Monetary Policy & Real Estate Investment Trusts *

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Monetary Policy & Real Estate Investment Trusts *"

Transcription

1 Moneary Policy & Real Esae Invesmen Truss * Don Bredin, Universiy College Dublin, Gerard O Reilly, Cenral Bank and Financial Services Auhoriy of Ireland & Simon Sevenson, Cass Business School, Ciy Universiy * The auhors would like o hank paricipans a he 2006 American Real Esae Sociey conference and he 2007 American Real Esae & Urban Economics Associaion annual conference, especially our discussan David Downs, for commens on earlier drafs of his paper. School of Business, Universiy College Dublin, Blackrock, Couny Dublin, Ireland. Economic Analysis and Research Deparmen, Cenral Bank and Financial Services Auhoriy of Ireland, PO Box 559, Dame Sree, Dublin 2, Ireland. Faculy of Finance, Cass Business School, Ciy Universiy, 06 Bunhill Row, London, ECY 8TZ, UK. Tel: , Fax: , s.sevenson-

2 Moneary Policy & Real Esae Invesmen Truss Absrac This paper assesses he response of Real Esae Invesmen Truss (REIT's) o unexpeced changes in US moneary policy. A criical elemen in his sudy is he use of fuures markes o isolae unexpeced changes in he policy rae. We find a significan negaive response of REIT reurns o a surprise change in he policy rae. The paper hen examines he poenial sources behind such an observed response. We find imporan differences beween he REIT marke and he broader equiy marke. Inuiively he impac of moneary policy on dividend news appears o be more pronounced in he REIT case. However, he decomposiion of he response o moneary shocks is largely driven by revision in expecaions regarding fuure excess reurns and hese resuls are largely consisen wih he findings for he overall sock marke as repored in Bernanke & Kuner (2005). 2

3 : Inroducion Real Esae Invesmen Truss (REIT s) are he primary raded real esae vehicle in he US and are srucured in a similar fashion o muual funds in order o enhance heir ax ransparency in comparison o convenional corporae srucure. Dividend paymens of he rus are ax exemp provided wo condiions are saisfied wih respec o he underlying asses and dividend paymens of he rus. The wo requiremens are ha a minimum of 75% of a REIT s asses mus be invesed in real esae and a minimum of 90% of axable income mus be passed hrough o shareholders. The las decade in he US has winessed dramaic growh in REIT s, wih reurns of 300% since he end of 999. However during his ime, REIT s have begun o behave more akin o general equiy markes, e.g. REITs have now been incorporaed ino broad marke indexes (S&P 500) and large index funds now buy and sell hem wih he res of he marke. Concomianly moneary policy has become he main insrumen in he sabilisaion of inflaion and oupu wih commenaors and analyss paying close aenion o changes in moneary policy in he belief ha such changes, paricularly unexpeced changes, can influence sock marke values immediaely. I is hen naural o ask wheher he characerisics of REIT s, due o heir srucure and he naure of he underlying real esae marke, gives rise o a differen response wih respec o unanicipaed moneary policy as compared o he broader equiy sock marke. In paricular is he source of any response o surprise changes in moneary policy he same or differen beween REIT s and he sock marke in general? If he srucural aspec of REIT s are he key, hen we may well expec o find a more enhanced role of dividends in response o any surprises. However, if in fac he naure of he underlying asse is he deermining facor hen we may expec o find a larger impac o he surprise in erms of curren excess reurns and evidence of persisence in fuure excess reurns. The laer may indicae he sensiiviy of he real esae marke o news abou Cenral Bank behaviour. Bernanke & Kuner (2005) argue ha he impac of policy rae changes on he general equiy marke occur hrough hree main channels, namely; he impac on he expeced fuure dividends, changes in he real ineres rae used o discoun hese 3

