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on Financial Markets |
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Issue of 2005‒09‒17
ten papers chosen by |
| By: | Ahmed Shamiri (University Kebangsaan Malaysia); Abu Hassan (University Kebangsaan Malaysia) |
| Abstract: | This paper examines and estimate the three GARCH(1,1) models (GARCH, EGARCH and GJR-GARCH) using the daily price data. Two Asian stock indices KLCI and STI are studied using daily data over a 14-years period. The competing Models include GARCH, EGARCH and GJR-GARCH used with three different distributions, Gaussian normal, Student-t, Generalized Error Distribution. The estimation results show that the forecasting performance of asymmetric GARCH Models (GJR-GARCH and EGARCH), especially when fat-tailed asymmetric densities are taken into account in the conditional volatility, is better than symmetric GARCH. Moreover, its found that the AR(1)-GJR model provide the best out-of- sample forecast for the Malaysian stock market, while AR(1)-EGARCH provide a better estimation for the Singaporean stock market. |
| Keywords: | ARCH-Models, Asymmetry, Stock market indices and volatility modeling, SAS/ETS software. |
| JEL: | C1 C2 C3 C4 C5 C8 |
| Date: | 2005–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0509015&r=fmk |
| By: | Prasad V. Bidarkota (Department of Economics, Florida International University); Brice V. Dupoyet (Department of Finance, Florida International University); J. Huston McCulloch (Department of Economics, Ohio State University) |
| Abstract: | We study a consumption based asset pricing model with incomplete information and alpha-stable shocks. Incomplete information leads to a non-Gaussian filtering problem. Bayesian updating generates fluctuating confidence in the agents' estimate of the persistent component of the dividends’ growth rate. Similar results are obtained with alternate distributions exhibiting fat tails (Extreme Value distribution, Pearson Type IV distribution) while they are not with a thin-tail distribution (Binomial distribution). This has the potential to generate time variation in the volatility of model-implied returns, without relying on discrete shifts in the drift rate of dividend growth rates. A test of the model using US consumption data indicates strong support in the sense that the implied returns display significant volatility persistence of a magnitude comparable to that in the data. |
| Keywords: | asset pricing, incomplete information, time-varying volatility, fat tails, stable distributions |
| JEL: | G12 G13 E43 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:0514&r=fmk |
| By: | Felici Roberto (BOLOGNA); Pagnini Marcello (BOLOGNA) |
| Abstract: | We examine the determinants of entry into Italian local banking markets during the period 1991-2002 and build a simple model in which the probability of branching in a new market depends on the features of both the local market and the potential entrant. Our econometric findings show that, all else being equal, banks are more likely to expand into those markets that are closest to their pre-entry locations. We also find that large banks are more able to cope with distance-related entry costs than small banks. Finally, we show that banks have become increasingly able to open branches in distant markets, probably due to the advent of information and communication technologies. |
| Keywords: | entry, barriers to entry, local banking markets, geographical distance. |
| JEL: | G21 L13 L22 R30 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_557_05&r=fmk |
| By: | Rasmus Fatum (School of Business, University of Alberta); Michael R. King (Financial Markets Department, Bank of Canada, Ottawa) |
| Abstract: | This paper analyzes official, high-frequency Bank of Canada intervention and exchange rate data (the latter quoted at the end of every 5-minute interval over every 24-hour period) over the January 1995 to September 1998 time-period. The data is of particular interest as it spans over two distinctly different intervention regimes – one characterized by purely rules-based (“mechanistic”) intervention versus one characterized by both rules-based and discretionary intervention. This unique feature of the data allows for both a comparison of the effects of rules-based version discretionary intervention and a general investigation of intraday effects of intervention. Employing an event-study methodology and three different criteria for success, the study presents strong evidence showing that intervention systematically affects movements in the CAD/USD and in the desired direction along with some evidence that intervention is associated with a reduction of exchange rate volatility. Interestingly, there is no indication that discretionary intervention is more effective than rules-based intervention. |
| Keywords: | foreign exchange intervention; intraday data; event studies; currency co-movement |
| JEL: | E58 F31 G14 G15 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-06&r=fmk |
| By: | Michael Funke; Jörg Rahn |
| Abstract: | Given that the value of China´s currency has been hot topic recently, this paper explores the equilibrium levels of China´s real and nominal exchange rates. Employing a Johansen cointegration framework, we focus on the behavioral equilibrium exchange rate (BEER) and permanent equilibrium exchange rate (PEER) models. Our results suggest that, while the renminbi is somewhat undervalued against the dollar, the misalignment is not nearly as exaggerated as many popular claims. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:ham:qmwops:20504&r=fmk |
