Evaluating spread models with a basket security

In this article we evaluate the most widely used spread decomposition models using Exchange Traded Funds (ETFs). These funds are an example of a basket security and allow the diversification of private information causing these securities to have lower adverse selection costs than individual securities. We use this feature as a criterion for evaluating spread decomposition models. Comparisons of adverse selection costs for ETF's and control securities obtained from spread decomposition models show that only the Glosten-Harris (1988) and the Madhavan-Richardson-Roomans (1997) models provide estimates of the spread that are consistent with the diversification of private information in a basket security. Our results are robust even after controlling for the stock exchange. © 2011 Copyright Taylor and Francis Group, LLC.

Qualitative assessment of stock prices listed on the Sao Paulo stock exchange: An approach from the perspective of homogeneity analysis

The stock market suffers uncertain relations throughout the entire negotiation process, with different variables exerting direct and indirect influence on stock prices. This study focuses on the analysis of certain aspects that may influence these values offered by the capital market, based on the Brazil Index of the Sao Paulo Stock Exchange (Bovespa), which selects 100 stocks among the most traded on Bovespa in terms of number of trades and financial volume. The selected variables are characterized by the companies` activity area and the business volume in the month of data collection, i.e. April/2007. This article proposes an analysis that joins the accounting view of the stock price variables that can be influenced with the use of multivariate qualitative data analysis. Data were explored through Correspondence Analysis (Anacor) and Homogeneity Analysis (Homals). According to the research, the selected variables are associated with the values presented by the stocks, which become an internal control instrument and a decision-making tool when it comes to choosing investments.

Os fundos de investimento imobiliário listados em bolsa e as variáveis que influenciam seus retornos

Os fundos de investimento imobiliário combinam características tanto do mercado imobiliário, fonte de seus rendimentos, quanto do mercado de capitais, ambiente em que são negociados. O impacto de cada um desses mercados subjacentes no comportamento, desempenho e risco dessa classe de ativos não é, no entanto, ainda claramente definida, sendo um dos grandes temas em análise, tanto na literatura acadêmica, quanto na indústria de fundos internacionais. Em face da significativa expansão dessa alternativa de investimento no mercado brasileiro, no presente estudo foram analisadas as variáveis que influenciam os retornos dos fundos imobiliários brasileiros para uma amostra de fundos listados em Bolsa de Valores de São Paulo, período de 2008-2013. Seguindo a metodologia de Clayton e Mackinnon (2003), os fatores explicativos dos retornos foram decompostos em quatro componentes principais, sendo três fatores de retorno de mercado (mercado de ações, mercado de renda fixa e mercado imobiliário) e risco idiossincrático. De acordo com a estatística descritiva, os fundos imobiliários da amostra apresentaram maior retorno em relação aos demais mercados, exceto em comparação com o mercado imobiliário, porém com menor risco. As análises de correlação, regressão e decomposição da variância indicam que o mercado de ações e o mercado imobiliário direto são, em geral, significativos no modelo, porém explicam apenas cerca de 15% da volatilidade dos retornos dos fundos da amostra. À luz da Moderna Teoria do Portfólio, esses resultados indicam que a inclusão de fundos imobiliários pode ter potencial diversificador numa carteira multi-ativo, seja aumentando o retorno total de uma carteira formada de ações e títulos de renda fixa, sem acréscimo em risco; ou mantendo o retorno dessa carteira, com diminuição da volatilidade, ampliando assim a fronteira eficiente da carteira. Esse efeito questiona o tradicional equilibrium fund de carteiras de investimentos formadas apenas de ações e renda fixa e aponta os fundos imobiliários como uma alternativa de investimento diversificadora, enquanto classe de ativo única. A análise de subamostras por tipologia indica, porém, que o papel diversificador dos fundos imobiliários está atrelado ao tipo de empreendimento que lastreia esse fundo, uma vez que os fatores explicativos e seus impactos nos retornos diferem de uma tipologia para outra. Esse resultado tem importantes implicações no critério de seleção a ser adotado tanto por investidores para seleção de ativos para uma carteira otimizada, como para gestores de fundos imobiliários na formatação e gestão desses produtos. Conclui-se também que os retornos dos fundos, de certo modo, refletem seu caráter híbrido, mas o modelo decomposto em 4 componentes não é suficiente para explicar os retornos dos fundos imobiliários, uma vez que o modelo estendido, demonstrou que outras variáveis, inclusive parâmetros desses próprios mercados, além de variáveis macroeconômicas e as características de cada fundo (eg. market-to-book, tamanho), podem ser responsáveis por explicar considerável parte da variância dos retornos dos FIIs.

