money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

similarities in the distribution of stock market price changes between the eighteenth and twentieth centuries are all financial time series alike this article raises that question by establishing that eighteenth and twentieth century equity market time series behave similarly the distribution of price changes now and then both exhibit the same patterns or regularities in particular the distribution of price changes is leptokurtic and fluctuations in variance are persistent this article provides further evidence that financial market regularities are stable and not contingent on specific times and places the historical evidence shows that eighteenth century stock market and traders are not so different from those of today copyright 1998 by university of chicago press

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

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

selling the family silver institutional entrepreneurship and asset disposal in the english housing association sector the purpose of this paper is to shed light on english housing associations asset management strategies through an analysis of strategic decisions to either dispose of or retain valuable property a

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

impulse response function for conditional volatility in garch models this article defines and analyzes the impulse response function for conditional volatility in generalized autoregressive conditional heteroscedasticity garch models it first derives the function from a vector autoregressive and moving average representation of the garch models and obtains the corresponding standard errors from the first order derivatives of the function and the covariance matrix of the estimated parameters then this article employs a monte carlo study to assess the finite sample properties of the standard errors and provides an empirical example of the dependence of exchange rate volatility to demonstrate its use in empirical applications

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

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

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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

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

new empirical evidence on the bid ask spread in this article we model the determinants of spread for 734 firms listed on the nyse over the period 1 january 1998 to 31 december 2008 we propose a panel data model of the determinants of spread there are four main messages emerging from our work we find a statistically significant effect of volume on spread inconsistent with the work of johnson 2008 on price we find mixed results consistent with the literature on the effect of price volatility on spread our results are completely the opposite of the cross sectional literature but sides with the relatively recent work of chordia et al 2001 we allow for persistence of spread as a determinant of spread and find significant evidence of spread persistence across all 16 sectors finally we examine size effects and find statistically strong evidence of size effects based on the relationship between price and spread persistence and spread and volatility and spread

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

the dynamics of time varying volatilities in different size second hand ship prices of the dry cargo sector this paper examines the dynamics of conditional volatilities in the world dry bulk market for second hand ships in particular it models and compares volatility estimates between different size vessels using monthly data the recently developed class of autoregressive conditional heteroskedasticity arch models are utilized for this purpose it is found that broadly speaking prices of small vessels are less volatile than larger ones and the nature of these volatilities vary across sizes panamax volatilities are mostly driven by old news while new shocks are more important for handysize and capesize volatilities furthermore conditional volatilities of handysize and panamax prices are positively related to interest rates and capesize to time charters

seigniorage as a tax a quantitative evaluation in this paper we construct a computable general equilibrium model calibrate it to selected data for the american economy and use it to explore the efficacy of the seigniorage tax associated with various monetary arrangements we find that the key feature of any monetary tax arrangement is its equilibrium after tax real return schedule on liquid assets held by the households we also find that considerable seigniorage which we define to be the diserence between government expenditures other than interest paid on government debt and taxes collected can be large we find that the seigniorage tax is a poor one relative to a tax on labor income ln particular we find that if the after tax real return on saving deposits is 5 percent as it was on average in the 1974 1978 period welfare is one half percent of consumption lower than it would be if the after tax real return were zero as it approximately was in both the 1964 1968 and 19841988 periods the work builds on that of a imrohoroglu 1990 who finds that for worlds in which non interest bearing nominal assets are the only liquid assets the cost of constant inflation is far greater than the area under the empirical demand for money relation with such arrangements the after tax real return is the negative of the inflation rate the key feature of her model is that agents hold money in order to smooth consumption in the face of idiosyncratic income variability for which there

social rented housing in western europe developments and expectations what lies ahead for the social rented sector in western europe do countries differ merely in degree or do differences between countries offer grounds on which to sketch divergent scenarios for th

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

money and risk sharing we study the use of money for sharing consumption risk in our model agents randomly receive endowments at some points in time and produce at other points due to information frictions agents cannot use intertemporal contracts to share risk the use of money allows agents to overcome these information frictions the friedman rule is shown to generate efficient risk sharing furthermore we quantify the welfare costs of incomplete risk sharing and find that with 10 inflation the welfare cost of inefficient risk sharing is approximately 1 1 5 of steady state consumption

