Quantile forecasts of daily exchange rate returns from forecasts of realized volatility

Quantile forecasts are central to risk management decisions because of the widespread use of Value-at-Risk. A quantile forecast is the product of two factors: the model used to forecast volatility, and the method of computing quantiles from the volatility forecasts. In this paper we calculate and evaluate quantile forecasts of the daily exchange rate returns of five currencies. The forecasting models that have been used in recent analyses of the predictability of daily realized volatility permit a comparison of the predictive power of different measures of intraday variation and intraday returns in forecasting exchange rate variability. The methods of computing quantile forecasts include making distributional assumptions for future daily returns as well as using the empirical distribution of predicted standardized returns with both rolling and recursive samples. Our main findings are that the Heterogenous Autoregressive model provides more accurate volatility and quantile forecasts for currencies which experience shifts in volatility, such as the Canadian dollar, and that the use of the empirical distribution to calculate quantiles can improve forecasts when there are shifts

Occupational futures? Divesting real estate and corporate PFI

Property ownership can tie up large amounts of capital and management energy that business could employ more productively elsewhere. Competitive pressures, accounting changes and increasingly sophisticated occupier requirements are building demand for new and innovative ways to satisfy corporate occupation needs. The investment climate is also changing. Falling interest rates and falling inflation can be expected to undermine returns from the traditional FRI lease. In future, investment returns will be more dependent on active and innovative management geared to the needs of occupiers on whom income depends. Occupier and investor interests, therefore, look set to coincide, but unlocking the potential for both parties will depend on developing new finance and investment vehicles that align their respective needs. In the UK, examples include PFI in the public sector and off-balance sheet financing in the private sector. In the USA, “synthetic lease” structures have also become popular. Growing investment market experience in assessing risks and returns suggests scope for further innovative arrangements in the corporate sector. But how can such arrangements be structured? What are the risks, drivers and barriers?

The future returns for property required by UK pension funds

In the 1970s Real Estate represented over 17% of the average pension funds total assets. Today such funds hold less than 4%, a figure not seen since the 1960s. This reduction in Real Estate holdings is mainly attributable to the relatively poor performance of Real Estate against other asset classes since the 1980s. Whether pension funds will increase their holding at any point in the future depends therefore on the expected return of Real Estate by comparison with that required to justify a particular asset holding. Using the technique of Modern Portfolio Theory (MPT), this paper assesses the required return that Real Estate would have to offer to justify a 15% holding in a mixed asset portfolio. This figure and the risk/return characteristics of the major asset classes is taken from survey data. Under a number of scenarios it is found that Real Estate can play a part in a mixed asset portfolio at the 15% level. In some cases however, the expected returns of Real Estate are not sufficient to justify a weight of 15% in this asset.

The future returns for property required by UK pension funds: the BHS data

Previous studies of the place of Property in the multi-asset portfolio have generally relied on historical data, and have been concerned with the supposed risk reduction effects that Property would have on such portfolios. In this paper a different approach has been taken. Not only are expectations data used, but we have also concentrated upon the required return that Property would have to offer to achieve a holding of 15% in typical UK pension fund portfolios. Using two benchmark portfolios for pension funds, we have shown that Property's required return is less than that expected, and therefore it could justify a 15% holding.

Commodity risks and the cross-section of equity returns

The article examines whether commodity risk is priced in the cross-section of global equity returns. We employ a long-only equally-weighted portfolio of commodity futures and a term structure portfolio that captures phases of backwardation and contango as mimicking portfolios for commodity risk. We find that equity-sorted portfolios with greater sensitivities to the excess returns of the backwardation and contango portfolio command higher average excess returns, suggesting that when measured appropriately, commodity risk is pervasive in stocks. Our conclusions are robust to the addition to the pricing model of financial, macroeconomic and business cycle-based risk factors.

