The effect of universal futures on opening and closing stock market prices

Purpose – In 2001, Euronext-Liffe introduced single security futures contracts for the first time. The purpose of this paper is to examine the impact that these single security futures had on the volatility of the underlying stocks. Design/methodology/approach – The Inclan and Tiao algorithm was used to show that the volatility of underlying securities did not change after universal futures were introduced. Findings – It was found that in the aftermath of the introduction of universal futures the volatility of the underlying securities increases. Increased volatility is not apparent in the control sample. This suggests that single security futures did have some impact on the volatility of the underlying securities. Originality/value – Despite the huge literature that has examined the effects of a futures listing on the volatility of underlying stock returns, little consensus has emerged. This paper adds to the dialogue by focusing on the effects of a single security futures contract rather than concentrating on the effects of index futures contracts.

Noise and the trading mechanism:the case of SETS

On 20 October 1997 the London Stock Exchange introduced a new trading system called SETS. This system was to replace the dealer system SEAQ, which had been in operation since 1986. Using the iterative sum of squares test introduced by Inclan and Tiao (1994), we investigate whether there was a change in the unconditional variance of opening and closing returns, at the time SETS was introduced. We show that for the FTSE-100 stocks traded on SETS, on the days following its introduction, there was a widespread increase in the volatility of both opening and closing returns. However, no synchronous volatility changes were found to be associated with the FTSE-100 index or FTSE-250 stocks. We conclude therefore that the introduction of the SETS trading mechanism caused an increase in noise at the time the system was introduced.

Testing for market segmentation in the A and B share markets of China

Recent research has suggested that the A and B share markets of China may be informationally segmented. In this paper volatility patterns in the A and B share market are studied to establish whether volatility changes to the A and B share markets are synchronous. A consequence of new information, when investors act upon it is that volatility rises. This means that if the A and B markets are perfectly integrated volatility changes to each market would be expected to occur at the same time. However, if they are segmented there is no reason for volatility changes to occur on the same day. Using the iterative cumulative sum of squares across the different markets. Evidence is found of integration between the two A share markets but not between the A and B markets. © 2005 Taylor & Francis Group Ltd.

Institutional antecedents and performance consequences of influence strategies in export channels to transitional economies

This study examines how the institutional environment of transitional economies impacts institutional arrangements in the form of influence strategies employed by Western exporters in managing relationships with local firms. Reflecting environmental components, a Western firm’s understanding of Eastern Europe’s regulatory volatility, foreignness, and partner’s control locus is posited to impact economic performance by affecting key coercive and non-coercive influence strategies. A model specifying the effects of the institutional environment on economic outcomes is developed and tested on data from US exporters to Eastern Europe. A structural equation analysis indicates institutional components have a differential impact on the influence strategies employed by these Western firms and on export performance. In particular, use of coercive legalistic pleas is increased by regulatory volatility but reduced by perceived foreignness while use of non-coercive recommendations is increased by the partner’s external locus of control but not by perceived foreignness. Importantly, the institutional environment’s impact on economic performance is shown to be direct as well as indirect through the influence strategies Western firms employ in Eastern Europe. The study concludes with a discussion of implications for managers and researchers.

