Short-horizon excess returns and exchange rate and interest rate effects

stocks. We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.

The sensitivity of US banks' stock returns to interest and exchange rate changes

Purpose – The purpose of this paper is to investigate the impact of foreign exchange and interest rate changes on US banks’ stock returns. Design/methodology/approach – The approach employs an EGARCH model to account for the ARCH effects in daily returns. Most prior studies have used standard OLS estimation methods with the result that the presence of ARCH effects would have affected estimation efficiency. For comparative purposes, the standard OLS estimation method is also used to measure sensitivity. Findings – The findings are as follows: under the conditional t-distributional assumption, the EGARCH model generated a much better fit to the data although the goodness-of-fit of the model is not entirely satisfactory; the market index return accounts for most of the variation in stock returns at both the individual bank and portfolio levels; and the degree of sensitivity of the stock returns to interest rate and FX rate changes is not very pronounced despite the use of high frequency data. Earlier results had indicated that daily data provided greater evidence of exposure sensitivity. Practical implications – Assuming that banks do not hedge perfectly, these findings have important financial implications as they suggest that the hedging policies of the banks are not reflected in their stock prices. Alternatively, it is possible that different GARCH-type models might be more appropriate when modelling high frequency returns. Originality/value – The paper contributes to existing knowledge in the area by showing that ARCH effects do impact on measures of sensitivity.

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.

Predicting returns in U.S. financial sector indices

This study focuses on: (i) the responsiveness of the U.S. financial sector stock indices to foreign exchange (FX) and interest rate changes; and, (ii) the extent to which good model specification can enhance the forecasts from the associated models. Three models are considered. Only the error-correction model (ECM) generated efficient and consistent coefficient estimates. Furthermore, a simple zero lag model in differences which is clearly mis-specified, generated forecasts that are better than those of the ECM, even if the ECM depicts relationships that are more consistent with economic theory. In brief, FX and interest rate changes do not impact on the return-generating process of the stock indices in any substantial way. Most of the variation in the sector stock indices is associated with past variation in the indices themselves and variation in the market-wide stock index. These results have important implications for financial and economic policies.

Volatility transmission between stock and bond markets

A two-factor no-arbitrage model is used to provide a theoretical link between stock and bond market volatility. While this model suggests that short-term interest rate volatility may, at least in part, drive both stock and bond market volatility, the empirical evidence suggests that past bond market volatility affects both markets and feeds back into short-term yield volatility. The empirical modelling goes on to examine the (time-varying) correlation structure between volatility in the stock and bond markets and finds that the sign of this correlation has reversed over the last 20 years. This has important implications far portfolio selection in financial markets. © 2005 Elsevier B.V. All rights reserved.

Chemical studies of plasma etchants used in integrated circuit manufacture

Plasma or "dry" etching is an essential process for the production of modern microelectronic circuits. However, despite intensive research, many aspects of the etch process are not fully understood. The results of studies of the plasma etching of Si and Si02 in fluorine-containing discharges, and the complementary technique of plasma polymerisation are presented in this thesis. Optical emission spectroscopy with argon actinometry was used as the principle plasma diagnostic. Statistical experimental design was used to model and compare Si and Si02 etch rates in CF4 and SF6 discharges as a function of flow, pressure and power. Etch mechanisms m both systems, including the potential reduction of Si etch rates in CF4 due to fluorocarbon polymer formation, are discussed. Si etch rates in CF4 /SF6 mixtures were successfully accounted for by the models produced. Si etch rates in CF4/C2F6 and CHF3 as a function of the addition of oxygen-containing additives (02, N20 and CO2) are shown to be consistent with a simple competition between F, 0 and CFx species for Si surface sites. For the range of conditions studied, Si02 etch rates were not dependent on F-atom concentration, but the presence of fluorine was essential in order to achieve significant etch rates. The influence of a wide range of electrode materials on the etch rate of Si and Si02 in CF4 and CF4 /02 plasmas was studied. It was found that the Si etch rate in a CF4 plasma was considerably enhanced, relative to an anodised aluminium electrode, in the presence of soda glass or sodium or potassium "doped" quartz. The effect was even more pronounced in a CF4 /02 discharge. In the latter system lead and copper electrodes also enhanced the Si etch rate. These results could not be accounted for by a corresponding rise in atomic fluorine concentration. Three possible etch enhancement mechanisms are discussed. Fluorocarbon polymer deposition was studied, both because of its relevance to etch mechanisms and its intrinsic interest, as a function of fluorocarbon source gas (CF4, C2F6, C3F8 and CHF3), process time, RF power and percentage hydrogen addition. Gas phase concentrations of F, H and CF2 were measured by optical emission spectroscopy, and the resultant polymer structure determined by X-ray photoelectron spectroscopy and infrared spectroscopy. Thermal and electrical properties were measured also. Hydrogen additions are shown to have a dominant role in determining deposition rate and polymer composition. A qualitative description of the polymer growth mechanism is presented which accounts for both changes in growth rate and structure, and leads to an empirical deposition rate model.

