Capital market expectations and the London office market

The analysis of office market dynamics has generally concentrated on the impact of underlying fundamental demand and supply variables. This paper takes a slightly different approach to many previous examinations of rental dynamics. Within a Vector-Error-Correction framework the empirical analysis concentrates upon the impact of economic and financial variables on rents in the City of London and West End of London office markets. The impulse response and variance decomposition reveal that while lagged rental values and key demand drivers play a highly important role in the dynamics of rents, financial variables are also influential. Stock market performance not only influences the City of London market but also the West End, whilst the default spread plays an important role in recent years. It is argued that both series incorporate expectations about future economic performance and that this is the basis of their influence upon rental values.

Asymmetric space market adjustment in the London office market

Models of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicit modeling of asymmetric rental response to supply and demand model. A long run structural model linking demand for office space, real rental levels and office-based employment is estimated and then rental adjustment processes are modeled using an error correction model framework. Adjustment processes are seen to be asymmetric, dependent both on the direction of the supply and demand shock and on the state of the rental market at the time of the shock. A complete system of equations is estimated: unit shocks produce oscillations but there is a return to a steady equilibrium state in the long run.

Asymmetric response of demand-supply mismatch to investor's sentiment

We look through both the demand and supply side information to understand dynamics of price determination in the real estate market and examine how accurately investors’ attitudes predict the market returns and thereby flagging off extent of any demand-supply mismatch. Our hypothesis is based on the possibility that investors’ call for action in terms of their buy/sell decision and adjustment in reservation/offer prices may indicate impending demand-supply imbalances in the market. In the process, we study several real estate sectors to inform our analysis. The timeframe of our analysis (1995-2010) allows us to observe market dynamics over several economic cycles and in various stages of those cycles. Additionally, we also seek to understand how investors’ attitude or the sentiment affects the market activity over the cycles through asymmetric responses. We test our hypothesis variously using a number of measures of market activity and attitude indicators within several model specifications. The empirical models are estimated using Vector Error Correction framework. Our analysis suggests that investors’ attitude exert strong and statistically significant feedback effects in price determination. Moreover, these effects do reveal heterogeneous responses across the real estate sectors. Interestingly, our results indicate the asymmetric responses during boom, normal and recessionary periods. These results are consistent with the theoretical underpinnings.

Does consumption-wealth ratio signal stock returns? VECM results for Germany

This paper studies the signalling effect of the consumption−wealth ratio (cay) on German stock returns via vector error correction models (VECMs). The effect of cay on U.S. stock returns has been recently confirmed by Lettau and Ludvigson with a two−stage method. In this paper, performance of the VECMs and the two−stage method are compared in both German and U.S. data. It is found that the VECMs are more suitable to study the effect of cay on stock returns than the two−stage method. Using the Conditional−Subset VECM, cay signals real stock returns and excess returns in both data sets significantly. The estimated coefficient on cay for stock returns turns out to be two times greater in U.S. data than in German data. When the two−stage method is used, cay has no significant effect on German stock returns. Besides, it is also found that cay signals German wealth growth and U.S. income growth significantly.

Price discovery of credit spreads in tranquil and crisis periods

In this paper we investigate the price discovery process in single-name credit spreads obtained from bond, credit default swap (CDS), equity and equity option prices. We analyse short term price discovery by modelling daily changes in credit spreads in the four markets with a vector autoregressive model (VAR). We also look at price discovery in the long run with a vector error correction model (VECM). We find that in the short term the option market clearly leads the other markets in the sub-prime crisis (2007-2009). During the less severe sovereign debt crisis (2009-2012) and the pre-crisis period, options are still important but CDSs become more prominent. In the long run, deviations from the equilibrium relationship with the option market still lead to adjustments in the credit spreads observed or implied from other markets. However, options no longer dominate price discovery in any of the periods considered. Our findings have implications for traders, credit risk managers and financial regulators.

A trading strategy based on the lead–lag relationship between the spot index and futures contract for the FTSE 100

This paper examines the lead–lag relationship between the FTSE 100 index and index futures price employing a number of time series models. Using 10-min observations from June 1996–1997, it is found that lagged changes in the futures price can help to predict changes in the spot price. The best forecasting model is of the error correction type, allowing for the theoretical difference between spot and futures prices according to the cost of carry relationship. This predictive ability is in turn utilised to derive a trading strategy which is tested under real-world conditions to search for systematic profitable trading opportunities. It is revealed that although the model forecasts produce significantly higher returns than a passive benchmark, the model was unable to outperform the benchmark after allowing for transaction costs.

