Better cross hedges with composite hedging? Hedging equity portfolios using financial and commodity futures

Unless a direct hedge is available, cross hedging must be used. In such circumstances portfolio theory implies that a composite hedge (the use of two or more hedging instruments to hedge a single spot position) will be beneficial. The study and use of composite hedging has been neglected; possibly because it requires the estimation of two or more hedge ratios. This paper demonstrates a statistically significant increase in out-of-sample effectiveness from the composite hedging of the Amex Oil Index using S&P500 and New York Mercantile Exchange crude oil futures. This conclusion is robust to the technique used to estimate the hedge ratios, and to allowance for transactions costs, dividends and the maturity of the futures contracts.

‘Nudging’ energy users: regulatory measures to address the risk of aggregate peak demand in European electricity markets

For decades regulators in the energy sector have focused on facilitating the maximisation of energy supply in order to meet demand through liberalisation and removal of market barriers. The debate on climate change has emphasised a new type of risk in the balance between energy demand and supply: excessively high energy demand brings about significantly negative environmental and economic impacts. This is because if a vast number of users is consuming electricity at the same time, energy suppliers have to activate dirty old power plants with higher greenhouse gas emissions and higher system costs. The creation of a Europe-wide electricity market requires a systematic investigation into the risk of aggregate peak demand. This paper draws on the e-Living Time-Use Survey database to assess the risk of aggregate peak residential electricity demand for European energy markets. Findings highlight in which countries and for what activities the risk of aggregate peak demand is greater. The discussion highlights which approaches energy regulators have started considering to convince users about the risks of consuming too much energy during peak times. These include ‘nudging’ approaches such as the roll-out of smart meters, incentives for shifting the timing of energy consumption, differentiated time-of-use tariffs, regulatory financial incentives and consumption data sharing at the community level.

Macro-economic and financial determinants of comovement across global real estate security markets

This paper models the determinants of integration in the context of global real estate security markets. Using both local and U.S. Dollar denominated returns, we model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results find that financial factors, such as the relationship with the respective equity market, volatility, the relative size of the real estate sector and trading turnover all play an important role in the degree of integration present. Furthermore, the results highlight the importance of macro-economic variables in the degree of integration present. All four of the macro-economic variables modeled provide at least one significant result across the specifications estimated. Factors such as financial and trade openness, monetary independence and the stability of a country’s currency all contribute to the degree of integration reported.

Nonlinear stability and the saturation of instabilities to axisymmetric vortices

Nonlinear stability theorems are presented for axisymmetric vortices under the restriction that the disturbance is independent of either the azimuthal or the axial coordinate. These stability theorems are then used, in both cases, to derive rigorous upper bounds on the saturation amplitudes of instabilities. Explicit examples of such bounds are worked out for some canonical profiles. The results establish a minimum order for the dependence of saturation amplitude on supercriticality, and are thereby suggestive as to the nature of the bifurcation at the stability threshold.

The performance effects of composition changes on sector specific stock indices: The case of European listed real estate

This paper examines the impact of changes in the composition of real estate stock indices, considering companies both joining and leaving the indices. Stocks that are newly included not only see a short-term increase in their share price, but trading volumes increase in a permanent fashion following the event. This highlights the importance of indices in not only a benchmarking context but also in enhancing investor awareness and aiding liquidity. By contrast, as anticipated, the share prices of firms removed from indices fall around the time of the index change. The fact that the changes in share prices, either upwards for index inclusions or downwards for deletions, are generally not reversed, would indicate that the movements are not purely due to price pressure, but rather are more consistent with the information content hypothesis. There is no evidence, however, that index changes significantly affect the volatility of price changes or their operating performances as measured by their earnings per share.

e-Government as a regulatory response to the financial crisis: the case of the UK