4 dividends and changes in he equiy risk premium. Is i likely ha hese facors will affec REIT s in a similar fashion o ha observed in he broader sock marke and are wha are he addiional issues ha require consideraion in a REIT conex. In paricular, he consrains placed on he REIT secor wih respec o asses and dividends ie he performance of he russ very closely o ha of he underlying propery porfolio. A key issue here is ha he underlying privae real esae marke has a number of fundamenal and well-documened linkages o ineres rae movemens. Ineres rae changes may influence general economic aciviy, which iself will feed hrough o occupaional demand in he underlying real esae marke and his should lead o changes in obainable renal values and herefore income and subsequenly REIT dividends. Moreover, changes in ineres raes will also affec upon real esae yields herefore leading o an addiional impac on propery values. The exising lieraure on he relaionship beween REIT s and ineres raes has largely concenraed on he impac of changes in acual marke ineres raes (e.g. Liang e al., 995, Mueller & Pauley, 995, Devaney, 200 and He e al., 2003). However, hese sudies fail o disinguish beween (un)anicipaed movemens in ineres raes. If markes are efficien he iming of he response in reurns will be dependen on he expecaion of rae movemens, wih REIT prices only responding o unanicipaed movemens. This paper exends recen work by Bredin e al. (2008) who examine he impac of moneary shocks on he firs and second momens of REIT reurns in a GARCH framework. Similar o his sudy, he auhors use he fed funds fuure rae o proxy marke expecaions concerning changes in he Fed Funds Rae. Their resuls show a srong response in boh he firs and second momens of REIT reurns o unexpeced policy rae changes. Previous work addressing ineres rae changes only, such as Devaney (200), found no significan impac on REIT s reurns and so highlighs he imporance of capuring marke expecaions. In a broader conex a large number of papers have examined he influence of moneary policy on sock reurns wih Pearce & Roley (985) being one of he firs sudies o examine he impac of unanicipaed rae changes. Marke expecaions are obained hrough survey daa and heir resuls show ha socks reac significanly o unanicipaed ineres rae changes pos 979. Thorbecke (997) finds ha an expansionary moneary policy increases ex-pos reurns and ha moneary shocks 4

5 affec smaller firms o a greaer exen while Paelis (997) noes ha moneary policy changes can provide predicive informaion on sock price movemens. Finally, Bernanke & Kuner (2005) highligh he imporance of US moneary policy shocks on US sock reurns using a fuures markes based proxy for he surprise. They find ha unanicipaed moneary policy has a significan negaive effec on aggregae sock reurns and his is primarily driven by he ineres rae impac on news regarding fuure expeced reurns. In his paper we seek o answer wo key quesions. Firsly, we examine he impac of unanicipaed ineres rae changes on REIT reurns wihin an even sudy mehodology. The second par of he paper builds on his analysis o assess he likely reasons behind he observed response of he REIT secor o moneary policy surprises. In line wih Bernanke & Kuner (2005) we use a variance decomposiion in he spiri of Campbell (99) and Campbell & Ammer (993) o ideniy he channels behind he response of REIT reurns o moneary policy surprises. This approach decomposes unanicipaed changes in excess reurns ino he following componens; revisions in expecaions regarding fuure dividends, real raes and fuure excess reurns and hen assesses how each of hese componens are affeced by an unanicipaed ineres rae change. The second par of he sudy will indicae he source of any response o surprise changes in moneary policy and wheher his response is consisen wih general equiy markes. The imporance of he srucural aspec of REIT s and he naure of he underlying asse will be eviden from he variance decomposiion approach. The remainder of he paper is srucured as follows. Secion 2 discusses he daa used in he analysis, wih he main empirical findings repored in Secion 3. The final secion provides concluding commens. 2: Impac of Moneary Policy Shocks The even sudy is based around he following baseline regression. () e u R = α + α r + α r + µ 0 2 5

