Bayesian estimation of co-integrating thresholds in the term structure of interest rates.

Threshold Error Correction Models are used to analyse the term structure of interest Rates. The paper develops and uses a generalisation of existing models that encompasses both the Band and Equilibrium threshold models of [Balke and Fomby ((1997) Threshold cointegration. Int Econ Rev 38(3):627–645)] and estimates this model using a Bayesian approach. Evidence is found for threshold effects in pairs of longer rates but not in pairs of short rates. The Band threshold model is supported in preference to the Equilibrium model.

Lease maturity and initial rent: is there a term structure for UK commercial property leases?

This paper investigates the relationship between lease maturity and rent in commercial property. Over the last decade market-led changes to lease structures, the threat of government intervention and the associated emergence of the Codes of Practice for commercial leases have stimulated growing interest in pricing of commercial property leases. Seminal work by Grenadier (1995) derived a set of hypotheses about the pricing of different lease lengths in different market conditions. Whilst there is a compelling theoretical case for and a strong intuitive expectation of differential pricing of different lease maturities, to date the empirical evidence is inconclusive. Two Swedish studies have found mixed results (Gunnelin and Soderbergh 2003 and Englund et al 2003). In only half the cases is the null hypothesis that lease length has no effect rejected. In the UK, Crosby et al (2003) report counterintuitive results. In some markets, they find that short lease terms are associated with low rents, whilst in others they are associated with high rents. Drawing upon a substantial database of commercial lettings in central London (West End and City of London) over the last decade, we investigate the relationship between rent and lease maturity. In particular, we test whether a building quality variable omitted in previous studies provides empirical results that are more consistent with the theoretical and intuitive a priori expectations. It is found that initial leases rates are upward sloping with the lease term and that this relationship is constant over time.

Testing the expectations theory of the term structure in threshold models

We test the expectations theory of the term structure of U.S. interest rates in nonlinear systems. These models allow the response of the change in short rates to past values of the spread to depend upon the level of the spread. The nonlinear system is tested against a linear system, and the results of testing the expectations theory in both models are contrasted. We find that the results of tests of the implications of the expectations theory depend on the size and sign of the spread. The long maturity spread predicts future changes of the short rate only when it is high.

A comparison of tests of non-linear cointegration with an application to the predictability of US interest rates using the term structure

We test whether there are nonlinearities in the response of short- and long-term interest rates to the spread in interest rates, and assess the out-of-sample predictability of interest rates using linear and nonlinear models. We find strong evidence of nonlinearities in the response of interest rates to the spread. Nonlinearities are shown to result in more accurate short-horizon forecasts, especially of the spread.

Public real estate and the term structure of interest rates: a cross-country study

Using a variation of the Nelson-Siegel term structure model we examine the sensitivity of real estate securities in six key global markets to unexpected changes in the level, slop and curvature of the yield curve. Our results confirm the time-sensitive nature of the exposure and sensitivity to interest rates and highlight the importance of considering the entire term structure of interest rates. One issue that is of particular of interest is that despite the 2007-9 financial crisis the importance of unanticipated interest rate risk weakens post 2003. Although the analysis does examine a range of markets the empirical analysis is unable to provide definitive evidence as to whether REIT and property-company markets display heightened or reduced exposure.

International evidence on the predictability of returns to securitized real estate assets: econometric models versus neural networks

The performance of various statistical models and commonly used financial indicators for forecasting securitised real estate returns are examined for five European countries: the UK, Belgium, the Netherlands, France and Italy. Within a VAR framework, it is demonstrated that the gilt-equity yield ratio is in most cases a better predictor of securitized returns than the term structure or the dividend yield. In particular, investors should consider in their real estate return models the predictability of the gilt-equity yield ratio in Belgium, the Netherlands and France, and the term structure of interest rates in France. Predictions obtained from the VAR and univariate time-series models are compared with the predictions of an artificial neural network model. It is found that, whilst no single model is universally superior across all series, accuracy measures and horizons considered, the neural network model is generally able to offer the most accurate predictions for 1-month horizons. For quarterly and half-yearly forecasts, the random walk with a drift is the most successful for the UK, Belgian and Dutch returns and the neural network for French and Italian returns. Although this study underscores market context and forecast horizon as parameters relevant to the choice of the forecast model, it strongly indicates that analysts should exploit the potential of neural networks and assess more fully their forecast performance against more traditional models.

