In this study we use the monthly excess holding period yields (EHPY), and their volatility for five government bond indices markets, in order to test the popular expectations theory of the term structure and to assess whether there are... more
In this study we use the monthly excess holding period yields (EHPY), and their volatility for five government bond indices markets, in order to test the popular expectations theory of the term structure and to assess whether there are patterns in risk premia, which are common across these markets. For this reason, a GARCH-M model is used. The empirical results derived indicate that in most cases the Expectation Hypothesis is rejected and short medium-term government bond yields display serial correlation and co movement in the majority of the countries. Additionally, the term premia at the long end of the maturity structure are time varying in the USA, the UK and Canada. The risk factor is statistically significant as an explanatory variable for risk premia, only for 7 years maturity bonds in the USA and the UK.
This paper provides novel findings on idiosyncratic momentum in commodity futures. Momentum strategy that forms portfolios on the basis of commodity-specific returns delivers compelling investment returns which are substantially more... more
This paper provides novel findings on idiosyncratic momentum in commodity futures. Momentum strategy that forms portfolios on the basis of commodity-specific returns delivers compelling investment returns which are substantially more robust and superior to total return momentum on an absolute and risk-adjusted basis. Furthermore, idiosyncratic return momentum is materially more persistent than total return momentum in that it delivers statistically significant positive returns over longer term horizons including ranking periods of up to 24 months. A set of commodity specific and equity markets inspired factors are examined. Notably, the results corroborate that hedging pressure and term structure are sources of risk premium in commodity futures. The analysis in this chapter expose that momentum in commodity futures is fundamentally different to the momentum effect in equity markets. Specifically, momentum in commodity futures is entirely attributed to the momentum effect in long-only portfolios whilst none of the short-only strategies' returns are either profitable or statistically significant. Lastly, the two types of long-only momentum significantly outperform a passive investing into a broad market index such as S&P GSCI. The views expressed here are those of the authors and not necessarily those of any affiliated institutions.
The paper examines the relationship of economic and financial variables with behavior of stock returns in ten industrial sectors of KSE using monthly data. An Arbitrage Pricing Model is estimated in which the risk premia vary in... more
The paper examines the relationship of economic and financial variables with behavior of stock returns in ten industrial sectors of KSE using monthly data. An Arbitrage Pricing Model is estimated in which the risk premia vary in proportion to the conditional volatilities of the ...
This paper considers the problem of measuring macroeconomic sources of financial risk. 1. It aims to provide a general theory of asset pricing suitable for taking account of macroeconomic sources of risk. Stochastic discount factor theory... more
This paper considers the problem of measuring macroeconomic sources of financial risk. 1. It aims to provide a general theory of asset pricing suitable for taking account of macroeconomic sources of risk. Stochastic discount factor theory is used to provide the theoretical framework. This is capable of embracing most of the approaches in the literature, including general equilibrium theory. Market structure needs to be added to this. 2. It is shown that many of the models used in the empirical literature of asset pricing have a fundamental flaw: they admit unlimited arbitrage opportunities. High profile suites of computer programs just produced and sold world-wide suffer the same problem, and hence should not be used. 3. Modelling the exchange rate is key to much of monetary policy (eg the Bank of England's Monetary Policy Committee), and to testing FOREX market efficiency. The forward premium puzzle lies at the heart of the difficulty of doing this. The theoretical results of ...
Home > Journal of Property Investment & Finance > Volume 24 issue 5 > Addressing risk and uncertainty in property... ... Icon: Abstract. Icon: Backfiles. Icon: Print. Icon: Reprints & permissions. ... The authors thank... more
Home > Journal of Property Investment & Finance > Volume 24 issue 5 > Addressing risk and uncertainty in property... ... Icon: Abstract. Icon: Backfiles. Icon: Print. Icon: Reprints & permissions. ... The authors thank the German Federal Office for Building and Regional ...
