Essays on volatility and liquidity in financial markets

The price formation of financial assets is a complex process. It extends beyond the standard economic paradigm of supply and demand to the understanding of the dynamic behavior of price variability, the price impact of information, and the implications of trading behavior of market participants on prices. In this thesis, I study aggregate market and individual assets volatility, liquidity dimensions, and causes of mispricing for US equities over a recent sample period. How volatility forecasts are modeled, what determines intradaily jumps and causes changes in intradaily volatility and what drives the premium of traded equity indexes? Are they induced, for example, by the information content of lagged volatility and return parameters or by macroeconomic news, changes in liquidity and volatility? Besides satisfying our intellectual curiosity, answers to these questions are of direct importance to investors developing trading strategies, policy makers evaluating macroeconomic policies and to arbitrageurs exploiting mispricing in exchange-traded funds. Results show that the leverage effect and lagged absolute returns improve forecasts of continuous components of daily realized volatility as well as jumps. Implied volatility does not subsume the information content of lagged returns in forecasting realized volatility and its components. The reported results are linked to the heterogeneous market hypothesis and demonstrate the validity of extending the hypothesis to returns. Depth shocks, signed order flow, the number of trades, and resiliency are the most important determinants of intradaily volatility. In contrast, spread shock and resiliency are predictive of signed intradaily jumps. There are fewer macroeconomic news announcement surprises that cause extreme price movements or jumps than those that elevate intradaily volatility. Finally, the premium of exchange-traded funds is significantly associated with momentum in net asset value and a number of liquidity parameters including the spread, traded volume, and illiquidity. The mispricing of industry exchange traded funds suggest that limits to arbitrage are driven by potential illiquidity.

The benefit of modeling jumps in realized volatility for risk prediction : evidence from Chinese mainland stocks

Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

Generalized-positioning for mixed-frequency of mixed-GNSS and its preliminary applications

Modernized GPS and GLONASS, together with new GNSS systems, BeiDou and Galileo, offer code and phase ranging signals in three or more carriers. Traditionally, dual-frequency code and/or phase GPS measurements are linearly combined to eliminate effects of ionosphere delays in various positioning and analysis. This typical treatment method has imitations in processing signals at three or more frequencies from more than one system and can be hardly adapted itself to cope with the booming of various receivers with a broad variety of singles. In this contribution, a generalized-positioning model that the navigation system independent and the carrier number unrelated is promoted, which is suitable for both single- and multi-sites data processing. For the synchronization of different signals, uncalibrated signal delays (USD) are more generally defined to compensate the signal specific offsets in code and phase signals respectively. In addition, the ionospheric delays are included in the parameterization with an elaborate consideration. Based on the analysis of the algebraic structures, this generalized-positioning model is further refined with a set of proper constrains to regularize the datum deficiency of the observation equation system. With this new model, uncalibrated signal delays (USD) and ionospheric delays are derived for both GPS and BeiDou with a large dada set. Numerical results demonstrate that, with a limited number of stations, the uncalibrated code delays (UCD) are determinate to a precision of about 0.1 ns for GPS and 0.4 ns for BeiDou signals, while the uncalibrated phase delays (UPD) for L1 and L2 are generated with 37 stations evenly distributed in China for GPS with a consistency of about 0.3 cycle. Extra experiments concerning the performance of this novel model in point positioning with mixed-frequencies of mixed-constellations is analyzed, in which the USD parameters are fixed with our generated values. The results are evaluated in terms of both positioning accuracy and convergence time.

Korean ubiquitous-eco-city : a smart-sustainable urban form or a branding hoax?

The buzzwords of zero-carbon, low-carbon, carbon-neutral, smart-eco and ubiquitous-eco have become common brands for the sustainable eco-cities of the 21st century. This paper focuses on one of these city types ‘ubiquitous-eco-city’ (u-eco-city). The principal premise of a u-eco-city is to provide a high quality of life and place to residents, workers and visitors with low-to-no negative impacts on the natural environment by using state-of-the-art technologies in the planning, development and management stages. The paper aims to put this premise into a test and address whether u-eco-city is a dazzling smart and sustainable urban form that constitutes an ideal 21st century city model or just a branding hoax. This paper explores recent developments and trends in the ubiquitous technologies, infrastructures, services and management systems, and their utilisation and implications for the development of u-eco-cities. The paper places Korean u-eco-city initiatives under microscope, and critically discusses their prospects in forming a smart and sustainable urban form and become an ideal city model.