The acceptability of alcohol fuels for automobile engines

The aim of this project was to carry out an investigastion into suitable alternatives to gasoline for use in modern automobiles. The fuel would provide the western world with a means of extending the natural gasoline resources and the third world a way of cutting down their dependence on the oil producing countries for their energy supply. Alcohols, namely methanol and ethanol, provide this solution. They can be used as gasoline extenders or as fuels on their own.In order to fulfil the aims of the project a literature study was carried out to investigate methods and costs of producing these fuels. An experimental programme was then set up in which the performance of the alcohols was studied on a conventional engine. The engine used for this purpose was the Fiat 127 930cc four cylinder engine. This engine was used because of its popularity in the European countries. The Weber fixed jet carburettor, since it was designed to be used with gasoline, was adapted so that the alcohol fuels and the blends could be used in the most efficient way. This was mainly to take account of the lower heat content of the alcohols. The adaptation of the carburettor was in the form of enlarging the main metering jet. Allowances for the alcohol's lower specfic gravity were made during fuel metering.Owing to the low front end volatility of methanol and ethanol, it was expected that `start up' problems would occur. An experimental programme was set up to determine the temperature range for a minimum required percentage `take off' that would ease start-up since it was determined that a `take off' of about 5% v/v liquid in the vapour phase would be sufficient for starting. Additions such as iso-pentane and n-pentane were used to improve the front end volatility. This proved to be successful.The lower heat content of the alcohol fuels also meant that a greater charge of fuel would be required. This was seen to pose further problems with fuel distribution from the carburettor to the individual cylinders on a multicylinder engine. Since it was not possible to modify the existing manifold on the Fiat 127 engine, experimental tests on manifold geometry were carried out using the Ricardo E6 single cylinder variable compression engine. Results from these tests showed that the length, shape and cross-sectional area of the manifold play an important part in the distribution of the fuel entering the cylinder, ie. vapour phase, vapour/small liquid droplet/liquid film phase, vapour/large liquid droplet/liquid film phase etc.The solvent properties of the alcohols and their greater electrical conductivity suggested that the materials used on the engine would be prone to chemical attack. In order to determine the type and rate of chemical attack, an experimental programme was set up whereby carburettor and other components were immersed in the alcohols and in blends of alcohol with gasoline. The test fuels were aerated and in some instances kept at temperatures ranging from 50oC to 90oC. Results from these tests suggest that not all materials used in the conventional engine are equally suitable for use with alcohols and alcohol/gasoline blends. Aluminium for instance was severely attacked by methanol causing pitting and pin-holing in the surface.In general this whole experimental programme gave valuable information on the acceptability of substitute fuels. While the long term effects of alcohol use merit further study, it is clear that methanol and ethanol will be increasingly used in place of gasoline.

Migration of additives from thermoplastic polymers

A homologous series of ultra-violet stabilisers containing 2-hydroxybenzophenone (HBP) moiety as a uv absorbing chromophore with varying alkyl chain lengths and sizes were prepared by known chemical synthesis. The strong absorbance of the HBP chromophore was utilized to evaluate the concentration of these stabilisers in low density polyethylene films and concentration of these stabilisers in low density polyethylene films and in relevant solvents by ultra-violet/visible spectroscopy. Intrinsic diffusion coefficients, equilibrium solubilities, volatilities from LDPE films and volatility of pure stabilisers were studied over a temperature range of 5-100oC. The effects of structure, molecular weight and temperature on the above parameters were investigated and the results were analysed on the basis of theoretical models published in the literature. It has been found that an increase in alkyl chain lengths does not change the diffusion coefficients to a significant level, while attachment of polar or branched alkyl groups change their value considerably. An Arrhenius type of relationship for the temperature dependence of diffusion coefficients seems to be valid only for a narrow temperature range, and therefore extrapolation of data from one temperature to another leads to a considerable error. The evidence showed that increase in additive solubility in the polymer is favoured by lower heat of fusions and melting points of additives. This implies the validity of simple regular solution theory to provide an adequate basis for understanding the solubility of additives in polymers The volubility of stabilisers from low density polyethylene films showed that of an additive from a polymer can be expressed in terms of a first-order kinetic equation. In addition the rate of loss of stabilisers was discussed in relation to its diffusion, solubility and volatility and found that all these factors may contribute to the additive loss, although one may be a rate determining factor. Stabiliser migration from LDPE into various solvents and food simulants was studied at temperatures 5, 23, 40 and 70oC; from the plots of rate of migration versus square root time, characteristic diffusion coefficients were obtained by using the solution of Fick's diffusion equations. It was shown that the rate of migration depends primarily on partition coefficients between solvent and the polymer of the additive and also on the swelling action of the contracting media. Characteristic diffusion coefficients were found to approach to intrinsic values in non swelling solvents, whereas in the case of highly swollen polymer samples, the former may be orders of magnitude greater than the latter.

