Essays in Macroecometrics: methodological aspects and empirical applications

In the first chapter, I develop a panel no-cointegration test which extends Pesaran, Shin and Smith (2001)'s bounds test to the panel framework by considering the individual regressions in a Seemingly Unrelated Regression (SUR) system. This allows to take into account unobserved common factors that contemporaneously affect all the units of the panel and provides, at the same time, unit-specific test statistics. Moreover, the approach is particularly suited when the number of individuals of the panel is small relatively to the number of time series observations. I develop the algorithm to implement the test and I use Monte Carlo simulation to analyze the properties of the test. The small sample properties of the test are remarkable, compared to its single equation counterpart. I illustrate the use of the test through a test of Purchasing Power Parity in a panel of EU15 countries. In the second chapter of my PhD thesis, I verify the Expectation Hypothesis of the Term Structure in the repurchasing agreements (repo) market with a new testing approach. I consider an "inexact" formulation of the EHTS, which models a time-varying component in the risk premia and I treat the interest rates as a non-stationary cointegrated system. The effect of the heteroskedasticity is controlled by means of testing procedures (bootstrap and heteroskedasticity correction) which are robust to variance and covariance shifts over time. I fi#nd that the long-run implications of EHTS are verified. A rolling window analysis clarifies that the EHTS is only rejected in periods of turbulence of #financial markets. The third chapter introduces the Stata command "bootrank" which implements the bootstrap likelihood ratio rank test algorithm developed by Cavaliere et al. (2012). The command is illustrated through an empirical application on the term structure of interest rates in the US.

The Decrease in Summer Surface Water Temperature with Altitude in Swiss Alpine Lakes: A Comparison with Air Temperature Lapse Rates

Using miniature thermistors with integrated data loggers, the decrease in summer lake surface water temperature (LSWT) with increasing altitude a.s.l. was investigated in 10 Swiss Alpine lakes located between 613 m a.s.l. and 2339 m a.s.l. The LSWTs exhibit essentially the same short-term structure as regional air temperature, but are about 3 to 5°C higher than the air temperature at the altitude of the lake. LSWTs decrease approximately linearly with increasing altitude at a rate slightly greater than the surface air temperature lapse rate. Diel variations in LSWT are large, implying that single water temperature measurements are un- likely to be representative of the mean. Local factors will affect LSWT more than they affect air temperature, possibly resulting in severe distortion of the empirical relationship between the two. Several implications for paleoclimate reconstruction studies result. (1) Paleolimnologically reconstructed LSWTs are likely to be higher than the air temperatures prevailing at the altitude of the lake. (2) Lakes used for paleoclimate reconstruction should be selected to minimize local effects on LSWT. (3) The calibration of organism-specific quantitative paleotemperature inference models should not be based on single water temperature measurements. (4) Consideration should be given to calibrating such models directly against air temperature rather than water temperature. (5) The primary climate effect on the aquatic biota of high-altitude lakes may be mediated by the timing of the ice cover.

A macro-financial analysis of the euro area sovereign bond market. National Bank of Belgium Working Paper No. 259, June 2014

We estimate the 'fundamental' component of euro area sovereign bond yield spreads, i.e. the part of bond spreads that can be justified by country-specific economic factors, euro area economic fundamentals, and international influences. The yield spread decomposition is achieved using a multi-market, no-arbitrage affine term structure model with a unique pricing kernel. More specifically, we use the canonical representation proposed by Joslin, Singleton, and Zhu (2011) and introduce next to standard spanned factors a set of unspanned macro factors, as in Joslin, Priebsch, and Singleton (2013). The model is applied to yield curve data from Belgium, France, Germany, Italy, and Spain over the period 2005-2013. Overall, our results show that economic fundamentals are the dominant drivers behind sovereign bond spreads. Nevertheless, shocks unrelated to the fundamental component of the spread have played an important role in the dynamics of bond spreads since the intensification of the sovereign debt crisis in the summer of 2011

