The importance of the volatility risk premium for volatility forecasting

In this paper, we study the role of the volatility risk premium for the forecasting performance of implied volatility. We introduce a non-parametric and parsimonious approach to adjust the model-free implied volatility for the volatility risk premium and implement this methodology using more than 20 years of options and futures data on three major energy markets. Using regression models and statistical loss functions, we find compelling evidence to suggest that the risk premium adjusted implied volatility significantly outperforms other models, including its unadjusted counterpart. Our main finding holds for different choices of volatility estimators and competing time-series models, underlying the robustness of our results.

Information and predictability: bookmakers, prediction markets and tipsters as forecasters

The more information is available, and the more predictable are events, the better forecasts ought to be. In this paper forecasts by bookmakers, prediction markets and tipsters are evaluated for a range of events with varying degrees of predictability and information availability. All three types of forecast represent different structures of information processing and as such would be expected to perform differently. By and large, events that are more predictable, and for which more information is available, do tend to be forecast better.

Time-varying price discovery in the eighteenth century: empirical evidence from the London and Amsterdam stock markets

This paper examines the time-varying nature of price discovery in eighteenth century cross-listed stocks. Specifically, we investigate how quickly news is reflected in prices for two of the great moneyed com- panies, the Bank of England and the East India Company, over the period 1723 to 1794. These British companies were cross-listed on the London and Amsterdam stock exchange and news between the capitals flowed mainly via the use of boats that transported mail. We examine in detail the historical context sur- rounding the defining events of the period, and use these as a guide to how the data should be analysed. We show that both trading venues contributed to price discovery, and although the London venue was more important for these stocks, its importance varies over time.

Speculative bubble spillovers across regional housing markets

In this paper we determine whether speculative bubbles in one region in the United States can lead bubbles to form in others. We first apply a regime-switching model to determine whether speculative bubbles existed in the U.S. regional residential real estate markets. Our findings suggest that the housing markets in five of the nine census divisions investigated were characterized by speculative bubbles. We then examine the extent to which bubbles spill over between neighboring and more distant regions, finding that the transmission of speculative bubbles and nonfundamentals between regions is multidirectional and does not depend on contiguity or distance

On the predictive content of leading indicators: the case of U.S. real estate markets

This paper employs a probit and a Markov switching model using information from the Conference Board Leading Indicator and other predictor variables to forecast the signs of future rental growth in four key U.S. commercial rent series. We find that both approaches have considerable power to predict changes in the direction of commercial rents up to two years ahead, exhibiting strong improvements over a naïve model, especially for the warehouse and apartment sectors. We find that while the Markov switching model appears to be more successful, it lags behind actual turnarounds in market outcomes whereas the probit is able to detect whether rental growth will be positive or negative several quarters ahead.

International transmission mechanisms and contagion in housing markets

This paper explores international transmission mechanism and its role in contagion effect in the housing markets across six major Asian cities. The analysis is based on the identification of house price diffusion effects through a global vector autoregressive (GVAR) model estimated using quarterly data for six major Asian cities (Hong Kong, Tokyo, Seoul, Singapore, Taipei and Bangkok) from 1991Q1 to 2011Q2. The empirical results indicate that the open economies heavily relying on international trade such as Singapore, Japan (Tokyo), Taiwan (Taipei) and Thailand (Bangkok) show positive correlations between the economy's openness and house prices, which is consistent with the Balassa–Samuelson hypothesis. Interestingly, some region-specific conditions also appear to play important roles as determinants of house price movements, which may be driven by restrictive housing policies and demand–supply imbalances such as Singapore and Bangkok. These results are reasonably robust across several model specifications. The findings bear significant implications for formulation of investment strategy and public policies.

EU housing markets: the role of institutional factors

Using cluster analysis this study reveals significant heterogeneity in the institutional characteristics of European mortgage markets. Distinct clusters are formed which can be related to differences in the mortgage credit system, the relative importance of the owner-occupation and the property specific fiscal system. The paper then tests for multiple structural breaks. We find evidence that structural breaks in European housing markets often coincide with a changes in housing market policy.

Bank integration and co-movements across housing markets

This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.

Risks, costs and labour markets: explaining cross-national patterns of far right party success in European Parliament elections

What is the impact of the economy on cross national variation in far right-wing party support? This paper tests several hypotheses from existing literature on the results of the last three EP elections in all EU member states. We conceptualise the economy affects support because unemployment heightens the risks and costs that the population faces, but this is crucially mediated by labour market institutions. Findings from multiple regression analyses indicate that unemployment, real GDP growth, debt and deficits have no statistically significant effect on far right-wing party support at the national level. By contrast, labour markets influence costs and risks: where unemployment benefits and dismissal regulations are high, unemployment has no effect, but where either one of them is low, unemployment leads to higher far right-wing party support. This explains why unemployment has not led to far right-wing party support in some European countries that experienced the 2008 Eurozone crisis.