Report of the 2010 assessment of the scientific assessment panel: future ozone and its impact on surface UV

SCIENTIFIC SUMMARY Globally averaged total column ozone has declined over recent decades due to the release of ozone-depleting substances (ODSs) into the atmosphere. Now, as a result of the Montreal Protocol, ozone is expected to recover from the effects of ODSs as ODS abundances decline in the coming decades. However, a number of factors in addition to ODSs have led to and will continue to lead to changes in ozone. Discriminating between the causes of past and projected ozone changes is necessary, not only to identify the progress in ozone recovery from ODSs, but also to evaluate the effectiveness of climate and ozone protection policy options. Factors Affecting Future Ozone and Surface Ultraviolet Radiation • At least for the next few decades, the decline of ODSs is expected to be the major factor affecting the anticipated increase in global total column ozone. However, several factors other than ODS will affect the future evolution of ozone in the stratosphere. These include changes in (i) stratospheric circulation and temperature due to changes in long-lived greenhouse gas (GHG) abundances, (ii) stratospheric aerosol loading, and (iii) source gases of highly reactive stratospheric hydrogen and nitrogen compounds. Factors that amplify the effects of ODSs on ozone (e.g., stratospheric aerosols) will likely decline in importance as ODSs are gradually eliminated from the atmosphere. • Increases in GHG emissions can both positively and negatively affect ozone. Carbon dioxide (CO2)-induced stratospheric cooling elevates middle and upper stratospheric ozone and decreases the time taken for ozone to return to 1980 levels, while projected GHG-induced increases in tropical upwelling decrease ozone in the tropical lower stratosphere and increase ozone in the extratropics. Increases in nitrous oxide (N2O) and methane (CH4) concentrations also directly impact ozone chemistry but the effects are different in different regions. • The Brewer-Dobson circulation (BDC) is projected to strengthen over the 21st century and thereby affect ozone amounts. Climate models consistently predict an acceleration of the BDC or, more specifically, of the upwelling mass flux in the tropical lower stratosphere of around 2% per decade as a consequence of GHG abundance increases. A stronger BDC would decrease the abundance of tropical lower stratospheric ozone, increase poleward transport of ozone, and could reduce the atmospheric lifetimes of long-lived ODSs and other trace gases. While simulations showing faster ascent in the tropical lower stratosphere to date are a robust feature of chemistry-climate models (CCMs), this has not been confirmed by observations and the responsible mechanisms remain unclear. • Substantial ozone losses could occur if stratospheric aerosol loading were to increase in the next few decades, while halogen levels are high. Stratospheric aerosol increases may be caused by sulfur contained in volcanic plumes entering the stratosphere or from human activities. The latter might include attempts to geoengineer the climate system by enhancing the stratospheric aerosol layer. The ozone losses mostly result from enhanced heterogeneous chemistry on stratospheric aerosols. Enhanced aerosol heating within the stratosphere also leads to changes in temperature and circulation that affect ozone. • Surface ultraviolet (UV) levels will not be affected solely by ozone changes but also by the effects of climate change and by air quality change in the troposphere. These tropospheric effects include changes in clouds, tropospheric aerosols, surface reflectivity, and tropospheric sulfur dioxide (SO2) and nitrogen dioxide (NO2). The uncertainties in projections of these factors are large. Projected increases in tropospheric ozone are more certain and may lead to reductions in surface erythemal (“sunburning”) irradiance of up to 10% by 2100. Changes in clouds may lead to decreases or increases in surface erythemal irradiance of up to 15% depending on latitude. Expected Future Changes in Ozone Full ozone recovery from the effects of ODSs and return of ozone to historical levels are not synonymous. In this chapter a key target date is chosen to be 1980, in part to retain the connection to previous Ozone Assessments. Noting, however, that decreases in ozone may have occurred in some regions of the atmosphere prior to 1980, 1960 return dates are also reported. The