IDENTIFICAÇÃO DE SURPRESAS MONETÁRIAS E SEUS IMPACTOS SOBRE A ESTRUTURA A TERMO DA TAXA DE JUROS

A reação dos mercados às alterações na taxa básica de juros é relevante para toda a economia. O entendimento da relação entre a política monetária e as taxas de juros é de extrema importância, uma vez que surpresas monetárias, ou seja, os erros de previsão do mercado a respeito das alterações da meta da Taxa Selic, podem afetar as taxas de juros de diferentes maturidades ou vencimentos, impactando diretamente a Administração Financeira. O objetivo deste estudo foi analisar a variação da Estrutura a Termo da Taxa de Juros (ETTJ) quando verificadas surpresas monetárias na ocasião da decisão do Comitê de Política Monetária (Copom) a respeito da meta da Taxa Selic. Para isso, foi desenvolvido um estudo descritivo quantitativo, que considerou as 88 reuniões ordinárias do Copom realizadas no período de janeiro de 2004 a dezembro de 2013. As surpresas monetárias foram identificadas através de duas formas distintas. Na primeira forma foram consideradas as taxas do contrato de DI1 referente ao último negócio realizado no pregão da data da reunião do Copom, e a taxa do primeiro negócio realizado no pregão seguinte. Desta maneira foram identificadas 11 surpresas monetárias. Na segunda forma foram consideradas as taxas médias verificadas nos mesmos contratos e ocasiões citados anteriormente, sendo assim identificadas 10 surpresas monetárias. Já para a análise da relação entre as variações da ETTJ e as surpresas monetárias foram considerados os vencimentos de 2, 3, 6, 9, 12, 15, 18 e 24 meses. Como resultado foi possível observar que as surpresas monetárias e as variações na ETTJ são diretamente proporcionais, movendo-se na mesma direção, para as duas formas distintas de surpresas monetárias identificadas neste estudo. Além disso, foi empregada nas análises a questão da unanimidade na decisão do Copom, com o objetivo testar o seu conteúdo informacional, e observou-se como resultado uma menor variação da ETTJ em ocasiões em que a decisão do Copom foi unânime. Em resumo, entende-se que os resultados encontrados no presente estudo estão em linha aos apresentados por outros autores, sendo possível comprovar a correlação existente entre as variações da ETTJ e as surpresas monetárias, bem como verificar que a magnitude das variações diminui ao longo da ETTJ, fato este que pode ser relacionado à transparência da política monetária nacional e à experiência na vigência do sistema de metas para a inflação.

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.

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.

Derivatív pénzügyi termékek árdinamikája és az új típusú kamatlábmodellek (Interest rate models and the price processes of financial derivatives)

Ennek a cikknek az a célja, hogy áttekintést adjon annak a folyamatnak néhány főbb állomásáról, amit Black, Scholes és Merton opcióárazásról írt cikkei indítottak el a 70-es évek elején, és ami egyszerre forradalmasította a fejlett nyugati pénzügyi piacokat és a pénzügyi elméletet. / === / This review article compares the development of financial theory within and outside Hungary in the last three decades starting with the Black-Scholes revolution. Problems like the term structure of interest rate volatilities which is in the focus of many research internationally has not received the proper attention among the Hungarian economists. The article gives an overview of no-arbitrage pricing, the partial differential equation approach and the related numerical techniques, like the lattice methods in pricing financial derivatives. The relevant concepts of the martingal approach are overviewed. There is a special focus on the HJM framework of the interest rate development. The idea that the volatility and the correlation can be traded is a new horizon to the Hungarian capital market.

Credit risk & forward price models

Doutoramento em Gestão

The conditional performance of euro bond funds: evidence from Portugal during the debt crisis

This paper evaluates the performance of a survivorship bias-free data set of Portuguese funds investing in Euro-denominated bonds by using conditional models that consider the public information available to investors when the returns are generated. We find that bond funds underperform the market significantly and by an economically relevant magnitude. This underperformance cannot be explained by the expenses they charge. Our findings support the use of conditional performance evaluation models, since we find strong evidence of both time-varying risk and performance, dependent on the slope of the term structure and the inverse relative wealth variables. We also show that survivorship bias has a significant impact on performance estimates. Furthermore, during the European debt crisis, bond fund managers performed significantly better than in non-crisis periods and were able to achieve neutral performance. This improved performance throughout the crisis seems to be related to changes in funds’ investment styles.

