Linear and non-linear transmission of equity return volatility: evidence from the US, Japan and Australia

This paper models the transmission of shocks between the US, Japanese and Australian equity markets. Tests for the existence of linear and non-linear transmission of volatility across the markets are performed using parametric and non-parametric techniques. In particular the size and sign of return innovations are important factors in determining the degree of spillovers in volatility. It is found that a multivariate asymmetric GARCH formulation can explain almost all of the non-linear causality between markets. These results have important implications for the construction of models and forecasts of international equity returns.

Three Essays in Empirical Asset Pricing

The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally assumed to be promptly removed via the actions of profit seeking arbitrageurs. These extreme events motivate the three essays in this work. The first essay seeks and fails to find evidence of investor behavior consistent with the broad 'Too Big To Fail' policies enacted during the crisis by government agents. Only in limited circumstances, where government guarantees such as deposit insurance or U.S. Treasury lending lines already existed, did investors impart a premium to the debt security prices of firms under stress. The second essay introduces the Inflation Indexed Swap Basis (IIS Basis) in examining the large differences between cash and derivative markets based upon future U.S. inflation as measured by the Consumer Price Index (CPI). It reports the consistent positive value of this measure as well as the very large positive values it reached in the fourth quarter of 2008 after Lehman Brothers went bankrupt. It concludes that the IIS Basis continues to exist due to limitations in market liquidity and hedging alternatives. The third essay explores the methodology of performing debt based event studies utilizing credit default swaps (CDS). It provides practical implementation advice to researchers to address limited source data and/or small target firm sample size.

A Critical Review of the Implied Cost of Equity: A New Way to Estimate the Expected Return

For the last three decades, the Capital Asset Pricing Model (CAPM) has been a dominant model to calculate expected return. In early 1990% Fama and French (1992) developed the Fama and French Three Factor model by adding two additional factors to the CAPM. However even with these present models, it has been found that estimates of the expected return are not accurate (Elton, 1999; Fama &French, 1997). Botosan (1997) introduced a new approach to estimate the expected return. This approach employs an equity valuation model to calculate the internal rate of return (IRR) which is often called, 'implied cost of equity capital" as a proxy of the expected return. This approach has been gaining in popularity among researchers. A critical review of the literature will help inform hospitality researchers regarding the issue and encourage them to implement the new approach into their own studies.

Learning about Risk and Return: A Simple Model of Bubbles and Crashes

This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are risk-averse they need to make forecasts of the conditional variance of a stock’s return. Recursive updating of both the conditional variance and the expected return implies several mechanisms through which learning impacts stock prices. Extended periods of excess volatility, bubbles and crashes arise with a frequency that depends on the extent to which past data is discounted. A central role is played by changes over time in agents’ estimates of risk.

Bringing actors and violent conflict into forced migration literature. A model of the decision to return

Populations displaced as a result of mass violent conflict have become one of the most pressing humanitarian concerns of the last decades. They have also become one salient political issue as a perceived burden (in economic and security terms) and as an important piece in the shift towards a more interventionist paradigm in the international system, based on both humanitarian and security grounds. The saliency of these aspects has detracted attention from the analysis of the interactions between relocation processes and violent conflict. Violent conflict studies have also largely ignored those interactions as a result of the consideration of these processes as mere reaction movements determined by structural conditions. This article takes the view that individual’s agency is retained during such processes, and that it is consequential, calling for the need to introduce a micro perspective. Based on this, a model for the individual’s decision of return is presented. The model has the potential to account for the dynamics of return at both the individual and the aggregate level. And it further helps to grasp fundamental interconnections with violent conflict. Some relevant conclusions are derived for the case of Bosnia-Herzegovina and about the implications of the politicization of return.

Return of Equity Issues in the Spanish Stock Market from the Investor’s Perspective, during the 1997-2012 Period

Is it profitable for an investor, from a risk-return perspective, to acquire a stake in a quoted company when a capital increase is announced? This paper analyses the return obtained from the investment in equity issues with cash contribution and pre-emptive rights, aimed at funding corporate activities: acquisitions, investments in new facilities and/or strengthening the balance sheet of the companies undertaking the equity issue. During the 16 years covered by the study, the results show a negative average excess risk-adjusted return of almost 5%, from the moment that the equity offer is announced until the completion of the preferential subscription period. To obtain this excess return, the difference between the nominal Internal Rate of Return (IRR) and the expected return, using the CAPM, is computed for each equity issue. The intention behind this method is to eliminate the effects of time and any other possible effect on the stock price during the period of the analysis.The results from this article are consistent with the Pecking Order theory for the Spanish Stock Market also six months after the preferential subscription period. However, there is a positive return after three months.

