Codes of best practice in competitive markets for managers

We study firms' corporate governance in environments where possibly heterogeneous shareholders compete for possibly heterogeneous managers. A firm, formed by a shareholder and a manager, can sign either an incentive contract or a contract including a Code of Best Practice. A Code allows for a better manager's control but makes manager's decisions hard to react when market conditions change. It tends to be adopted in markets with low volatility and in low-competitive environments. The firms with the best projects tend to adopt the Code when managers are not too heterogeneous while the best managers tend to be hired through incentive contracts when the projects are similar. Although the matching between shareholders and managers is often positively assortative, the shareholders with the best projects might be willing to renounce to hire the best managers, signing contracts including Codes with lower-ability managers.

A nonlinear threshold model for the dependence of extremes of stationary sequences

One of the main implications of the efficient market hypothesis (EMH) is that expected future returns on financial assets are not predictable if investors are risk neutral. In this paper we argue that financial time series offer more information than that this hypothesis seems to supply. In particular we postulate that runs of very large returns can be predictable for small time periods. In order to prove this we propose a TAR(3,1)-GARCH(1,1) model that is able to describe two different types of extreme events: a first type generated by large uncertainty regimes where runs of extremes are not predictable and a second type where extremes come from isolated dread/joy events. This model is new in the literature in nonlinear processes. Its novelty resides on two features of the model that make it different from previous TAR methodologies. The regimes are motivated by the occurrence of extreme values and the threshold variable is defined by the shock affecting the process in the preceding period. In this way this model is able to uncover dependence and clustering of extremes in high as well as in low volatility periods. This model is tested with data from General Motors stocks prices corresponding to two crises that had a substantial impact in financial markets worldwide; the Black Monday of October 1987 and September 11th, 2001. By analyzing the periods around these crises we find evidence of statistical significance of our model and thereby of predictability of extremes for September 11th but not for Black Monday. These findings support the hypotheses of a big negative event producing runs of negative returns in the first case, and of the burst of a worldwide stock market bubble in the second example. JEL classification: C12; C15; C22; C51 Keywords and Phrases: asymmetries, crises, extreme values, hypothesis testing, leverage effect, nonlinearities, threshold models

Short-term investment and equilibrium multiplicity

I study the effects of the heterogeneity of traders'horizon in the context of a 2-period NREE model whereall traders are risk averse. Owing to inventory effects,myopic trading behavior generates multiplicity ofequilibria. In particular, two distinct patterns arise.Along the first equilibrium, short term tradersanticipate higher second period price reaction toinformation arrival and, owing to risk aversion,scale back their trading intensity. This, in turn,reduces both risk sharing and information impoundinginto prices enforcing a high returns' volatility-lowprice informativeness equilibrium. In the second one,the opposite happens and a low volatility-high priceinformativeness equilibrium arises.

Electrical signature of modern and ancient tectonic processes in the crust of the Atlas mountains of Morocco.

The Atlas Mountains in Morocco are considered as type examples of intracontinental chains, with high topography that contrasts with moderate crustal shortening and thickening. Whereas recent geological studies and geodynamic modeling have suggested the existence of dynamic topography to explain this apparent contradiction, there is a lack of modern geophysical data at the crustal scale to corroborate this hypothesis. Newly-acquired magnetotelluric data image the electrical resistivity distribution of the crust from the Middle Atlas to the Anti-Atlas, crossing the tabular Moulouya Plain and the High Atlas. All the units show different and unique electrical signatures throughout the crust reflecting the tectonic history of development of each one. In the upper crust electrical resistivity values may be associated to sediment sequences in the Moulouya and Anti-Atlas and to crustal scale fault systems in the High Atlas developed during the Cenozoic times. In the lower crust the low resistivity anomaly found below the Mouluya plain, together with other geophysical (low velocity anomaly, lack of earthquakes and minimum Bouguer anomaly) and geochemical (Neogene-Quaternary intraplate alkaline volcanic fields) evidence, infer the existence of a small degree of partial melt at the base of the lower crust. The low resistivity anomaly found below the Anti-Atlas may be associated with a relict subduction of Precambrian oceanic sediments, or to precipitated minerals during the release of fluids from the mantle during the accretion of the Anti-Atlas to the West African Supercontinent during the Panafrican orogeny ca. 685 Ma).

Electrical signature of modern and ancient tectonic processes in the crust of the Atlas mountains of Morocco.

The Atlas Mountains in Morocco are considered as type examples of intracontinental chains, with high topography that contrasts with moderate crustal shortening and thickening. Whereas recent geological studies and geodynamic modeling have suggested the existence of dynamic topography to explain this apparent contradiction, there is a lack of modern geophysical data at the crustal scale to corroborate this hypothesis. Newly-acquired magnetotelluric data image the electrical resistivity distribution of the crust from the Middle Atlas to the Anti-Atlas, crossing the tabular Moulouya Plain and the High Atlas. All the units show different and unique electrical signatures throughout the crust reflecting the tectonic history of development of each one. In the upper crust electrical resistivity values may be associated to sediment sequences in the Moulouya and Anti-Atlas and to crustal scale fault systems in the High Atlas developed during the Cenozoic times. In the lower crust the low resistivity anomaly found below the Mouluya plain, together with other geophysical (low velocity anomaly, lack of earthquakes and minimum Bouguer anomaly) and geochemical (Neogene-Quaternary intraplate alkaline volcanic fields) evidence, infer the existence of a small degree of partial melt at the base of the lower crust. The low resistivity anomaly found below the Anti-Atlas may be associated with a relict subduction of Precambrian oceanic sediments, or to precipitated minerals during the release of fluids from the mantle during the accretion of the Anti-Atlas to the West African Supercontinent during the Panafrican orogeny ca. 685 Ma).

