|
on Central and Western Asia |
| By: | José Frederic Boissay; Fabrice Collard; Jordi Galí; Cristina Manea |
| Abstract: | We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course. |
| Keywords: | financial crisis, monetary policy. |
| JEL: | E1 E3 E6 G01 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:991&r= |
| By: | Clavin, P.; Corsetti, G.; Obstfeld, M.; Tooze, A. |
| Abstract: | Just over a century old, John Maynard Keynes’s The Economic Consequences of the Peace (1919) remains a seminal document of the twentieth century. At the time, the book was a prescient analysis of political events to come. In the decades that followed, this still controversial text became an essential ingredient in the unfolding of history. In this essay, we review the arc of experience since 1919 from the perspective of Keynes’s influence and his changing understanding of economics, politics, and geopolitics. We identify how he, his ideas, and this text became key reference points during times of turbulence as actors sought to manage a range of shocks. Near the end of his life, Keynes would play a central role in planning the world economy’s reconstruction after World War II. We argue that the “global order†that evolved since then, marked by increasingly polarized societies, leaves the community of nations ill prepared to provide key global public goods or to counter critical collective threats. |
| Keywords: | Keynes, World War I, Versailles, interwar period, League of Nations, World War II, Bretton Woods, Cold War, multilateralism, global order |
| JEL: | B30 E10 E30 F30 F40 N10 N20 |
| Date: | 2021–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2108&r= |
| By: | Savignac, Frédérique (Banque de France); Gautier, Erwan (Banque de France); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin) |
| Abstract: | Using a new survey of firms' inflation expectations in France, we provide novel evidence about the measurement and formation of inflation expectations on the part of firms. First, French firms report inflation expectations with a smaller, but still positive, bias than households and display less disagreement. Second, we characterize the extent and manner in which the wording of questions matters for the measurement of firms' inflation expectations. Third, we document whether and how the position of the respondent within the firm affects the provided responses. Fourth, because our survey measures firms' expectations about aggregate and firmlevel wage growth along with their inflation expectations, we are able to show that expectations about wages are even more condensed than firms' inflation expectations and almost completely uncorrelated with them, indicating that firms perceive little link between price and wage inflation. Finally, an experimental treatment indicates that an exogenous change in firms' inflation expectations has no effect on their aggregate wage expectations. |
| Keywords: | expectations, rational inattention, surveys, firms |
| JEL: | E2 E3 E4 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15069&r= |
| By: | Jaydip Sen; Saikat Mondal; Sidra Mehtab |
| Abstract: | Portfolio optimization has been a broad and intense area of interest for quantitative and statistical finance researchers and financial analysts. It is a challenging task to design a portfolio of stocks to arrive at the optimized values of the return and risk. This paper presents an algorithmic approach for designing optimum risk and eigen portfolios for five thematic sectors of the NSE of India. The prices of the stocks are extracted from the web from Jan 1, 2016, to Dec 31, 2020. Optimum risk and eigen portfolios for each sector are designed based on ten critical stocks from the sector. An LSTM model is designed for predicting future stock prices. Seven months after the portfolios were formed, on Aug 3, 2021, the actual returns of the portfolios are compared with the LSTM-predicted returns. The predicted and the actual returns indicate a very high-level accuracy of the LSTM model. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.02723&r= |
| By: | Jaydip Sen; Sidra Mehtab; Abhishek Dutta; Saikat Mondal |
| Abstract: | Portfolio design and optimization have been always an area of research that has attracted a lot of attention from researchers from the finance domain. Designing an optimum portfolio is a complex task since it involves accurate forecasting of future stock returns and risks and making a suitable tradeoff between them. This paper proposes a systematic approach to designing portfolios using two algorithms, the critical line algorithm, and the hierarchical risk parity algorithm on eight sectors of the Indian stock market. While the portfolios are designed using the stock price data from Jan 1, 2016, to Dec 31, 2020, they are tested on the data from Jan 1, 2021, to Aug 26, 2021. The backtesting results of the portfolios indicate while the performance of the CLA algorithm is superior on the training data, the HRP algorithm has outperformed the CLA algorithm on the test data. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.02728&r= |
| By: | Marianne Laurin; Pierre-Carl Michaud; Derek Messacar |
| Abstract: | Tax deductions on contributions to registered savings vehicles are a common policy tool used by governments in many industrialized countries to encourage people to save for retirement. However, these plans do not typically lock in funds, which means savers may also withdraw before retirement when their marginal tax rates are still high and forgo the tax benefit. In this paper, we investigate the extent to which pre-retirement savings withdrawals respond to changes in the net-of-tax benefit of withdrawing and whether such behavior depends on the saver’s financial literacy. To that end, we link respondents of a nationally representative financial capability survey from Canada to over 15 years of administrative tax data. Our results show that the correlation between savings withdrawals and the effective marginal tax rate is negative for those with higher financial literacy, but much weaker and sometimes statistically insignificant for those with lower financial literacy. The findings suggest that financial literacy is an important determinant of the extent to which tax-deductible savings plans are used efficiently. Les déductions fiscales sur les contributions aux véhicules d'épargne enregistrés sont un outil politique commun utilisé par les gouvernements de nombreux pays industrialisés pour encourager les gens à épargner pour leur retraite. Cependant, ces plans ne bloquent généralement pas les fonds, ce qui signifie que les épargnants peuvent également retirer leurs fonds avant la retraite lorsque leur taux d'imposition marginal est encore élevé et renoncer à l'avantage fiscal. Dans cet article, nous étudions dans quelle mesure les retraits d'épargne avant la retraite répondent à des changements dans l'avantage net d'impôt du retrait et si ce comportement dépend de la littératie financière de l'épargnant. À cette fin, nous relions les répondants d'une enquête sur les capacités financières représentative au niveau national au Canada à plus de 15 ans de données fiscales administratives. Nos résultats montrent que la corrélation entre les retraits d'épargne et le taux d'imposition marginal effectif est négative pour les personnes ayant une meilleure culture financière, mais beaucoup plus faible et parfois statistiquement non significative pour les personnes ayant une moindre culture financière. Les résultats suggèrent que la littératie financière est un déterminant important de la mesure dans laquelle les plans d'épargne déductibles de l'impôt sont utilisés efficacement. |
| Keywords: | tax-preferred savings accounts,retirement savings,financial literacy, comptes d'épargne à fiscalité privilégiée,épargne-retraite,éducation financière |
| JEL: | G53 G51 D14 |
| Date: | 2021–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2021s-36&r= |
| By: | Ferreira, M.; Haber, T.; Rörig, C. |
| Abstract: | Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, account for a larger total asset share compared to standard heterogeneous firms models, and exhibit a higher cyclical sensitivity, conditional on size. In light of these findings we reassess the importance of the firm distribution in shaping aggregate outcomes in the canonical model of heterogeneous firms with financial frictions. We augment the productivity process with ex-ante heterogeneity of firms, allowing us to match the distribution of constrained firms conditional on size. This, together with the fact that constrained firms have a higher capital elasticity, leads to up to four times larger aggregate fluctuations and capital misallocation. |
| Keywords: | Firm size, business cycle, financial accelerator |
| JEL: | E62 E22 E23 |
| Date: | 2021–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2110&r= |
| By: | Pengpeng Yue; Aslihan Gizem Korkmaz; Zhichao Yin; Haigang Zhou |
| Abstract: | This study focuses on the impact of digital finance on households. While digital finance has brought financial inclusion, it has also increased the risk of households falling into a debt trap. We provide evidence that supports this notion and explain the channel through which digital finance increases the likelihood of financial distress. Our results show that the widespread use of digital finance increases credit market participation. The broadened access to credit markets increases household consumption by changing the marginal propensity to consume. However, the easier access to credit markets also increases the risk of households falling into a debt trap. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09221&r= |
| By: | Shuo Sun; Rundong Wang; Xu He; Junlei Zhu; Jian Li; Bo An |
| Abstract: | Reinforcement learning (RL) techniques have shown great success in quantitative investment tasks, such as portfolio management and algorithmic trading. Especially, intraday trading is one of the most profitable and risky tasks because of the intraday behaviors of the financial market that reflect billions of rapidly fluctuating values. However, it is hard to apply existing RL methods to intraday trading due to the following three limitations: 1) overlooking micro-level market information (e.g., limit order book); 2) only focusing on local price fluctuation and failing to capture the overall trend of the whole trading day; 3) neglecting the impact of market risk. To tackle these limitations, we propose DeepScalper, a deep reinforcement learning framework for intraday trading. Specifically, we adopt an encoder-decoder architecture to learn robust market embedding incorporating both macro-level and micro-level market information. Moreover, a novel hindsight reward function is designed to provide the agent a long-term horizon for capturing the overall price trend. In addition, we propose a risk-aware auxiliary task by predicting future volatility, which helps the agent take market risk into consideration while maximizing profit. Finally, extensive experiments on two stock index futures and four treasury bond futures demonstrate that DeepScalper achieves significant improvement against many state-of-the-art approaches. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09058&r= |