This paper seeks to discuss EU policies relating to securities markets, created in the wake of the financial crisis and how ICT and specifically e-Government can be utilised within this context. This study utilises the UK as a basis for our discussion. The recent financial crisis has caused a change of perspective in relation to government services and polices. The regulation of the financial sector has been heavily criticised and so is undergoing radical change in the UK and the rest of Europe. New regulatory bodies are being defined with more focus on taking a risk-based system-wide approach to regulating the financial sector. This approach aims to prevent financial institutions becoming too big to fail and thus require massive government bail outs. In addition, a new wave of EU regulation is in the wind to update risk management practices and to further protect investors. This paper discusses the reasons for the financial crisis and the UK’s past and future regulatory landscape. The current and future approach and strategies adopted by the UK’s financial regulators are reviewed as is the lifecycle of EU Directives. The regulatory responses to the crisis are discussed and upcoming regulatory hotspots identified. Discussion of these issues provides the context for our evaluation of the role e-Government and ICT in improving the regulatory system. We identify several processes, which are elementary for regulatory compliance and discuss how ICT is elementary in their implementation. The processes considered include those required for internal control and monitoring, risk management, record keeping and disclosure to regulatory bodies. We find these processes offer an excellent opportunity to adopt an e-Government approach to improve services to both regulated businesses and individual investors through the benefits derived from a more effective and efficient regulatory system.

Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

Stability of an ice sheet on an elastic bed

The stability of stationary flow of a two-dimensional ice sheet is studied when the ice obeys a power flow law (Glen's flow law). The mass accumulation rate at the top is assumed to depend on elevation and span and the bed supporting the ice sheet consists of an elastic layer lying on a rigid surface. The normal perturbation of the free surface of the ice sheet is a singular eigenvalue problem. The singularity of the perturbation at the front of the ice sheet is considered using matched asymptotic expansions, and the eigenvalue problem is seen to reduce to that with fixed ice front. Numerical solution of the perturbation eigenvalue problem shows that the dependence of accumulation rate on elevation permits the existence of unstable solutions when the equilibrium line is higher than the bed at the ice divide. Alternatively, when the equilibrium line is lower than the bed, there are only stable solutions. Softening of the bed, expressed through a decrease of its elastic modulus, has a stabilising effect on the ice sheet.

What will be the risk-free rate and benchmark yield curve following European monetary union?

Using a linear factor model, we study the behaviour of French, Germany, Italian and British sovereign yield curves in the run up to EMU. This allows us to determine which of these yield curves might best approximate a benchmark yield curve post EMU. We find that the best approximation for the risk free yield is the UK three month T-bill yield, followed by the German three month T-bill yield. As no one sovereign yield curve dominates all others, we find that a composite yield curve, consisting of French, Italian and UK bonds at different maturity points along the yield curve should be the benchmark post EMU.

Stability of dobutamine 500 mg in 50 ml syringes prepared using a Central Intravenous Additive Service

Objectives A pharmacy Central Intravenous Additives Service (CIVAS) provides ready to use injectable medicines. However, manipulation of a licensed injectable medicine may significantly alter the stability of drug(s) in the final product. The aim of this study was to develop a stability indicating assay for CIVAS produced dobutamine 500 mg in 50 ml dextrose 1% (w/v) prefilled syringes, and to allocate a suitable shelf life. Methods A stability indicating high performance liquid chromatography (HPLC) assay was established for dobutamine. The stability of dobutamine prefilled syringes was evaluated under storage conditions of 4°C (protected from light), room temperature (protected from light), room temperature (exposed to light) and 40°C (protected from light) at various time points (up to 42 days). Results An HPLC method employing a Hypersil column, mobile phase (pH=4.0) consisting of 82:12:6 (v/v/v) 0.05 M KH2PO4:acetonitrile:methanol plus 0.3% (v/v) triethylamine with UV detection at λ=280 nm was specific for dobutamine. Under different storage conditions only samples stored at 40°C showed greater than 5% degradation (5.08%) at 42 days and had the shortest T95% based on this criterion (44.6 days compared with 111.4 days for 4°C). Exposure to light also reduced dobutamine stability. Discolouration on storage was the limiting factor in shelf life allocation, even when dobutamine remained within 5% of the initial concentration. Conclusions A stability indicating HPLC assay for dobutamine was developed. The shelf life recommended for the CIVAS product was 42 days at 4°C and 35 days at room temperature when protected from light.