Testing for non-stationarity and cointegration allowing for the possibility of a structural break: an application to EuroSterling interest rates

In this paper we examine the order of integration of EuroSterling interest rates by employing techniques that can allow for a structural break under the null and/or alternative hypothesis of the unit-root tests. In light of these results, we investigate the cointegrating relationship implied by the single, linear expectations hypothesis of the term structure of interest rates employing two techniques, one of which allows for the possibility of a break in the mean of the cointegrating relationship. The aim of the paper is to investigate whether or not the interest rate series can be viewed as I(1) processes and furthermore, to consider whether there has been a structural break in the series. We also determine whether, if we allow for a break in the cointegration analysis, the results are consistent with those obtained when a break is not allowed for. The main results reported in this paper support the conjecture that the ‘short’ Euro-currency rates are characterised as I(1) series that exhibit a structural break on or near Black Wednesday, 16 September 1992, whereas the ‘long’ rates are I(1) series that do not support the presence of a structural break. The evidence from the cointegration analysis suggests that tests of the expectations hypothesis based on data sets that include the ERM crisis period, or a period that includes a structural break, might be problematic if the structural break is not explicitly taken into account in the testing framework.

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.

The option market reaction to bank loan announcements

In this study, we examine the options market reaction to bank loan announcements for the population of US firms with traded options and loan announcements during 1996-2010. We get evidence on a significant options market reaction to bank loan announcements in terms of levels and changes in short-term implied volatility and its term structure, and observe significant decreases in short-term implied volatility, and significant increases in the slope of its term structure as a result of loan announcements. Our findings appear to be more pronounced for firms with more information asymmetry, lower credit ratings and loans with longer maturities and higher spreads. Evidence is consistent with loan announcements providing reassurance for investors in the short-term, however, over longer time horizons, the increase in the TSIV slope indicates that investors become increasingly unsure over the potential risks of loan repayment or uses of the proceeds.

Pose and Structure Recovery using Active Models

A new formulation of a pose refinement technique using ``active'' models is described. An error term derived from the detection of image derivatives close to an initial object hypothesis is linearised and solved by least squares. The method is particularly well suited to problems involving external geometrical constraints (such as the ground-plane constraint). We show that the method is able to recover both the pose of a rigid model, and the structure of a deformable model. We report an initial assessment of the performance and cost of pose and structure recovery using the active model in comparison with our previously reported ``passive'' model-based techniques in the context of traffic surveillance. The new method is more stable, and requires fewer iterations, especially when the number of free parameters increases, but shows somewhat poorer convergence.

Microbial relatives of the seed storage proteins of higher plants: conservation of structure and diversification of function during evolution of the cupin superfamily.

This review summarizes the recent discovery of the cupin superfamily (from the Latin term "cupa," a small barrel) of functionally diverse proteins that initially were limited to several higher plant proteins such as seed storage proteins, germin (an oxalate oxidase), germin-like proteins, and auxin-binding protein. Knowledge of the three-dimensional structure of two vicilins, seed proteins with a characteristic beta-barrel core, led to the identification of a small number of conserved residues and thence to the discovery of several microbial proteins which share these key amino acids. In particular, there is a highly conserved pattern of two histidine-containing motifs with a varied intermotif spacing. This cupin signature is found as a central component of many microbial proteins including certain types of phosphomannose isomerase, polyketide synthase, epimerase, and dioxygenase. In addition, the signature has been identified within the N-terminal effector domain in a subgroup of bacterial AraC transcription factors. As well as these single-domain cupins, this survey has identified other classes of two-domain bicupins including bacterial gentisate 1, 2-dioxygenases and 1-hydroxy-2-naphthoate dioxygenases, fungal oxalate decarboxylases, and legume sucrose-binding proteins. Cupin evolution is discussed from the perspective of the structure-function relationships, using data from the genomes of several prokaryotes, especially Bacillus subtilis. Many of these functions involve aspects of sugar metabolism and cell wall synthesis and are concerned with responses to abiotic stress such as heat, desiccation, or starvation. Particular emphasis is also given to the oxalate-degrading enzymes from microbes, their biological significance, and their value in a range of medical and other applications.