Modeling electricity price events as point processes

Energy prices are highly volatile and often feature unexpected spikes. It is the aim of this paper to examine whether the occurrence of these extreme price events displays any regularities that can be captured using an econometric model. Here we treat these price events as point processes and apply Hawkes and Poisson autoregressive models to model the dynamics in the intensity of this process.We use load and meteorological information to model the time variation in the intensity of the process. The models are applied to data from the Australian wholesale electricity market, and a forecasting exercise illustrates both the usefulness of these models and their limitations when attempting to forecast the occurrence of extreme price events.

Cyclone intensity categories

The weather forecast centers in Australia and many other countries use a scale of cyclone intensity categories (categories 1-5) in their cyclone advisories, which are considered to be indicative of the cyclone damage potential. However, this scale is mainly based on maximum gust wind speeds. In a recent research project involving computer modeling of cyclonic wind forces on roof claddings and fatigue damage to claddings, it was found that cyclone damage not only depends on the maximum gust wind speed, but also on two other cyclone parameters, namely, the forward speed and radius to maximum winds. This paper describes the computer model used in predicting the cyclone damage to claddings and investigates the damage potential of a cyclone as a function of all the relevant cyclone parameters, based on which it attempts to refine the current scale of cyclone intensity categories.

Volatility timing : how best to forecast portfolio exposures

This paper investigates how best to forecast optimal portfolio weights in the context of a volatility timing strategy. It measures the economic value of a number of methods for forming optimal portfolios on the basis of realized volatility. These include the traditional econometric approach of forming portfolios from forecasts of the covariance matrix, and a novel method, where a time series of optimal portfolio weights are constructed from observed realized volatility and directly forecast. The approach proposed here of directly forecasting portfolio weights shows a great deal of merit. Resulting portfolios are of equivalent economic benefit to a number of competing approaches and are more stable across time. These findings have obvious implications for the manner in which volatility timing is undertaken in a portfolio allocation context.

Dynamic contrast-enhanced magnetic resonance imaging as a biomarker for the pharmacological response of PTK787/ZK 222584, an inhibitor of the vascular endothelial growth factor receptor tyrosine kinases, in patients with advanced colorectal cancer and liver metastases: Results from two phase I studies

Purpose: PTK787/ZK 222584 (PTK/ZK), an orally active inhibitor of vascular endothelial growth factor (VEGF) receptor tyrosine kinases, inhibits VEGF-mediated angiogenesis. The pharmacodynamic effects of PTK/ZK were evaluated by assessing changes in contrast-enhancement parameters of metastatic liver lesions using dynamic contrast-enhanced magnetic resonance imaging (DCE-MRI) in patients with advanced colorectal cancer treated in two ongoing, dose-escalating phase I studies. Patients and Methods: Twenty-six patients had DCE-MRI performed at baseline, day 2, and at the end of each 28-day cycle. Doses of oral PTK/ZK ranged from 50 to 2000 mg once daily. Tumor permeability and vascularity were assessed by calculating the bidirectional transfer constant (Ki). The percentage of baseline Ki (% of baseline Ki) at each time point was compared with pharmacokinetic and clinical end points. Results: A significant negative correlation exists between the % of baseline Ki and increase in PTK/ZK oral dose and plasma levels (P = .01 for oral dose; P = .0001 for area under the plasma concentration curve at day 2). Patients with a best response of stable disease had a significantly greater reduction in Ki at both day 2 and at the end of cycle 1 compared with progressors (mean difference in % of baseline Ki, 47%, P = .004%; and 51%, P = .006; respectively). The difference in % of baseline Ki remained statistically significant after adjusting for baseline WHO performance status. Conclusion: These findings should help to define a biologically active dose of PTK/ZK. These results suggest that DCE-MRI may be a useful biomarker for defining the pharmacological response and dose of angiogenesis inhibitiors, such as PTK/ZK, for further clinical development. © 2003 by American Society of Clinical Oncology.

