Can company-fund manager meetings convey informational benefits? Exploring the rationalisation of equity investment decision making by UK fund managers

Conventional economic theory, applied to information released by listed companies, equates ‘useful’ with ‘price-sensitive’. Stock exchange rules accordingly prohibit the selec- tive, private communication of price-sensitive information. Yet, even in the absence of such communication, UK equity fund managers routinely meet privately with the senior execu- tives of the companies in which they invest. Moreover, they consider these brief, formal and formulaic meetings to be their most important sources of investment information. In this paper we ask how that can be. Drawing on interview and observation data with fund managers and CFOs, we find evidence for three, non-mutually exclusive explanations: that the characterisation of information in conventional economic theory is too restricted, that fund managers fail to act with the rationality that conventional economic theory assumes, and/or that the primary value of the meetings for fund managers is not related to their investment decision making but to the claims of superior knowledge made to clients in marketing their active fund management expertise. Our findings suggest a disconnect between economic theory and economic policy based on that theory, as well as a corre- sponding limitation in research studies that test information-usefulness by assuming it to be synonymous with price-sensitivity. We draw implications for further research into the role of tacit knowledge in equity investment decision-making, and also into the effects of the principal–agent relationship between fund managers and their clients.

House price dynamics and their reaction to macroeconomic changes

This article applies a three-regime Markov switching model to investigate the impact of the macroeconomy on the dynamics of the residential real estate market in the US. Focusing on the period between 1960 and 2011, the methodology implemented allows for a clearer understanding of the drivers of the real estate market in “boom”, “steady-state” and “crash” regimes. Our results show that the sensitivity of the real estate market to economic changes is regime-dependent. The paper then proceeds to examine whether policymakers are able to influence a regime switch away from the crash regime. We find that a decrease in interest rate spreads could be an effective catalyst to precipitate such a change of state.

Sensitivity of feature-based analysis methods of storm tracks to the form of background field removal

For the tracking of extrema associated with weather systems to be applied to a broad range of fields it is necessary to remove a background field that represents the slowly varying, large spatial scales. The sensitivity of the tracking analysis to the form of background field removed is explored for the Northern Hemisphere winter storm tracks for three contrasting fields from an integration of the U. K. Met Office's (UKMO) Hadley Centre Climate Model (HadAM3). Several methods are explored for the removal of a background field from the simple subtraction of the climatology, to the more sophisticated removal of the planetary scales. Two temporal filters are also considered in the form of a 2-6-day Lanczos filter and a 20-day high-pass Fourier filter. The analysis indicates that the simple subtraction of the climatology tends to change the nature of the systems to the extent that there is a redistribution of the systems relative to the climatological background resulting in very similar statistical distributions for both positive and negative anomalies. The optimal planetary wave filter removes total wavenumbers less than or equal to a number in the range 5-7, resulting in distributions more easily related to particular types of weather system. For the temporal filters the 2-6-day bandpass filter is found to have a detrimental impact on the individual weather systems, resulting in the storm tracks having a weak waveguide type of behavior. The 20-day high-pass temporal filter is less aggressive than the 2-6-day filter and produces results falling between those of the climatological and 2-6-day filters.

Sensitivity of large-scale atmospheric analyses to humidity observations and its impact on the global water cycle and tropical and extratropical weather systems in ERA40

Reanalysis data obtained from data assimilation are increasingly used for diagnostic studies of the general circulation of the atmosphere, for the validation of modelling experiments and for estimating energy and water fluxes between the Earth surface and the atmosphere. Because fluxes are not specifically observed, but determined by the data assimilation system, they are not only influenced by the utilized observations but also by model physics and dynamics and by the assimilation method. In order to better understand the relative importance of humidity observations for the determination of the hydrological cycle, in this paper we describe an assimilation experiment using the ERA40 reanalysis system where all humidity data have been excluded from the observational data base. The surprising result is that the model, driven by the time evolution of wind, temperature and surface pressure, is able to almost completely reconstitute the large-scale hydrological cycle of the control assimilation without the use of any humidity data. In addition, analysis of the individual weather systems in the extratropics and tropics using an objective feature tracking analysis indicates that the humidity data have very little impact on these systems. We include a discussion of these results and possible consequences for the way moisture information is assimilated, as well as the potential consequences for the design of observing systems for climate monitoring. It is further suggested, with support from a simple assimilation study with another model, that model physics and dynamics play a decisive role for the hydrological cycle, stressing the need to better understand these aspects of model parametrization. .

