Rational speculative bubbles: an empirical investigation of the London Stock Exchange

In recent years, a sharp divergence of London Stock Exchange equity prices from dividends has been noted. In this paper, we examine whether this divergence can be explained by reference to the existence of a speculative bubble. Three different empirical methodologies are used: variance bounds tests, bubble specification tests, and cointegration tests based on both ex post and ex ante data. We find that, stock prices diverged significantly from their fundamental values during the late 1990's, and that this divergence has all the characteristics of a bubble.

The effect of asymmetries on stock index return value-at-risk estimates

It is widely accepted that equity return volatility increases more following negative shocks rather than positive shocks. However, much of value-at-risk (VaR) analysis relies on the assumption that returns are normally distributed (a symmetric distribution). This article considers the effect of asymmetries on the evaluation and accuracy of VaR by comparing estimates based on various models.

Effect of linseed oil and fish oil alone or as an equal mixture of ruminal fatty acid metabolism in growing steers fed maize silage-based diets

Based on the potential benefits to human health there is interest in increasing 18:3n-3, 20:5n-3, 22:6n-6, and cis-9,trans-11 conjugated linoleic acid (CLA) in ruminant foods. Four Aberdeen Angus steers (406 ± 8.2 kg BW) fitted with rumen and duodenal cannulae were used in a 4 x 4 Latin square experiment with 21 d periods to examine the potential of fish oil (FO) and linseed oil (LO) in the diet to increase ruminal outflow of trans-11 18:1 and total n-3 polyunsaturated fatty acids (PUFA) in growing cattle. Treatments consisted of a control diet (60:40; forage:concentrate ratio, on a DM basis, respectively) based on maize silage, or the same basal ration containing 30 g/kg DM of FO, LO or a mixture (1:1, w/w) of FO and LO (LFO). Diets were offered as total mixed rations and fed at a rate of 85 g DM/kg BW0.75/d. Oils had no effect (P = 0.52) on DM intake. Linseed oil had no effect (P > 0.05) on ruminal pH or VFA concentrations, while FO shifted rumen fermentation towards propionate at the expense of acetate. Compared with the control, LO increased (P < 0.05) 18:0, cis 18:1 (Δ9, 12-15), trans 18:1 (Δ4-9, 11-16), trans 18:2, geometric isomers of ∆9,11, ∆11,13, and ∆13,15 CLA, trans-8,cis-10 CLA, trans-10,trans-12 CLA, trans-12,trans-14 CLA, and 18:3n-3 flow at the duodenum. Inclusion of FO in the diet resulted in higher (P < 0.05) flows of cis-9 16:1, trans 16:1 (Δ6-13), cis 18:1 (Δ9, 11, and 13), trans 18:1 (Δ6-15), trans 18:2, 20:5n-3, 22:5n-3, and 22:6n-3, and lowered (P < 0.001) 18:0 at the duodenum relative to the control. For most fatty acids at the duodenum responses to LFO were intermediate of FO and LO. However, LFO resulted in higher (P = 0.04) flows of total trans 18:1 than LO and increased (P < 0.01) trans-6 16:1 and trans-12 18:1 at the duodenum compared with FO or LO. Biohydrogenation of cis-9 18:1 and 18:2n-6 in the rumen was independent of treatment, but both FO and LO increased (P < 0.001) the extent of 18:3n-3 biohydrogenation compared with the control. Ruminal 18:3n-3 biohydrogenation was higher (P < 0.001) for LO and LFO than FO, while biohydrogenation of 20:5n-3 and 22:6n-3 in the rumen was marginally lower (P = 0.05) for LFO than FO. In conclusion, LO and FO at 30 g/kg DM altered the biohydrogenation of unsaturated fatty acids in the rumen causing an increase in the flow of specific intermediates at the duodenum, but the potential of these oils fed alone or as a mixture to increase n-3 PUFA at the duodenum in cattle appears limited.

The impact of news on measures of undiversifiable risk: evidence from the UK stock market

Using UK equity index data, this paper considers the impact of news on time varying measures of beta, the usual measure of undiversifiable risk. The empirical model implies that beta depends on news about the market and news about the sector. The asymmetric response of beta to news about the market is consistent across all sectors considered. Recent research is divided as to whether abnormalities in equity returns arise from changes in expected returns in an efficient market or over-reactions to new information. The evidence suggests that such abnormalities may be due to changes in expected returns caused by time-variation and asymmetry in beta.

Can we explain the dynamics of the UK FTSE 100 stock and stock index futures markets?

If stock and stock index futures markets are functioning properly price movements in these markets should best be described by a first order vector error correction model with the error correction term being the price differential between the two markets (the basis). Recent evidence suggests that there are more dynamics present than should be in effectively functioning markets. Using self-exciting threshold autoregressive (SETAR) models, this study analyses whether such dynamics can be related to different regimes within which the basis can fluctuate in a predictable manner without triggering arbitrage. These findings reveal that the basis shows strong evidence of autoregressive behaviour when its value is between the two thresholds but that the extra dynamics disappear once the basis moves above the upper threshold and their persistence is reduced, although not eradicated, once the basis moves below the lower threshold. This suggests that once nonlinearity associated with transactions costs is accounted for, stock and stock index futures markets function more effectively than is suggested by linear models of the pricing relationship.

A data framework for measuring the energy consumption of the non-domestic building stock

The transition to a low-carbon economy urgently demands better information on the drivers of energy consumption. UK government policy has prioritized energy efficiency in the built stock as a means of carbon reduction, but the sector is historically information poor, particularly the non-domestic building stock. This paper presents the results of a pilot study that investigated whether and how property and energy consumption data might be combined for non-domestic energy analysis. These data were combined in a ‘Non-Domestic Energy Efficiency Database’ to describe the location and physical attributes of each property and its energy consumption. The aim was to support the generation of a range of energy-efficiency statistics for the industrial, commercial and institutional sectors of the non-domestic building stock, and to provide robust evidence for national energy-efficiency and carbon-reduction policy development and monitoring. The work has brought together non-domestic energy data, property data and mapping in a ‘data framework’ for the first time. The results show what is possible when these data are integrated and the associated difficulties. A data framework offers the potential to inform energy-efficiency policy formation and to support its monitoring at a level of detail not previously possible.

The underpricing of IPOs on the stock exchange of Mauritius

This paper investigates the underpricing of IPOs on the Stock Exchange of Mauritius (SEM). Taking into account the whole population of firms which went public since the inception of the SEM until 2010, the results show an average degree of underpricing within the range 10 to 20%. Using a regression approach, we demonstrate that the aftermarket risk level and auditor's reputation both have a significant positive impact on initial returns. We propose the use of the Z-score as a composite measure of a firm's ex ante financial strength, and find that it has a significant negative effect on the degree of short-run underpricing.