Document retrieval based on a cognitive model of dialogue

Owing to the rise in the volume of literature, problems arise in the retrieval of required information. Various retrieval strategies have been proposed, but most of that are not flexible enough for their users. Specifically, most of these systems assume that users know exactly what they are looking for before approaching the system, and that users are able to precisely express their information needs according to l aid- down specifications. There has, however, been described a retrieval program THOMAS which aims at satisfying incompletely- defined user needs through a man- machine dialogue which does not require any rigid queries. Unlike most systems, Thomas attempts to satisfy the user's needs from a model which it builds of the user's area of interest. This model is a subset of the program's "world model" - a database in the form of a network where the nodes represent concepts since various concepts have various degrees of similarities and associations, this thesis contends that instead of models which assume equal levels of similarities between concepts, the links between the concepts should have values assigned to them to indicate the degree of similarity between the concepts. Furthermore, the world model of the system should be structured such that concepts which are related to one another be clustered together, so that a user- interaction would involve only the relevant clusters rather than the entire database such clusters being determined by the system, not the user. This thesis also attempts to link the design work with the current notion in psychology centred on the use of the computer to simulate human cognitive processes. In this case, an attempt has been made to model a dialogue between two people - the information seeker and the information expert. The system, called Thomas-II, has been implemented and found to require less effort from the user than Thomas.

A priori prediction of aggregation efficiency and rate constant for fluidized bed melt granulation

This paper presents a predictive aggregation rate model for spray fluidized bed melt granulation. The aggregation rate constant was derived from probability analysis of particle–droplet contact combined with time scale analysis of droplet solidification and granule–granule collision rates. The latter was obtained using the principles of kinetic theory of granular flow (KTGF). The predicted aggregation rate constants were validated by comparison with reported experimental data for a range of binder spray rate, binder droplet size and operating granulator temperature. The developed model is particularly useful for predicting particle size distributions and growth using population balance equations (PBEs).

Data transmission by frequency-hopped multilevel frequency shift keying

Spread spectrum systems make use of radio frequency bandwidths which far exceed the minimum bandwidth necessary to transmit the basic message information.These systems are designed to provide satisfactory communication of the message information under difficult transmission conditions. Frequency-hopped multilevel frequency shift keying (FH-MFSK) is one of the many techniques used in spread spectrum systems. It is a combination of frequency hopping and time hopping. In this system many users share a common frequency band using code division multiplexing. Each user is assigned an address and the message is modulated into the address. The receiver, knowing the address, decodes the received signal and extracts the message. This technique is suggested for digital mobile telephony. This thesis is concerned with an investigation of the possibility of utilising FH-MFSK for data transmission corrupted by additive white gaussian noise (A.W.G.N.). Work related to FH-MFSK has so far been mostly confined to its validity, and its performance in the presence of A.W.G.N. has not been reported before. An experimental system was therefore constructed which utilised combined hardware and software and operated under the supervision of a microprocessor system. The experimental system was used to develop an error-rate model for the system under investigation. The performance of FH-MFSK for data transmission was established in the presence of A.W.G.N. and with deleted and delayed sample effects. Its capability for multiuser applications was determined theoretically. The results show that FH-MFSK is a suitable technique for data transmission in the presence of A.W.G.N.

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.

Accommodating energy price volatility in life cycle cost analysis of asphalt pavements

Energy price is related to more than half of the total life cycle cost of asphalt pavements. Furthermore, the fluctuation related to price of energy has been much higher than the general inflation and interest rate. This makes the energy price inflation an important variable that should be addressed when performing life cycle cost (LCC) studies re- garding asphalt pavements. The present value of future costs is highly sensitive to the selected discount rate. Therefore, the choice of the discount rate is the most critical element in LCC analysis during the life time of a project. The objective of the paper is to present a discount rate for asphalt pavement projects as a function of interest rate, general inflation and energy price inflation. The discount rate is defined based on the portion of the energy related costs during the life time of the pavement. Consequently, it can reflect the financial risks related to the energy price in asphalt pavement projects. It is suggested that a discount rate sensitivity analysis for asphalt pavements in Sweden should range between –20 and 30%.

Use of amino acids as counterions improves the solubility of the BCS II model drug, indomethacin

The number of new chemical entities (NCE) is increasing every day after the introduction of combinatorial chemistry and high throughput screening to the drug discovery cycle. One third of these new compounds have aqueous solubility less than 20µg/mL [1]. Therefore, a great deal of interest has been forwarded to the salt formation technique to overcome solubility limitations. This study aims to improve the drug solubility of a Biopharmaceutical Classification System class II (BCS II) model drug (Indomethacin; IND) using basic amino acids (L-arginine, L-lysine and L-histidine) as counterions. Three new salts were prepared using freeze drying method and characterised by FT-IR spectroscopy, proton nuclear magnetic resonance ((1)HNMR), Differential Scanning Calorimetry (DSC) and Thermogravimetric analysis (TGA). The effect of pH on IND solubility was also investigated using pH-solubility profile. Both arginine and lysine formed novel salts with IND, while histidine failed to dissociate the free acid and in turn no salt was formed. Arginine and lysine increased IND solubility by 10,000 and 2296 fold, respectively. An increase in dissolution rate was also observed for the novel salts. Since these new salts have improved IND solubility to that similar to BCS class I drugs, IND salts could be considered for possible waivers of bioequivalence.

An angle-based interest model for text recommendation

Building an interest model is the key to realize personalized text recommendation. Previous interest models neglect the fact that a user may have multiple angles of interests. Different angles of interest provide different requests and criteria for text recommendation. This paper proposes an interest model that consists of two kinds of angles: persistence and pattern, which can be combined to form complex angles. The model uses a new method to represent the long-term interest and the short-term interest, and distinguishes the interest on object and the interest on the link structure of objects. Experiments with news-scale text data show that the interest on object and the interest on link structure have real requirements, and it is effective to recommend texts according to the angles.