| By: | Aguima Aimé Bernard Lompo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This study examines the effect of financial development on tax revenue mobilization in developing countries. Our empirical analysis uses the aggregate financial index that comprises the banking system's depth (size and activity), access, and efficiency of financial institutions and financial markets. Using panel data from developing countries over the period 1995-2017, our findings suggest that more developed financial sectors positively and significantly influence the government's ability to raise tax revenue. More interestingly, we find that this favorable effect is sensitive to developing countries characteristics, namely the level of economic development, the degree of financial openness and the stance of fiscal policies. When we more precisely look at the effects of disaggregated financial development components on tax revenues mobilization, we find that the estimated coefficients on the sub-components of financial development are statistically significant at least at 5 % of significance, except for the financial market's efficiency. The results denote that tax revenue in developing countries depends on financial institutions and financial markets. Finally, our results show that financial development contributes positively to tax revenue mobilization excluding resources. |
| Keywords: | Financial development,Economic growth |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cdiwps:hal-03328502&r= |
| By: | Daniel F. Garrett (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Lucas Maestri (FGV-EPGE - Universidad de Brazil) |
| Abstract: | We study competition by firms that simultaneously post (potentially nonlinear) taris to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms' oers. In the absence of regulation, all firms oer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms' profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective. |
| Keywords: | Asymmetric information,Informational frictions,Linear pricing,Nonlinear pricing,Oligopoly |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03515749&r= |
| By: | Pablo Fajgelbaum (Princeton University); Pinelopi K. Goldberg (Yale University); Patrick Kennedy (University of California, Berkeley); Amit Khandelwal (Columbia GSB); Daria Taglioni (World Bank) |
| Abstract: | We study global trade responses to the US-China trade war. We estimate the tariff impacts on product-level exports to the US, China, and rest of world. On average, countries decreased exports to China and increased exports to the US and rest of world. Most countries export products that complement the US and substitute China, and a subset operate along downward-sloping supplies. Heterogeneity in responses, rather than specialization, drives export variation across countries. Surprisingly, global trade increased in the products targeted by tariffs. Thus, despite ending the trend towards tariff reductions, the trade war did not halt global trade growth. |
| Keywords: | Conflicts, Globalization, United States, China, Trade disputes, Exports, International relations, Tariffs |
| JEL: | F10 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2020-56&r= |
| By: | Tarna Silue (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | The paper focuses on the relationship between economic growth and financial inclusion in developing countries. One of the main innovations of the analysis is to report on the contribution to developing new digital financial services such as mobile money. To do this, I first realize a simple endogenous growth model in which the role of the financial sector is to provide sources of investment to included population. The model indicates that consumption could be the main channel through financial inclusion, contributing to growth. Then, the empirical estimation realized using the Generalized Method of Moments (GMM) with 57 countries over 2007-2017 evaluates the impacts of traditional and digital inclusion on growth. The results confirm the positive effect of financial inclusion on growth. For formal inclusion, estimators reveal that the financial system deposits contribute to growth in developing countries. Concerning digital inclusion, we note that an active mobile money account has a higher positive impact on growth than standard inclusion. |
| Keywords: | Endogenous growth,Financial inclusion,Mobile money,GMM System |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cdiwps:hal-03281843&r= |
| By: | Argenton, Cedric (Tilburg University, School of Economics and Management); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, School of Economics and Management) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:bec182fc-5222-4ec2-9632-3369a281269f&r= |
| By: | Giuseppe Brandi; T. Di Matteo |
| Abstract: | Pricing derivatives goes back to the acclaimed Black and Scholes model. However, such a modeling approach is known not to be able to reproduce some of the financial stylized facts, including the dynamics of volatility. In the mathematical finance community, it has therefore emerged a new paradigm, named rough volatility modeling, that represents the volatility dynamics of financial assets as a fractional Brownian motion with Hurst exponent very small, which indeed produces rough paths. At the same time, prices' time series have been shown to be multiscaling, characterized by different Hurst scaling exponents. This paper assesses the interplay, if present, between price multiscaling and volatility roughness, defined as the (low) Hurst exponent of the volatility process. In particular, we perform extensive simulation experiments by using one of the leading rough volatility models present in the literature, the rough Bergomi model. A real data analysis is also carried out in order to test if the rough volatility model reproduces the same relationship. We find that the model is able to reproduce multiscaling features of the prices' time series when a low value of the Hurst exponent is used but it fails to reproduce what the real data say. Indeed, we find that the dependency between prices' multiscaling and the Hurst exponent of the volatility process is diametrically opposite to what we find in real data, namely a negative interplay between the two. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10466&r= |
| By: | Pınar Ceylan (Humboldt Universität zu Berlin); Metin M. Cosgel (University of Connecticut) |
| Abstract: | Economic historians of the Ottoman empire have recently made great progress in the study of quantitative data and the economy. They have used data from various sources, including tax registers, court records, and other types of surveys and financial accounts. Applying state of the art analytical techniques to the data, they have examined numerous interesting questions regarding the Ottoman economy, population, and institutions in regions ranging from Anatolia and the Balkans to Syria, Palestine, and Egypt in the south, Georgia in the east, and Hungary and Poland in the north. We offer a basic introduction to the literature by surveying important developments since the beginning of the twenty-first century. The survey shows that this area of research has become a mature subfield of both Ottoman history and economic history. |
| JEL: | N01 N13 N15 N23 N25 N33 N35 N43 N45 N53 N55 N63 N65 N73 N75 N83 N85 N93 N95 O52 O53 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2022-06&r= |
| By: | Alicia H. Munnell; Patrick Hubbard |
| Abstract: | This fall, the U.S. Social Security Administration is likely to announce that benefits will be increased by around 6 percent beginning January 1, 2022. This cost-of-living-adjustment (COLA), which would be the largest in 40 years, is an important reminder that keeping pace with inflation is one of the attributes that makes Social Security benefits such a unique source of retirement income. A spurt in inflation, however, affects two other factors that determine the net amount that retirees receive from Social Security. The first is the Medicare premiums for Part B, which are deducted automatically from Social Security benefits. To the extent that premiums rise faster than the COLA, the net benefit will not keep pace with inflation. The second issue pertains to taxation under the personal income tax. Because taxes are levied on Social Security benefits only for households with income above certain thresholds ($25,000 for single taxpayers and $32,000 for joint returns) and the thresholds are not adjusted for wage growth or inflation, rising benefit levels subject more benefits to taxation – again reducing the net benefit. This brief explores the interaction of inflation and Social Security benefits. The first section describes the nature of the COLA. The second section looks at the interaction of Medicare premiums and the COLA. The third section explores how inflation affects the taxation of benefits. The final section concludes that, while the inflation adjustment in Social Security is extremely valuable, the rise in Medicare premiums and the extension of taxation under the personal income tax limits the ability of beneficiaries to fully maintain their purchasing power. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2021-14&r= |
| By: | Carmina Fjellstr\"om |
| Abstract: | Performance forecasting is an age-old problem in economics and finance. Recently, developments in machine learning and neural networks have given rise to non-linear time series models that provide modern and promising alternatives to traditional methods of analysis. In this paper, we present an ensemble of independent and parallel long short-term memory (LSTM) neural networks for the prediction of stock price movement. LSTMs have been shown to be especially suited for time series data due to their ability to incorporate past information, while neural network ensembles have been found to reduce variability in results and improve generalization. A binary classification problem based on the median of returns is used, and the ensemble's forecast depends on a threshold value, which is the minimum number of LSTMs required to agree upon the result. The model is applied to the constituents of the smaller, less efficient Stockholm OMX30 instead of other major market indices such as the DJIA and S&P500 commonly found in literature. With a straightforward trading strategy, comparisons with a randomly chosen portfolio and a portfolio containing all the stocks in the index show that the portfolio resulting from the LSTM ensemble provides better average daily returns and higher cumulative returns over time. Moreover, the LSTM portfolio also exhibits less volatility, leading to higher risk-return ratios. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.08218&r= |