Real equilibrium exchange rates. A panel data approach for advanced and emerging economies.

Based on an behavioral equilibrium exchange rate model, this paper examines the determinants of the real effective exchange rate and evaluates the degree of misalignment of a group of currencies since 1980. Within a panel cointegration setting, we estimate the relationship between exchange rate and a set of economic fundamentals, such as traded-nontraded productivity differentials and the stock of foreign assets. Having ascertained the variables are integrated and cointegrated, the long-run equilibrium value of the fundamentals are estimated and used to derive equilibrium exchange rates and misalignments. Although there is statistical homogeneity, some structural differences were found to exist between advanced and emerging economies.

Price Transmission and Effects of Exchange Rates on Domestic Commodity Prices via Offshore and Currency Hedging

The framework presents how trading in the foreign commodity futures market and the forward exchange market can affect the optimal spot positions of domestic commodity producers and traders. It generalizes the models of Kawai and Zilcha (1986) and Kofman and Viaene (1991) to allow both intermediate and final commodities to be traded in the international and futures markets, and the exporters/importers to face production shock, domestic factor costs and a random price. Applying mean-variance expected utility, we find that a rise in the expected exchange rate can raise both supply and demand for commodities and reduce domestic prices if the exchange rate elasticity of supply is greater than that of demand. Whether higher volatilities of exchange rate and foreign futures price can reduce the optimal spot position of domestic traders depends on the correlation between the exchange rate and the foreign futures price. Even though the forward exchange market is unbiased, and there is no correlation between commodity prices and exchange rates, the exchange rate can still affect domestic trading and prices through offshore hedging and international trade if the traders are interested in their profit in domestic currency. It illustrates how the world prices and foreign futures prices of commodities and their volatility can be transmitted to the domestic market as well as the dynamic relationship between intermediate and final goods prices. The equilibrium prices depends on trader behaviour i.e. who trades or does not trade in the foreign commodity futures and domestic forward currency markets. The empirical result applying a two-stage-least-squares approach to Thai rice and rubber prices supports the theoretical result.

Road Use Tax Fund Efficiency Report Savings Status, December 31,

Develop, in conjunction with the regional planning affiliations and metropolitan planning organizations and other stakeholder groups, a process to exchange STP federal funds for Primary Highway System funds for the purpose of reducing the number of small projects that have to meet onerous federal requirements. In order to implement this recommendation, legislative action is required to eliminate the restriction on using Primary Road Fund revenue on local jurisdiction roadways in exchange for a portion of their federal STP funding. This past session, Iowa DOT worked with legislators to introduce a bill in both the House and the Senate to eliminate this Code restriction. Bills were discussed at the subcommittee level in both the House and Senate but did not proceed because of the need to have further discussions with impacted parties. Prior to next session, discussions will occur amongst all impacted parties to reach consensus on how this recommendation could be implemented. With that consensus in place prior to next session, it is anticipated that the bills can be reintroduced next session.

Closed-End Fund Discount -Case: Norvestia & Neomarkka

Tutkimuksen tavoitteena oli määrittää, kuinka suljettuja sijoitusrahastoja tulisi arvioida, jotta voitaisiin ymmärtää, miksi suljetut sijoitusrahastot arvostetaanalennuksella suhteessa niiden substanssiarvoon. Aiemmat yritykset selittää suljettujen rahastojen substanssialennusilmiö esitettiin kirjallisuuskatsauksessa. Tutkimuksen empiirinen osio suoritettiin aineistotutkimus- ja kyselytutkimusmenetelmin hyödyntäen suomalaisia suljettuja sijoitusrahastoja Norvestia Oyj:tä ja Neomarkka Oyj:tä. Teoriaosiossa esitettiin, kuinka substanssialennus on kausaalisten tekijöiden ja markkinatunnelman funktio. Suljettu sijoitusrahasto arvostetaanyli tai alle substanssiarvonsa riippuen johdon aiheuttamien kustannusten, heikosti informoitujen sijoittajien ja rahaston ulkoisen epälikviditeetin suhteesta johdon suorituskykyyn, rahaston avaamisen mahdollisuuteen ja sisäisiin likviditeettietuihin. Suomalaiset suljetut sijoitusrahastot arvostetaan alle substanssiarvonsa mahdollisesti johdon heikon suorituskyvyn, sopimuseriarvoisuuden, heikosti informoitujen sijoittajien läsnäolon ja rahaston osakkeiden epälikviditeetin takia.