Topics in climate change risk

In this Thesis, we analyze how climate risk impacts economic players and its consequences on the financial markets. Essentially, literature unravels two main channels through which climate change poses risks to the status quo, namely physical and transitional risk, that we cover in three works. Firstly, the call for a global shift to a net-zero economy implicitly devalues assets that contribute to global warming that regulators are forcing to dismiss. On the other hand, abnormal changes in the temperatures as well as weather-related events challenge the environmental equilibrium and could directly affect operations as well as profitability. We start the analysis with the physical component, by presenting a statistical measure that generally represents shocks to the distribution of temperature anomalies. We oppose this statistic to classical physical measures and assess that it is the driver of the electricity consumption, in the weather derivatives market, and in the cross-section of equity returns. We find two transmission channels, namely investor attention, and firm operations. We then analyze the transition risk component, by associating a regulatory horizon characterization to fixed income valuation. We disentangle a risk driver for corporate bond overperformance that is tight to change in credit riskiness. After controlling a statistical learning algorithm to forecast excess returns, we include carbon emission metrics without clear evidence. Finally, we analyze the effects of change in carbon emission on a regulated market such as the EU ETS by selecting utility sector corporate bond and, after controlling for the possible risk factor, we document how a firm’s carbon profile differently affects the term structure of credit riskiness.

A Unified Model for XVA, including Interest Rates and Rating

We start in Chapter 2 to investigate linear matrix-valued SDEs and the Itô-stochastic Magnus expansion. The Itô-stochastic Magnus expansion provides an efficient numerical scheme to solve matrix-valued SDEs. We show convergence of the expansion up to a stopping time τ and provide an asymptotic estimate of the cumulative distribution function of τ. Moreover, we show how to apply it to solve SPDEs with one and two spatial dimensions by combining it with the method of lines with high accuracy. We will see that the Magnus expansion allows us to use GPU techniques leading to major performance improvements compared to a standard Euler-Maruyama scheme. In Chapter 3, we study a short-rate model in a Cox-Ingersoll-Ross (CIR) framework for negative interest rates. We define the short rate as the difference of two independent CIR processes and add a deterministic shift to guarantee a perfect fit to the market term structure. We show how to use the Gram-Charlier expansion to efficiently calibrate the model to the market swaption surface and price Bermudan swaptions with good accuracy. We are taking two different perspectives for rating transition modelling. In Section 4.4, we study inhomogeneous continuous-time Markov chains (ICTMC) as a candidate for a rating model with deterministic rating transitions. We extend this model by taking a Lie group perspective in Section 4.5, to allow for stochastic rating transitions. In both cases, we will compare the most popular choices for a change of measure technique and show how to efficiently calibrate both models to the available historical rating data and market default probabilities. At the very end, we apply the techniques shown in this thesis to minimize the collateral-inclusive Credit/ Debit Valuation Adjustments under the constraint of small collateral postings by using a collateral account dependent on rating trigger.

Long-term effects of cannabis on brain structure.

The dose-dependent toxicity of the main psychoactive component of cannabis in brain regions rich in cannabinoid CB1 receptors is well known in animal studies. However, research in humans does not show common findings across studies regarding the brain regions that are affected after long-term exposure to cannabis. In the present study, we investigate (using Voxel-based Morphometry) gray matter changes in a group of regular cannabis smokers in comparison with a group of occasional smokers matched by the years of cannabis use. We provide evidence that regular cannabis use is associated with gray matter volume reduction in the medial temporal cortex, temporal pole, parahippocampal gyrus, insula, and orbitofrontal cortex; these regions are rich in cannabinoid CB1 receptors and functionally associated with motivational, emotional, and affective processing. Furthermore, these changes correlate with the frequency of cannabis use in the 3 months before inclusion in the study. The age of onset of drug use also influences the magnitude of these changes. Significant gray matter volume reduction could result either from heavy consumption unrelated to the age of onset or instead from recreational cannabis use initiated at an adolescent age. In contrast, the larger gray matter volume detected in the cerebellum of regular smokers without any correlation with the monthly consumption of cannabis may be related to developmental (ontogenic) processes that occur in adolescence.

