Back from beyond the bid-ask spread: perspectives on liquidity

Research into the topic of liquidity has greatly benefited from the availability of data. Although bid-ask spreads were inaccessible to researchers, Roll (1984) provided a conceptual model that estimated the effective bid-ask prices from regular time series data, recorded on a daily or longer interval. Later data availability improved and researchers were able to address questions regarding the factors that influenced the spreads and the relationship between spreads and risk, return and liquidity. More recently transaction data have been used to measure the effective spread and researchers have been able to refine the concepts of liquidity to include the impact of transactions on price movements (Clayton and McKinnon, 2000) on a trade-by-trade analysis. This paper aims to use techniques that combine elements from all three approaches and, by studying US data over a relatively long time period, to throw light on earlier research as well as to reveal the changes in liquidity over the period controlling for extraneous factors such as market, age and size of REIT. It also reveals some comparable results for the UK market over the same period.

Closed form approximations for spread options

This article expresses the price of a spread option as the sum of the prices of two compound options. One compound option is to exchange vanilla call options on the two underlying assets and the other is to exchange the corresponding put options. This way we derive a new closed form approximation for the price of a European spread option and a corresponding approximation for each of its price, volatility and correlation hedge ratios. Our approach has many advantages over existing analytical approximations, which have limited validity and an indeterminacy that renders them of little practical use. The compound exchange option approximation for European spread options is then extended to American spread options on assets that pay dividends or incur costs. Simulations quantify the accuracy of our approach; we also present an empirical application to the American crack spread options that are traded on NYMEX. For illustration, we compare our results with those obtained using the approximation attributed to Kirk (1996, Correlation in energy markets. In: V. Kaminski (Ed.), Managing Energy Price Risk, pp. 71–78 (London: Risk Publications)), which is commonly used by traders.

Back from beyond bid-ask spread: estimating liquidity in international markets

Research on the topic of liquidity has greatly benefited from the improved availability of data. Researchers have addressed questions regarding the factors that influence bid-ask spreads and the relationship between spreads and risk, return and liquidity. Intra-day data have been used to measure the effective spread and researchers have been able to refine the concepts of liquidity to include the price impact of transactions on a trade-by-trade analysis. The growth in the creation of tax-transparent securities has greatly enhanced the visibility of securitized real estate, and has naturally led to the question of whether the increased visibility of real estate has caused market liquidity to change. Although the growth in the public market for securitized real estate has occurred in international markets, it has not been accompanied by universal publication of transaction data. Therefore this paper develops an aggregate daily data-based test for liquidity and applies the test to US data in order to check for consistency with the results of prior intra-day analysis. If the two approaches produce similar results, we can apply the same technique to markets in which less detailed data are available and offer conclusions on the liquidity of a wider set of markets.

Initial distribution spread: A density forecasting approach

Ensemble forecasting of nonlinear systems involves the use of a model to run forward a discrete ensemble (or set) of initial states. Data assimilation techniques tend to focus on estimating the true state of the system, even though model error limits the value of such efforts. This paper argues for choosing the initial ensemble in order to optimise forecasting performance rather than estimate the true state of the system. Density forecasting and choosing the initial ensemble are treated as one problem. Forecasting performance can be quantified by some scoring rule. In the case of the logarithmic scoring rule, theoretical arguments and empirical results are presented. It turns out that, if the underlying noise dominates model error, we can diagnose the noise spread.

The Farm-Retail Price Spread in an Imperfectly Competitive Food Industry

Gardner's popular model of perfect competition in the marketing sector is extended to a conjectural-variations oligopoly with endogenous entry. Revising Gardner's comparative statics on the "farm-retail price ratio," tests of hypotheses about food industry conduct are derived. Using data from a recent article by Wohlgenant, which employs Gardner's framework, tests are made of the validity of his maintained hypothesis-that the food industries are perfectly competitive. No evidence is found of departures from competition in the output markets of the food industries of eight commodity groups: (a) beef and veal, (b) pork, (c) poultry, (d) eggs, (e) dairy, (f) processed fruits and vegetables, (g) fresh fruit, and (h) fresh vegetables.