| By: | Jonathan A. Parker; Jake Schild; Laura Erhard; David Johnson |
| Abstract: | Using the Consumer Expenditure Survey and variation in amount, receipt, and timing of receipt of Economic Impact Payments (EIPs) authorized by the CARES Act, this paper estimates that people spent less of their EIPs in the few months following arrival than in similar previous policy episodes and than estimated by existing studies using other types of data. Accounting for volatility during the pandemic and comparing the consumer spending behavior of broadly similar households, people spent roughly 10 percent (standard error 3.4) of their EIPs on non-durable goods and services in the three months of arrival, with little evidence of additional spending in the subsequent three months or on durable goods. People who report mostly spending their EIPs spent 14.3\% (3.7) of their EIPs compared to 5.9\% (8.3) and -1.6\% (5.0) for those who report mostly paying off debt and saving respectively. People with low liquid wealth and people receiving their EIPs on debit cards spent at higher rates: 21.7\% (6.4) and 36.8\% (24.6) respectively, with economically larger estimates for total spending. |
| JEL: | D14 D15 E21 E62 G5 H31 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29648&r= |
| By: | Ron Kaniel; Zihan Lin; Markus Pelger; Stijn Van Nieuwerburgh |
| Abstract: | We show, using machine learning, that fund characteristics can consistently differentiate high from low-performing mutual funds, as well as identify funds with net-of-fees abnormal returns. Fund momentum and fund flow are the most important predictors of future risk-adjusted fund performance, while characteristics of the stocks that funds hold are not predictive. Returns of predictive long-short portfolios are higher following a period of high sentiment or a good state of the macro-economy. Our estimation with neural networks enables us to uncover novel and substantial interaction effects between sentiment and both fund flow and fund momentum. |
| JEL: | G0 G11 G23 G5 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29723&r= |
| By: | Christian Friedrich; Peter Selcuk |
| Abstract: | In this paper, we examine the impact of globalization and digitalization on the Phillips curve in a sample of 18 advanced economies over two decades. Using industry-level data from the World and EU KLEMS databases, we first estimate country-industry-specific Phillips curves for each decade by relating the growth rate of output prices to lagged inflation and an employment gap. We then assess the relative impact of globalization and digitalization on the slope coefficients of these Phillips curves, which represent the sensitivity of inflation to economic slack. We measure globalization by increases in trade and financial integration and digitalization by the use of industrial robots as a share of a country’s population. We find that globalization significantly reduces the slope of the Phillips curve, while digitalization has the opposite effect. We also find some evidence that globalization decreases the intercept of the Phillips curve and that digitalization increases it. Evidence for the impact of both trends on employment is less conclusive. When investigating the associated transmission channels for both trends in the context of our slope analysis, we find that the negative impact of globalization on the slope coefficient of the Phillips curve is muted in industries that experience a high growth rate of total factor productivity and that the positive impact of digitalization is muted in industries that have seen high investments in IT capital in the past. |
| Keywords: | Business fluctuations and cycles; Inflation and prices; International topics; Labour markets; Recent economic and financial developments; Trade integration |
| JEL: | E32 F6 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-7&r= |
| By: | MohammadReza Zahedian; Mahsa Bagherikalhor; Andrey Trufanov; G. Reza Jafari |
| Abstract: | Financial crises are known as crashes that result in a sudden loss of value of financial assets in large part and they continue to occur from time to time surprisingly. In order to discover features of the financial network, the pairwise interaction of stocks has been considered in many research, but the existence of the strong correlation of stocks and their collective behavior in crisis made us address higher-order interactions. Hence, in this study, we investigate financial networks by triplet interaction in the framework of balance theory. Due to detecting the contribution of higher-order interactions in understanding the complex behavior of stocks we take the advantage of the orders parameters of the higher-order interactions. Looking at real data of financial market obtained from $S\&P500$ through the lens of balance theory for the quest of network structure in different periods of time near and far from crisis reveals the existence of a structural difference of the network that corresponds to different periods of time. Here, we address two well-known crises the Great regression (2008) and the Covid-19 recession (2020). Results show an ordered structure forms on-crisis in the financial network while stocks behave independently far from a crisis. The formation of the ordered structure of stocks in crisis makes the network resistant against disorder. The resistance of the ordered structure against applying a disorder (temperature) can measure the crisis strength and determine the temperature at which the network transits. There is a critical temperature, $T_{c}$, in the language of statistical mechanics and mean-field approach which above, the ordered structure destroys abruptly and a first-order phase transition occurs. The stronger the crisis, the higher the critical temperature. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.03198&r= |
| By: | Marcus Rösch (Erasmus University Rotterdam); Michiel Gerritse (Erasmus University Rotterdam); Bas Karreman (Erasmus University Rotterdam); Frank van Oort (Erasmus University Rotterdam); Bart Loog (Statistics Netherlands) |
| Abstract: | We decompose the wage premium after foreign acquisitions of Dutch domestic firms into the con- stituent firm- and worker-level premia. Firm-level premia grow up to 3.5%, accounting for the major- ity of the acquisition premium. Worker-level premia by contrast, grow up to 1% and only materialize with delay, as the acquired firms hire workers with higher earnings capacity than domestic firms. Within firms, premia are also higher for workers with a relatively high earnings capacity. Though in- dustry variation and firm size class heterogeneity is considerable, the dominance of firm-level premia suggests that foreign acquisitions change firms beyond a workforce reshuffling. |
| Keywords: | multinational firms, foreign acquisition, wage components, labor mobility, matched employer-employee data, AKM |
| JEL: | J31 F23 G34 |
| Date: | 2022–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20220014&r= |
| By: | Motohiro Yogo (Princeton University and NBER); Andrew Whitten (U.S. Department of the Treasury); Natalie Cox (Princeton University) |
| Abstract: | We document new facts about bank and retirement account participation, based on the universe of U.S. households with a member aged 50 to 59 in administrative tax data. Financial participation is much higher than that reported in survey data, especially for low-income households. However, financial participation declines among low-income households from 2008 to 2018. Geographic variation in financial participation relates to income rather than racial composition or access to financial services. Based on instrumental variables, we estimate a large impact of access to employer retirement plans on retirement account participation for low- and middle-income households. |
| Keywords: | Financial participation, Household finance, Inequality, Racial disparities, Tax policy |
| JEL: | D14 G51 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-28&r= |
| By: | Isuru Ratnayake; V. A. Samaranayake |
| Abstract: | This paper introduces a Threshold Asymmetric Conditional Autoregressive Range (TACARR) formulation for modeling the daily price ranges of financial assets. It is assumed that the process generating the conditional expected ranges at each time point switches between two regimes, labeled as upward market and downward market states. The disturbance term of the error process is also allowed to switch between two distributions depending on the regime. It is assumed that a self-adjusting threshold component that is driven by the past values of the time series determines the current market regime. The proposed model is able to capture aspects such as asymmetric and heteroscedastic behavior of volatility in financial markets. The proposed model is an attempt at addressing several potential deficits found in existing price range models such as the Conditional Autoregressive Range (CARR), Asymmetric CARR (ACARR), Feedback ACARR (FACARR) and Threshold Autoregressive Range (TARR) models. Parameters of the model are estimated using the Maximum Likelihood (ML) method. A simulation study shows that the ML method performs well in estimating the TACARR model parameters. The empirical performance of the TACARR model was investigated using IBM index data and results show that the proposed model is a good alternative for in-sample prediction and out-of-sample forecasting of volatility. Key Words: Volatility Modeling, Asymmetric Volatility, CARR Models, Regime Switching. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.03351&r= |
| By: | Pegdéwendé Nestor Sawadogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | Fiscal policy is a powerful instrument to regulate the economic activity in order to address many development challenges and promote sound macroeconomic conditions in developing countries. A large literature examines the role of fiscal rules in improving fiscal outcomes. Fiscal rules impose numerical limits on budgetary aggregates. However, few studies investigate the link between fiscal rules and financial market access. This paper aims to explore the effects of various types of fiscal rules and their interactions on financial market access in developing countries. Our findings confirm that the adoption of fiscal rules is an instrument for policy makers to improve developing countries' financial market access. |