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

heterogeneous information arrivals and return volatility dynamics uncovering the long run in high frequency returns recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean reverting fractionally integrated process meanwhile much shorter lived volatility dynamics are typically observed with high frequency intradaily returns the present article demonstrates that by interpreting the volatility as a mixture of numerous heterogeneous short run information arrivals the observed volatility process may exhibit long run dependence as such the long memory characteristics constitute an intrinsic feature of the return generating process rather than the manifestation of occasional structural shifts these ideas are confirmed by our analysis of a one year time series of fiveminute deutschemark u s dollar exchange rates among the most puzzling issues is the behavior of volatility while the general properties of volatility remain elusive perhaps the most intriguing feature revealed by empirical work on volatility is its long persistence such behavior has sparked a search almost akin to that for the holy grail for the perfect garch model but the underlying question of why such volatility persistence endures remains unanswered we conjecture that the ability to analyze higher frequency data may be particularly useful in pursuing this issue goodhart and o hara 1997 the pronounced volatility clustering is arguably one of the most striking features of financial price series recorded at daily or weekly intervals and a large body of literature seeking to characterize this aspect of speculative returns has emerged over the past decade 1 at the same time convincing theoretical explanations for the underlying sources of long run persistence in volatility remain elusive the recent advent of comprehensive high frequency andersen is from the j l kellogg graduate school of management of northwestern university bollerslev is from the university of virginia and is a research associate at the national bureau of economic research we gratefully acknowledge the financial support provided by a research grant from the institute for quantitative research in finance the q group special thanks are due to olsen and associates for making the intradaily exchange rate quotes and reuter s news tape available we have received valuable comments from wake epps clive w j granger stephen f gray j huston mcculloch as well as seminar participants at the december 1996 triangle econometrics workshop the 1997 afa meetings in new orleans academia sinica the wharton school usc and georgetown and york universities we remain fully responsible for the content 1 see bollerslev chou and kroner 1992 for a survey of this literature using arch type

common asset pricing factors in volatilities and returns in futures markets abstract factor based asset pricing models have been used to explain the common predictable variation in excess asset returns this paper combines means with volatilities of returns in several futures markets to explain their common predictable variation using a latent variables methodology tests do not reject a single factor model with a common time varying factor loading the single common factor accounts for up to 53 of the predictable variation in the volatilities and up to 14 of the predictable variation in the means s p500 futures volatility predicted by the factor model is highly correlated with volatility implied in s p500 futures options but both the factor and implied volatilities are significant in predicting future volatility in derivatives pricing both implied volatility from options and factors extracted from asset pricing models should be employed

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

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

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

multivariate stochastic volatility via wishart processes financial models for asset and derivatives pricing risk management portfolio optimization and asset allocation rely on volatility forecasts time varying volatility models such as generalized autoregressive conditional heteroscedasticity and stochastic volatility svol have been successful in improving forecasts over constant volatility models we develop a new multivariate svol framework for modeling financial data that assumes covariance matrices stochastically varying through a wishart process in our formulation scalar variances naturally extend to covariance matrices rather than to vectors of variances as in traditional svol models model fitting is performed using markov chain monte carlo simulation from the posterior distribution because of the model s complexity an efficiently designed gibbs sampler is described that produces inferences with a manageable amount of computation our approach is illustrated on a multivariate time series of monthly industry portfolio returns a test of the ec

forecasting volatility of crude oil markets abstract this article investigates the efficacy of a volatility model for three crude oil markets brent dubai and west texas intermediate wti with regard to its ability to forecast and identify volatility stylized facts in particular volatility persistence or long memory in this context we assess persistence in the volatility of the three crude oil prices using conditional volatility models the cgarch and figarch models are better equipped to capture persistence than are the garch and igarch models the cgarch and figarch models also provide superior performance in out of sample volatility forecasts we conclude that the cgarch and figarch models are useful for modeling and forecasting persistence in the volatility of crude oil prices

volatility impulse response functions for multivariate garch models an exchange rate illustration we introduce a new concept of impulse response functions tracing the effects of independent shocks on volatility through time while avoiding typical orthogonalization and ordering problems in an empirical study of a bivariate foreign exchange fx rate series we use volatility impulse response functions to discuss the effects of central bank decisions such as direct interventions in the fx market or open market activities on fx market volatility comparing our concept with conditional moment profiles introduced by gallant et al gallant a r rossi p e tauchen g 1993 nonlinear dynamic structures econometrica 61 871 907 we show that for shocks affecting fx rates in an asymmetric way the difference between the two methodologies and their interpretation can be substantial