Occurrence of Poecilochirus austroasiaticus (Acari: Parasitidae) in forensic autopsies and its application on postmortem interval estimation

Despite the fact that mites were used at the dawn of forensic entomology to elucidate the postmortem interval, their use in current cases remains quite low for procedural reasons such as inadequate taxonomic knowledge. A special interest is focused on the phoretic stages of some mite species, because the phoront-host specificity allows us to deduce in many occasions the presence of the carrier (usually Diptera or Coleoptera) although it has not been seen in the sampling performed in situ or in the autopsy room. In this article, we describe two cases where Poecilochirus austroasiaticus Vitzthum (Acari: Parasitidae) was sampled in the autopsy room. In the first case, we could sample the host, Thanatophilus ruficornis (Küster) (Coleoptera: Silphidae), which was still carrying phoretic stages of the mite on the body. That attachment allowed, by observing starvation/feeding periods as a function of the digestive tract filling, the establishment of chronological cycles of phoretic behavior, showing maximum peaks of phoronts during arrival and departure from the corpse and the lowest values in the phase of host feeding. From the sarcosaprophagous fauna, we were able to determine in this case a minimum postmortem interval of 10 days. In the second case, we found no Silphidae at the place where the corpse was found or at the autopsy, but a postmortem interval of 13 days could be established by the high specificity of this interspecific relationship and the departure from the corpse of this family of Coleoptera.

Contingency locus in ctsR of Listeria monocytogenes Scott A: a strategy for occurrence of abundant piezotolerant isolates within clonal populations

In a recent study we demonstrated that a high-hydrostatic-pressure-tolerant isolate of Listeria monocytogenes lacks a codon in the class 3 heat shock regulator gene ctsR. This mutation in the region that encodes four consecutive glycines was directly responsible for the observed piezotolerance, increased stress resistance, and reduced virulence. The aim of the present study was to determine whether mutations in ctsR are frequently associated with piezotolerance in L. monocytogenes. Wild-type cultures of L. monocytogenes were therefore exposed to 350 MPa for 20 min, and the piezotolerance of individual surviving isolates was assessed. This rendered 33 isolates with a stable piezotolerant phenotype from a total of 84 survivors. Stable piezotolerant mutants were estimated to be present in the initial wild-type population at frequencies of >10�5. Subsequent sequencing of the ctsR gene of all stable piezotolerant isolates revealed that two-thirds of the strains (i.e., n � 21) had mutations in this gene. The majority of the mutations (16 of 21 strains) consisted of a triplet deletion in the glycine-encoding region of ctsR, identical to what was found in our previous study. Interestingly, 2 of 21 mutants contained a codon insertion in this repeat region. The remaining three stable piezotolerant strains showed a 19-bp insertion in the glycine repeat region, a 16-bp insertion downstream of the glycine repeat area (both leading to frameshifts and a truncated ctsR), and an in-frame 114-bp deletion encoding a drastically shortened carboxy terminus of CtsR. In four instances it was not possible to generate a PCR product. A piezotolerant phenotype could not be linked to mutations in ctsR in 8 of 33 isolates, indicating that other thus-far-unknown mechanisms also lead to stable piezotolerance. The present study highlights the importance of ctsR in piezotolerance and stress tolerance of L. monocytogenes, and it demonstrates that short-sequence repeat regions contribute significantly to the occurrence of a piezotolerant and stress-tolerant subpopulation within L. monocytogenes cultures, thus playing an important role in survival.

The occurrence of treponemes in contagious ovine digital dermatitis and the characterisation of associated Dichelobacter nodosus

Contagious ovine digital dermatitis (CODD) is a recently recorded, apparently new infection of the ovine hoof, which differs clinically from footrot caused by Dichelobacter nodosus and which fails to respond well to accepted treatment practices for footrot. Despite the welfare implications of such an infection, very little research has been performed on CODD to date and the aetiology remains confused. Suggestions have been made that there is a potential role for treponemes in the pathogenesis of CODD but that D. nodosus is apparently not involved. Six farms were therefore targeted in this study to provide a more in-depth investigation into the bacterial flora of CODD lesions. Dark ground microscopy, culture and PCR techniques were used, concentrating on the presence of D. nodosus and spirochaetes, particularly those of the genus Treponema. The results demonstrated that isolates of D. nodosus were indeed present in a high percentage (74%) of CODD lesions compared with 31% of apparently healthy feet. The isolates were shown to be of similar virulence type to those reported previously in cases of footrot, and the range of serogroups was also found to be similar to footrot, with serogroup H being prevalent. Treponemes were present in 70% of CODD lesions and 38% of apparently healthy feet, supporting a possible association between CODD and treponemes. However, any further progress on the aetiology of CODD and the potential for novel, effective treatment will depend on an improved ability to culture these organisms routinely in the laboratory thereby enabling their complete characterisation. (c) 2005 Elsevier B.V. All rights reserved.