We study the relationship between inflation and stock returns focusing on the signalling content of inflation. Investors use inflation to learn about the stance of the monetary policy. Depending on investors’ beliefs, a change in... more
We study the relationship between inflation and stock returns focusing on the signalling content of inflation. Investors use inflation to learn about the stance of the monetary policy. Depending on investors’ beliefs, a change in consumption prices has different effects on the risk premium. A change in consumption prices that confirms investors' beliefs reduces stock risk premia, while a change
We introduce a specification of habit formation featuring non-separability between consumption and leisure into an otherwise standard New Keynesian model. The model can be estimated with standard Bayesian techniques and the bond pricing... more
We introduce a specification of habit formation featuring non-separability between consumption and leisure into an otherwise standard New Keynesian model. The model can be estimated with standard Bayesian techniques and the bond pricing implications are evaluated using higher-order approximations. The model is able to reproduce a sizeable risk premium on long-term bonds and the cyclicality of fiscal policy has an impact on the bond premium that is quantitatively important. Technology, government spending, and mark-up shocks are the main drivers of the time-variation in bond premia.
Market efficiency is analysed for the Iberian Power Futures Market and other European Power Markets, as well as other fuel markets through evaluation of ex-post Forward Risk Premium. The equilibrium price from compulsory call auctions for... more
Market efficiency is analysed for the Iberian Power Futures Market and other European Power Markets, as well as other fuel markets through evaluation of ex-post Forward Risk Premium. The equilibrium price from compulsory call auctions for distribution companies within the framework of the Iberian Power Futures Market is not optimal for remuneration purposes as it seems to be slightly upward biased. In the period considered (August 2006–July 2008), monthly futures contracts behave similarly to quarterly contracts. Average risk premia have been positive in power and natural gas markets but negative in oil and coal markets. Different hypotheses are tested regarding increasing volatility with maturity and regarding Forward Risk Premium variations (decreasing with variance of spot prices during delivery period and increasing with skewness of spot prices during delivery period). Enlarged data sets are recommended for stronger test results. Energy markets tend to show limited levels of market efficiency. Regarding the emerging Iberian Power Futures Market, price efficiency is improved with market development of all the coexistent forward contracting mechanisms and with further integration of European Regional Electricity Markets.
Centre for Economic Policy Research 9098 Goswell Rd, London EC1V 7RR, UK Tel: (44 20) 7878 2900, Fax: (44 20) 7878 2999 Email: cepr@cepr.org, Website: www.cepr.org ... This Discussion Paper is issued under the auspices of the... more
Centre for Economic Policy Research 9098 Goswell Rd, London EC1V 7RR, UK Tel: (44 20) 7878 2900, Fax: (44 20) 7878 2999 Email: cepr@cepr.org, Website: www.cepr.org ... This Discussion Paper is issued under the auspices of the Centre's research programme in ...
Using a model-independent approach from Kozhan et al. (2011), we estimate variance and skew risk premia for the Equity, Brent and Carbon Emissions markets. In particular, we develop trading strategies on synthetic variance and skew swaps... more
Using a model-independent approach from Kozhan et al. (2011), we estimate variance and skew risk premia for the Equity, Brent and Carbon Emissions markets. In particular, we develop trading strategies on synthetic variance and skew swaps to draw conclusions on the existence of variance and skew risk
premia. In the Equity market, we find signi cant variance and skew risk premia, whereas Brent exhibits a signi cant variance risk premium but an insigni cant skew risk premium. For the Emissions market, however, no signi cant risk premium is observed.
A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their... more
A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their activities should be. We compared the benefits of separated vs. universal banking modelled as a vertical integration of the retail and investment banks. The incidence of banking default is considered under different constellations of shocks and degrees of competitiveness. The benefits of universal banking rise in the volatility of idiosyncratic shocks to trading strategies and are positive even for very bad common shocks, even though government bailouts, which are costly, are larger compared to the case of separated banking entities. The welfare assessment of the structure of banks may depend crucially on the kinds of shock hitting the economy as well as on the efficiency of government intervention.