| By: | Ruben Lee |
| Abstract: | This paper analyses the factors influencing whether a European Securities and Exchange Commission (ESEC) will be created and confirms the primary role that politics will play in its establishment. In the face of growing support for an ESEC, the paper recommends a strategy the UK should adopt towards the creation of such an institution. It is proposed that the UK adopt a three-pronged approach. First, the UK must, as it currently does, support the Lamfalussy Process in the hope that it works. Second, the UK must determine what criteria need to be assessed in order to evaluate whether the Lamfalussy Process together with the Financial Services Action Plan are in fact harming UK interests, and then make such an evaluation. Finally, if political support for an ESEC becomes unstoppable, the UK should negotiate for the creation of an appropriately structured ESEC – even though its backing for the Lamfalussy Process should logically preclude its support for any type of ESEC. A key attribute of the recommended strategy is thus that it is inconsistent. This is not, however, thought a problem. On the contrary, given that the creation of an ESEC is the stuff of politics and thus that a political response is called for, and given that other key participants’ policies on the creation of an ESEC are themselves inconsistent, the strategy proposed is argued as being not only constructive, but indeed rational. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp161&r=fmk |
| By: | Mardi Dungey; Jan P.A.M. Jacobs; Lestano |
| Abstract: | This paper develops concordance indices for studying the simultaneous occurrence of financial crises. The indices are designed to cope with these typically low incidence events. This leads us to confine attention to non-tranquil periods to develop a bivariate index and its multivariate analog for potentially serially correlated categorical data. An application to the Bordo et al (2001) data set reveals the extent of concordance in banking and currency crises across countries. The internationalisation of financial crises in the 20th century is shown to have increased for currency crises and decreased for banking crises. |
| JEL: | F31 F47 N20 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-19&r=fmk |
| By: | Chakravarty Sujoy; Harrison Glenn W; Haruvy Ernan E; Rutstrom Elisabet E |
| Abstract: | Abstract. Decisions with uncertain outcomes are often made by one party in settingswhere another party bears the consequences. Whenever an agent is delegated tomake decisions that affect others, such as in the typical corporate structure, does theagent make decisions that reflect the risk preferences of the principal? We examinethis question in the simplest possible setting using controlled laboratory experiments.We find a remarkable result: when an individual makes a decision for an anonymousstranger, he tends to exhibit less risk aversion. This reduction is relative to his ownpreferences, and also relative to his belief about the other’s preferences. This resulthas significant implications for the design of contracts between principals and agents. |
| Date: | 2005–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2005-08-04&r=fmk |
| By: | Thomas Dohmen (IZA Bonn); Armin Falk (IZA Bonn and University of Bonn); David Huffman (IZA Bonn); Uwe Sunde (IZA Bonn and University of Bonn); Jürgen Schupp (DIW Berlin and IZA Bonn); Gert G. Wagner (DIW Berlin, Berlin University of Technology, Cornell University and IZA Bonn) |
| Abstract: | This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks on an 11-point scale, we find evidence of heterogeneity across individuals, and show that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. We test the behavioral relevance of this survey measure by conducting a complementary field experiment, based on a representative sample of 450 subjects, and find that the measure is a good predictor of actual risk-taking behavior. We then use a more standard lottery question to measure risk preference, and find similar results regarding heterogeneity and determinants of risk preferences. The lottery question makes it possible to estimate the coefficient of relative risk aversion for each individual in the sample. Using five questions about willingness to take risks in specific domains - car driving, financial matters, sports and leisure, career, and health - the paper also studies the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. Using data on a collection of risky behaviors from different contexts, including traffic offenses, portfolio choice, smoking, occupational choice, participation in sports, and migration, the paper compares the predictive power of all of the risk measures. Strikingly, the general risk question predicts all behaviors whereas the standard lottery measure does not. The best overall predictor for any specific behavior is typically the corresponding context-specific measure. These findings call into the question the current preoccupation with lottery measures of risk preference, and point to variation in risk perceptions as an understudied determinant of risky behavior. |
| Keywords: | risk preferences, preference stability, experimental validation, field experiment, SOEP, gender differences, age, height, subjective well-being |
| JEL: | D0 D1 D80 D81 C91 C93 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1730&r=fmk |
| By: | Carlos Carvalho (Princeton University) |
| Abstract: | This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions. |
| JEL: | E |
| Date: | 2005–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0509017&r=fmk |