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

attitudes and behaviours of private sector landlords towards the energy efficiency of tenanted homes abstract the uk s housing stock generates approximately 27 of the country s total annual carbon emissions in light of the legally binding targets to reduce carbon emissions new housing is subject to a tightening of regulations governing energy demand and efficiency resulting in a gradual improvement in carbon emissions the question is how to achieve the deep carbon emission reductions from existing domestic properties of which 75 will still be in use in 2050 government has sought to provide incentives to homeowners to improve the energy efficiency of their households and mandate improvements in socially rented housing using a range of fiscal measures most recently the green deal there has however been little consideration of the 18 of uk households who privately rent their home a tenure that is growing fast the aim of this research is to investigate the factors that influence private sector landlords when considering energy efficiency improvements to their tenanted homes the results indicate that government policy has consistently failed to engage private sector landlords in the issue of energy efficiency and thus measures must be taken to understand the motivations of landlords in order to design effective incentives and interventions

market risk and the concept of fundamental volatility measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets this paper proposes an unobserved fundamental component of volatility as a measure of risk this concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators fundamental volatility can be obtained using a stochastic volatility model which allows us to filter out the signal in the volatility information we decompose four ftse100 stock index related volatilities into transitory noise and unobserved fundamental volatility our analysis is applied to the question as to whether derivative markets destabilise asset markets we find that introducing european options reduces fundamental volatility while transitory noise in the underlying and futures markets does not show significant changes we conclude that for the ftse100 index introducing a new options market has stabilised both the underlying market and existing derivative markets

exploring the income distribution business cycle dynamics abstract we document the business cycle behavior of the us income distribution and explore the extent to which unemployment spells and cyclically moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model we conclude i that partitioning the population into five types subject to type specific employment processes seems to be enough to account for most aspects of the us income distribution business cycle dynamics ii that the role played by cyclically moving factor shares is small and iii that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for

meeting the decent homes standard london housing associations asset management strategies the english government s 10 year flagship decent homes programme ended in 2010 the purpose of this article is to examine the asset management strategies that a sample of london housing associations took to meet the decent homes standard drawing on the concept of institutional logics the article outlines the social housing sector s conflicting regulatory context whereby organisations were statutorily obliged to improve housing standards without being able to raise rents as a way to fund improvements depending on whether the housing association adopts a market orientated or traditional task orientated approach to asset management the associations sampled have either disposed of non decent stock to generate cash flows or else retained the stock undertaking minimal repairs to meet the government s target deadline the article concludes that not only has this national performance target triggered different organisational responses it has also led to longer term unintended consequences for existing an

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

the computational experiment an econometric tool an economic experiment consists of the act of placing people in an environment desired by the experimenter who then records the time paths of their economic behavior performing experiments that use actual people at the level of national economies is obviously not practical but constructing a model economy and computing the economic behavior of the model s people is such experiments are termed computational this essay specifies the steps in designing a computational experiment to address some well posed quantitative question the authors emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory

stationary data and the effect of the minimum wage on teenage employment one of the interesting features of time series work on the effect of the minimum wage is that the problem of possible spurious regressions when data may be non stationary has been largely ignored it is shown that this is potentially a serious problem it is found that although the teenage employment to population ratio is stationary the independent variables in time series regression equations are non stationary substitution of the stationary first differences of the independent variables in the regression equations for their levels is found to greatly undermine the estimated influence of the minimum wage on the employment to population ratio estimates of the effect of the minimum wage are found to be only marginally more significant when seasonal differencing of the dependent variable and an arch estimation technique are employed

long range dependence in the conditional variance of stock returns abstract we examine persistence in the conditional variance of u s stock returns indexes our results show evidence of long memory in high frequency data suggesting that models of conditional heteroskedasticity should be made flexible enough to accommodate these empirical findings

recent changes in the social rented sector in the netherlands the netherlands has a large and differentiated stock of social rented dwellings forming more than 40 per cent of the total housing stock housing associations are by far the largest providers of housing services in this sector traditionally these associations were subsidised heavily but since 1995 dutch government has no longer directly subsidised these associations this paper deals with changes in dutch housing associations in a period 1988 95 characterised by government austerity deregulation market conformity privatisation and promotion of home ownership it is explained how the housing associations were able to survive and even maintain prospects for a promising future in a political climate that threatened the social rented sector it is clear that housing associations can now operate more independently than in the past this is seen as a positive development but the government is now discovering the drawbacks of complete privatisation a firmer embedding in a public framework is considered