Re-think, Re-generate, Re-envisage fashionable sun-safe apparel

Design is a way of thinking and working that systematically can create immense societal change. In particular, fashion design is one of the most progressively forward-looking creative and commercial generators that can envisage and initiate meaningful visual and social transformation. If we look back in time at the authority of fashion, many trends have significantly induced visual norms aligning glamour and health with tanned skin - numerous examples exist, including Vogue magazine proclaiming (front-cover) that ‘The 1929 girl must be tanned’. Indeed, in a contemporary landscape, fashion trends continue to re-generate apparel that, in-the-main, has limited design resolution connected to sun safety, and surprisingly many designers elect to ignore this vital and potentially lucrative market segment. In a context with soaring skin cancer rates, how can this powerful design medium of fashion make a positive difference to sun protection; what is the untapped potential for young design talent to connect with the health sector for skin cancer prevention; and, how can fashion designers be swayed to design and produce fashionable sun-safe apparel, that address pertinent issues including heat build up, comfort and transformability? Through a case study approach, examining emergent fashion designers, this paper will propose that astute and novel avenues exist for fashion to re-think sun protective apparel, including: generation of crucial design standards for sun-safe apparel, exploration of co-branding opportunities, advancement of fashion forecasting to connect modesty of body coverage to fashion trends and alignment of the market segment to re-envisage a critical mass for fashionable sun-safe apparel.

Exploring plant genomes by RNA-induced gene silencing

The nucleotide sequences of several animal, plant and bacterial genomes are now known, but the functions of many of the proteins that they are predicted to encode remain unclear. RNA interference is a gene-silencing technology that is being used successfully to investigate gene function in several organisms - for example, Caenorhabditis elegans. We discuss here that RNA-induced gene silencing approaches are also likely to be effective for investigating plant gene function in a high-throughput, genome-wide manner.

Prediction of CO concentrations based on a hybrid Partial Least Square and Support Vector Machine model

Due to the health impacts caused by exposures to air pollutants in urban areas, monitoring and forecasting of air quality parameters have become popular as an important topic in atmospheric and environmental research today. The knowledge on the dynamics and complexity of air pollutants behavior has made artificial intelligence models as a useful tool for a more accurate pollutant concentration prediction. This paper focuses on an innovative method of daily air pollution prediction using combination of Support Vector Machine (SVM) as predictor and Partial Least Square (PLS) as a data selection tool based on the measured values of CO concentrations. The CO concentrations of Rey monitoring station in the south of Tehran, from Jan. 2007 to Feb. 2011, have been used to test the effectiveness of this method. The hourly CO concentrations have been predicted using the SVM and the hybrid PLS–SVM models. Similarly, daily CO concentrations have been predicted based on the aforementioned four years measured data. Results demonstrated that both models have good prediction ability; however the hybrid PLS–SVM has better accuracy. In the analysis presented in this paper, statistic estimators including relative mean errors, root mean squared errors and the mean absolute relative error have been employed to compare performances of the models. It has been concluded that the errors decrease after size reduction and coefficients of determination increase from 56 to 81% for SVM model to 65–85% for hybrid PLS–SVM model respectively. Also it was found that the hybrid PLS–SVM model required lower computational time than SVM model as expected, hence supporting the more accurate and faster prediction ability of hybrid PLS–SVM model.

The Impacts of Climate Change on Australia’s Food Production and Export

The global food system is undergoing unprecedented change. With population increases, demands for food globally will continue to rise at the same time that agricultural environments are compromised through urban encroachment, climate change and environmental degradation. Australia has long identified itself as an agricultural exporting nation—but what will its capacity be in feeding an increasing global population as it also comes to terms with extreme climatic events such as the floods, fires and droughts, and reduced water availability, experienced in recent decades? This chapter traces the history of Australian agricultural exports and evaluates its food production and export capacity against scientific predictions of climate change impacts. With the federal government forecasting declines in the production of wheat, beef, dairy and sugar, Australia’s key export commodities may well be compromised. Calls to produce more food using new technologies are likely to generate significant environmental problems. Yet, a radical reconfiguration of Australian agriculture which incorporates alternative approaches, such as agro-ecology, is rarely considered by government and industry.