| Abstract: | La politique budgétaire est un instrument puissant pour réguler l'activité économique afin de faire face aux nombreux défis de développement et promouvoir des conditions macroéconomiques saines dans les pays en développement. Une vaste littérature examine le rôle de l'adoption des règles budgétaires dans l'amélioration des performances budgétaires. On entend par règles budgétaires des contraintes numériques sur les agrégats comme le déficit ou la dette publique. Cependant, très peu d'études ont exploré le lien entre l'adoption de règles budgétaires et l'accès aux marchés financiers internationaux. Cet article entend explorer à la fois les effets de l'adoption de différents types de règles budgétaires ainsi que leurs interactions sur l'accès aux marchés financiers par les pays en développement. Nos résultats montrent que l'adoption et la bonne mise en œuvre des règles budgétaires est un instrument permettant un meilleur accès aux marchés financiers internationaux. |
| Keywords: | Règles fiscales |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03514057&r= |
| By: | Zhiqin Zou (China University of Petroleum); Arash Farnoosh (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles); Tom Mcnamara (Rennes School of Business) |
| Abstract: | In order to implement or maintain a green supply chain (GSC) that produces goods and services responsibly and sustainably, supply chain managers should use tools that allow for the efficient identification, quantification, and mitigation of the ever‐present risks. The objective of the present research is to identify the risk factors associated with the processes involved in GSC management. Based on an analysis of the characteristics of GSC risk, the authors put forward a list of risk design principles and a risk criteria evaluation system for a GSC. Gray relation analysis method was then used to clarify the degree of connection between certain supply chain risk factors and select key risk factors. Finally, Back Propagation Artificial Neural Network (BP‐ANN) method was used to determine the risk level associated with a GSC. The determination of risk level will help companies to develop effective strategic management initiatives in a GSC environment. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03181313&r= |
| By: | 子, 鬼谷 |
| Abstract: | Purpose: The primary goal of this study is to look at the behavioral factors that influence an individual's decision to invest in the Pakistan Stock Exchange (PSX). Design/methodology/approach: Existing behavioral finance theories serve as a foundation for hypotheses. Further hypotheses were investigated by disseminating questionnaire results from a number of individual Pakistani investors. Brokerage and asset management fund managers were also questioned in semi-structured interviews. The obtained data were analyzed using statistical package for the social sciences, and latent variables were identified using the structural equation model (SEM) and an asset management operating system (AMOS). Findings: Individual investor investment decisions in the PSX are influenced by five behavioral factors: herding, market, prospect, overconfidence and gambler fallacy and anchoring-ability bias. The majority of the variables have a modest impact; however, the market component has a significant impact. Only three behavioral elements, herding, prospect and heuristic, are found to influence investment performance among the behavioral factors stated above. Heuristic habits have been discovered to have the greatest positive impact on investment performance. Practical implications: This study is one of the few in Pakistan that looked at the factors that influence stock investment decisions using behavioral finance. Prior research has only considered the effects of a restricted number of behavioral characteristics on Pakistani individual investors; however, this study seeks to use a whole collection of behavioral factors to examine their impacts on Pakistani individual investors. Research limitations: The focus of the study remains on the individual investor, whereas the impact of institutional investors on investment behavior could bring different outcomes. Originality/value: This is among the few studies that investigated the impact of cognitive factors on investment decisions in the context of Pakistan and will help policy makers, opinion makers and individuals. |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:rm9gu&r= |
| By: | Rafael R. S. Guimaraes |
| Abstract: | Limited datasets and complex nonlinear relationships are among the challenges that may emerge when applying econometrics to macroeconomic problems. This research proposes deep learning as an approach to transfer learning in the former case and to map relationships between variables in the latter case. Although macroeconomists already apply transfer learning when assuming a given a priori distribution in a Bayesian context, estimating a structural VAR with signal restriction and calibrating parameters based on results observed in other models, to name a few examples, advance in a more systematic transfer learning strategy in applied macroeconomics is the innovation we are introducing. We explore the proposed strategy empirically, showing that data from different but related domains, a type of transfer learning, helps identify the business cycle phases when there is no business cycle dating committee and to quick estimate a economic-based output gap. Next, since deep learning methods are a way of learning representations, those that are formed by the composition of multiple non-linear transformations, to yield more abstract representations, we apply deep learning for mapping low-frequency from high-frequency variables. The results obtained show the suitability of deep learning models applied to macroeconomic problems. First, models learned to classify United States business cycles correctly. Then, applying transfer learning, they were able to identify the business cycles of out-of-sample Brazilian and European data. Along the same lines, the models learned to estimate the output gap based on the U.S. data and obtained good performance when faced with Brazilian data. Additionally, deep learning proved adequate for mapping low-frequency variables from high-frequency data to interpolate, distribute, and extrapolate time series by related series. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.13380&r= |
| By: | Isaac Ehrlich; Yong Yin |
| Abstract: | We pursue a cross-country comparison of relative financial readiness of older households in Japan and the Republic of Korea relative to the US. Our comparative analysis, using macro-level and harmonized longitudinal household financial data, covers the principal financial channels of old age support: public and private pension plans, family support, and self-management of private financial portfolios. We find that while all three countries have similar public pension systems, older Americans benefit from more developed and better-funded public and private pension systems, as well as individual management of risky financial portfolios. We find that educational and health attainments of household heads and household wealth lead to a greater tendency to hold and manage risky assets. Our decomposition analysis also shows that the gap in stock ownership in Asian countries relative to the US is attributable to lower development levels of financial and pension markets. However, these gaps are shrinking more recently. |
| JEL: | G11 G12 G32 G51 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29649&r= |
| By: | Wan-Chien Chiu; Juan Ignacio Pe\~na; Chih-Wei Wang |
| Abstract: | We model systemic risk using a common factor that accounts for market-wide shocks and a tail dependence factor that accounts for linkages among extreme stock returns. Specifically, our theoretical model allows for firm-specific impacts of infrequent and extreme events. Using data on the four sectors of the U.S. financial industry from 1996 to 2011, we uncover two key empirical findings. First, disregarding the effect of the tail dependence factor leads to a downward bias in the measurement of systemic risk, especially during weak economic times. Second, when these measures serve as leading indicators of the St. Louis Fed Financial Stress Index, measures that include a tail dependence factor offer better forecasting ability than measures based on a common factor only. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.02276&r= |
| By: | Shi Bo |
| Abstract: | This paper aims to characterize the typical factual characteristics of financial market returns and volatility and address the problem that the tail characteristics of asset returns have been not sufficiently considered, as an attempt to more effectively avoid risks and productively manage stock market risks. Thus, in this paper, the fat-tailed distribution and the leverage effect are introduced into the SV model. Next, the model parameters are estimated through MCMC. Subsequently, the fat-tailed distribution of financial market returns is comprehensively characterized and then incorporated with extreme value theory to fit the tail distribution of standard residuals. Afterward, a new financial risk measurement model is built, which is termed the SV-EVT-VaR-based dynamic model. With the use of daily S&P 500 index and simulated returns, the empirical results are achieved, which reveal that the SV-EVT-based models can outperform other models for out-of-sample data in backtesting and depicting the fat-tailed property of financial returns and leverage effect. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09434&r= |
| By: | Henrique Guerreiro; Jo\~ao Guerra |
| Abstract: | The rBergomi model under the physical measure consists of modeling the log-variance as a truncated Brownian semi-stationary process. Then, a deterministic change of measure is applied. The rBergomi model is able to reproduce observed market SP500 smiles with few parameters, but by virtue of the deterministic change of measure, produces flat VIX smiles, in contrast to the upward sloping smiles observed in the market. We use the exact solution for a certain inhomogeneous fractional Ornstein-Uhlenbeck equation to build a regime switching stochastic change of measure for the rBergomi model that both yields upward slopping VIX smiles and is equipped with an efficient semi-analytic Monte Carlo method to price VIX options. The model also allows an approximation of the VIX, which leads to a significant reduction of the computational cost of pricing VIX options and futures. A variance reduction technique based on the underlying continuous time Markov chain allows us to further reduce the computational cost. We verify the capabilities of our model by calibrating it to observed market smiles and discuss the results. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10391&r= |
| By: | Robert Scott (Monmouth University) |
