Forecasting exchange rate volatility using conditional variance models selected by information criteria

This paper uses appropriately modified information criteria to select models from the GARCH family, which are subsequently used for predicting US dollar exchange rate return volatility. The out of sample forecast accuracy of models chosen in this manner compares favourably on mean absolute error grounds, although less favourably on mean squared error grounds, with those generated by the commonly used GARCH(1, 1) model. An examination of the orders of models selected by the criteria reveals that (1, 1) models are typically selected less than 20% of the time.

Predicting stock index volatility: can market volume help?

This paper explores a number of statistical models for predicting the daily stock return volatility of an aggregate of all stocks traded on the NYSE. An application of linear and non-linear Granger causality tests highlights evidence of bidirectional causality, although the relationship is stronger from volatility to volume than the other way around. The out-of-sample forecasting performance of various linear, GARCH, EGARCH, GJR and neural network models of volatility are evaluated and compared. The models are also augmented by the addition of a measure of lagged volume to form more general ex-ante forecasting models. The results indicate that augmenting models of volatility with measures of lagged volume leads only to very modest improvements, if any, in forecasting performance.

Low-frequency volatility of real estate securities in relation to macroeconomic risk

Real estate securities have a number of distinct characteristics that differentiate them from stocks generally. Key amongst them is that under-pinning the firms are both real as well as investment assets. The connections between the underlying macro-economy and listed real estate firms is therefore clearly demonstrated and of heightened importance. To consider the linkages with the underlying macro-economic fundamentals we extract the ‘low-frequency’ volatility component from aggregate volatility shocks in 11 international markets over the 1990-2014 period. This is achieved using Engle and Rangel’s (2008) Spline-Generalized Autoregressive Conditional Heteroskedasticity (Spline-GARCH) model. The estimated low-frequency volatility is then examined together with low-frequency macro data in a fixed-effect pooled regression framework. The analysis reveals that the low-frequency volatility of real estate securities has strong and positive association with most of the macroeconomic risk proxies examined. These include interest rates, inflation, GDP and foreign exchange rates.

Do jumps matter for volatility forecasting? Evidence from energy markets

This paper characterizes the dynamics of jumps and analyzes their importance for volatility forecasting. Using high-frequency data on four prominent energy markets, we perform a model-free decomposition of realized variance into its continuous and discontinuous components. We find strong evidence of jumps in energy markets between 2007 and 2012. We then investigate the importance of jumps for volatility forecasting. To this end, we estimate and analyze the predictive ability of several Heterogenous Autoregressive (HAR) models that explicitly capture the dynamics of jumps. Conducting extensive in-sample and out-of-sample analyses, we establish that explicitly modeling jumps does not significantly improve forecast accuracy. Our results are broadly consistent across our four energy markets, forecasting horizons, and loss functions

Accounting quality, information risk and implied volatility around earnings announcements

We examine the impact of accounting quality, used as a proxy for information risk, on the behavior of equity implied volatility around quarterly earnings announcements. Using US data during 1996–2010, we observe that lower (higher) accounting quality significantly relates to higher (lower) levels of implied volatility (IV) around announcements. Worse accounting quality is further associated with a significant increase in IV before announcements, and is found to relate to a larger resolution in IV after the announcement has taken place. We interpret our findings as indicative of information risk having a significant impact on implied volatility behavior around earnings announcements.

For better or for worse, till the human development index do us part?

This paper describes the results of research intended to explore the volatility inherent in the United Nations Development Programme's (UNDP) Human Development Index (HDI). The HDI is intended to be a simple and transparent device for comparing progress in human development, and is an aggregate of life expectancy, education and GDP per capita. Values of the HDI for each country are presented in the Human Development Reports (HDRs), the first being published in 1990. However, while the methodology is consistent for all countries in each year there are notable differences between years that make temporal comparisons of progress difficult. The paper presents the results of recalculating the HDI for a simplified sample of 114 countries using various methodologies employed by the UNDP. The results are a set of deviations of recalculated HDI ranks compared to the original ranks given in the HDRs. The volatility that can result from such recalculation is shown to be substantial (+/-10-15 ranks), yet reports in the popular press are frequently sensitive to movements of only a few ranks. Such movement can easily be accounted for by changes in the HDI methodology rather than genuine progress in human development. While the HDRs often carry warnings about the inadvisability of such year-on-year comparisons, it is argued that the existence of such a high-profile index and the overt presentation within league tables do encourage such comparison. Assuming that the HDI will be retained as a focal point within the HDRs, then it is suggested that greater focus be upon more meaningful and robust categories of human development (e.g. low, medium and high) rather than league tables where shifts of a few places, perhaps as a result of nothing more than a methodological or data artefact, may be highlighted in the press and by policy makers. (C) 2003 Elsevier Science B.V. All rights reserved.