The (de)merits of minimum-variance hedging: application to the crack spread

We study the empirical performance of the classical minimum-variance hedging strategy, comparing several econometric models for estimating hedge ratios of crude oil, gasoline and heating oil crack spreads. Given the great variability and large jumps in both spot and futures prices, considerable care is required when processing the relevant data and accounting for the costs of maintaining and re-balancing the hedge position. We find that the variance reduction produced by all models is statistically and economically indistinguishable from the one-for-one “naïve” hedge. However, minimum-variance hedging models, especially those based on GARCH, generate much greater margin and transaction costs than the naïve hedge. Therefore we encourage hedgers to use a naïve hedging strategy on the crack spread bundles now offered by the exchange; this strategy is the cheapest and easiest to implement. Our conclusion contradicts the majority of the existing literature, which favours the implementation of GARCH-based hedging strategies.

Model-measurement comparison of mesospheric temperature inversions, and a simple theory for their occurrence

Mesospheric temperature inversions are well established observed phenomena, yet their properties remain the subject of ongoing research. Comparisons between Rayleigh-scatter lidar temperature measurements obtained by the University of Western Ontario's Purple Crow Lidar (42.9°N, 81.4°W) and the Canadian Middle Atmosphere Model are used to quantify the statistics of inversions. In both model and measurements, inversions occur most frequently in the winter and exhibit an average amplitude of ∼10 K. The model exhibits virtually no inversions in the summer, while the measurements show a strongly reduced frequency of occurrence with an amplitude about half that in the winter. A simple theory of mesospheric inversions based on wave saturation is developed, with no adjustable parameters. It predicts that the environmental lapse rate must be less than half the adiabatic lapse rate for an inversion to form, and it predicts the ratio of the inversion amplitude and thickness as a function of environmental lapse rate. Comparison of this prediction to the actual amplitude/thickness ratio using the lidar measurements shows good agreement between theory and measurements.

A complex system perspective on the emergence and spread of infectious diseases: integrating economic and ecological aspects

The emergence and spread of infectious diseases reflects the interaction of ecological and economic factors within an adaptive complex system. We review studies that address the role of economic factors in the emergence and spread of infectious diseases and identify three broad themes. First, the process of macro-economic growth leads to environmental encroaching, which is related to the emergence of infectious diseases. Second, there are a number of mutually reinforcing processes associated with the emergence/spread of infectious diseases. For example, the emergence and spread of infectious diseases can cause significant economic damages, which in turn may create the conditions for further disease spread. Also, the existence of a mutually reinforcing relationship between global trade and macroeconomic growth amplifies the emergence/spread of infectious diseases. Third, microeconomic approaches to infectious disease point to the adaptivity of human behavior, which simultaneously shapes the course of epidemics and responds to it. Most of the applied research has been focused on the first two aspects, and to a lesser extent on the third aspect. With respect to the latter, there is a lack of empirical research aimed at characterizing the behavioral component following a disease outbreak. Future research should seek to fill this gap and develop hierarchical econometric models capable of integrating both macro and micro-economic processes into disease ecology.

Sources and spread of thermophilic Campylobacter spp. during partial depopulation of broiler chicken flocks

The practice of partial depopulation or ‘thinning’, i.e. early removal of a proportion of birds from a commercial broiler flock, is a reported risk factor for Campylobacter colonization of residual birds because of the difficulty in maintaining biosecurity during the process. Therefore, the effect of this practice was studied in detail for 51 target flocks, each at a different growing farm belonging to one of seven major poultry companies throughout the United Kingdom. On 21 of these farms, the target flock was already colonized by Campylobacter and at slaughter all cecal samples examined were positive, with a mean of log10 8 cfu / g. A further 27 flocks became positive within 2 – 6 days of the start of thinning and had similarly high levels of cecal carriage at slaughter. Just prior to the thinning process, Campylobacter could be isolated frequently from the farm driveways, transport vehicles, equipment and personnel. Strains from seven such farms on which flocks became colonized after thinning were examined by PFGE typing. The study demonstrated an association between strains occurring at specific sampling sites and those isolated subsequently from the thinned flocks. There were also indications that particular strains had spread from one farm to another, when the farms were jointly company-owned and served by the same bird-catching teams and / or vehicles. The results highlighted the need for better hygiene control in relation to catching equipment and personnel, and more effective cleaning and disinfection of vehicles, and bird-transport crates.