Sensitivity of the ERA40 reanalysis to the observing system: determination of the global atmospheric circulation from reduced observations

The impact of selected observing systems on the European Centre for Medium-Range Weather Forecasts (ECMWF) 40-yr reanalysis (ERA40) is explored by mimicking observational networks of the past. This is accomplished by systematically removing observations from the present observational data base used by ERA40. The observing systems considered are a surface-based system typical of the period prior to 1945/50, obtained by only retaining the surface observations, a terrestrial-based system typical of the period 1950-1979, obtained by removing all space-based observations, and finally a space-based system, obtained by removing all terrestrial observations except those for surface pressure. Experiments using these different observing systems have been limited to seasonal periods selected from the last 10 yr of ERA40. The results show that the surface-based system has severe limitations in reconstructing the atmospheric state of the upper troposphere and stratosphere. The terrestrial system has major limitations in generating the circulation of the Southern Hemisphere with considerable errors in the position and intensity of individual weather systems. The space-based system is able to analyse the larger-scale aspects of the global atmosphere almost as well as the present observing system but performs less well in analysing the smaller-scale aspects as represented by the vorticity field. Here, terrestrial data such as radiosondes and aircraft observations are of paramount importance. The terrestrial system in the form of a limited number of radiosondes in the tropics is also required to analyse the quasi-biennial oscillation phenomenon in a proper way. The results also show the dominance of the satellite observing system in the Southern Hemisphere. These results all indicate that care is required in using current reanalyses in climate studies due to the large inhomogeneity of the available observations, in particular in time.

The predictability of extratropical storm tracks and the sensitivity of their prediction to the observing system

A new method for assessing forecast skill and predictability that involves the identification and tracking of extratropical cyclones has been developed and implemented to obtain detailed information about the prediction of cyclones that cannot be obtained from more conventional analysis methodologies. The cyclones were identified and tracked along the forecast trajectories, and statistics were generated to determine the rate at which the position and intensity of the forecasted storms diverge from the analyzed tracks as a function of forecast lead time. The results show a higher level of skill in predicting the position of extratropical cyclones than the intensity. They also show that there is potential to improve the skill in predicting the position by 1 - 1.5 days and the intensity by 2 - 3 days, via improvements to the forecast model. Further analysis shows that forecasted storms move at a slower speed than analyzed storms on average and that there is a larger error in the predicted amplitudes of intense storms than the weaker storms. The results also show that some storms can be predicted up to 3 days before they are identified as an 850-hPa vorticity center in the analyses. In general, the results show a higher level of skill in the Northern Hemisphere (NH) than the Southern Hemisphere (SH); however, the rapid growth of NH winter storms is not very well predicted. The impact that observations of different types have on the prediction of the extratropical cyclones has also been explored, using forecasts integrated from analyses that were constructed from reduced observing systems. A terrestrial, satellite, and surface-based system were investigated and the results showed that the predictive skill of the terrestrial system was superior to the satellite system in the NH. Further analysis showed that the satellite system was not very good at predicting the growth of the storms. In the SH the terrestrial system has significantly less skill than the satellite system, highlighting the dominance of satellite observations in this hemisphere. The surface system has very poor predictive skill in both hemispheres.