The microstructure of the foreign exchange market:the determinants of bid-ask spreads in the foreign exchange market

The purpose of this thesis is to shed more light in the FX market microstructure by examining the determinants of bid-ask spread for three currencies pairs, the US dollar/Japanese yen, the British pound/US dollar and the Euro/US dollar in different time zones. I examine the commonality in liquidity with the elaboration of FX market microstructure variables in financial centres across the world (New York, London, Tokyo) based on the quotes of three exchange rate currency pairs over a ten-year period. I use GARCH (1,1) specifications, ICSS algorithm, and vector autoregression analysis to examine the effect of trading activity, exchange rate volatility and inventory holding costs on both quoted and relative spreads. ICSS algorithm results show that intraday spread series are much less volatile compared to the intraday exchange rate series as the number of change points obtained from ICSS algorithm is considerably lower. GARCH (1,1) estimation results of daily and intraday bid-ask spreads, show that the explanatory variables work better when I use higher frequency data (intraday results) however, their explanatory power is significantly lower compared to the results based on the daily sample. This suggests that although daily spreads and intraday spreads have some common determinants there are other factors that determine the behaviour of spreads at high frequencies. VAR results show that there are some differences in the behaviour of the variables at high frequencies compared to the results from the daily sample. A shock in the number of quote revisions has more effect on the spread when short term trading intervals are considered (intra-day) compared to its own shocks. When longer trading intervals are considered (daily) then the shocks in the spread have more effect on the future spread. In other words, trading activity is more informative about the future spread when intra-day trading is considered while past spread is more informative about the future spread when daily trading is considered

Political representation in France: a crisis of democracy?

The past two decades have witnessed growing political disaffection and a widening mass/elite disjuncture in France, reflected in opinion polls, rising abstentionism, electoral volatility and fragmentation, with sustained voting against incumbent governments. Though the electoral system has preserved the duopoly of the mainstream coalitions, they have suffered loss of public confidence and swings in electoral support. Stable parliamentary majorities conceal a political landscape of assorted anti-system parties and growing support for far right and far left. The picture is paradoxical: the French express alienation from political parties yet relate positively to their political institutions; they berate national politicians but retain strong bonds with those elected locally; they appear increasingly disengaged from politics yet forms of ‘direct democracy’ are finding new vigour. While the electoral, attitudinal and systemic factors reviewed here may not signal a crisis of democracy, they point to serious problems of political representation in contemporary France.

Breaking down the non-normality of daily stock returns

This paper investigates whether the non-normality typically observed in daily stock-market returns could arise because of the joint existence of breaks and GARCH effects. It proposes a data-driven procedure to credibly identify the number and timing of breaks and applies it on the benchmark stock-market indices of 27 OECD countries. The findings suggest that a substantial element of the observed deviations from normality might indeed be due to the co-existence of breaks and GARCH effects. However, the presence of structural changes is found to be the primary reason for the non-normality and not the GARCH effects. Also, there is still some remaining excess kurtosis that is unlikely to be linked to the specification of the conditional volatility or the presence of breaks. Finally, an interesting sideline result implies that GARCH models have limited capacity in forecasting stock-market volatility.

Impact of derivatives trading on emerging stock markets:some evidence from India

It is generally accepted that the introduction of financial derivatives that facilitate hedging is an important step in the development of stock markets. However, financial derivatives can potentially increase volatility in the underlying cash market, which might be detrimental to the development of the stock market itself. Using data from India, we examine one possible route through which derivatives trading can increase cash market volatility: expiration day effect. Our results indicate that expiration of equity derivatives contracts does not have any effect on the intra-day volatility of the market index, and it reduces the volatility of inter-day returns to the index.

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.

Assessing economically viable carbon reductions for the production of ammonia from biomass gasification

Greenhouse gas emissions from fertiliser production are set to increase before stabilising due to the increasing demand to secure sustainable food supplies for a growing global population. However, avoiding the impacts of climate change requires all sectors to decarbonise by a very high level within several decades. Economically viable carbon reductions of substituting natural gas reforming with biomass gasification for ammonia production are assessed using techno-economic and life cycle assessment. Greenhouse gas savings of 65% are achieved for the biomass gasification system and the internal rate of return is 9.8% at base-line biomass feedstock and ammonia prices. Uncertainties in the assumptions have been tested by performing sensitivity analysis, which show, for example with a ±50% change in feedstock price, the rate of return ranges between -0.1% and 18%. It would achieve its target rate of return of 20% at a carbon price of £32/t CO, making it cost competitive compared to using biomass for heat or electricity. However, the ability to remain competitive to investors will depend on the volatility of ammonia prices, whereby a significant decrease would require high carbon prices to compensate. Moreover, since no such project has been constructed previously, there is high technology risk associated with capital investment. With limited incentives for industrial intensive energy users to reduce their greenhouse gas emissions, a sensible policy mechanism could target the support of commercial demonstration plants to help ensure this risk barrier is resolved. © 2013 The Authors.

