Scaling the volatility of credit spreads: evidence from Australian dollar eurobonds

The linear rescaling of the variance of an asset's return is used by many asset pricing models when an annualised risk coefficient is required. However, this approach may not be appropriate for time series, which are not independent and identically distributed (IID). This paper investigates the scaling relationships for daily credit spreads, from January 1995 to May 1998, between AAA-, AA-, and A-rated Australian dollar denominated Eurobonds with maturities of 2, 5, 7, and 10 years. The credit spread return all display similar scaling properties with the estimated standard deviation, based upon a scaling at the square root of time, significantly underestimating the actual level of risk predicted from a normal distribution. These results have implications for risk managers and trading of credit spread instruments.

Announcement effect on the credit spreads of US dollar Malaysian bonds

We find that international political events have more influence on the changes of bond yield spreads from Malaysian USD issues than domestic events. Significant results are consistent across different issues. The resignation by the former Prime Minister, Dr. Mahathir, however created mix response from the market. Using error correction model, this study also found the monetary policy by Federal Reserve have long term and significant impact on the behaviour of the Malaysian USD issues.

Divide-the-Dollar game revisited

In the Divide-the-Dollar (DD) game, two players simultaneously make demands to divide a dollar. Each player receives his demand if the sum of the demands does not exceed one, a payoff of zero otherwise. Note that, in the latter case, both parties are punished severely. A major setback of DD is that each division of the dollar is a Nash equilibrium outcome. Observe that, when the sum of the two demands x and y exceeds one, it is as if Player 1's demand x (or his offer (1−x) to Player 2) suggests that Player 2 agrees to λx < 1 times his demand y so that Player 1's demand and Player 2's modified demand add up to exactly one; similarly, Player 2's demand y (or his offer (1−y) to Player 1) suggests that Player 1 agrees to λyx so that λyx+y = 1. Considering this fact, we change DD's payoff assignment rule when the sum of the demands exceeds one; here in this case, each player's payoff becomes his demand times his λ; i.e., each player has to make the sacrifice that he asks his opponent to make. We show that this modified version of DD has an iterated strict dominant strategy equilibrium in which each player makes the egalitarian demand 1/2. We also provide a natural N-person generalization of this procedure.

Announcement effect on the credit spreads of US dollar Malaysian bonds

The main purpose of this paper is to extend the empirical research on the behavior of credit spreads on the USD denominated Malaysian bonds. We find that international political events have more influence on the changes of bond yield spreads from Malaysian USD issues than domestic events. Significant results are consistent across different issues. However, the resignation by the former Prime Minister, Dr Mahathir Mohamad, created a mixed response from the market. Using an error correction model, this study also found that the monetary policy by the US Federal Reserve has a long-term and significant impact on the behavior of the Malaysian USD issues. This study also provides further evidence that the current theoretical framework is sufficient to explain changes in the credit spread of bonds issued by the emerging market.

An empirical analysis of the Australian dollar swap spreads

This paper examines the relationship between the Australian dollar interest rate swap spread and the term structure of the interest rates, and also the determinants of interest rate swap spreads. For this purpose, we estimate the term structure of interest rates using the parsimonious fitting function of Nelson and Siegel [Journal of Business 60 (1987) 476] for the Australian government bonds and Australian interest rate swaps for certain maturities that are not available. We analyse the swap spread over the term structure of the government bonds and how changes in swap determinants affect the changes in swap spreads. The sample period covers the daily interval from 6 December 1996 to 31 December 1999.

Analysis of a large-scale IT outsourcing "failure": what lessons can we learn?

Much of the research that has been carried out into outsourcing is based on relatively successful case studies. Yet drawing inferences from case studies when those with largely negative outcomes rarely see the light of day represents a significant problem. When negative cases are systematically unrepresented, there is less opportunity to subject theory to scrutiny. This chapter goes some way towards redressing this trend, by reporting on a large scale “selective” outsourcing arrangement that has been publicly described as a failure — the Australian Federal Government’s “whole of government” IT infrastructure outsourcing initiative. This initiative, originally promoted as likely to lead to a billion dollar saving, was abandoned early in 2001, after a damning public report by the Australian Auditor General. However, a detailed study of the initiative suggests that the “failure” occurred despite the project adhering to many of the recommended guidelines for successful outsourcing that had been derived from earlier case analysis. The findings have important implications for decision makers confronted with outsourcing choices. The study suggests that the risks of outsourcing are often downplayed, or ignored in the rush to reap the expected benefits. The study also suggests that expectations of savings from outsourcing IT are often substantially higher than those that have been empirically confirmed in the field. Decision makers are advised that key assumptions about costs, savings, managerial effort, and the effects of outsourcing on operational performance might be incorrect, and to plan for their outsourcing activity accordingly. They should pay particular attention to coordination and transaction costs, as these tend to be overlooked in the business case. These costs will be magnified if “best in breed” multiple-vendor outsourcing is chosen, and if contracts are kept short. Decision-makers are also warned of the difficulties they are likely to have at the end of an outsourcing contract if there is not a large and robust pool of alternative vendors willing to bid against the incumbent.

Time-varying dependence in the intraday AUS/USD spot market

Using a high-frequency data set of the spot Australian dollar/US dollar this study examines the distribution of quotes and returns across the 24 hour trading "day". Employing statistical methods for measuring long-tenn dependence in time-series we find evidence of time-varying dependence and volatility that aligns with the opening and closing of markets. This variation is attributed to the effects of liquidity and the price-discovery actions of dealers.