| Abstract: | This paper examines Kenneth Boulding's (1910-1993) religious beliefs and argues he was one of the most prolific religious economists in the 20 th century. He was an enigmatic economist whose career spanned over six decades. He helped to establish the field of general systems and furthered peace studies and conflict and defense. His early work earned him the John Bates Clark medal in 1949. But behind Boulding's theoretical economics was a deep religious ideology. Strongly affected by World War I while growing up in Liverpool, England, Boulding became a lifelong pacifist. Raised Methodist, Boulding discovered Quakerism in high school. While Boulding published widely in the field of economics, he also published almost 100 articles in Quaker journals. Boulding's body of work in economics and Quakerism led to interesting crosspollination. His work on peace and conflict and defense were a direct result of his pacifism. Boulding's work shows deep concern for human betterment and prosperity that is seeped in his religious principles. |
| Keywords: | human betterment,Kenneth Boulding,pacifism,Quakers,Religious Society of Friends |
| Date: | 2022–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03541619&r= |
| By: | Koichi Miyamoto |
| Abstract: | Finance is one of the promising field for industrial application of quantum computing. In particular, quantum algorithms for calculation of risk measures such as the value at risk and the conditional value at risk of a credit portfolio have been proposed. In this paper, we focus on another problem in credit risk management, calculation of risk contributions, which quantify the concentration of the risk on subgroups in the portfolio. Based on the recent quantum algorithm for simultaneous estimation of multiple expected values, we propose the method for credit risk contribution calculation. We also evaluate the query complexity of the proposed method and see that it scales as $\widetilde{O}\left(\sqrt{N_{\rm gr}}/\epsilon\right)$ on the subgroup number $N_{\rm gr}$ and the accuracy $\epsilon$, in contrast with the classical method with $\widetilde{O}\left(\log(N_{\rm gr})/\epsilon^2\right)$ complexity. This means that, for calculation of risk contributions of finely divided subgroups, the advantage of the quantum method is reduced compared with risk measure calculation for the entire portfolio. Nevertheless, the quantum method can be advantageous in high-accuracy calculation, and in fact yield less complexity than the classical method in some practically plausible setting. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.11394&r= |
| By: | Mauricio Jacobo Romero; Andr\'e Freitas |
| Abstract: | In this article, we analyse how decentralised digital infrastructures can provide a fundamental change in the structure and dynamics of organisations. The works of R.H.Coase and M. Olson, on the nature of the firm and the logic of collective action, respectively, are revisited under the light of these emerging new digital foundations. We also analyse how these technologies can affect the fundamental assumptions on the role of organisations (either private or public) as mechanisms for the coordination of labour. We propose that these technologies can fundamentally affect: (i) the distribution of rewards within an organisation and (ii) the structure of its transaction costs. These changes bring the potential for addressing some of the trade-offs between the private and public sectors. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.07666&r= |
| By: | Marcell T. Kurbucz; P\'eter P\'osfay; Antal Jakov\'ac |
| Abstract: | The goals of this paper are twofold: (1) to present a new method that is able to find linear laws governing the time evolution of Markov chains and (2) to apply this method for anomaly detection in Bitcoin prices. To accomplish these goals, first, the linear laws of Markov chains are derived by using the time embedding of their (categorical) autocorrelation function. Then, a binary series is generated from the first difference of Bitcoin exchange rate (against the United States Dollar). Finally, the minimum number of parameters describing the linear laws of this series is identified through stepped time windows. Based on the results, linear laws typically became more complex (containing an additional third parameter that indicates hidden Markov property) in two periods: before the crash of cryptocurrency markets inducted by the COVID-19 pandemic (12 March 2020), and before the record-breaking surge in the price of Bitcoin (Q4 2020 - Q1 2021). In addition, the locally high values of this third parameter are often related to short-term price peaks, which suggests price manipulation. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09790&r= |
| By: | Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, US; ICEA, Wilfrid Laurier University, Canada; Rimini Centre for Economic Analysis; ISET, TSU, Georgia); Tamir Mayer (Graduate School of Business Administration, Bar-Ilan University, Israel); Alon Raviv (Graduate School of Business Administration, Bar-Ilan University, Israel) |
| Abstract: | We study the economics and finance scholars' reaction to the 2008 financial crisis using machine learning language analyses methods of Latent Dirichlet Allocation and dynamic topic modelling algorithms, to analyze the texts of 14,270 NBER working papers covering the 1999–2016 period. We find that academic scholars as a group were insufficiently engaged in crises' studies before 2008. As the crisis unraveled, however, they switched their focus to studying the crisis, its causes, and consequences. Thus, the scholars were “slow-to-see,” but they were “fast-to-act.” Their initial response to the ongoing Covid-19 crisis is consistent with these conclusions. |
| Keywords: | Financial crisis, Economic Crisis, Great recession, NBER working papers, LDA textual analysis, Topic modeling, Dynamic Topic Modeling, Machine learning |
| JEL: | E32 E44 E50 F30 G01 G20 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:22-04&r= |
| By: | Julia Cage (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Valeria Rueda (University of Oxford [Oxford]) |
| Abstract: | While macro models increasingly incorporate substantial risk, the theoretical knowledge about the effect of uncertainty on consumption growth consists of intuitions from the second order log-linearized Euler equation. I show that the derivation of the log-linearized Euler equation is flawed in that it does not consist in linearizing an Euler equation but in linearizing an ad-hoc mathematical identity. I prove exactly that uncertainty raises consumption growth and makes consumption depart from a random walk. I also prove that this precautionary consumption growth is decreasing in assets, and in transitory and permanent income when income is a transitory-permanent process. |
| Keywords: | Precautionary behavior,Random walk hypothesis,Log-linearized Euler equation |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03393101&r= |
| By: | Anton J. Heckens; Thomas Guhr |
| Abstract: | Complex systems are usually non-stationary and their dynamics is often dominated by collective effects. Collectivity, defined as coherent motion of the whole system or of some of its parts, manifests itself in the time-dependent structures of covariance and correlation matrices. The largest eigenvalue corresponds to the collective motion of the system as a whole, while the other large, isolated, eigenvalues indicate collectivity in parts of the system. In the case of finance, these are industrial sectors. By removing the collective motion of the system as a whole, the latter effects are much better revealed. We measure a remaining collectivity to which we refer as average sector collectivity. We identify collective signals around the Lehman Brothers crash and after the dot-com bubble burst. For the Lehman Brother crash, we find a potential precursor. We analyze 213 US stocks over a period of more than 30 years from 1990 to 2021. We plot the average sector collectivity versus the collectivity corresponding to the largest eigenvalue to study the whole market trajectory in a two dimensional space spanned by both collectivities. Therefore, we capture the average sector collectivity in a much more precise way. Additionally, we observe that larger values in the average sector collectivity are often accompanied by trend shifts in the mean covariances and mean correlations. As of 2015/2016 the collectivity in the US stock markets changed fundamentally. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.00297&r= |
| By: | Maxime MERLI (LaRGE Research Center, Université de Strasbourg); Antoine PARENT (OFCE, Université Paris 8, LED & CAC-IXXI, ENS Lyon) |
| Abstract: | In this article we unearth the first real portfolios of French individual investors of the Belle Époque by reinvestigating the study of Des Essars and the comments of his contemporaries (Coste, Neymarck, and Leroy Beaulieu). The results are striking: we find strong elements of behavioral finance during the first era of financial globalization. Both the actual portfolios and the comments and advice of the financial analysts of the time reveal traces of behavioral finance and, more specifically, echo very clearly behavioral portfolio theory a century before its modeling. This discovery is important not only from the point of view of the historical depth of behavioral finance, but also for the persistence and legitimacy of the questions that behavioral finance has always addressed to standard finance. |
| Keywords: | Financial History, Individual Investors, Behavioral Finance, Behavioral Portfolio Theory. |
| JEL: | G11 G14 G15 N20 N23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2022-01&r= |
| By: | Taylan Kabbani (Ozyegin University; Huawei Turkey R&D Center); Fatih Enes Usta (Marmara University) |
| Abstract: | Predicting the stock market trend has always been challenging since its movement is affected by many factors. Here, we approach the future trend prediction problem as a machine learning classification problem by creating tomorrow_trend feature as our label to be predicted. Different features are given to help the machine learning model predict the label of a given day; whether it is an uptrend or downtrend, those features are technical indicators generated from the stock's price history. In addition, as financial news plays a vital role in changing the investor's behavior, the overall sentiment score on a given day is created from all news released on that day and added to the model as another feature. Three different machine learning models are tested in Spark (big-data computing platform), Logistic Regression, Random Forest, and Gradient Boosting Machine. Random Forest was the best performing model with a 63.58% test accuracy. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.12283&r= |
| By: | Zhe Wang; Nicolas Privault; Claude Guet |