projections reported on in this chapter are taken from a recent compilation of CCM simulations. The ozone projections, which also form the basis for the UV projections, are limited in their representativeness of possible futures since they mostly come from CCM simulations based on a single GHG emissions scenario (scenario A1B of Emissions Scenarios. A Special Report of Working Group III of the Intergovernmental Panel on Climate Change, Cambridge University Press, 2000) and a single ODS emissions scenario (adjusted A1 of the previous (2006) Ozone Assessment). Throughout this century, the vertical, latitudinal, and seasonal structure of the ozone distribution will be different from what it was in 1980. For this reason, ozone changes in different regions of the atmosphere are considered separately. • The projections of changes in ozone and surface clear-sky UV are broadly consistent with those reported on in the 2006 Assessment. • The capability of making projections and attribution of future ozone changes has been improved since the 2006 Assessment. Use of CCM simulations from an increased number of models extending through the entire period of ozone depletion and recovery from ODSs (1960–2100) as well as sensitivity simulations have allowed more robust projections of long-term changes in the stratosphere and of the relative contributions of ODSs and GHGs to those changes. • Global annually averaged total column ozone is projected to return to 1980 levels before the middle of the century and earlier than when stratospheric halogen loading returns to 1980 levels. CCM projections suggest that this early return is primarily a result of GHG-induced cooling of the upper stratosphere because the effects of circulation changes on tropical and extratropical ozone largely cancel. Global (90°S–90°N) annually averaged total column ozone will likely return to 1980 levels between 2025 and 2040, well before the return of stratospheric halogens to 1980 levels between 2045 and 2060. • Simulated changes in tropical total column ozone from 1960 to 2100 are generally small. The evolution of tropical total column ozone in models depends on the balance between upper stratospheric increases and lower stratospheric decreases. The upper stratospheric increases result from declining ODSs and a slowing of ozone destruction resulting from GHG-induced cooling. Ozone decreases in the lower stratosphere mainly result from an increase in tropical upwelling. From 1960 until around 2000, a general decline is simulated, followed by a gradual increase to values typical of 1980 by midcentury. Thereafter, although total column ozone amounts decline slightly again toward the end of the century, by 2080 they are no longer expected to be affected by ODSs. Confidence in tropical ozone projections is compromised by the fact that simulated decreases in column ozone to date are not supported by observations, suggesting that significant uncertainties remain. • Midlatitude total column ozone is simulated to evolve differently in the two hemispheres. Over northern midlatitudes, annually averaged total column ozone is projected to return to 1980 values between 2015 and 2030, while for southern midlatitudes the return to 1980 values is projected to occur between 2030 and 2040. The more rapid return to 1980 values in northern midlatitudes is linked to a more pronounced strengthening of the poleward transport of ozone due to the effects of increased GHG levels, and effects of Antarctic ozone depletion on southern midlatitudes. By 2100, midlatitude total column ozone is projected to be above 1980 values in both hemispheres. • October-mean Antarctic total column ozone is projected to return to 1980 levels after midcentury, later than in any other region, and yet earlier than when stratospheric halogen loading is projected to return to 1980 levels. The slightly earlier return of ozone to 1980 levels (2045–2060) results primarily from upper stratospheric cooling and resultant increases in ozone. The return of polar halogen loading to 1980 levels (2050–2070) in CCMs is earlier than in empirical models that exclude the effects of GHG-induced changes in circulation. Our confidence in the drivers of changes in Antarctic ozone is higher than for other regions because (i) ODSs exert a strong influence on Antarctic ozone, (ii) the effects of changes in GHG abundances are comparatively small, and (iii) projections of ODS emissions are more certain than those for GHGs. Small Antarctic ozone holes (areas of ozone <220 