The impact of liquidity on senior credit index spreads during the subprime crisis

This paper examines the effects of liquidity during the 2007–09 crisis, focussing on the Senior Tranche of the CDX.NA.IG Index and on Moody's AAA Corporate Bond Index. It aims to understand whether the sharp increase in the credit spreads of these AAA-rated credit indices can be explained by worse credit fundamentals alone or whether it also reflects a lack of depth in the relevant markets, the scarcity of risk-capital, and the liquidity preference exhibited by investors. Using cointegration analysis and error correction models, the paper shows that during the crisis lower market and funding liquidity are important drivers of the increase in the credit spread of the AAA-rated structured product, whilst they are less significant in explaining credit spread changes for a portfolio of unstructured credit instruments. Looking at the experience of the subprime crisis, the study shows that when the conditions under which securitisation can work properly (liquidity, transparency and tradability) suddenly disappear, investors are left highly exposed to systemic risk.

Why the hand motion proceeds the target in tracking experiment?

In the present study, to shed light on a role of positional error correction mechanism and prediction mechanism in the proactive control discovered earlier, we carried out a visual tracking experiment, in which the region where target was shown, was regulated in a circular orbit. Main results found in this research were following. Recognition of a time step, obtained from the environmental stimuli, is required for the predictive function. The period of the rhythm in the brain obtained from environmental stimuli is shortened about 10%, when the visual information is cut-off. The shortening of the period of the rhythm in the brain accelerates the motion as soon as the visual information is cut-off, and lets the hand motion precedes the target motion. Although the precedence of the hand in the blind region is reset by the environmental information when the target enters the visible region, the hand precedes in average the target when the predictive mechanism dominates the error-corrective mechanism.

Reading aloud in high schools: students and teachers across the curriculum

Reading aloud is apparently an indispensible part of teaching. Nevertheless, little is known about reading aloud across the curriculum by students and teachers in high schools. Nor do we understand teachers’ attitudes towards issues such as error correction, rehearsal time, and selecting students to read. A survey of 360 teachers in England shows that, although they have little training in reading aloud, they are extremely confident. Reading aloud by students and teachers is strongly related, and serves to further understanding rather than administrative purposes or pupils’ enjoyment. Unexpectedly, Modern Language teachers express views that set them apart from other subjects.

Time-resolved gas-phase kinetic, quantum chemical and RRKM studies of reactions of silylene with cyclic ethers

Time-resolved kinetic studies of silylene, SiH2, generated by laser flash photolysis of phenylsilane, have been carried out to obtain rate constants for its bimolecular reactions with oxirane, oxetane, and tetrahydrofuran (THF). The reactions were studied in the gas phase over the pressure range 1-100 Torr in SF6 bath gas, at four or five temperatures in the range 294-605 K. All three reactions showed pressure dependences characteristic of third-body-assisted association reactions with, surprisingly, SiH2 + oxirane showing the least and SiH2 + THF showing the most pressure dependence. The second-order rate constants obtained by extrapolation to the high-pressure limits at each temperature fitted the Arrhenius equations where the error limits are single standard deviations: log(k(oxirane)(infinity)/cm(3) molecule(-1) s(-1)) = (-11.03 +/- 0.07) + (5.70 +/- 0.51) kJ mol(-1)/RT In 10 log(k(oxetane)(infinity)/cm(3) molecule(-1) s(-1)) = (-11.17 +/- 0.11) + (9.04 +/- 0.78) kJ mol(-1)/RT In 10 log(k(THF)(infinity)/cm(3) molecule(-1) s(-1)) = (-10.59 +/- 0.10) + (5.76 +/- 0.65) kJ mol(-1)/RT In 10 Binding-energy values of 77, 97, and 92 kJ mol(-1) have been obtained for the donor-acceptor complexes of SiH2 with oxirane, oxetane, and THF, respectively, by means of quantum chemical (ab initio) calculations carried Out at the G3 level. The use of these values to model the pressure dependences of these reactions, via RRKM theory, provided a good fit only in the case of SiH2 + THF. The lack of fit in the other two cases is attributed to further reaction pathways for the association complexes of SiH2 with oxirane and oxetane. The finding of ethene as a product of the SiH2 + oxirane reaction supports a pathway leading to H2Si=O + C2H4 predicted by the theoretical calculations of Apeloig and Sklenak.