Developmental vitamin D deficiency alters adult behaviour: An informative animal model of schizophrenia

Background: There is growing evidence that vitamin D is active in the brain but until recently there was a lack of evidence about its role during brain development. Guided by certain features of the epidemiology of schizophrenia, we have explored the role of vitamin D in the developing brain and behaviour using whole animal models. Methods: Sprague-Dawley rats were fed a vitamin D deficient diet (DVD) or control diet 6 weeks prior to mating and housed under UVB-free lighting conditions. On the day of birth all rats were fed a control diet for the remainder of the study. We observed behaviour at two timepoints; on the day of birth to study maternal behaviour, and at 10 weeks of age to study offspring behaviour in adulthood, under baseline and drug induced conditions (MK-801, haloperidol, amphetamine). Results: Prenatal vitamin D deficiency results in subtle alterations in maternal behaviour as well as long lasting effects on the adult offspring, despite a return to normal vitamin D levels during postnatal life. These affects were specific to transient prenatal vitamin D depletion as adult vitamin D depletion, combined prenatal and chronic postnatal vitamin D depletion, or ablation of the vitamin D receptor in mice led to markedly different outcomes. Conclusions: The developmental vitamin D (DVD) model now draws strength from epidemiological evidence of schizophrenia and animal experiments. Although the DVD model does not replicate every aspect of schizophrenia, it has several attractive features: (1) the exposure is based on clues from epidemiology; (2) it reproduces the increase in lateral ventricles; (3) it reproduces well-regarded behavioural phenotypes associated with schizophrenia (e.g. MK- 801 induced hyperlocomotion); and (4) it implicates a disturbance in dopamine signaling. In summary, low prenatal levels of vitamin D can influence critical components of orderly brain development and that this has a long lasting effect on behaviour.

An Experimental Model of Meningoencephalomyelitis by Rocio Flavivirus in Balb/C Mice: Inflammatory Response, Cytokine Production, and Histopathology

Rocio virus (ROCV) is a flavivirus, probably transmitted by Culex mosquitoes and maintained in nature as a zoonosis of wild birds. Rocio virus caused a human epidemic of severe encephalitis that lasted from 1973 to 1980 in the Ribeira valley, in the southeastern coast of Brazil. After this outbreak, serologic evidence of ROCV circulation has been reported and public health authorities are concerned about a return of ROCV outbreaks in Brazil. We show here a study on the pathogenesis and the physiopathology of ROCV disease in the central nervous system of a Balb/C young adult mice experimental model. The animals were intraperitoneally infected by ROCV and followed from 0 to 9 days after infection, when all of them died. Nervous tissue samples were collected from infected animals for immunohistochemistry and molecular biology analysis. We observed the virus in the central nervous system, the inflammatory changes induced by Th1 and Th2 cytokines, and the final irreversible damage of nervous tissues by neuronal degeneration and apoptosis. These findings can help to better understand the pathogenesis and physiopathology of the human meningoencephalomyelitis by ROCV and other flaviviruses.

Analysis of the return on preventive measures in musculoskeletal disorders through the benefitecost ratio: A case study in a hospital

Work-related musculoskeletal disorders (WMSDs) are among the most costly health problems that society is facing today. Prevention involves investments and it is important for organizations to make a cost ebenefit analysis of ergonomic projects. Return on prevention is a recent concern in the domain of occupational safety and health (OSH). There are many studies concerning the return on the prevention of WMSDs, in terms of the benefits for the organization in which the preventive measures are implemented. However, it is also important to perform an analysis of the impact of each measure on society (externalities). A model to perform a financial and economic costebenefit analysis related to OSH projects was developed and it was applied in the case of the prevention of WMSDs in a Portuguese hospital. An analysis of the accidents and corresponding costs has been made in six of the services of the hospital. Financial and an economic costebenefit analysis have been made and the benefitecost ratio (B/C) has been calculated. While the B/C financial ratio, considering only the benefits to the hospital, is around 2, the economic B/C ratio, taking into account all the external benefits that have been quantified, is higher than 14. Relevance to industry: Both the economic and the financial B/C ratio are important support tools for decision makers in public and private organizations, helping them to define which preventive measures should be implemented, taking into account the costs involved and the resulting quantified benefits, for the organization, for the workers and for the society.

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

We re-examine the dynamics of returns and dividend growth within the present-value framework of stock prices. We find that the finite sample order of integration of returns is approximately equal to the order of integration of the first-differenced price-dividend ratio. As such, the traditional return forecasting regressions based on the price-dividend ratio are invalid. Moreover, the nonstationary long memory behaviour of the price-dividend ratio induces antipersistence in returns. This suggests that expected returns should be modelled as an AFIRMA process and we show this improves the forecast ability of the present-value model in-sample and out-of-sample.