Dobson units, DU) could persist to the end of the 21st century. • March-mean Arctic total column ozone is projected to return to 1980 levels two to three decades before polar halogen loading returns to 1980 levels, and to exceed 1980 levels thereafter. While CCM simulations project a return to 1980 levels between 2020 and 2035, most models tend not to capture observed low temperatures and thus underestimate present-day Arctic ozone loss such that it is possible that this return date is biased early. Since the strengthening of the Brewer-Dobson circulation through the 21st century leads to increases in springtime Arctic column ozone, by 2100 Arctic ozone is projected to lie well above 1960 levels. Uncertainties in Projections • Conclusions dependent on future GHG levels are less certain than those dependent on future ODS levels since ODS emissions are controlled by the Montreal Protocol. For the six GHG scenarios considered by a few CCMs, the simulated differences in stratospheric column ozone over the second half of the 21st century are largest in the northern midlatitudes and the Arctic, with maximum differences of 20–40 DU between the six scenarios in 2100. • There remain sources of uncertainty in the CCM simulations. These include the use of prescribed ODS mixing ratios instead of emission fluxes as lower boundary conditions, the range of sea surface temperatures and sea ice concentrations, missing tropospheric chemistry, model parameterizations, and model climate sensitivity. • Geoengineering schemes for mitigating climate change by continuous injections of sulfur-containing compounds into the stratosphere, if implemented, would substantially affect stratospheric ozone, particularly in polar regions. Ozone losses observed following large volcanic eruptions support this prediction. However, sporadic volcanic eruptions provide limited analogs to the effects of continuous sulfur emissions. Preliminary model simulations reveal large uncertainties in assessing the effects of continuous sulfur injections. Expected Future Changes in Surface UV. While a number of factors, in addition to ozone, affect surface UV irradiance, the focus in this chapter is on the effects of changes in stratospheric ozone on surface UV. For this reason, clear-sky surface UV irradiance is calculated from ozone projections from CCMs. • Projected increases in midlatitude ozone abundances during the 21st century, in the absence of changes in other factors, in particular clouds, tropospheric aerosols, and air pollutants, will result in decreases in surface UV irradiance. Clear-sky erythemal irradiance is projected to return to 1980 levels on average in 2025 for the northern midlatitudes, and in 2035 for the southern midlatitudes, and to fall well below 1980 values by the second half of the century. However, actual changes in surface UV will be affected by a number of factors other than ozone. • In the absence of changes in other factors, changes in tropical surface UV will be small because changes in tropical total column ozone are projected to be small. By the middle of the 21st century, the model projections suggest surface UV to be slightly higher than in the 1960s, very close to values in 1980, and slightly lower than in 2000. The projected decrease in tropical total column ozone through the latter half of the century will likely result in clear-sky surface UV remaining above 1960 levels. Average UV irradiance is already high in the tropics due to naturally occurring low total ozone columns and high solar elevations. • The magnitude of UV changes in the polar regions is larger than elsewhere because ozone changes in polar regions are larger. For the next decades, surface clear-sky UV irradiance, particularly in the Antarctic, will continue to be higher than in 1980. Future increases in ozone and decreases in clear-sky UV will occur at slower rates than those associated with the ozone decreases and UV increases that occurred before 2000. In Antarctica, surface clear-sky UV is projected to return to 1980 levels between 2040 and 2060, while in the Arctic this is projected to occur between 2020 and 2030. By 2100, October surface clear-sky erythemal irradiance in Antarctica is likely to be between 5% below to 25% above 1960 levels, with considerable uncertainty. This is consistent with multi-model-mean October Antarctic total column ozone not returning to 1960 levels by 2100. In contrast, by 2100, surface clear-sky UV in the Arctic is projected to be 0–10% below 1960 levels.