The gas-phase reaction between silylene and 2-butyne: kinetics, isotope studies, pressure dependence studies and quantum chemical calculations

Time-resolved kinetic studies of the reactions of silylene, SiH2, and dideutero-silylene, SiD2, generated by laser. ash photolysis of phenylsilane and phenylsilane-d(3), respectively, have been carried out to obtain rate coefficients for their bimolecular reactions with 2-butyne, CH3C CCH3. The reactions were studied in the gas phase over the pressure range 1-100 Torr in SF6 bath gas at five temperatures in the range 294-612 K. The second-order rate coefficients, obtained by extrapolation to the high pressure limits at each temperature, fitted the Arrhenius equations where the error limits are single standard deviations: log(k(H)(infinity)/cm(3) molecule(-1) s(-1)) = (-9.67 +/- 0.04) + (1.71 +/- 0.33) kJ mol(-1)/RTln10 log(k(D)(infinity)/cm(3) molecule(-1) s(-1)) = (-9.65 +/- 0.01) + (1.92 +/- 0.13) kJ mol(-1)/RTln10 Additionally, pressure-dependent rate coefficients for the reaction of SiH2 with 2-butyne in the presence of He (1-100 Torr) were obtained at 301, 429 and 613 K. Quantum chemical (ab initio) calculations of the SiC4H8 reaction system at the G3 level support the formation of 2,3-dimethylsilirene [cyclo-SiH2C(CH3)=C(CH3)-] as the sole end product. However, reversible formation of 2,3-dimethylvinylsilylene [CH3CH=C(CH3)SiH] is also an important process. The calculations also indicate the probable involvement of several other intermediates, and possible products. RRKM calculations are in reasonable agreement with the pressure dependences at an enthalpy value for 2,3-dimethylsilirene fairly close to that suggested by the ab initio calculations. The experimental isotope effects deviate significantly from those predicted by RRKM theory. The differences can be explained by an isotopic scrambling mechanism, involving H - D exchange between the hydrogens of the methyl groups and the D-atoms in the ring in 2,3-dimethylsilirene-1,1-d(2). A detailed mechanism involving several intermediate species, which is consistent with the G3 energy surface, is proposed to account for this.

Estimation of systematic error in an equatorial ocean model using data assimilation

Assimilation of temperature observations into an ocean model near the equator often results in a dynamically unbalanced state with unrealistic overturning circulations. The way in which these circulations arise from systematic errors in the model or its forcing is discussed. A scheme is proposed, based on the theory of state augmentation, which uses the departures of the model state from the observations to update slowly evolving bias fields. Results are summarized from an experiment applying this bias correction scheme to an ocean general circulation model. They show that the method produces more balanced analyses and a better fit to the temperature observations.

Adjoint methods in data assimilation for estimating model error

Data assimilation aims to incorporate measured observations into a dynamical system model in order to produce accurate estimates of all the current (and future) state variables of the system. The optimal estimates minimize a variational principle and can be found using adjoint methods. The model equations are treated as strong constraints on the problem. In reality, the model does not represent the system behaviour exactly and errors arise due to lack of resolution and inaccuracies in physical parameters, boundary conditions and forcing terms. A technique for estimating systematic and time-correlated errors as part of the variational assimilation procedure is described here. The modified method determines a correction term that compensates for model error and leads to improved predictions of the system states. The technique is illustrated in two test cases. Applications to the 1-D nonlinear shallow water equations demonstrate the effectiveness of the new procedure.

On the Nusselt number for frazil ice growth—a correction to ”Frazil evolution in channels“ by Lars Hammar and Hung-Tao Shen

The growth (melt) rate of frazil ice is governed by heat transfer away from (towards) the ice crystal, which can be represented by the Nusselt number. We discuss choices for the Nusselt number and turbulent length scale appropriate for frazil ice and note an inaccuracy in the study ”Frazil evolution in channels“ by Lars Hammar and Hung-Tao Shen, which has also led to potentially significant errors in several other papers. We correct this error and suggest an appropriate strategy for determining the Nusselt number applicable to frazil ice growth and melting.