| Abstract: | We present an algorithm for the calibration of local volatility from market option prices through deep self-consistent learning, by approximating market option prices and local volatility using deep neural networks. Our method uses the initial-boundary value problem of the underlying Dupire's partial differential equation solved by the parameterized option prices to bring corrections to the parameterization in a self-consistent way. By exploiting the differentiability of the neural networks, we can evaluate Dupire's equation locally at each maturity-strike pair; while by exploiting their continuity, we sample maturity-strike pairs uniformly from a given domain, going beyond the discrete points where the options are quoted. For comparison with existing approaches, the proposed method is tested on both synthetic and market option prices, which shows an improved performance in terms of repricing error, no violation of the no-arbitrage constraints, and smoothness of the calibrated local volatility. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.07880&r= |
| By: | Michael Sockin; Wei Xiong |
| Abstract: | We examine decentralization of digital platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to users, tokenization through utility tokens acts as a commitment device that prevents a platform from exploiting users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize participation to maximize the platform's network effect. This trade-off makes utility tokens a more appealing funding scheme than equity for platforms with weak fundamentals. The conflict reappears when non-users, such as token investors and validators, participate on the platform. |
| JEL: | G3 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29720&r= |
| By: | Andrea Ajello; Nina Boyarchenko; François Gourio; Andrea Tambalotti |
| Abstract: | This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit provision, lowers asset prices, and depresses economic activity and inflation. Finally, monetary policy may affect the buildup of vulnerabilities, but the sign of the impact along some of its transmission channels is theoretically ambiguous and may vary with the state of the economy. |
| Keywords: | Monetary policy; Asset prices; Financial stability; Financial crises; Credit; Leverage; Liquidity |
| JEL: | E44 E52 E58 G20 |
| Date: | 2022–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-05&r= |
| By: | Anastasia Cozarenco; Valentina Hartarska; Ariane Szafarz |
| Abstract: | The costs and benefits of subsidized microfinance are still controversial. We utilize a cost-function estimation approach that accounts for the double bottom line (social and financial) of microfinance institutions (MFIs) to evaluate how subsidies affect both cost efficiency and risk of mission drift. We control for endogenous self-selection into the business models of credit-only versus credit-plus-deposit. Our results suggest that MFIs that both supply loans and collect deposits need no subsidies to be cost-efficient. In addition, subsidies to these MFIs are associated with an increase in deposit size, which might hurt the most disadvantaged depositors. In sum, combining subsidized funds from donors with deposits increases the risk of mission drift, and can therefore be socially undesirable. |
| Keywords: | Finance; Microfinance; Cost Efficiency; Scale Economies; Subsidies |
| JEL: | O14 D24 G21 O16 F35 |
| Date: | 2022–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/340133&r= |
| By: | Ismael Choinière-Crèvecoeur; Pierre-Carl Michaud |
| Abstract: | High borrowing costs, limited knowledge and preferences could explain why few Canadians purchase reverse mortgages, an asset decumulation product that is appealing to those who are house-rich but cash-poor. In this paper, we first use an asset pricing model to calculate the actuarial fair costs of guarantees built into reverse mortgage products in Canada and compare those estimates to prevailing interest rates in the market for these products. We also investigate whether Canadians understand reverse mortgages and whether low demand originates on the preference side by conducting a stated-preference experiment with 3000 Canadians. We manipulate characteristics of reverse mortgages, including the interest rate, to tease out how sensitive Canadians are to these characteristics. Our results suggest that observed interest rates are high relative to actuarilly fair rates and that consumers are somewhat price sensitive in addition to demonstrating little knowledge of these products and low demand overall. Les coûts d'emprunt élevés, les connaissances et les préférences limitées pourraient expliquer pourquoi peu de Canadiens achètent des prêts hypothécaires inversés, un produit de décumulation d'actifs qui est attrayant pour ceux qui sont riches en maison mais pauvres en argent. Dans ce document, nous utilisons d'abord un modèle d'évaluation des actifs pour calculer les coûts actuariels équitables des garanties intégrées aux produits de prêts hypothécaires inversés au Canada et nous comparons ces estimations aux taux d'intérêt en vigueur sur le marché pour ces produits. Nous cherchons également à savoir si les Canadiens comprennent les prêts hypothécaires inversés et si la faible demande provient du côté des préférences en menant une expérience de préférence déclarée avec 3000 Canadiens. Nous manipulons les caractéristiques des prêts hypothécaires inversés, notamment le taux d'intérêt, afin de déterminer dans quelle mesure les Canadiens sont sensibles à ces caractéristiques. Nos résultats suggèrent que les taux d'intérêt observés sont élevés par rapport aux taux actuariellement équitables et que les consommateurs sont quelque peu sensibles aux prix, en plus de démontrer une faible connaissance de ces produits et une faible demande globale. |
| Keywords: | reverse mortgages,savings,retirement planning,insurance, prêts hypothécaires inversés,épargne,planification de la retraite,assurances |
| JEL: | G21 R21 |
| Date: | 2021–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2021s-38&r= |
| By: | Joel Wagner; Tudor Schlanger; Yang Zhang |
| Abstract: | We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada’s adoption of inflation targeting. We use the model to provide a quantitative assessment of the macroeconomic impact of flexible inflation targeting and some alternative m2netary policy regimes. These alternative monetary policy regimes are average-inflation targeting, price-level targeting and nominal gross domestic product level targeting. We consider these regimes’ performance with and without an effective lower bound constraint. Our results suggest that the performance of history-dependent frameworks is sensitive to departures from rational expectations. The benefits of adopting history-dependent frameworks over flexible inflation targeting gradually diminish with a greater degree of bounded rationality. This finding is in line with laboratory experiments that show flexible inflation targeting remains a robust framework to stabilize macroeconomic fluctuations. |
| Keywords: | Central bank research; Economic models; Monetary policy framework; Monetary policy transmission |
| JEL: | E E27 E3 E4 E58 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:22-4&r= |
| By: | Sergio Mayordomo; Mar\'ia Rodriguez-Moreno; Juan Ignacio Pe\~na |
| Abstract: | This paper studies the investment decision of the Spanish households using a unique data set, the Spanish Survey of Household Finance (EFF). We propose a theoretical model in which households, given a fixed investment in housing, allocate their net wealth across bank time deposits, stocks, and mortgage. Besides considering housing as an indivisible and illiquid asset that restricts the portfolio choice decision, we take into account the financial constraints that households face when they apply for external funding. For every representative household in the EFF we solve this theoretical problem and obtain the theoretically optimal portfolio that is compared with households' actual choices. We find that households significantly underinvest in stocks and deposits while the optimal and actual mortgage investments are alike. Considering the three types of financial assets at once, we find that the households headed by highly financially sophisticated, older, retired, richer, and unconstrained persons are the ones investing more efficiently. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.02280&r= |
| By: | Joshua Angrist |
| Abstract: | The view that empirical strategies in economics should be transparent and credible now goes almost without saying. The local average treatment effects (LATE) framework for causal inference helped make this so. The LATE theorem tells us for whom particular instrumental variables (IV) and regression discontinuity estimates are valid. This lecture uses several empirical examples, mostly involving charter and exam schools, to highlight the value of LATE. A surprising exclusion restriction, an assumption central to the LATE interpretation of IV estimates, is shown to explain why enrollment at Chicago exam schools reduces student achievement. I also make two broader points: IV exclusion restrictions formalize commitment to clear and consistent explanations of reduced-form causal effects; compelling applications demonstrate the power of simple empirical strategies to generate new causal knowledge. |
| JEL: | B23 I21 I28 J13 J22 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29726&r= |
| By: | Benjamin Poignard; Manabu Asai |
| Abstract: | Although multivariate stochastic volatility models usually produce more accurate forecasts compared to MGARCH models, their estimation techniques such as Bayesian MCMC typically suffer from the curse of dimensionality. We propose a fast and efficient estimation approach for MSV based on a penalized OLS framework. Specifying the MSV model as a multivariate state-space model, we carry out a two-step penalized procedure. We provide the asymptotic properties of the two-step estimator and the oracle property of the first-step estimator when the number of parameters diverges. The performances of our method are illustrated through simulations and financial data. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.08584&r= |
| By: | John Edward Sabelhaus; Jeffrey P. Thompson |
