Search results for "FINANCIAL ECONOMICS"
showing 10 items of 277 documents
Subjective Economic Risk to Beneficiaries in Notional Defined Contribution Accounts
2006
ABSTRACT This article aims to quantify the aggregate subjective economic risk to which beneficiaries would be exposed if a retirement pension system based on notional account philosophy were introduced. We use scenario generation techniques to make projections of the factors that determine the real expected internal rate of return (IRR) and the expected replacement rate (RR) for the beneficiary according to six retirement formulae based on the most widely accepted rates or indices. We then apply the model to the case of Spain. Our projections are based on Herce and Alonso's macroeconomic scenario 2000-2050 (2000) and include information about the past performance of the indices and the time…
A note on comparative downside risk aversion
2005
International audience; We provide comparative global conditions for downside risk aversion, which are similar to the ones studied by Ross for risk aversion. We define a coefficient of downside risk aversion, and study its local properties.
DOES REAL INTEREST RATE PARITY HOLD FOR OECD COUNTRIES? NEW EVIDENCE USING PANEL STATIONARITY TESTS WITH CROSS-SECTION DEPENDENCE AND STRUCTURAL BREA…
2010
This paper tests for real interest rate parity (RIRP) among the 17 major Organisation for Economic Cooperation and Development countries over the period 1978:Q1–2006:Q1. The econometric methods applied consist of combining the use of panel data tests that are valid under cross-section dependence and the presence of multiple structural breaks. This feature is important because the misspecification errors due to not accounting for structural breaks and/or cross-section dependence can lead to misleading conclusions. Our results support the fulfilment of the weak version of the RIRP for short-term interest rate differentials once dependence and structural breaks are considered.
Banking failure prediction: a boosting classification tree approach
2016
The recent financial crisis shows that failure of some financial institutions can cause other banks to fail and ultimately cause damage to the financial system worldwide. Eurozone banks that experienced either liquidity or solvency problems during the finan- cial markets turmoil were bailed out by their national governments with the financial support and supervision of the European Union. This paper applies the boosted classification tree methodology to predict failure in the banking sector and identifies four key scor- ecard variables that are worth tracking closely in order to anticipate and prevent bank financial distress. The data used in this study comprises 2006-2012 annual series of …
Analysis of risk premium in UK natural gas futures
2018
Abstract In many futures markets, trading is concentrated on the front contract and positions are rolled-over until the strategy horizon is attained. In this paper, a pair-wise comparison between the conventional risk premium and the accrued risk premium in rolled-over positions on the front contract is carried out for UK natural gas futures. Several novel results are obtained. Firstly, and most importantly, the accrued risk premium in rollover strategies is significatively larger than conventional risk premiums and increases with the time to delivery. Specifically, for strategy horizons between three and six months, this difference increases from 1% to 10% (or from 4% to 20% in annualized …
European Natural Gas Seasonal Effects on Futures Hedging
2015
Abstract This paper is the first to discuss the design of futures hedging strategies in European natural gas markets (NBP, TTF and Zeebrugge). A common feature of energy prices is that conditional mean and volatility are driven by seasonal trends due to weather, demand, and storage level seasonalities. This paper follows and extends the Ederington and Salas (2008) framework and considers seasonalities in mean and volatility when minimum variance hedge ratios are computed. Our results show that hedging effectiveness is much higher when the seasonal pattern in spot price changes is approximated with lagged values of the basis (futures price minus spot price). This fact remains true for short …
On the risk premium in Nordic electricity futures prices
2011
Abstract This paper examines empirically the relationship between electricity spot and futures prices, by analysing a decade of data for a set of short term-to-maturity futures contracts traded in the Nordic Power Exchange. It is found that, on average, there are significant positive risk premiums in short-term electricity futures prices. The significance and size of the premiums, however, varies seasonally over the year; whereas it is greatest during winter, it is zero in summer. It is also found that time-varying risk premiums are significantly related to unexpectedly low reservoir levels. Furthermore, before the unprecedented supply-shock that hit the market around the end of year 2002, …
Primary commodity prices: co-movements, common factors and fundamentals
2011
The behavior of commodities is critical for developing and developed countries alike. This paper contributes to the empirical evidence on the co-movement and determinants of commodity prices. Using nonstationary panel methods, the authors document a statistically significant degree of co-movement due to a common factor. Within a Factor Augmented VAR approach, real interest rate and uncertainty, as postulated by a simple asset pricing model, are both found to be negatively related to this common factor. This evidence is robust to the inclusion of demand and supply shocks, which both positively impact on co-movement of commodity prices.
When financial economics influences physics: The role of Econophysics
2019
This paper aims at analyzing the unexpected influence of Financial economics on Physics. The rise of Econophysics, a fundamentally new approach in finance, suggests that the influence between the two disciplines becomes less unilateral than in the past. Methodological debates emerging in Econophysics led physicists to acknowledge that dealing with financial complex systems contributed to a wider modelling of their field. The approach of econophysicists suggests that physicists might try to conceptualize physical phenomena by integrating elements they faced with in Financial economics, and more generally in Economics. Surprisingly, many of econophysicists’ argumentations have some methodolog…
The role of stock markets vs. the term spread in forecasting macrovariables in Finland
2011
Abstract A substantial body of stylized facts and empirical evidence exists regarding the relationships between financial variables and the macroeconomy in the United States. However, the question of whether this evidence is consistent with the cases of small open economies is less known. This paper focuses on the forecasting content of stock returns and volatility vs. the term spread for GDP, private consumption, industrial production and the inflation rate in Finland. Our results suggest that during normal times, the term spread is a much better tool than stock market variables for predicting real activity. However, during exceptional times, such as the recent financial crisis, the foreca…