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

Using airborne laser altimetry to improve river flood extents delineated from SAR data

Flood extent maps derived from SAR images are a useful source of data for validating hydraulic models of river flood flow. The accuracy of such maps is reduced by a number of factors, including changes in returns from the water surface caused by different meteorological conditions and the presence of emergent vegetation. The paper describes how improved accuracy can be achieved by modifying an existing flood extent delineation algorithm to use airborne laser altimetry (LiDAR) as well as SAR data. The LiDAR data provide an additional constraint that waterline (land-water boundary) heights should vary smoothly along the flooded reach. The method was tested on a SAR image of a flood for which contemporaneous aerial photography existed, together with LiDAR data of the un-flooded reach. Waterline heights of the SAR flood extent conditioned on both SAR and LiDAR data matched the corresponding heights from the aerial photo waterline significantly more closely than those from the SAR flood extent conditioned only on SAR data.

Plant variety protection in developing countries: A view from the private seed industry in India

Many developing countries are currently engaged in designing and implementing plant variety protection systems. Encouraging private investment in plant breeding is the key rationale for extending intellectual property rights to plant varieties. However, the design of plant variety protection systems in developing countries has been dominated by concerns regarding the inequities of a plant variety protection system, especially the imbalance in the reward structure between plant breeders and farmers. The private seed industry, a key stakeholder in plant variety protection, appears to be playing only a peripheral role in the design of the intellectual property rights regime. This paper explores the potential response of the private seed industry in India to plant variety protection legislation based on a survey of major plant breeding companies. The survey finds that the private seed industry in India is generally unenthusiastic about the legislation and plant variety protection is likely to have only a very limited impact on their research profile and expenditures on plant breeding. Measures designed to curb the 'excessive' profits of breeders, farmers' rights provisions and poor prospects for enforcement of rights are seen to be seriously diluting breeders' rights, leaving few incentives for innovation. If the fundamental objective of plant variety protection is to stimulate private investment in plant breeding, then developing countries need to seriously address the question of improving appropriability of returns from investment.

The British ‘failure’ that never was? The Anglo-American ‘productivity gap’ in large-scale interwar retailing—evidence from the department store sector

Interwar British retailing has been characterized as having lower productivity, less developed managerial hierarchies and methods, and weaker scale economies than its US counterpart. This article examines comparative productivity for one major segment of large-scale retailing in both countries—the department store sector. Drawing on exceptionally detailed contemporary survey data, we show that British department stores in fact achieved superior performance in terms of operating costs, margins, profits, and stock-turn. While smaller British stores had lower labour productivity than US stores of equivalent size, TFP was generally higher for British stores, which also enjoyed stronger scale economies. We also examine the reasons behind Britain's surprisingly strong relative performance, using surviving original returns from the British surveys. Contrary to arguments that British retailers faced major barriers to the development of large-scale enterprises, that could reap economies of scale and scope and invest in machinery and marketing to support the growth of their primary sales functions, we find that British department stores enthusiastically embraced the retail ‘managerial revolution’—and reaped substantial benefits from this investment.

Hedging effectiveness of total returns swaps: application to the Japanese market

The development of the real estate swap market offers many opportunities for investors to adjust the exposure of their portfolios to real estate. A number of OTC transactions have been observed in markets around the world. In this paper we examine the Japanese commercial real estate market from the point of view of an investor holding a portfolio of properties seeking to reduce the portfolio exposure to the real estate market by swapping an index of real estate for LIBOR. This paper explores the practicalities of hedging portfolios comprising small numbers of individual properties against an appropriate index. We use the returns from 74 properties owned by Japanese Real Estate Investment Trusts over the period up to September 2007. The paper also discusses and applies the appropriate stochastic processes required to model real estate returns in this application and presents alternative ways of reporting hedging effectiveness. We find that the development of the derivative does provide the capacity for hedging market risk but that the effectiveness of the hedge varies considerably over time. We explore the factors that cause this variability.

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.

Property fund flows and returns

This study is concerned with the impacts on property returns from property fund flows, and with the possibility of a reverse transmission from property fund flows to property returns. In other words this study investigates whether property returns “cause” fund flow changes, or whether fund flow changes “cause” property returns, or causality works in both directions.

Modelling economic returns to plant variety protection in the UK

This paper attempts an empirical assessment of the incentive effects of plant variety protection regimes in the generation of crop variety innovations. A duration model of plant variety protection certificates is used to infer the private appropriability of returns from agricultural crop variety innovations in the UK over the period 1965-2000. The results suggest that plant variety protection provides only modest appropriability of returns to innovators of agricultural crop varieties. The value distribution of plant variety protection certificates is highly skewed with a large proportion of innovations providing virtually no returns to innovators. Increasing competition from newer varieties appears to have accelerated the turnover of varieties reducing appropriability further. Plant variety protection emerges as a relatively weak instrument of protection.

The accuracy of Doppler radar wind retrievals using insects as targets

Insect returns from the UK's Doppler weather radars were collected in the summers of 2007 and 2008, to ascertain their usefulness in providing information about boundary layer winds. Such observations could be assimilated into numerical weather prediction models to improve forecasts of convective showers before precipitation begins. Significant numbers of insect returns were observed during daylight hours on a number of days through this period, when they were detected at up to 30 km range from the radars, and up to 2 km above sea level. The range of detectable insect returns was found to vary with time of year and temperature. There was also a very weak correlation with wind speed and direction. Use of a dual-polarized radar revealed that the insects did not orient themselves at random, but showed distinct evidence of common orientation on several days, sometimes at an angle to their direction of travel. Observation minus model background residuals of wind profiles showed greater bias and standard deviation than that of other wind measurement types, which may be due to the insects' headings/airspeeds and to imperfect data extraction. The method used here, similar to the Met Office's procedure for extracting precipitation returns, requires further development as clutter contamination remained one of the largest error contributors. Wind observations derived from the insect returns would then be useful for data assimilation applications.

Towards a nutrient export risk matrix approach to managing agricultural pollution at source

A generic Nutrient Export Risk Matrix (NERM) approach is presented. This provides advice to farmers and policy makers on good practice for reducing nutrient loss and is intended to persuade them to implement such measures. Combined with a range of nutrient transport modelling tools and field experiments, NERMs can play an important role in reducing nutrient export from agricultural land. The Phosphorus Export Risk Matrix (PERM) is presented as an example NERM. The PERM integrates hydrological understanding of runoff with a number of agronomic and policy factors into a clear problem-solving framework. This allows farmers and policy makers to visualise strategies for reducing phosphorus loss through proactive land management. The risk Of Pollution is assessed by a series of informed questions relating to farming intensity and practice. This information is combined with the concept of runoff management to point towards simple, practical remedial strategies which do not compromise farmers' ability to obtain sound economic returns from their crop and livestock.

Power to the people: working-class demand for household power in 1930s Britain

The 1930s witnessed an intense struggle between gas and electricity suppliers for the working class market, where the incumbent utility—gas—was also a reasonably efficient (and cheaper) General Purpose Technology for most domestic uses. Local monopolies for each supplier boosted substitution effects between fuel types—as alternative fuels constituted the only local competition. Using newly-rediscovered returns from a major national household expenditure survey, we employ geographically-determined instrumental variables, more commonly used in the industrial organization literature, to show that gas provided a significant competitor, tempering electricity prices, while electricity demand was also responsive to marketing initiatives.