| Abstract: | In this paper, we present updated measures of racial disparities in wealth using the most recent data from the Survey of Consumer Finances (SCF), augmented by household-level estimates of defined benefit (DB) pension wealth developed by Sabelhaus and Volz (2020). Including this important asset, we find that racial wealth disparities are smaller than the numbers typically discussed in other research or in the media, but the disparities remain substantial. The paper proceeds by exploring two specific factors that have long been identified as playing potentially important roles in generating disparities in wealth by race, namely differences in earnings (education/human capital) and intergenerational transfers in the form of inheritances and inter vivos gifts. We contribute to the existing literature by introducing several data innovations in the exploration of these factors using the SCF. We augment the SCF data with individual-level lifetime earnings histories (developed by Jacobs et al. 2020, 2021) and enhanced measures of intergenerational transfers (developed by Feiveson and Sabelhaus 2018, 2019). We also create an expanded set of variables that reflect the range of pension coverage and generosity across workers. With all three of these new data components, we use non-parametric decomposition techniques to estimate their contributions to racial wealth gaps between white and non-white families. Differences in lifetime earnings, pension generosity, and a handful of other human capital and work-related variables explain three-quarters of the white/Black wealth gap and 80 to 90 percent of the white/Hispanic gap. Reweighting white family wealth to match the distribution of human capital traits of families of “other” races (including Asian, Native American and other groups) raises counterfactual white wealth to the level of “other” family wealth, nearly closing the white/“other” gap. Differences in intergenerational transfers are found to account for 13 to 16 percent of white/non-white private wealth gaps, although much of the influence of these transfers likely works through the human capital channel. Policies that successfully increase skills, employment, earnings, and pension coverage among low-wealth Black and Hispanic families will make important contributions to closing wealth gaps. |
| Keywords: | racial wealth gap; inequality; human capital; lifetime earnings; retirement plans; pensions; inheritance |
| JEL: | D31 D14 D63 J15 J24 J32 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93709&r= |
| By: | Jean-François Bonnefon; Augustin Landier; Parinitha R. Sastry; David Thesmar |
| Abstract: | We characterize investors’ moral preferences in a parsimonious experimental setting, where we auction stocks with various ethical features. We find strong evidence that investors seek to align their investments with their social values (“value alignment”), and find no evidence of behavior driven by the social impact of investment decisions (“impact-seeking preferences”). First, the willingness to pay for a stock is a linear function of corporate externalities, and is symmetric for positive or negative externalities. Second, whether charity transfers are contingent or independent on investors buying the auctioned stock does not affect their WTP. Our results are thus compatible with a utility model where non-pecuniary benefits of firms’ externalities only accrue through stock ownership, not through the actual impact of investment decisions. Finally, non-pecuniary preferences are linear and additive: willingness to pay for social externalities is proportional to the expected sum of charity transfers made by firms (even if some of these donations are negative). |
| JEL: | G11 G41 M14 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29647&r= |
| By: | Klaus Adam; Stefan Nagel |
| Abstract: | Asset prices reflect investors' subjective beliefs about future cash flows and prices. In this chapter, we review recent research on the formation of these beliefs and their role in asset pricing. Return ex- pectations of individual and professional investors in surveys differ markedly from those implied by rational expectations models. Vari- ation in subjective expectations of future cash flows and price lev- els appear to account for much of aggregate stock market volatility. Mapping the survey evidence into agent expectations in asset pricing models is complicated by measurement errors and belief heterogene- ity. Recent e¤orts to build asset pricing models that match the survey evidence on subjective belief dynamics include various forms of learn- ing about payout or price dynamics, extrapolative expectations, and diagnostic expectations. Challenges for future research include the exploration of subjective risk perceptions, aggregation of measured beliefs, and links between asset market expectations and the macro- economy. |
| Keywords: | Investor beliefs, survey forecasts, return expectations, cash flow expectations, belief formation, asset price dynamics |
| JEL: | G12 G41 E71 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_337&r= |
| By: | Igor Nesiolovskiy |
| Abstract: | This paper proposes a method for ranking the investment attractiveness of exchange-traded stocks where investment risk is not related to the volatility indicator but instead is related to the indicator of compression of the time series of price changes. The article describes in detail the ranking algorithm, provides an example of ranking the shares of all companies included in the Dow Jones stock index. The paper additionally compares the results of ranking these stocks by volatility and compression and also shows the strengths of the second indicator, which is formed using the method of binary-ternary compression of historical financial data. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.11507&r= |
| By: | Yulin Liu; Luyao Zhang |
| Abstract: | Currently, there are no convincing proxies for the fundamentals of cryptocurrency assets. We propose a new market-to-fundamental ratio, the price-to-utility (PU) ratio, utilizing unique blockchain accounting methods. We then proxy various fundamental-to-market ratios by Bitcoin historical data and find they have little predictive power for short-term bitcoin returns. However, PU ratio effectively predicts long-term bitcoin returns. We verify PU ratio valuation by unsupervised and supervised machine learning. The valuation method informs investment returns and predicts bull markets effectively. Finally, we present an automated trading strategy advised by the PU ratio that outperforms the conventional buy-and-hold and market-timing strategies. We distribute the trading algorithms as open-source software via Python Package Index for future research. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.12893&r= |
| By: | Prendergast, Michael |
| Abstract: | This paper describes a methodology for estimating safe withdrawal rates during retirement that is based on a retiree’s age, risk tolerance and investment strategy, and then provides results obtained from using that methodology. The estimates are generated by a three-step process. In the first step, Monte Carlo simulations of future inflation rates, 10-year treasury rates, corporate bond rates (AAA and BAA), the S&P 500 index values and S&P 500 dividend yields are performed. In the second step, portfolio composition and withdrawal rate combinations are evaluated against each of the Monte Carlo simulations in order to calculate portfolio longevity likelihood tables, which are tables that show the likelihood that a portfolio will survive a certain number of years for a given withdrawal rate. In the third and final step, portfolio longevity tables are compared with standard mortality tables in order to estimate the likelihood that the portfolio outlasts the retiree. This three-step approach was then applied using both a Monte Carlo random walk model and an ARIMA/GARCH model based upon over 100 years of monthly historical data. The end result was estimates of the likelihood of portfolio survival to mortality for over 500,000 retiree age/sex/portfolio/withdrawal rate combinations, each combination supported by at least 10,000 Monte Carlo economic simulation points per model. Both models are supported by 100 years of historical data. The first model is a random walk with step sizes determined by bootstrapping, and the second is an ARIMA/GARCH regression model. This data is analyzed to predict safe withdrawal rates and portfolio composition strategies appropriate for the late 2021 economic environment. |
| Date: | 2022–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:jd2xg&r= |
| By: | B. N. Kausik |
| Abstract: | We argue that the recent growth in income inequality is driven by disparate growth in investment income rather than by disparate growth in wages. Specifically, we present evidence that wages are flat across a range of professions, doctors, software engineers, auto mechanics and cashiers, while stock ownership favors higher education and income levels. Artificial Intelligence and automation allocate an increased share of job tasks towards capital and away from labor. The rewards of automation accrue to capital, and are reflected in the growth of the stock market with several companies now valued in the trillions. We propose a Deferred Investment Payroll plan to enable all workers to participate in the rewards of automation and analyze the historical performance of such a plan. JEL Classification: J31, J33, O33 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10726&r= |
| By: | Anindya Goswami; Kedar Nath Mukherjee; Irvine Homi Patalwala; Sanjay N. S |
| Abstract: | In the regime switching extension of Black-Scholes-Merton model of asset price dynamics, one assumes that the volatility coefficient evolves as a hidden pure jump process. Under the assumption of Markov regime switching, we have considered the locally risk minimizing price of European vanilla options. By pretending these prices or their noisy versions as traded prices, we have first computed the implied volatility (IV) of the underlying asset. Then by performing several numerical experiments we have investigated the dependence of IV on the time to maturity (TTM) and strike price of the vanilla options. We have observed a clear dependence that is at par with the empirically observed stylized facts. Furthermore, we have experimentally validated that IV time series, obtained from contracts with moneyness and TTM varying in particular narrow ranges, can recover the transition instances of the hidden Markov chain. Such regime recovery has also been proved in a theoretical setting. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10304&r= |
| By: | Gu, Ke; Stoyanov, Andrey |
| Abstract: | We study the effect of spatial variation in female labor supply on international trade flows. We identify the set of gender-specific skills and argue that low female labor supply reduces the endowment of female-oriented skills and undermines comparative advantage in industries which use female labor intensively. We confirm this hypothesis using two different settings. First, we show that countries with low female labor supply, measured by female labor force participation, have comparative disadvantage in female-labor-intensive industries. To establish causality, we instrument female labor supply with cross-country differences in cultural values regarding the role of women in society. Second, we confirm the main hypothesis on trade data from Chinese regions. Using spatial variation in sex ratios resulting from the One Child Policy (OCP), we rely on the stringency of OCP as an exogenous female labor supply shifter. Other things equal, regions with higher female population share specialize in industries which use female labor intensively. We interpret our results as highlighting the importance of labor force gender composition for industry's productivity. Our results imply that the effect of gender imbalances in labor supply on labor market outcomes, observed in many parts of the world, can be mitigated through international trade by utilizing relatively abundant type of labor in export-oriented industries. |
