Econometrics of yield spreads in the money market:a note

The literature on bond markets and interest rates has focused largely on the term structure of interest rates, specifically, on the so-called expectations hypothesis. At the same time, little is known about the nature of the spread of the interest rates in the money market beyond the fact that such spreads are generally unstable. However, with the evolution of complex financial instruments, it has become imperative to identify the time series process that can help one accurately forecast such spreads into the future. This article explores the nature of the time series process underlying the spread between three-month and one-year US rates, and concludes that the movements in this spread over time is best captured by a GARCH(1,1) process. It also suggests the use of a relatively long term measure of interest rate volatility as an explanatory variable. This exercise has gained added importance in view of the revelation that GARCH based estimates of option prices consistently outperform the corresponding estimates based on the stylized Black-Scholes algorithm.

A two-factor model of the U.K. yield curve

I model the forward premium in the U.K. gilt-edged market over the period 1982���96 using a two-factor general equilibrium model of the term structure of interest rates. The model permits the decomposition of the forward premium into separate components representing interest rate expectations, the risk premia associated with each of the underlying factors, and terms capturing the direct impact of the variances of the factors on the shape of the forward curve.

Monetary models of exchange rates and sweep programs

Numerous studies find that monetary models of exchange rates cannot beat a random walk model. Such a finding, however, is not surprising given that such models are built upon money demand functions and traditional money demand functions appear to have broken down in many developed countries. In this article, we investigate whether using a more stable underlying money demand function results in improvements in forecasts of monetary models of exchange rates. More specifically, we use a sweep-adjusted measure of US monetary aggregate M1 which has been shown to have a more stable money demand function than the official M1 measure. The results suggest that the monetary models of exchange rates contain information about future movements of exchange rates, but the success of such models depends on the stability of money demand functions and the specifications of the models.

The temporal binding deficit hypothesis of autism

Frith has argued that people with autism show ���weak central coherence,��� an unusual bias toward piecemeal rather than configurational processing and a reduction in the normal tendency to process information in context. However, the precise cognitive and neurological mechanisms underlying weak central coherence are still unknown. We propose the hypothesis that the features of autism associated with weak central coherence result from a reduction in the integration of specialized local neural networks in the brain caused by a deficit in temporal binding. The visuoperceptual anomalies associated with weak central coherence may be attributed to a reduction in synchronization of high-frequency gamma activity between local networks processing local features. The failure to utilize context in language processing in autism can be explained in similar terms. Temporal binding deficits could also contribute to executive dysfunction in autism and to some of the deficits in socialization and communication.

Monetary models of exchange rates and sweep programs

Numerous studies find that monetary models of exchange rates cannot beat a random walk model. Such a finding, however, is not surprising given that such models are built upon money demand functions and traditional money demand functions appear to have broken down in many developed countries. In this paper we investigate whether using a more stable underlying money demand function results in improvements in forecasts of monetary models of exchange rates. More specifically, we use a sweepadjusted measure of US monetary aggregate M1 which has been shown to have a more stable money demand function than the official M1 measure. The results suggest that the monetary models of exchange rates contain information about future movements of exchange rates but the success of such models depends on the stability of money demand functions and the specifications of the models.

Capital markets and the market structure of foreign investments

Contrary to the long-received theory of FDI, interest rates or rates of return can motivate foreign direct investment (FDI) in concert with the benefits of direct ownership. Thus, access to investor capital and capital markets is a vital component of the multinational���s competitive market structure. Moreover, multinationals can use their superior financial capacity as a competitive advantage in exploiting FDI opportunities in dynamic markets. They can also mitigate higher levels of foreign business risks under dynamic conditions by shifting more financial risk to creditors in the host economy. Furthermore, the investor���s expectation of foreign business risk necessarily commands a risk premium for exposing their equity to foreign market risk. Multinationals can modify the profit maximization strategy of their foreign subsidiaries to maximize growth or profits to generate this risk premium. In this context, we investigate how foreign subsidiaries manage their capital funding, business risk, and profit strategies with a diverse sample of 8,000 matched parents and foreign subsidiary accounts from multiple industries in 38 countries.We find that interest rates, asset prices, and expectations in capital markets have a significant effect on the capital movements of foreign subsidiaries. We also find that foreign subsidiaries mitigate their exposure to foreign business risk by modifying their capital structure and debt maturity. Further, we show how the operating strategy of foreign subsidiaries affects their preference for growth or profit maximization. We further show that superior shareholder value, which is a vital link for access to capital for funding foreign expansion in open market economies, is achieved through maintaining stability in the rate of growth and good asset utilization.

The effects of coloured light filter overlays on reading rates in age-related macular degeneration

Purpose: To determine the effect of coloured light filter overlays on reading rates for people with age-related macular degeneration (AMD). Method: Using a prospective clinical trial design, we examined the null hypothesis that coloured light filter overlays do not improve reading rates in AMD when compared to a clear filter. Reading rates for 12 subjects with non-exudative AMD, associated with a relative scotoma and central fixation (mean age 81 years, SD 5.07 years) were determined using the Rate of Reading Test�� (printed, nonsense, lower case sans serif, stationary text) with 10 different, coloured light filter overlays (Intuitive Overlays��; figures in brackets are percentage transmission values); rose (78%), pink (78%), purple (67%), aqua (81%), blue (74%), lime-green (86%), mint-green (85%), yellow (93%), orange (83%) and grey (71%). A clear overlay (Roscolene # 00) (360 cdm-2) with 100% transmittance was used as a control. Results: ANOVA indicated that there was no statistically significant difference in reading rates with the coloured light filter overlays compared to the clear filter. Furthermore, chi-squared analysis indicated that the rose, purple and blue filters had a significantly poorer overall ranking in terms of reading rates compared to the other coloured and clear light filters. Conclusion: Coloured light filter overlays are unlikely to provide a clinically significant improvement in reading rates for people with non-exudative AMD associated with a relative scotoma and central fixation. Copyright �� Acta Ophthalmol Scand 2004.

Forecasting the term structure when short-term rates are near zero

This paper compares the experience of forecasting the UK government bond yield curve before and after the dramatic lowering of short-term interest rates from October 2008. Out-of-sample forecasts for 1, 6 and 12 months are generated from each of a dynamic Nelson-Siegel model, autoregressive models for both yields and the principal components extracted from those yields, a slope regression and a random walk model. At short forecasting horizons, there is little difference in the performance of the models both prior to and after 2008. However, for medium- to longer-term horizons, the slope regression provided the best forecasts prior to 2008, while the recent experience of near-zero short interest rates coincides with a period of forecasting superiority for the autoregressive and dynamic Nelson-Siegel models. �� 2014 John Wiley & Sons, Ltd.