Airborne measurements of the spatial distribution of aerosol chemical composition across Europe and evolution of the organic fraction

The spatial distribution of aerosol chemical composition and the evolution of the Organic Aerosol (OA) fraction is investigated based upon airborne measurements of aerosol chemical composition in the planetary boundary layer across Europe. Sub-micron aerosol chemical composition was measured using a compact Time-of-Flight Aerosol Mass Spectrometer (cToF-AMS). A range of sampling conditions were evaluated, including relatively clean background conditions, polluted conditions in North-Western Europe and the near-field to far-field outflow from such conditions. Ammonium nitrate and OA were found to be the dominant chemical components of the sub-micron aerosol burden, with mass fractions ranging from 20--50% each. Ammonium nitrate was found to dominate in North-Western Europe during episodes of high pollution, reflecting the enhanced NO_x and ammonia sources in this region. OA was ubiquitous across Europe and concentrations generally exceeded sulphate by 30--160%. A factor analysis of the OA burden was performed in order to probe the evolution across this large range of spatial and temporal scales. Two separate Oxygenated Organic Aerosol (OOA) components were identified; one representing an aged-OOA, termed Low Volatility-OOA and another representing fresher-OOA, termed Semi Volatile-OOA on the basis of their mass spectral similarity to previous studies. The factors derived from different flights were not chemically the same but rather reflect the range of OA composition sampled during a particular flight. Significant chemical processing of the OA was observed downwind of major sources in North-Western Europe, with the LV-OOA component becoming increasingly dominant as the distance from source and photochemical processing increased. The measurements suggest that the aging of OA can be viewed as a continuum, with a progression from a less oxidised, semi-volatile component to a highly oxidised, less-volatile component. Substantial amounts of pollution were observed far downwind of continental Europe, with OA and ammonium nitrate being the major constituents of the sub-micron aerosol burden. Such anthropogenically perturbed air masses can significantly perturb regional climate far downwind of major source regions.

Landscape gene flow, coexistence and threshold effect: The case of genetically modified herbicide tolerant oilseed rape (Brassica napus)

Globally there have been a number of concerns about the development of genetically modified crops many of which relate to the implications of gene flow at various levels. In Europe these concerns have led the European Union (EU) to promote the concept of 'coexistence' to allow the freedom to plant conventional and genetically modified (GM) varieties but to minimise the presence of transgenic material within conventional crops. Should a premium for non-GM varieties emerge on the market, the presence of transgenes would generate a 'negative externality' to conventional growers. The establishment of maximum tolerance level for the adventitious presence of GM material in conventional crops produces a threshold effect in the external costs. The existing literature suggests that apart from the biological characteristics of the plant under consideration (e.g. self-pollination rates, entomophilous species, anemophilous species, etc.), gene flow at the landscape level is affected by the relative size of the source and sink populations and the spatial arrangement of the fields in the landscape. In this paper, we take genetically modified herbicide tolerant oilseed rape (GM HT OSR) as a model crop. Starting from an individual pollen dispersal function, we develop a spatially explicit numerical model in order to assess the effect of the size of the source/sink populations and the degree of spatial aggregation on the extent of gene flow into conventional OSR varieties under two alternative settings. We find that when the transgene presence in conventional produce is detected at the field level, the external cost will increase with the size of the source area and with the level of spatial disaggregation. on the other hand when the transgene presence is averaged among all conventional fields in the landscape (e.g. because of grain mixing before detection), the external cost will only depend on the relative size of the source area. The model could readily be incorporated into an economic evaluation of policies to regulate adoption of GM HT OSR. (c) 2007 Elsevier B.V. All rights reserved.

Quantifying the effect of buffer zones, crop areas and spatial aggregation on the externalities of genetically modified crops at landscape level