Impact of family structure on long-term survivors of osteosarcoma

Rapport de synthèse : But du travail : le pronostic des patients atteints d'ostéosarcome s'est considérablement amélioré grâce à l'utilisation de thérapies combinées performantes. Cependant, ces traitements agressifs sont grevés de complications chroniques. Notre travail a consisté à l'évaluation du status fonctionnel, psychologique et familial chez des patients survivants au long cours d'ostéosarcome traités au centre pluridisciplinaire d'oncologie. Patients et méthodes: 15 survivants au long cours d'ostéosarcome ont été évalués à la recherche de séquelles physiques et psychologiques. Pour l'évaluation fonctionnelle, nous avons utilisé la méthode de Enneking. L'évaluation psychologique a été basée sur un test d'évaluation globale (GHQ-28), sur un test de cohésion familiale (FAST test) et sur une échelle d'évaluation de symptômes post-traumatiques. Résultats: sur le plan fonctionnel, seuls 5 patients présentaient des séquelles graves et 10 des handicaps modérés. 4 patients souffraient de symptômes dépressifs. 6 patients ont décrit uns structure familiale déséquilibrée dont 3 des 4 patients avec des symptômes dépressifs, les 4 patients avec symptômes post-traumatiques et 5 des 7 patients avec une mauvaise acceptation émotionnelle. Conclusions: la plupart des patients souffrant d'ostéosarcome présentent une bonne récupération fonctionnelle. Seule une minorité reste sévèrement handicapée. Un tiers des patients souffre de symptômes dépressifs et de stress post-traumatique. Une mauvaise acceptation émotionnelle est fortement liée à une structure familiale déséquilibrée. La situation psychologique et familiale des patients atteints d'ostéosarcome doit donc être rapidement prise en compte afin d'améliorer leur évolution au long cours.

Characterization of soil structure and porosity under long-term conventional tillage and no-tillage systems

Different management systems tend to modify soil structure and porosity over the years. The aim of this study was to study modifications in the morphostructure and porosity of dystroferric Red Latosol (Oxisol) under conventional tillage and no-tillage over a 31- year period. The study began with the description of soil profiles based on the cropping profile method, to identify the most compact structures, define sample collection points for physical and chemical analysis, and determine the water retention curve. A forest soil profile was described and used as reference. The results showed that, under conventional tillage, the microaggregate structure of the Oxisol was fragmented between 0 and 0.20 m, and compact (bulk density = 1.52 Mg m-3) in the sub-surface layer between 0.20 and 0.50 m. Under no-tillage, the structure became compacted (bulk density = 1.40 Mg m-3) between 0 and 0.60 m, but contained fissures and biopores. The volume of the class with a pore diameter of > 100 µm under no-tillage was limited, but practically non-existent in the conventional management system. On the other hand, the classes with a pore diameter of < 100 µm were not affected by the type of soil management system.

Nurture versus nature: long-term impact of forced right-handedness on structure of pericentral cortex and basal ganglia.

Does a conflict between inborn motor preferences and educational standards during childhood impact the structure of the adult human brain? To examine this issue, we acquired high-resolution T1-weighted magnetic resonance scans of the whole brain in adult "converted" left-handers who had been forced as children to become dextral writers. Analysis of sulcal surfaces revealed that consistent right- and left-handers showed an interhemispheric asymmetry in the surface area of the central sulcus with a greater surface contralateral to the dominant hand. This pattern was reversed in the converted group who showed a larger surface of the central sulcus in their left, nondominant hemisphere, indicating plasticity of the primary sensorimotor cortex caused by forced use of the nondominant hand. Voxel-based morphometry showed a reduction of gray matter volume in the middle part of the left putamen in converted left-handers relative to both consistently handed groups. A similar trend was found in the right putamen. Converted subjects with at least one left-handed first-degree relative showed a correlation between the acquired right-hand advantage for writing and the structural changes in putamen and pericentral cortex. Our results show that a specific environmental challenge during childhood can shape the macroscopic structure of the human basal ganglia. The smaller than normal putaminal volume differs markedly from previously reported enlargement of cortical gray matter associated with skill acquisition. This indicates a differential response of the basal ganglia to early environmental challenges, possibly related to processes of pruning during motor development.