Sensitivity of Southern Hemisphere climate to zonal asymmetry in ozone

Climate model simulations of past and future climate invariably contain prescribed zonal mean stratospheric ozone. While the effects of zonal asymmetry in ozone have been examined in the Northern Hemisphere, much greater zonal asymmetry occurs in the Southern Hemisphere during the break up of the Antarctic ozone hole. We prescribe a realistic three-dimensional distribution of ozone in a high vertical resolution atmospheric model and compare results with a simulation containing zonal mean ozone. Prescribing the three dimensional ozone distribution results in a cooling of the stratosphere and upper troposphere comparable to that caused by ozone depletion itself. Our results suggest that changes in the zonal asymmetry of ozone have had important impacts on Southern Hemisphere climate, and will continue to do so in the future.

Sensitivity of tropospheric forecasts to stratospheric initial conditions

A number of recent papers in the atmospheric science literature have suggested that a dynamical link exists between the stratosphere and troposphere. Numerical modelling studies have shown that the troposphere has a time-mean response to changes to the stratospheric climatological state. In this study the response of the troposphere to an imposed transient stratospheric change is examined. The study uses a high horizontal and vertical resolution numerical weather-prediction model. Experiments compare the tropospheric forecasts of two medium-range forecast ensembles which have identical tropospheric initial conditions and different stratospheric initial conditions. In three case studies described here, stratospheric initial conditions have a statistically significant impact on the tropospheric flow. The mechanism for this change involves, in its most basic step, a change to tropospheric synoptic-scale systems. A consistent change to the tropospheric synoptic-scale systems occurs in response to the stratospheric initial conditions. The aggregated impact of changes to individual synoptic systems maps strongly onto the structure of the Arctic Oscillation, particularly over the North Atlantic storm track. The relationship between the stratosphere and troposphere, while apparent in Arctic Oscillation diagnostics, does not occur on coherent, hemispheric scales.

On the sensitivity of annular mode dynamics to stratospheric radiative timescales

Long decorrelation timescales of the annular mode are observed in the lower stratosphere. This study uses a simple dynamical model, which has been used extensively to study stratosphere-troposphere coupling, to investigate the origin of the long dynamical timescales. Several long runs of the model are completed, with different imposed thermal damping timescales in the stratosphere. The dynamical timescales of the annular mode are found to be largely insensitive to the input thermal damping timescales, producing similar dynamical timescales in all cases below 50hPa. This result suggests that the hypothesis that long timescales in the lower stratosphere are due to long radiative timescales in this region is false.

Mean climate and transience in the tropics of the UGAMP GCM - sensitivity to convective parametrization

The sensitivity of the UK Universities Global Atmospheric Modelling Programme (UGAMP) General Circulation Model (UGCM) to two very different approaches to convective parametrization is described. Comparison is made between a Kuo scheme, which is constrained by large-scale moisture convergence, and a convective-adjustment scheme, which relaxes to observed thermodynamic states. Results from 360-day integrations with perpetual January conditions are used to describe the model's tropical time-mean climate and its variability. Both convection schemes give reasonable simulations of the time-mean climate, but the representation of the main modes of tropical variability is markedly different. The Kuo scheme has much weaker variance, confined to synoptic frequencies near 4 days, and a poor simulation of intraseasonal variability. In contrast, the convective-adjustment scheme has much more transient activity at all time-scales. The various aspects of the two schemes which might explain this difference are discussed. The particular closure on moisture convergence used in this version of the Kuo scheme is identified as being inappropriate.

A study of the sensitivity of ocean overturning circulation and climate to freshwater input in different regions of the North Atlantic

The Atlantic meridional overturning circulation (AMOC) is an important component of the climate system. Models indicate that the AMOC can be perturbed by freshwater forcing in the North Atlantic. Using an ocean-atmosphere general circulation model, we investigate the dependence of such a perturbation of the AMOC, and the consequent climate change, on the region of freshwater forcing. A wide range of changes in AMOC strength is found after 100 years of freshwater forcing. The largest changes in AMOC strength occur when the regions of deepwater formation in the model are forced directly, although reductions in deepwater formation in one area may be compensated by enhanced formation elsewhere. North Atlantic average surface air temperatures correlate linearly with the AMOC decline, but warming may occur in localised regions, notably over Greenland and where deepwater formation is enhanced. This brings into question the representativeness of temperature changes inferred from Greenland ice-core records.