Development of a risk-oriented strategic sourcing (ROSS) framework for the construction and electronics manufacturing industries

Strategic sourcing has increased in importance in recent years, and now plays an important role in companies’ planning. The current volatility in supply markets means companies face multiple challenges involving lock-in situations, supplier bankruptcies or supply security issues. In addition, their exposure can increase due to natural disasters, as witnessed recently in the form of bird flu, volcanic ash and tsunamis. Therefore, the primary focus of this study is risk management in the context of strategic sourcing. The study presents a literature review on sourcing based on the 15 years from 1998–2012, and considers 131 academic articles. The literature describes strategic sourcing as a strategic, holistic process in managing supplier relationships, with a long-term focus on adding value to the company and realising competitive advantage. Few studies discovered the real risk impact and status of risk management in strategic sourcing, and evaluation across countries and industries was limited, with the construction sector particularly under-researched. This methodology is founded on a qualitative study of twenty cases across Ger-many and the United Kingdom from the construction sector and electronics manufacturing industries. While considering risk management in the context of strategic sourcing, the thesis takes into account six dimensions that cover trends in strategic sourcing, theoretical and practical sourcing models, risk management, supply and demand management, critical success factors and the strategic supplier evaluation. The study contributes in several ways. First, recent trends are traced and future needs identified across the research dimensions of countries, industries and companies. Second, it evaluates critical success factors in contemporary strategic sourcing. Third, it explores the application of theoretical and practical sourcing models in terms of effectiveness and sustainability. Fourth, based on the case study findings, a risk-oriented strategic sourcing framework and a model for strategic sourcing are developed. These are based on the validation of contemporary requirements and a critical evaluation of the existing situation. It contemplates the empirical findings and leads to a structured process to manage risk in strategic sourcing. The risk-oriented framework considers areas such as trends, corporate and sourcing strategy, critical success factors, strategic supplier selection criteria, risk assessment, reporting, strategy alignment and reporting. The proposed model highlights the essential dimensions in strategic sourcing and guides us to a new definition of strategic sourcing supported by this empirical study.

The measurement and decomposition of economy-wide productivity growth:Assessing the accuracy and selecting between different approaches

Productivity at the macro level is a complex concept but also arguably the most appropriate measure of economic welfare. Currently, there is limited research available on the various approaches that can be used to measure it and especially on the relative accuracy of said approaches. This thesis has two main objectives: firstly, to detail some of the most common productivity measurement approaches and assess their accuracy under a number of conditions and secondly, to present an up-to-date application of productivity measurement and provide some guidance on selecting between sometimes conflicting productivity estimates. With regards to the first objective, the thesis provides a discussion on the issues specific to macro-level productivity measurement and on the strengths and weaknesses of the three main types of approaches available, namely index-number approaches (represented by Growth Accounting), non-parametric distance functions (DEA-based Malmquist indices) and parametric production functions (COLS- and SFA-based Malmquist indices). The accuracy of these approaches is assessed through simulation analysis, which provided some interesting findings. Probably the most important were that deterministic approaches are quite accurate even when the data is moderately noisy, that no approaches were accurate when noise was more extensive, that functional form misspecification has a severe negative effect in the accuracy of the parametric approaches and finally that increased volatility in inputs and prices from one period to the next adversely affects all approaches examined. The application was based on the EU KLEMS (2008) dataset and revealed that the different approaches do in fact result in different productivity change estimates, at least for some of the countries assessed. To assist researchers in selecting between conflicting estimates, a new, three step selection framework is proposed, based on findings of simulation analyses and established diagnostics/indicators. An application of this framework is also provided, based on the EU KLEMS dataset.