The development of genetically modified (GM) crops has led the European Union (EU) to put forward the concept of 'coexistence' to give fanners the freedom to plant both conventional and GM varieties. Should a premium for non-GM varieties emerge in the market, 'contamination' by GM pollen would generate a negative externality to conventional growers. It is therefore important to assess the effect of different 'policy variables'on the magnitude of the externality to identify suitable policies to manage coexistence. In this paper, taking GM herbicide tolerant oilseed rape as a model crop, we start from the model developed in Ceddia et al. [Ceddia, M.G., Bartlett, M., Perrings, C., 2007. Landscape gene flow, coexistence and threshold effect: the case of genetically modified herbicide tolerant oilseed rape (Brassica napus). Ecol. Modell. 205, pp. 169-180] use a Monte Carlo experiment to generate data and then estimate the effect of the number of GM and conventional fields, width of buffer areas and the degree of spatial aggregation (i.e. the 'policy variables') on the magnitude of the externality at the landscape level. To represent realistic conditions in agricultural production, we assume that detection of GM material in conventional produce might occur at the field level (no grain mixing occurs) or at the silos level (where grain mixing from different fields in the landscape occurs). In the former case, the magnitude of the externality will depend on the number of conventional fields with average transgenic presence above a certain threshold. In the latter case, the magnitude of the externality will depend on whether the average transgenic presence across all conventional fields exceeds the threshold. In order to quantify the effect of the relevant' policy variables', we compute the marginal effects and the elasticities. Our results show that when relying on marginal effects to assess the impact of the different 'policy variables', spatial aggregation is far more important when transgenic material is detected at field level, corroborating previous research. However, when elasticity is used, the effectiveness of spatial aggregation in reducing the externality is almost identical whether detection occurs at field level or at silos level. Our results show also that the area planted with GM is the most important 'policy variable' in affecting the externality to conventional growers and that buffer areas on conventional fields are more effective than those on GM fields. The implications of the results for the coexistence policies in the EU are discussed. (C) 2008 Elsevier B.V. All rights reserved.

Consumer acceptance, valuation of and attitudes towards genetically modified food: Review and implications for food policy

An increasing set of evidence has been reported on how consumers could potentially react to the introduction of genetically modified food. Studies typically contain some empirical evidence and some theoretical explanations of the data, however, to date limited effort has been posed on systematically reviewing the existing evidence and its implications for policy. This paper contributes to the literature by bringing together the published evidence on the behavioural frameworks and evidence on the process leading to the public acceptance of genetically modified (GM) food and organisms (GMOs). In doing so, we employ a set of clearly defined search tools and a limited number of comprehensive key words. The study attempts to gather an understanding of the published findings on the determinants of the valuation of GM food - both in terms of willingness to accept and the willing-to-pay a premium for non-GM food, trust with information sources on the safety and public health and ultimate attitudes underpinning such evidence. Furthermore, in the light of such evidence, we formulate some policy strategies to deal with public uncertainly regarding to GMOs and, especially GM food. (c) 2007 Elsevier Ltd. All rights reserved.

Enhancement of oleic acid and vitamin E concentrations of bovine milk using dietary supplements of whole rapeseed and vitamin E

With the aim of reducing the degree of saturation and increasing the C18:1 cis fatty acid content of milk fat, the effects of feeding high levels of whole cracked rapeseed to dairy cows was investigated together with the effect of increasing dietary intake of vitamin E on the vitamin E content of milk. Using a 3 x 3 factorial design, 90 Holstein dairy cows were fed one of three levels of whole cracked rapeseed (0 (ZR), 134 (MR) and 270 g . kg(-1) diet dry matter (DM) (HR)) in combination with one of three intakes of supplementary vitamin E (0 (ZE), 2 (ME) and 4 g . cow(-1) . d(-1) (HE)). Supplementing with up to almost 2 kg . d(-1) of rapeseed oil (diet HR) significantly (P < 0.001) increased C18: 1cis in milk fat, from 181 (ZR) to over 400 g &BULL; kg(-1) (HR) of total milk fatty acids. Concentrations of C18: 0, C18: 2 and C18: 3 fatty acids were also increased ( P < 0.001) but by a much lesser degree, and the saturated fatty acids C4: 0 to C16: 0 decreased substantially. Vitamin E supplementation increased ( P < 0.01) milk vitamin E concentrations from 1.29 (ZE) to 1.68 mg &BULL; kg(-1) whole milk (HE). Thus substantial changes in milk fat composition with potentially beneficial effects on human health were achieved and without any adverse effects on milk taste. However, these improvements must be offset against the substantial reductions ( P < 0.001) observed in voluntary feed DM consumption (ZR, 20.6; HR, 15.2 kg DM . d(-1)), milk yield (ZR, 22.9; HR, 13.2 kg . d(-1)) and milk fat concentration (ZR, 42.1; HR, 33.4 g . kg(-1)) which would not be commercially sustainable unless a considerable premium was paid for this modified milk. It seems likely that the optimum dose of dietary rapeseed is lower than used in this study.