Prevalence of undiagnosed urinary tract infections on admission to a rehabilitation unit

Background Through clinical observation nursing staff of an inpatient rehabilitation unit identified a link between incontinence and undiagnosed urinary tract infections (UTIs). Further, clinical observation and structured continence management led to the realisation that urinary incontinence often improved, or resolved completely, after treatment with antibiotics. In 2009 a small study found that 30% of admitted rehabilitation patients had an undiagnosed UTI, with the majority admitted post-orthopaedic fracture. We suspected that the frequent use of indwelling urinary catheters (IDCs) in the orthopaedic environment may have been a contributing factor. Therefore, a second, more thorough, study was commenced in 2010 and completed in 2011. Aim The aim of this study was to identify what proportion of patients were admitted to one rehabilitation unit with an undiagnosed UTI over a 12-month period. We wanted to identify and highlight the presence of known risk factors associated with UTI and determine whether urinary incontinence was associated with the presence of UTI. Methods Data were collected from every patient that was admitted over a 12-month period (n=140). The majority of patients were over the age of 65 and had an orthopaedic fracture (36.4%) or stroke (27.1%). Mid-stream urine (MSU) samples, routinely collected and sent for culture and sensitivity as part of standard admission procedure, were used by the treating medical officer to detect the presence of UTI. A data collection sheet was developed, reviewed and trialled, before official data collection commenced. Data were collected as part of usual practice and collated by a research assistant. Inferential statistics were used to analyse the data. Results This study found that 25 (17.9%) of the 140 patients admitted to rehabilitation had an undiagnosed UTI, with a statistically significant association between prior presence of an IDC and the diagnosis of UTI. Urinary incontinence improved after the completion of treatment with antibiotics. Results further demonstrated a significant association between the confirmation of a UTI on culture and sensitivity and the absence of symptoms usually associated with UTI, such as burning or stinging on urination. Overall, this study suggests careful monitoring of urinary symptoms in patients admitted to rehabilitation, especially in patients with a prior IDC, is warranted.

Do prediction markets produce well-calibrated probability forecasts?

This article presents new theoretical and empirical evidence on the forecasting ability of prediction markets. We develop a model that predicts that the time until expiration of a prediction market should negatively affect the accuracy of prices as a forecasting tool in the direction of a ‘favourite/longshot bias’. That is, high-likelihood events are underpriced, and low-likelihood events are over-priced. We confirm this result using a large data set of prediction market transaction prices. Prediction markets are reasonably well calibrated when time to expiration is relatively short, but prices are significantly biased for events farther in the future. When time value of money is considered, the miscalibration can be exploited to earn excess returns only when the trader has a relatively low discount rate.

Energy Transformed : Building Capacity in the Engineering Profession in Australia

Global pressures of burgeoning population growth and consumption are threatening efforts to reduce negative environmental pressures associated with development such as atmospheric, land and water pollution. For example, the world’s population is now growing at over 70 million per year or 1 billion per decade (Brown, 2007), increasing from 3.5 billion in 1970, to 5 billion in 1990, to 7 billion by 2010 (United Nations, 2002). In 1990 only 13 percent of the global population lived in cities, while in 2007 more than half did. More than 60 percent of the global population lives within 100 kilometers of the coastline (World Resources Institute, 2005) and nearly all of the population growth hereon is forecast to happen in developing countries (Postel, 1999). Future levels of stress on the global environment are therefore likely to increase if current trends are used for forecasting, which is particularly challenging as scientists are already observing significant signs of degradation and failure in environmental systems. For example, the Intergovernmental Panel on Climate Change Fourth Assessment Report (IPCC, 2007) provided an nequivocal link between climate change and current human activities, in particular: the burning of fossil fuels; deforestation and land clearing; the use of synthetic greenhouse gases; and decomposition of wastes from landfill. The UK Stern Review concluded that within our lifetime there is between a 77 to 99 percent chance (depending on the climate model used) of the global average temperature rising by more than 2 degrees Celsius (Stern, 2006), with a likely greenhouse gas concentration in the atmosphere of 550 parts per million (ppm) or more by around 2100.