Media bias and central bank response. Evidence from the nominal exchange rate behavior in Colombia

Since 1991 Colombia has had a market-determined Peso - US Dollar Nominal Exchange Rate (NER), after more than 20 years of controlled and multiple exchange rates. The behavior (revaluation / devaluation) of the NER is constantly reported in news, editorials and op-eds of major newspapers of the nation with particular attention to revaluation. The uneven reporting of revaluation episodes can be explained by the existence of an interest group particulary affected by revaluation, looking to increase awareness and sympathy for help from public institutions. Using the number of news and op-eds from a major Colombian newspaper, it is shown that there is an over-reporting of revaluation episodes in contrast to devaluation ones. Secondly, using text analysis upon the content of the news, it is also shown that the words devaluation and revaluation are far apart in the distribution of words within the news; and revaluation is highly correlated with words related to: public institutions, exporters and the need of assistance. Finally it is also shown that the probability of the central bank buying US dollars to lessen revaluation effects increases with the number of news; even though the central bank allegedly intervenes in the exchange rate market only to tame volatility or accumulate international reserves.

Cheap dates and the delusion of gratification: are votes sold or traded in the EU Council of Ministers?

Each year, small Member States receive a disproportionate share of the European Union's (EU's) budget. A prominent explanation for this is that Council decision-making involves a healthy dose of vote selling, whereby large Member States offer small states generous fiscal transfers in exchange for influence over policy. But nobody has investigated whether net budget contributors actually get anything for their money. In this paper I identify the vote selling model's observable implications and find virtually no evidence consistent with Council cash-for-votes exchanges. I also show that a compromise model – the leading model of EU decision-making to date – modified to incorporate vote selling does not outperform a standard one that assumes votes are traded rather than sold. Taken together, the results suggest that Council decision-making operates with little or no vote selling, and that regardless of whatever they think they might be buying, net budget contributors get little or nothing in return for their money. These findings call for further investigation into how Member States approach the issue of fiscal transfers, and into the factors other than formal voting weight that affect the power of actors engaged in EU decision-making.

Can company-fund manager meetings convey informational benefits? Exploring the rationalisation of equity investment decision making by UK fund managers

Conventional economic theory, applied to information released by listed companies, equates ‘useful’ with ‘price-sensitive’. Stock exchange rules accordingly prohibit the selec- tive, private communication of price-sensitive information. Yet, even in the absence of such communication, UK equity fund managers routinely meet privately with the senior execu- tives of the companies in which they invest. Moreover, they consider these brief, formal and formulaic meetings to be their most important sources of investment information. In this paper we ask how that can be. Drawing on interview and observation data with fund managers and CFOs, we find evidence for three, non-mutually exclusive explanations: that the characterisation of information in conventional economic theory is too restricted, that fund managers fail to act with the rationality that conventional economic theory assumes, and/or that the primary value of the meetings for fund managers is not related to their investment decision making but to the claims of superior knowledge made to clients in marketing their active fund management expertise. Our findings suggest a disconnect between economic theory and economic policy based on that theory, as well as a corre- sponding limitation in research studies that test information-usefulness by assuming it to be synonymous with price-sensitivity. We draw implications for further research into the role of tacit knowledge in equity investment decision-making, and also into the effects of the principal–agent relationship between fund managers and their clients.

Are price limits on futures markets that cool? evidence from the brazilian merchantile & futures exchange

This paper investigates the impact of price limits on the Brazil- ian future markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the São Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. Our main finding is that price limits drive back prices as they approach the lower limit. There is a strong cool-off effect of the lower limit on the conditional mean, whereas the upper limit seems to entail a weak magnet effect on the conditional variance. We then build a trading strategy that accounts for the cool-off effect so as to demonstrate that the latter has not only statistical, but also economic signifi- cance. The resulting Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider.

Are price limits on futures markets that cool?: evidence from the Brazilian Mercantile and Futures Exchange

This paper investigates the impact of price limits on the Brazilian futures markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the S˜ao Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. The results indicate that the conditional mean features a floor cool-off effect, whereas the conditional variance significantly increases as the price approaches the upper limit. We then build a trading strategy that accounts for the cool-off effect in the conditional mean so as to demonstrate that the latter has not only statistical, but also economic significance. The in-sample Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider, whereas out-of-sample results evince similar performances.

Does active management add value?: the Brazilian mutual fund market

Does active management add or destroy value? With a sample of 699 with four different main categories: stocks, fixed income, hedge and exchange rate mutual funds we conclude that the active management add value to investors in stocks and hedge funds. But in fixed income mutual funds the evidence is against the active management. We also analyze the determinants of significant alphas. For stocks and hedge funds the evidence suggests that old, big and active funds generate biggest alphas. In fixed income funds the evidence is not clear, only a positive relationship between size and alphas could be found.