Sea surface temperature datasets for climate applications from Phase 1 of the European Space Agency Climate Change Initiative (SST CCI)

Sea surface temperature (SST) datasets have been generated from satellite observations for the period 1991–2010, intended for use in climate science applications. Attributes of the datasets specifically relevant to climate applications are: first, independence from in situ observations; second, effort to ensure homogeneity and stability through the time-series; third, context-specific uncertainty estimates attached to each SST value; and, fourth, provision of estimates of both skin SST (the fundamental measure- ment, relevant to air-sea fluxes) and SST at standard depth and local time (partly model mediated, enabling comparison with his- torical in situ datasets). These attributes in part reflect requirements solicited from climate data users prior to and during the project. Datasets consisting of SSTs on satellite swaths are derived from the Along-Track Scanning Radiometers (ATSRs) and Advanced Very High Resolution Radiometers (AVHRRs). These are then used as sole SST inputs to a daily, spatially complete, analysis SST product, with a latitude-longitude resolution of 0.05°C and good discrimination of ocean surface thermal features. A product user guide is available, linking to reports describing the datasets’ algorithmic basis, validation results, format, uncer- tainty information and experimental use in trial climate applications. Future versions of the datasets will span at least 1982–2015, better addressing the need in many climate applications for stable records of global SST that are at least 30 years in length.

The rise of the far right in debtor and creditor European countries: the case of European Parliament elections

While the 2014 European Parliament elections were marked by the rise of far right-wing parties, the different patterns of support that we observe across Europe and across time are not directly related to the economic crisis. Indeed, economic hardship seems neither sufficient nor necessary for the rise of such parties to occur. Using the cross-national results for the 2004, 2009 and 2014 EP elections in order to capture time and country variations, we posit the economy affects the rise of far right-wing parties in more complex ways. Specifically, we compare the experience of high debt countries (the ‘debtors’) and the others (the ‘creditors’) and explore the relationship between far right-wing party success on the one hand, and unemployment, inequality, immigration, globalization and the welfare state on the other hand. Our discussion suggests there might be a trade off between budgetary stability and far right-wing party support, but the choice between Charybdis and Scylla may be avoided if policy makers carefully choose which policies should bear the brunt of the fiscal adjustment.

Knowledge process outsourcing in financial services: The vendor perspective

This research reports the findings from a study on nine knowledge process outsourcing (KPO) vendors working in the financial services industry. It delineates financial business processes along a low to high-end continuum. Findings suggest that KPO vendors are gradually moving along the value pathway offering more complex intellectual value activity based products and services to clients. However, they face many challenges including gaining the confidence of potential clients about outsourcing knowledge-intensive work, and finding effective solutions to mitigate outsourcing risk. Our paper concludes by developing a taxonomy of KPO scenarios to provide a backdrop for further academic research and to illustrate current practice.

The persistence of distance: a gravity model of European cross-border real estate development flows

Purpose – This paper aims to investigate the scale and drivers of cross-border real estate development in Western Europe and Central and Eastern Europe. Design/methodology/approach – Placing cross-border real estate development within the framework of foreign direct investment (FDI), conceptual complexities in characterizing the notional real estate developer are emphasized. Drawing upon a transaction database, this paper proxies cross-border real estate development flows with asset sales by developers. Findings – Much higher levels of market penetration by international real estate developers are found in the less mature markets of Central and Eastern Europe. Analysis suggests a complex range of determinants with physical distance remaining a consistent barrier to cross-border development flows. Originality/value – This analysis adds significant value in terms of understanding cross-border real estate development flows. In this study, a detailed examination of the issues based on a rigorous empirical analysis through gravity modelling is offered. The gravity framework is one of the most confirmed empirical regularities in international economics and commonly applied to trade, FDI, migration, foreign portfolio investment inter alia. This paper assesses the extent to which it provides useful insights into the pattern of cross-border real estate development flows.