the crisis by reducing the ordering and financing of new vessels

testing for arch in the presence of additive outliers in this paper we investigate the properties of the lagrange multiplier lm test for autoregressive conditional heteroskedasticity arch and generalized arch garch in the presence of additive outliers ao s we show analytically that both the asymptotic size and power are adversely affected if ao s are neglected the test rejects the null hypothesis of homoskedasticity too often when it is in fact true while the test has difficulty detecting genuine garch effects several monte carlo experiments show that these phenomena occur in small samples as well we design and implement a robust test which has better size and power properties than the conventional test in the presence of ao s applications to the french industrial production series and weekly returns of the spanish peseta us dollar exchange rate reveal that sometimes apparent garch effects may be due to only a small number of outliers and conversely that genuine garch effects can be masked by outliers

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

rent seeking with asymmetric valuations this paper analyzes tullock s rent seeking game with asymmetric valuations for a variable range of the returns to scale parameter a necessary and sufficient condition for a unique pure strategy nash equilibrium is established equilibrium effort and expected profits are determined and subjected to comparative statics analysis increasing the underdog s valuation induces both players to increase their efforts increasing the favorite s valuation increases his effort but decreases the effort of the underdog expected profits increase with a player s valuation but decreases with the valuation of the competitor the impact of the returns to scale parameter is also analyzed

large shocks in the volatility of the dow jones industrial average index 1928 2013 we determine the events that cause large shocks in volatility of the djia index over the period 1928 2013 using a new semi parametric test based on conditional heteroscedasticity models we find that these large shocks can be associated with particular events financial crashes elections wars monetary policies etc we show that some shocks are not identified as extraordinary movements by the investors due to their occurring during high volatility episodes especially the 1929 1934 1937 1938 and 2007 2011 periods