| Keywords: | Female labor supply, comparative advantage, international trade, gender-dependent skills, China's one child policy, altered sex ratios |
| JEL: | F14 F16 J24 |
| Date: | 2022–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111778&r= |
| By: | Takanobu Mizuta |
| Abstract: | Commodity trading advisors (CTAs), who mainly trade commodity futures, showed good returns in the 2000s. However, since the 2010's, they have not performed very well. One possible reason of this phenomenon is the emergence of short-term reversal traders (STRTs) who prey on CTAs for profit. In this study, I built an artificial market model by adding a CTA agent (CTAA) and STRT agent (STRTA) to a prior model and investigated whether emerging STRTAs led to a decrease in CTAA revenue to determine whether STRTs prey on CTAs for profit. To the contrary, my results showed that a CTAA and STRTA are more likely to trade and earn more when both exist. Therefore, it is possible that they have a mutually beneficial relationship. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.01423&r= |
| By: | Kristian Blickle (Federal Reserve Bank of New York); Markus Brunnermeier (Princeton University); Stephan Luck (Federal Reserve Bank of New York) |
| Abstract: | We use the German Crisis of 1931, one of the largest bank runs in financial history, to study how depositors behave in the absence of deposit insurance. We find that banks lose on average around 25% of their overall deposit funding during the run and that there is an equal outflow of retail and non-financial wholesale deposits from both ex-post failing and surviving banks. This implies that regular depositors are unable to identify failing banks. In contrast, the interbank market precisely identifies which banks will fail: the interbank market collapses for failing banks entirely but it continues to function for surviving banks, which can borrow from other banks in response to deposit outflows. We argue that since regular depositors appear uninformed it is unlikely that deposit insurance would exacerbate moral hazard. Instead, interbank depositors are best positioned for providing "discipline" via short-term funding. |
| Keywords: | financial crises, banks, Germany |
| JEL: | G01 G21 N20 N24 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-5&r= |
| By: | Daoud, Adel |
| Abstract: | Enabling children to acquire an education is one of the most effective means to reduce inequality, poverty, and ill-health globally. While in normal times a government controls its educational policies, during times of macroeconomic instability, that control may shift to supporting international organizations, such as the International Monetary Fund (IMF). While much research has focused on which sectors has been affected by IMF policies, scholars have devoted little attention to the policy content of IMF interventions affecting the education sector and children’s education outcomes: denoted IMF-education policies. This article evaluates the extent which IMF-education policies exist in all programs and how these policies and IMF programs affect children’s likelihood of completing schools. While IMF-education policies have a small adverse effect yet statistically insignificant on children’s probability of completing school, these policies moderate effect heterogeneity for IMF programs. The effect of IMF programs (joint set of policies) adversely effect children’s chances of completing school by six percentage points. By analyzing how IMF-education policies but also how IMF programs affect the education sector in low- and middle-income countries, scholars will gain a deeper understanding of how such policies will likely affect downstream outcomes. |
| Date: | 2021–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:kbc34&r= |
| By: | Singh, Sunny; Jha, Chandan |
| Abstract: | This paper studies the association between financial development, financial stability, and poverty for a sample of 136 developed and developing countries over the period 1995-2018. Most of the existing studies in this literature have focused on financial development. Few recent studies have looked at the effects of financial stability. However, none of the existing studies has looked at the interaction effect of the two on poverty. Our contribution to this literature is manifold. First and foremost, we investigate whether financial development and financial stability are substitutes or complement in reducing poverty and find evidence in favour of the former: financial development has greater effects on poverty alleviation in a more fragile financial system and vice-versa. Second, using two different measures of financial stability, we show that financial stability is associated with lower levels of poverty. And, finally, while previous studies have presumed that the effect of financial development on poverty is homogeneous at various levels of poverty, we show that financial development and financial stability both have heterogeneous effects on poverty depending on the level of poverty considered. |
| Keywords: | Financial Development; Financial Stability; Poverty Gap Ratio; Panel Quantile Regression |
| JEL: | G20 I30 O1 O11 |
| Date: | 2021–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111615&r= |
| By: | Chen, Eric R. |
| Abstract: | As cryptocurrencies develop and circulate at greater rates, countries have appeared to consider the technology as an adoptable medium of exchange. By expanding the influence of cryptocurrencies through adoption, countries raise its impact on the global economy. This paper is the first to apply an augmented version of the gravity model to examine the effects of global cryptocurrency adoption on international trade. This empirical study involves aggregating datasets on U.S. bilateral trade flows, gravity variable statistics, and the adoption of cryptocurrencies. In application of the gravity model, regression analyses are used on the aggregated data to test the magnitude of cryptocurrencies’ impact on trade. Based on the overall findings, the variables for cryptocurrency adoption produce negative coefficients suggesting a negative correlation between the adoption of cryptocurrencies and international trade. The central tendency in the empirical evidence offers the interpretation that countries with weak institutions to promote trade are more likely to adopt cryptocurrencies resulting in a negative association between cryptocurrency adoption and trade. |
| Date: | 2021–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:cefj9&r= |
| By: | Raj, Vijay |
| Abstract: | This paper explores the use of nudge theory within governments and performs a pragmatic evaluation of its adoption by policymakers from an ethical point of view. While most critics argue against the use of nudge theory by governments from an academic or philosophical standpoint, this paper examines the use of nudge theory as one of the many tools available for policymakers and adopts a pragmatic approach. The paper concludes by calling for a governance structure that addresses the ethical concerns and ensures the ethical application of nudge theory through the development of an ethical nudge. |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:q79ku&r= |
| By: | George Bouzianis; Lane P. Hughston; Leandro S\'anchez-Betancourt |
| Abstract: | We consider a pair of traders in a market where the information available to the second trader is a strict subset of the information available to the first trader. The traders make prices based on the information available concerning a security that pays a random cash flow at a fixed time $T$ in the future. Market information is modelled in line with the scheme of Brody, Hughston & Macrina (2007, 2008) and Brody, Davis, Friedman & Hughston (2009). The risk-neutral distribution of the cash flow is known to the traders, who make prices with a fixed multiplicative bid-offer spread and report their prices to a game master who declares that a trade has been made when the bid price of one of the traders crosses the offer price of the other. We prove that the value of the first trader's position is strictly greater than that of the second. The results are analyzed by use of simulation studies and generalized to situations where (a) there is a hierarchy of traders, (b) there are multiple successive trades, and (c) there is inventory aversion. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.08875&r= |
| By: | Sakib, S M Nazmuz |
| Abstract: | In varied economics laws, inflation and interest rates are a standard reference of the economy. to place it merely, once interest rates fall, a lot of people and establishments will borrow extra money from banks and alternative lenders. Rising and rising interest rates push customers into saving mode as a result of the next come on savings. This leaves customers with less financial gain to pay that slows the economy and, as a result, lowers inflation. This relationship shapes up to date financial policies associated is that the most powerful consider the direction of an economy. this suggests that variable interest rates and inflation have a linear combination which will be shapely as economic potency. |
| Date: | 2021–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:xfypj&r= |
| By: | Marcin Pitera; Thorsten Schmidt |
| Abstract: | While the estimation of risk is an important question in the daily business of banking and insurance, many existing plug-in estimation procedures suffer from an unnecessary bias. This often leads to the underestimation of risk and negatively impacts backtesting results, especially in small sample cases. In this article we show that the link between estimation bias and backtesting can be traced back to the dual relationship between risk measures and the corresponding performance measures, and discuss this in reference to value-at-risk, expected shortfall and expectile value-at-risk. Motivated by the consistent underestimation of risk by plug-in procedures, we propose a new algorithm for bias correction and show how to apply it for generalized Pareto distributions to the i.i.d.\ setting and to a GARCH(1,1) time series. In particular, we show that the application of our algorithm leads to gain in efficiency when heavy tails or heteroscedasticity exists in the data. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10454&r= |