Serial persistence in individual real estate returns in the UK

Persistence of property returns is a topic of perennial interest to fund managers as it suggests that choosing those properties that will perform well in the future is as simple as looking at those that performed well in the past. Consequently, much effort has been expended to determine if such a rule exists in the real estate market. This paper extends earlier studies in US, Australian, and UK markets in two ways. First, this study applies the same methodology originally used in Young and Graff (1996) making the results directly comparable with those in the US and Australian property markets. Second, this study uses a much longer and larger database covering all commercial property data available from the Investment Property Databank (IPD), for the years 1981 to 2002 for as many as 216,758 individual property returns. While the performance results of this study mimic the US and Australian results of greater persistence in the extreme first and fourth quartiles, they also evidence persistence in the moderate second and third quartiles, a notable departure from previous studies. Likewise patterns across property type, location, time, and holding period are remarkably similar leading to the conjecture that behaviors in the practice of commercial real estate investment management are themselves deeply rooted and persistent and perhaps influenced for good or ill by agency effects

Persistence of UK Real Estate returns: a Markov chain analysis

The persistence of investment performance is a topic of perennial interest to investors. Efficient Markets theory tells us that past performance can not be used to predict future performance yet investors appear to be influenced by the historical performance in making their investment allocation decisions. The problem has been of particular interest to investors in real estate; not least because reported returns from investment in real estate are serially correlated thus implying some persistence in investment performance. This paper applies the established approach of Markov Chain analysis to investigate the relationship between past and present performance of UK real estate over the period 1981 to 1996. The data are analysed by sector, region and size. Furthermore some variations in investment performance classification are reported and the results are shown to be robust.

Excise taxes and commodity promotion bayesian retrieval of the optimum

This article shows how the solution to the promotion problem—the problem of locating the optimal level of advertising in a downstream market—can be derived simply, empirically, and robustly through the application of some simple calculus and Bayesian econometrics. We derive the complete distribution of the level of promotion that maximizes producer surplus and generate recommendations about patterns as well as levels of expenditure that increase net returns. The theory and methods are applied to quarterly series (1978:2S1988:4) on red meats promotion by the Australian Meat and Live-Stock Corporation. A slightly different pattern of expenditure would have profited lamb producers

The dynamics of commodity prices

In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties with those of the equity market. we observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

Economic commodity or environmental crisis? An interdisciplinary approach to analysing the bushmeat trade in central and west Africa

Bushmeat is a large but largely invisible contributor to the economies of west and central African countries. Yet the trade is currently unsustainable. Hunting is reducing wildlife populations, driving more vulnerable species to local and regional extinction, and threatening biodiversity. This paper uses a commodity chain approach to explore the bushmeat trade and to demonstrate why an interdisciplinary approach is required if the trade is to be sustainable in the future.

Commodity price dynamics and derivatives valuation: a review

This paper reviews extant research on commodity price dynamics and commodity derivatives pricing models. In the first half, we provide an overview of stylized facts of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second half, we review existing derivatives pricing models and discuss how the peculiarities of commodity markets have been integrated in these models. We conclude the paper with a brief outlook on important research questions that need to be addressed in the future.

Back to the future: implications for the field of HRM of the multistakeholder perspective proposed 30 years ago

Thirty years on from the seminal works on human resource management (HRM) by Beer et al., we examine how the subject has developed. We offer a normative review, based on that model and critique the assumption that the business of HRM is solely to improve returns to owners and shareholders. We identify the importance of a wider view of stakeholders to practitioners and how academic studies on the periphery of HRM are beginning to adopt such a view. We argue that the HRM studies so far have given us much valuable learning but that the subject has now reached a point where we need to take a wider, more contextual, more multilayered approach founded on the long-term needs of all relevant stakeholders. The original Beer et al. model remains a valuable guide to the next 30 years of HRM.

The role of index trading in price formation in the grains and oilseeds markets

We use both Granger-causality and instrumental variables (IV) methods to examine the impact of index fund positions on price returns for the main US grains and oilseed futures markets. Our analysis supports earlier conclusions that Granger-causal impacts are generally not discernible. However, market microstructure theory suggests trading impacts should be instantaneous. IV-based tests for contemporaneous causality provide stronger evidence of price impact. We find even stronger evidence that changes in index positions can help predict future changes in aggregate commodity price indices. This result suggests that changes in index investment are in part driven by information which predicts commodity price changes over the coming months.