Volatility smile extrapolation with an artificial neural network

I use a multi-layer feedforward perceptron, with backpropagation learning implemented via stochastic gradient descent, to extrapolate the volatility smile of Euribor derivatives over low-strikes by training the network on parametric prices.

Metastable liquid-liquid phase transition in a single-component system with only one crystal phase and no density anomaly

We investigate the phase behavior of a single-component system in three dimensions with spherically-symmetric, pairwise-additive, soft-core interactions with an attractive well at a long distance, a repulsive soft-core shoulder at an intermediate distance, and a hard-core repulsion at a short distance, similar to potentials used to describe liquid systems such as colloids, protein solutions, or liquid metals. We showed [Nature (London) 409, 692 (2001)] that, even with no evidence of the density anomaly, the phase diagram has two first-order fluid-fluid phase transitions, one ending in a gas¿low-density-liquid (LDL) critical point, and the other in a gas¿high-density-liquid (HDL) critical point, with a LDL-HDL phase transition at low temperatures. Here we use integral equation calculations to explore the three-parameter space of the soft-core potential and perform molecular dynamics simulations in the interesting region of parameters. For the equilibrium phase diagram, we analyze the structure of the crystal phase and find that, within the considered range of densities, the structure is independent of the density. Then, we analyze in detail the fluid metastable phases and, by explicit thermodynamic calculation in the supercooled phase, we show the absence of the density anomaly. We suggest that this absence is related to the presence of only one stable crystal structure.

Evidence for the influence of the North Atlantic Oscillation on the total ozone column at northern low latitudes and midlatitudes during winter and summer seasons.

The strong influence of the winter North Atlantic Oscillation (NAO) on the total ozone column (TOC) in the Northern Hemisphere has been reported in a number of previous studies. In this study we show that this influence is not restricted to the winter season but is also significant in summer. Especially interesting effects of the summer NAO (SNAO) on the TOC are observed over the eastern Mediterranean region, where a strongly positive SNAO index is related to the creation of a geopotential height-negative anomaly over Greece with maximum amplitude at 200 hPa. Another anomaly was observed west of the Iberian Peninsula with similar effects on the TOC. Analyzing 26 years of Total Ozone Mapping Spectrometer (TOMS) and Ozone Monitoring Instrument (OMI) data from the equator to midlatitudes (60°) in the Northern Hemisphere, we demonstrate that the SNAO accounts for up to 30% of the TOC variability with a strong latitudinal and longitudinal dependence. Additionally, we obtain significant correlations between the NAO index and the thermal tropopause pressure and also with the geopotential heights at 200 and 500 hPa. Finally, some indirect connections between NAO and the TOC through teleconnections are also discussed.

The behavior of money velocity in low and high inflation countries

This paper presents a general equilibrium model of money demand where the velocity of money changes in response to endogenous fluctuations in the interest rate. The parameter space can be divided into two subsets: one where velocity is constant as in standard cash-in-advance models, and another one where velocity fluctuates as in Baumol (1952). The model provides an explanation of why, for a sample of 79 countries, the correlation between the velocity of money and the inflation rate appears to be low, unlike common wisdom would suggest. The reason is the diverse transaction technologies available in different economies.

Are one factor logarithmic volatility models useful to fit the features of financial data? An application to microsoft data.

This paper provides empirical evidence that continuous time models with one factor of volatility, in some conditions, are able to fit the main characteristics of financial data. It also reports the importance of the feedback factor in capturing the strong volatility clustering of data, caused by a possible change in the pattern of volatility in the last part of the sample. We use the Efficient Method of Moments (EMM) by Gallant and Tauchen (1996) to estimate logarithmic models with one and two stochastic volatility factors (with and without feedback) and to select among them.

Forecasting volatility using a continuous time model

This paper evaluates the forecasting performance of a continuous stochastic volatility model with two factors of volatility (SV2F) and compares it to those of GARCH and ARFIMA models. The empirical results show that the volatility forecasting ability of the SV2F model is better than that of the GARCH and ARFIMA models, especially when volatility seems to change pattern. We use ex-post volatility as a proxy of the realized volatility obtained from intraday data and the forecasts from the SV2F are calculated using the reprojection technique proposed by Gallant and Tauchen (1998).

The relevance of post-match LTC: why has the Spanish labor market become as volatile as the US one?

We present a Search and Matching model with heterogeneous workers (entrants and incumbents) that replicates the stylized facts characterizing the US and the Spanish labor markets. Under this benchmark, we find the Post-Match Labor Turnover Costs (PMLTC) to be the centerpiece to explain why the Spanish labor market is as volatile as the US one. The two driving forces governing this volatility are the gaps between entrants and incumbents in terms of separation costs and productivity. We use the model to analyze the cyclical implications of changes in labor market institutions affecting these two gaps. The scenario with a low degree of workers’ heterogeneity illustrates its suitability to understand why the Spanish labor market has become as volatile as the US one.

Well-posedness and invariant measures for HJM models with deterministic volatility and Lévy noise

We give sufficient conditions for existence, uniqueness and ergodicity of invariant measures for Musiela's stochastic partial differential equation with deterministic volatility and a Hilbert space valued driving Lévy noise. Conditions for the absence of arbitrage and for the existence of mild solutions are also discussed.

Stock market volatility and learning

Introducing bounded rationality in a standard consumption-based asset pricing model with time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though our learning scheme introduces just one free parameter and we only consider learning schemes that imply small deviations from full rationality. The findings are robust to the learning rule used and other model features. What is key is that agents forecast future stock prices using past information on prices.