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

explaining tenancy sustainment rates in british social rented housing the roles of management vulnerability and choice high rates of tenancy turnover in social rented housing have increasingly been identified as problematic both in the uk and elsewhere high turnover has been variously associated with management failings individual vulnerability or absence of tenant choice drawing on original research into prematurely terminated tenancies in glasgow we investigate explanatory factors associated with tenancy sustainment rates in doing so we interrogate the managerialist rationale which positions such residential mobility as potentially excessive and therefore problematic the empirical findings demonstrate evidence for all three posited explanations for high tenancy turnover but also suggest that some tenants vacating their homes after only a short time may be making a positive choice they also emphasise that in seeking to reduce early tenancy termination social landlords should recognise the importance of improving mainstream housing management services and the condition of the housing stock as well as

money and credit as means of payment abstract a stochastic economic environment is presented in which the mix of cash and resource costly credit used as means of payment is endogenous for reasonable values of the credit cost parameter velocity can be quite variable and sensitive to the nominal interest rate those parameter values also generate larger welfare costs of inflation than have been found previously and a sizable impact of inflation on real interest rates

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 nobel memorial prize for robert f engle work is a fine example of best practice applied time series econometrics he identifies important dynamic economic phenomena formulates precise and interesting questions about those phenomena constructs sophisticated yet simple econometric models for measurement and testing and consistently obtains results of widespread substantive interest in the scientific policy and financial communities although many of engle s contributions are fundamental i will focus largely on the two most important the theory and application of cointegration and the theory and application of dynamic volatility models moreover i will discuss much more extensively engle s volatility models and their role in financial econometrics for several reasons first engle s nobel citation was explicitly for methods of analyzing economic time series with time varying volatility arch whereas granger s was for for methods of analyzing economic time series with common trends cointegration second the credit for

conditional volatility of exchange rates and risk premia in the ems this paper aims at investigating the behaviour of risk premia of currencies participating in the european monetary system ems aginst the dollar for this purpose a multivariate garch in mean model is specified allowing the risk premia of ems currencies other than the deutschmark to be determined as a function of their conditional covariance with the deutschmark dollar exchange rate the risk premium of the latter is determined by its own conditional variance the model is able to capture the time varying character of the relationship between ems currencies and the deutschmark furthermore the model allows us to examine how changes in the conditional variances and covariances of future exchange rates affect the level of current exchange rates

disinflation and fiscal reform a neoclassical perspective abstract many latin american countries engaged in disinflation programs based on both exchange rate management and fiscal reforms in most of the cases part of the fiscal reform was not implemented and the program had to be abandoned the aftermath of these programs is not encouraging in this paper we show that if the reform process is uncertain and inflation has welfare costs the optimal exchange rate policy indeed implies the initiation of a disinflation program at the announcement of the fiscal reform even if it implies the possibility of a balance of payments crisis finally we show that it is optimal to engage in a sequence of stabilization programs until one of them is successful

risk commercialism and social purpose repositioning the english housing association sector originally seen as the third arm of uk housing policy the independent not for profit housing association sector had long been seen as effective in filling the gap where the state or market were unable to provide for households in need since the 1980s in particular successive governments had viewed housing associations in favourable terms as efficient semi autonomous social businesses capable of leveraging significant private funding by 2015 in contrast central government had come to perceive the sector as inefficient bureaucratic and wasteful of public subsidy making use of institutional theory this paper considers this paradigm shift and examines the organisational responses to an increasingly challenging operating environment by focusing in particular on large london housing associations the paper analyses their strategic decision making to address the opportunities and threats presented the paper argues that in facing an era of minimal subsidy low security and high risk the 2015 reforms represent a critical juncture for the sector housing organisations face a stark dilemma about whether to continue a strategy of profit for purpose or to embrace an unambiguously commercial ethos the article contends that the trajectory of decision making although not unidirectional leads ultimately towards an increased exposure to risk and vulnerability to changes in the housing market more fundamentally the attempt to reconcile social and commercial logics is likely to have wider consequences for the legitimacy of the sector