The development impact of remittances to Nicaragua

Workers' remittances represent a resource flow from rich to poor countries. The global value of remittances has risen sharply to over US$100 billion a year. This represents the second largest external income source for developing countries behind foreign direct investment (FDI), and far outstrips official development assistance (ODA) (Orozco 2003a). Remittances to developing countries are becoming increasingly important as other sources of external income decline. The impact of remittances on development, however, is inadequately reflected in the literature. Latin America and the Caribbean (LAC) is the world's largest remittance-receiving region. With 9 per cent of the world's population, the region receives approximately 32 per cent of the world's remittances. It is appreciably greater than tourist revenues in many countries, and in five countries in this region, remittances account for over 10 per cent of GNP (World Bank 2003). Within LAC, Nicaragua stands out from other countries. While the US dollar value of remittances to Nicaragua, estimated at US$610 million in 2001, is quite modest compared with the US$10 billion flowing into Mexico, for example, the relative volume of this resource compared with other income flows, and the potential for the country's development, makes Nicaragua's case exceptional. Representing almost 24 per cent of its GNP, remittances to Nicaragua have a significant social and economic impact. The value of known remittances is greater than total export earnings, on a par with the country's ODA, and almost five times that of FDI. As such, remittances currently represent the second largest single resource flow into the country. This is a recent phenomenon.

An intelligent forex monitoring system

The need for intelligent monitoring systems has become a necessity to keep track of the complex forex market. The vast currency market is a foreign concept to the average individual. However, once it is broken down into simple terms, the average individual can begin to understand the foreign exchange market and use it as a financial instrument for future investing. We attempt to compare the performance of a Takagi-Sugeno, type neuro-fuzzy system and a feedforward neural network trained using the scaled conjugate gradient algorithm to predict the average monthly forex rates. We considered the exchange values of Australian dollar with respect to US dollar, Singapore dollar, New Zealand dollar, Japanese yen and United Kingdom pounds. The connectionist models were trained using 70% of the data and remaining was used for testing and validation purposes. It is observed that the proposed connectionist models were able to predict the average forex rates one month ahead accurately. Experiment results also reveal that the neuro-fuzzy technique performed better than the neural network

A model of the Australia-US exchange rate

This paper develops a model of exchange rate determination within an error correction framework. The intention is to identify both long and short term determinants that can be used to forecast the AUD/US exchange rate. The paper identifies a set of significant variables associated with exchange rate movements over a twenty year period from 1984 to 2004. Specifically, the overnight interest rate differential, Australia's foreign trade-weighted exposure to commodity prices as well as exchange rate volatility are variables identified that are able explain movements in the AUDIUS dollar relationship. An error correction model is subsequently constructed that incorporates an equilibrium correction term, a short-term interest rate differential variable, a commodity price variable and a proxy for exchange rate volatility. The model is then used to forecast out of sample and is found to dominate a naIve random walk model based on three different metrics.

Australian forex market anaylsis using connectionist models

The need for intelligent monitoring systems has become a necessity to keep track of the complex forex market. The forex market is difficult to understand by an average individual. However, once the market is broken down into simple terms, the average individual can begin to understand the foreign exchange market and use it as a financial instrument for future investing. This paper is an attempt to compare the performance of a Takagi-Sugeno type neuro-fuzzy system and a feed forward neural network trained using the scaled conjugate gradient algorithm to predict the average monthly forex rates. The exchange values of Australian dollar are considered with respect to US dollar, Singapore dollar, New Zealand dollar, Japanese yen and United Kingdom pound. The connectionist models were trained using 70% of the data and remaining was used for testing and validation purposes. It is observed that the proposed connectionist models were able to predict the average forex rates one month ahead accurately. Experiment results also reveal that neuro-fuzzy technique performed better than the neural network.

Understanding the oil price-exchange rate nexus for the Fiji Islands

In this paper, we examine the relationship between oil price and the Fiji–US exchange rate using daily data for the period 2000–2006. We use the generalised autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) models to estimate the impact of oil price on the nominal exchange rate. We find that a rise in oil prices leads to an appreciation of the Fijian dollar vis-à-vis the US dollar.

Estimating exchange rate responsiveness to shocks

The goal of this paper is to examine the importance of permanent and transitory shocks using a more efficient trend-cycle decomposition of the real exchange rate series. Our main contribution is that in measuring the impact of shocks, we not only impose common trend restrictions but also common cycle restrictions. We later confirm, through a post sample forecasting exercise, the efficiency gains from imposing common cycle restrictions. Our results indicate that permanent shocks are responsible for the bulk of the real exchange rate variations for Japan, Italy, Germany, France, and the UK vis-à-vis the US dollar over short horizons. For Canada, however, transitory shocks are dominant over the short horizon. In sum, while for Japan, France, and Italy, around 15% of the variation in real exchange rate is due to transitory shocks, for Canada, Germany and the UK, over 25% of the variations over the short horizon are due to transitory shocks. Thus, we claim that the role of transitory shocks should not be ignored.

Towards a cyclical framework for the investigation and management of elite level sponsorships

Sponsorship is a growing marketing communications tool which can produce unmatched results when used effectively. As such, rigid and applicable management frameworks are of critical importance as the discipline continues to develop. A conceptual review of existing sponsorship management frameworks and their common components are presented before an alternate cyclical management framework is derived. A series of case studies with organizations investing in elite level, million dollar sport sponsorship was used as the research strategy. Data was collected through qualitative interviews with within and cross case analysis used to identify trends. Five pillars of evidence supported the view that sponsorships were viewed and managed by corporate sponsors under a cyclical framework. The cyclical framework allows for interrelations between sponsorship management components to be better identified and investigated, and demonstrate how a cyclical view of management can aid the ongoing creation of value in long term sponsorships.