Long-term response of the nematode community to elevated atmospheric CO2 in a temperate dry grassland soil

Long-term effects of the elevated atmospheric CO2 on biosphere have been in focus of research since the last few decades. In this experiment undisturbed soil monoliths of loess grassland were exposed to an elevated CO2 environment (two-times the ambient CO2 level) for a period of six years with the aid of the open top chamber method. Control without a chamber and CO2 elevation was applied as well. Elevated CO2 level had very little impact oil soil food web. It did not influence either root and microbial biomass or microbial and nematode community structure. The only significant response was that density of the bacterial feeder genus Heterocephalobus increased in the chamber with elevated CO2 concentration. Application of the open top chambers initiated more changes on nematodes than the elevated CO2 level. Open top chamber (OTC) method decreased nematode density (total and plant feeder as well) to less than half of the original level. Negative effect was found on the genus level in the case of fungal feeder Aphelenchoides, plant feeder Helicotylenchus and Paratylenchus. It is very likely that the significantly lower belowground root biomass and partly its decreased quality reflected by the increased C/N ratio are the main responsible factors for the lower density of the plant feeder nematodes in the plots of chambers. According to diversity profiles, MI and MI(2-15) parameters, nematode communities in the open top chambers (both on ambient and elevated CO2 level) seem to be more structured than those under normal circumstances six years after start of the experiment.

Genetic structure and systematic relationships within the Ophrys fuciflora aggregate (Orchidaceae: Orchidinae): high diversity in Kent and a wind-induced discontinuity bisecting the Adriatic

A recent phylogenetic study based on multiple datasets is used as the framework for a more detailed examination of one of the ten molecularly circumscribed groups identified, the Ophrys fuciflora aggregate. The group is highly morphologically variable, prone to phenotypic convergence, shows low levels of sequence divergence and contains an unusually large proportion of threatened taxa, including the rarest Ophrys species in the UK. The aims of this study were to (a) circumscribe minimum resolvable genetically distinct entities within the O. fuciflora aggregate, and (b) assess the likelihood of gene flow between genetically and geographically distinct entities at the species and population levels. Fifty-five accessions sampled in Europe and Asia Minor from the O. fuciflora aggregate were studied using the AFLP genetic fingerprinting technique to evaluate levels of infraspecific and interspecific genetic variation and to assess genetic relationships between UK populations of O. fuciflora s.s. in Kent and in their continental European and Mediterranean counterparts. The two genetically and geographically distinct groups recovered, one located in England and central Europe and one in south-eastern Europe, are incongruent with current species delimitation within the aggregate as a whole and also within O. fuciflora s.s. Genetic diversity is higher in Kent than in the rest of western and central Europe. Gene flow is more likely to occur between populations in closer geographical proximity than those that are morphologically more similar. Little if any gene flow occurs between populations located in the south-eastern Mediterranean and those dispersed throughout the remainder of the distribution, revealing a genetic discontinuity that runs north-south through the Adriatic. This discontinuity is also evident in other clades of Ophrys and is tentatively attributed to the long-term influence of prevailing winds on the long-distance distribution of pollinia and especially seeds. A cline of gene flow connects populations from Kent and central and southern Europe; these individuals should therefore be considered part of an extensive meta-population. Gene flow is also evident among populations from Kent, which appear to constitute a single metapopulation. They show some evidence of hybridization, and possibly also introgression, with O. apifera.

The effects of landscape modifications on the long-term persistence of animal populations

Background: The effects of landscape modifications on the long-term persistence of wild animal populations is of crucial importance to wildlife managers and conservation biologists, but obtaining experimental evidence using real landscapes is usually impossible. To circumvent this problem we used individual-based models (IBMs) of interacting animals in experimental modifications of a real Danish landscape. The models incorporate as much as possible of the behaviour and ecology of four species with contrasting life-history characteristics: skylark (Alauda arvensis), vole (Microtus agrestis), a ground beetle (Bembidion lampros) and a linyphiid spider (Erigone atra). This allows us to quantify the population implications of experimental modifications of landscape configuration and composition. Methodology/Principal Findings: Starting with a real agricultural landscape, we progressively reduced landscape complexity by (i) homogenizing habitat patch shapes, (ii) randomizing the locations of the patches, and (iii) randomizing the size of the patches. The first two steps increased landscape fragmentation. We assessed the effects of these manipulations on the long-term persistence of animal populations by measuring equilibrium population sizes and time to recovery after disturbance. Patch rearrangement and the presence of corridors had a large effect on the population dynamics of species whose local success depends on the surrounding terrain. Landscape modifications that reduced population sizes increased recovery times in the short-dispersing species, making small populations vulnerable to increasing disturbance. The species that were most strongly affected by large disturbances fluctuated little in population sizes in years when no perturbations took place. Significance: Traditional approaches to the management and conservation of populations use either classical methods of population analysis, which fail to adequately account for the spatial configurations of landscapes, or landscape ecology, which accounts for landscape structure but has difficulty predicting the dynamics of populations living in them. Here we show how realistic and replicable individual-based models can bridge the gap between non-spatial population theory and non-dynamic landscape ecology. A major strength of the approach is its ability to identify population vulnerabilities not detected by standard population viability analyses.