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

payment transactions instruments and systems a survey the payments literature ranges from theoretical general equilibrium models to practical payment issues related to the day to day operation of various national networks for the transfer of money it is an area where economic theory and institutional structure are often closely intertwined and it is currently undergoing significant change shifting from costly paper based systems to technologically advanced electronic payments the extant literature is surveyed here with the aim of integrating the various strands of payment research which have been largely pursued separately in addition we present newly available data to illustrate and investigate a number of underdeveloped areas in this literature 1998 elsevier science b v all rights reserved

on the normal inverse gaussian stochastic volatility model in this article the normal inverse gaussian stochastic volatility model of barndorff nielsen is extended the resulting model has a more flexible lag structure than the original one in addition the second and fourth order moments important properties of a volatility model are derived the model can be considered either as a generalized autoregressive conditional heteroscedasticity model with nonnormal errors or as a stochastic volatility model with an inverse gaussian distributed conditional variance a simulation study is made to investigate the performance of the maximum likelihood estimator of the model finally the model is applied to stock returns and exchange rate movements its fit to two stylized facts and its forecasting performance is compared with two other volatility models

the gaussian mixture dynamic conditional correlation model parameter estimation value at risk calculation and portfolio selection a multivariate generalized autoregressive conditional heteroscedasticity model with dynamic conditional correlations is proposed in which the individual conditional volatilities follow exponential generalized autoregressive conditional heteroscedasticity models and the standardized innovations follow a mixture of gaussian distributions inference on the model parameters and prediction of future volatilities are addressed by both maximum likelihood and bayesian estimation methods estimation of the value at risk of a given portfolio and selection of optimal portfolios under the proposed specification are addressed the good performance of the proposed methodology is illustrated via monte carlo experiments and the analysis of the daily closing prices of the dow jones and nasdaq indexes

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

common stochastic trends in a system of exchange rates univariate tests reveal strong evidence for the presence of a unit root in the univariate time series representation for seven daily spot and forward exchange rate series furthermore all seven spot and forward rates appear to be cointegrated that is the forward premiums are stationary and one common unit root or stochastic trend is detectable in the multivariate time series models for the seven spot and forward rates respectively this is consistent with the hypothesis that the seven exchange rates possess one longrun relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates a general consensus has emerged in recent years that many macroeconomic time series such as gnp consumption expenditures disposable income etc can be characterized by a stochastic trend model in particular nelson and plosser 22 described this property as one of being difference stationary so that the first difference of a time series is stationary an alternative trend stationary model where a stationary component is added to a deterministic trend term has generally been found to be less appropriate 1 similarly it has long been recognized that many financial time series such as foreign exchange rates are nonstationary e g in meese and singleton 21 the issue of nonstationary is not merely a statistical curiosity but has several important implications for the modeling of exchange rates for instance many models of exchange rate determination under rational expectations require stationarity assumptions when solving out the expected future values of the fundamentals further there has been some controversy over the appropriate transformations to use when conducting tests of whether the forward rate is an unbiased and efficient predictor of the future spot exchange rate 2 some authors e g frenkel 11 12 have conducted tests in levels while geweke and feige 14

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

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

weather and intraday patterns in stock returns and trading activity abstract we examine the relation between weather in new york city and intraday returns and trading patterns of nyse stocks while stock returns are found to be generally lower on cloudier days cloud cover has a significant influence on stock returns only at the market open there are significantly more seller initiated trades when there is more cloud cover at the market open which is consistent with the return results cloudy skies are associated with higher volatility and less market depth over the entire trading day finally cloud cover is not significantly correlated with spread measures and turnover ratios the findings overall suggest that weather has a significant influence on investors intraday trading behavior

endogenous market participation and the general equilibrium value of money we study the monetary theory implications of fixed costs associated with trade in private assets we show that with heterogeneous endowment profiles it is possible for an endogenous subset of agents to hold currency even when it is dominated in return by a competing asset with respect to positive issues in monetary theory the model implies that changes in the steady state growth rate of the money supply have a negative effect on real interest rates because of endogenous market participation measures on the normative side we show that there may be an equity efficiency trade off from monetary deflation