Consumer attitudes towards and willingness to pay for pesticide residue limit compliant 'safe' vegetables in Northeast Thailand

Pesticide residue in vegetables is a major food safety issue in Thailand. A range of vegetable products (organic/pesticide-free/ hydroponic) has emerged in Thai markets that guarantee compliance with maximum residue limits. The Government of Thailand is eager to extend the benefits of this suite of alternative vegetables to the entire population, particularly the semi-urban/rural segments that are often bypassed by such speciality products. However, little information is available to guide such an effort, particularly with regard to up-country consumer attitudes, shopping and consumption habits and willingness to pay premiums for such produce. This research aims to fill this gap in knowledge. It reports the results of a survey of vegetable consumption and shopping habits and attitudes of 608 consumers in northeast Thailand. Willingness to pay premiums for pesticide residue limit compliant vegetables is also assessed by using a contingent valuation method, and determinants of willingness to pay are examined using an ordered probit empirical model. Results indicate that, given adequate awareness of relative risks, even up-country consumers are willing to pay market premium levels for these products, and that inadequate availability, rather than lack of demand is the constraining factor. Willingness to pay is found to increase with income, age and supermarket sourcing of vegetables. We also discuss the challenge of improving availability at mainstream outlets.

Consumers' willingness-to-pay for organic conversion-grade food: Evidence from five EU countries

In recent years, in overall value, the EU has become a net importer of organic food to supply increasing demand. Financial support for farmers during the conversion period has been made to help expand organic production as this was seen as a barrier to conversion. Meanwhile, farmers have been marketing products produced in this conversion period and labelled as such, the extent to which is described here for the UK, Portugal, Denmark, Ireland and Italy. Consumers' attitudes towards, and willingness-to-pay for, conversion-grade food in these countries is examined. It was found that consumers would be prepared to pay a premium for conversion-grade produce of around half the premium for organic produce with vegetables attracting a higher premium than meat. Finally, the potential of policies for marketing conversion-grade products to encourage more conversion is examined, together with barriers to achieving this. It is concluded that barriers to marketing such products, particularly from retailers, will be formidable. Thus, alternative policies are suggested. (C) 2009 Elsevier Ltd. All rights reserved.

Timing and the holding periods of institutional real estate

Literature on investors' holding periods for securities suggests that high transaction costs are associated with longer holding periods. Return volatility, by contrast, is associated with shorter holding periods. In real estate, high transaction costs and illiquidity imply longer holding periods. Research on depreciation and obsolescence suggests that there might be an optimal holding period. Sales rates and holding periods for U.K. institutional real estate are analyzed, using a proportional hazards model, over an 18-year period. The results show longer holding periods than those claimed by investors, with marked differences by type of property and over time. The results shed light on investor behavior.

Simulating regional scale secondary organic aerosol formation during the TORCH 2003 campaign in the southern UK

A photochemical trajectory model has been used to simulate the chemical evolution of air masses arriving at the TORCH field campaign site in the southern UK during late July and August 2003, a period which included a widespread and prolonged photochemical pollution episode. The model incorporates speciated emissions of 124 nonmethane anthropogenic VOC and three representative biogenic VOC, coupled with a comprehensive description of the chemistry of their degradation. A representation of the gas/aerosol absorptive partitioning of ca. 2000 oxygenated organic species generated in the Master Chemical Mechanism (MCM v3.1) has been implemented, allowing simulation of the contribution to organic aerosol (OA) made by semi- and non-volatile products of VOC oxidation; emissions of primary organic aerosol (POA) and elemental carbon (EC) are also represented. Simulations of total OA mass concentrations in nine case study events (optimised by comparison with observed hourly-mean mass loadings derived from aerosol mass spectrometry measurements) imply that the OA can be ascribed to three general sources: (i) POA emissions; (ii) a '' ubiquitous '' background concentration of 0.7 mu g m(-3); and (iii) gas-to-aerosol transfer of lower volatility products of VOC oxidation generated by the regional scale processing of emitted VOC, but with all partitioning coefficients increased by a species-independent factor of 500. The requirement to scale the partitioning coefficients, and the implied background concentration, are both indicative of the occurrence of chemical processes within the aerosol which allow the oxidised organic species to react by association and/or accretion reactions which generate even lower volatility products, leading to a persistent, non-volatile secondary organic aerosol (SOA). The contribution of secondary organic material to the simulated OA results in significant elevations in the simulated ratio of organic carbon (OC) to EC, compared with the ratio of 1.1 assigned to the emitted components. For the selected case study events, [OC]/[EC] is calculated to lie in the range 2.7-9.8, values which are comparable with the high end of the range reported in the literature.