The so-called 'external partners' in the groups of corporations: A model of presentation in the consolidated statements

This paper studies, on the one hand, theories set out around theconsideration of the external partners in the consolidated informationand on the other hand, financial models that discuss the convenience ofthe separation or not of the different elements that form part of theliabilities of the balance sheet of the companies. A Model is proposed,the External Partners Model, which financially argues a certain presentationand processing of such and that, in our opinion, facilitates the analysisof the consolidated financial statements. This model is based on twohypotheses: (1) the economic and financial variables are not independentand (2) the value of the company depends, among other factors, of thetype of sources that constitute their capital. These two hypotheses willimply that a separation should be included in the consolidated balance sheet between equity and liabilities as they are different sources ofcapital and then its separation will give relevant information to itsusers.

Performance persistence of equity funds in the Russian stock market

This thesis investigates performance persistence among the equity funds investing in Russia during 2003-2007. Fund performance is measured using several methods including the Jensen alpha, the Fama-French 3- factor alpha, the Sharpe ratio and two of its variations. Moreover, we apply the Bayesian shrinkage estimation in performance measurement and evaluate its usefulness compared with the OLS 3-factor alphas. The pattern of performance persistence is analyzed using the Spearman rank correlation test, cross-sectional regression analysis and stacked return time series. Empirical results indicate that the Bayesian shrinkage estimates may provide better and more accurate estimates of fund performance compared with the OLS 3-factor alphas. Secondly, based on the results it seems that the degree of performance persistence is strongly related to length of the observation period. For the full sample period the results show strong signs of performance reversal whereas for the subperiod analysis the results indicate performance persistence during the most recent years.

Quantil Hedging for telegraph markets and its applications to a pricing of equity-linked life insurance contracts

En este documento está desarrollado un modelo de mercado financiero basado en movimientos aleatorios con tiempo continuo, con velocidades constantes alternantes y saltos cuando hay cambios en la velocidad. Si los saltos en la dirección tienen correspondencia con la dirección de la velocidad del comportamiento aleatorio subyacente, con respecto a la tasa de interés, el modelo no presenta arbitraje y es completo. Se construye en detalle las estrategias replicables para opciones, y se obtiene una presentación cerrada para el precio de las opciones. Las estrategias de cubrimiento quantile para opciones son construidas. Esta metodología es aplicada al control de riesgo y fijación de precios de instrumentos de seguros.

The effects of environmental perturbation and measurement error on estimates of the shape parameter in the theta-logistic model of population regulation

The theta-logistic is a widely used generalisation of the logistic model of regulated biological processes which is used in particular to model population regulation. Then the parameter theta gives the shape of the relationship between per-capita population growth rate and population size. Estimation of theta from population counts is however subject to bias, particularly when there are measurement errors. Here we identify factors disposing towards accurate estimation of theta by simulation of populations regulated according to the theta-logistic model. Factors investigated were measurement error, environmental perturbation and length of time series. Large measurement errors bias estimates of theta towards zero. Where estimated theta is close to zero, the estimated annual return rate may help resolve whether this is due to bias. Environmental perturbations help yield unbiased estimates of theta. Where environmental perturbations are large, estimates of theta are likely to be reliable even when measurement errors are also large. By contrast where the environment is relatively constant, unbiased estimates of theta can only be obtained if populations are counted precisely Our results have practical conclusions for the design of long-term population surveys. Estimation of the precision of population counts would be valuable, and could be achieved in practice by repeating counts in at least some years. Increasing the length of time series beyond ten or 20 years yields only small benefits. if populations are measured with appropriate accuracy, given the level of environmental perturbation, unbiased estimates can be obtained from relatively short censuses. These conclusions are optimistic for estimation of theta. (C) 2008 Elsevier B.V All rights reserved.

A model of the dynamic relationship between blood flow and volume changes during brain activation

The temporal relationship between changes in cerebral blood flow (CBF) and cerebral blood volume (CBV) is important in the biophysical modeling and interpretation of the hemodynamic response to activation, particularly in the context of magnetic resonance imaging and the blood oxygen level-dependent signal. Grubb et al. (1974) measured the steady state relationship between changes in CBV and CBF after hypercapnic challenge. The relationship CBV proportional to CBFPhi has been used extensively in the literature. Two similar models, the Balloon (Buxton et al., 1998) and the Windkessel (Mandeville et al., 1999), have been proposed to describe the temporal dynamics of changes in CBV with respect to changes in CBF. In this study, a dynamic model extending the Windkessel model by incorporating delayed compliance is presented. The extended model is better able to capture the dynamics of CBV changes after changes in CBF, particularly in the return-to-baseline stages of the response.