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

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

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

financial and social returns in housing asset management theory and dutch housing associations practice this paper discusses how financial and social returns can be measured in relation to asset management in dutch housing associations the potential applications of performance measurement in housing asset management are assessed as well as the indicators that can be used to measure financial and social returns an explorative survey among dutch housing associations indicates that practice is poorly developed as far as the measurement of financial return is concerned a few associations operate in accordance with the theoretical ideal however many of them still follow a traditional book keeping approach which is unsuitable for supporting asset management decisions as far as social return is concerned the survey indicates that although associations collect a lot of data they do not really evaluate their performance by comparing their output against pre set targets or benchmarks the poorly developed evaluation of performance makes it difficult for housing associations to achieve the various objecti

regulatory and organisational responses to restructured housing association finance in england and wales risk was shifted from government to housing associations during the late 1980s producing a very different operating environment for associations based around competition critical in this has been an increased emphasis on financial management the paper explores the impacts of these changes through an examination of the welsh regulator s housing for wales responses and through changing management and organisation within associations the policy responses by housing for wales indicate an increasing emphasis on social policy regulatory objectives though within a very interventionist framework which works to limit the ability of associations financially to plan their future innovations in housing associations are also examined to highlight organisational responses to the new environment these innovations have focused on the often uncritical importation of private sector management practices including telephone based housing management services demonstration projects and moves towards core periphery

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 case for a financial approach to money demand the distribution of money across households is much more similar to the distribution of financial assets than to that of consumption levels even controlling for life cycle effects this is a puzzle for theories which directly link money demand to consumption such as cash in advance cia money in the utility function miuf or shopping time models this paper shows that the joint distribution of money and nancial assets can be explained by an incomplete market model when frictions are introduced into financial markets money demand is modeled as a portfolio choice with a fixed transaction cost in financial markets

strategic asset management in the social rented sector approaches of dutch and english housing associations in england and the netherlands in response to changes in housing policy and the market there is widespread enthusiasm for asset management in the social rented sector a key issue in both countries is the development of a strategic approach towards the formulation of asset management plans the paper examines this issue in relation to the current practice of housing associations in both countries drawing on case studies in england and the netherlands it is concluded that in both countries practice varies widely between housing associations some of the approaches adopted by front runners can be seen as models for other associations yet to develop a strategic approach towards asset management lessons can also be learnt across national boundaries though necessarily mediated by differences between the two housing systems

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

regularities in volatility and the price of risk following large stock market movements in the us and japan abstract we examine the effects of large price changes on volatility and the price of risk of two broad stock indices the crsp value weighted index of nyse and amex stocks and the topix of the tokyo stock exchange volatility generally rises after large price changes of either sign but usually revert to pre jump levels within a week or two in contrast the price of risk except for the first day after a jump typically declines following large price increases and rises following large price declines with little apparent tendency to revert toward pre jump levels before the arrival of the next jump

the time variation of expected returns and volatility in foreign exchange markets this article analyzes the time variation in conditional means and variances of monthly and quarterly excess dollar returns on eurocurrency investments all results are based on a vector autoregression with weekly sampled data on exchange rate changes and forward premiums of three currencies both past exchange rate changes and forward premiums predict future forward market returns moreover past forward premium volatilities predict the volatility of exchange rates expected forward market returns are very variable and persistent and exhibit marked comovements these results carry over to cross rate e g yen mark investments as well

volatility spillovers and cross hedging between gold oil and equities evidence from the gulf cooperation council countries the paper examines the return and volatility spillovers between crude oil gold and equities and investigates the usefulness of the two commodities in hedging equity portfolios using daily data from january 20043 to may 2016 for the gulf cooperation council countries a dcc garch model is used to estimate dynamic correlations and hedge ratios we find significant spillovers from oil to equities highlighting the heavy dependence of the local economies on oil moreover the spillovers of gold on the stock markets are insignificant suggesting that gold price fluctuations do not necessarily influence equity investment decisions in the opposite direction we find that equities do not exert significant influence on the two commodities which we attribute to the relatively small capitalisation of the exchanges our results reveal low dynamic correlations and hedge ratios with a few spikes during crises indicating that oil and gold are cheap hedges for stocks albeit not good ones while they could be considered as weak safe havens but at a considerable cost

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