6 where R is he -day REIT reurn and is defined as he log -day change in he REIT from o - while of he policy rae decision and r u is he unexpeced change in he policy rae on he day r e is he expeced change. The laer is simply measured as he difference beween he acual policy rae change beween and -, r, and he unexpeced change, r u. An imporan elemen in he above specificaion is he need o derive a proxy for he unanicipaed componen of he policy rae change. In he US, he policy rae arge is he federal funds rae (an inerbank marke rae rading excess reserves beween commercial banks) wih he arge rae se afer each FOMC meeing. Wih he adven of federal funds fuure conracs in he lae 980s researchers have focused on he informaion conained in he federal funds fuures rae o idenify expecaions of changes in fuure policy. The selemen price of he conrac is 00 minus he average of he daily overnigh federal funds rae during he monh of he conrac. Hence, a forecas of he federal funds rae is implied by he price of he conrac. A a daily horizon, we use he one-day change in he federal funds fuures rae beween and - o capure unexpeced changes in he federal funds rae (policy rae). This approach is consisen wih work of boh Kuner (200) and Bernanke and Kuner (2005). 2.: Daa and Empirical Resuls Our sample frequency is daily and runs from January 996 hrough o March The Equiy REIT secor is proxied by he Dow Jones-Wilshire Equiy REIT Index, while he S&P500 is included as a conrol variable. 2 The daa is sourced from Daasream, US Federal Reserve and SNL Financial Our even sudy focuses on Federal Open Marke Commiee (FOMC) meeing daes and days when he policy rae was changed ouside meeing daes. The unanicipaed change in he arge rae is proxied by he -day change in he price of he -monh ahead 30-day Federal Funds Fuures conrac raded on he Chicago Board of Trade (CBOT). The fed funds fuures conrac has been used as a proxy for marke expecaions regarding rae changes in a number of sudies (e.g. Bomfim & Reinhar, 2000, Kuner, 200, Poole & Rasche, 2000, Reinhar & Simin, 997, Roley & Sellon, 998 and Thornon, 998) while 6

7 Gurkaynak e al. (2002) found ha he fed funds fuures conrac provides he bes available forecas of he Feds Fund Rae. Our analysis conains a oal of 7 meeing daes of he FOMC. During his period a oal of 29 changes in he Federal Funds Targe Rae occurred, all bu four of which coincided wih scheduled meeings of he FOMC. The four changes ha occurred ouside scheduled meeings were he rae change associaed wih he collapse of Long Term Capial Managemen (Ocober 5 h 998) and hree changes in 200. The Ocober 998 rae change was a 25 basis poins cu. The 200 rae changes, all of which saw he rae change by 50 basis poins, were on January 3 rd, April 8 h and Sepember 7 h. The iniial resuls, repored in Table, examine boh changes announced afer scheduled meeings of he FOMC and he four unscheduled rae changes. Four alernaive specificaions are examined. The firs, shown in column, repors a significan negaive coefficien wih respec o unexpeced rae changes. In addiion, he response o he expeced componen in rae changes is no significan a convenional levels and hus consisen wih he efficien markes hypohesis. The magniude of he response o unexpeced changes is relaively smaller han ha found for he overall sock marke index in Bernanke & Kuner (2005) who repor a coefficien of However, i is imporan o noe ha he sample periods are differen, wih Bernanke & Kuner (2005) examining a oal of 55 rae changes over he period 989 hrough Over heir sample period here was an imporan change in FOMC operaing procedure. Prior o February 994, when he FOMC made a policy rae decision i didn communicae is decision explicily o he marke. Marke paricipans had o infer such decisions by observing he acions of he Open Marke Desk. Since February 994, he FOMC noifies he markes of is decision afer each FOMC meeing. 3 Hence, his change in operaing procedure during he Bernanke and Kuner (2005) sample period could explain he difference in resuls. Nex we seek o assess he robusness of our resuls. I could be ha our resuls are driven by he fac ha REIT s reurns simply respond o changes in general sock 7

8 marke on he day of a moneary policy announcemen bu no o moneary policy change iself. Hence he second specificaion, repored in column 2 of Table, incorporaes he overall marke, as proxied by he S&P 500 Composie Index. Once he behaviour of he general marke is conrolled for, he significance of he moneary surprise disappears. I is however possible ha he resuls for specificaions (i) and (ii) are driven by ouliers in he sample and he accompanying response on hose days of he general marke. We herefore re-esimae he firs wo specificaions excluding he moneary policy change announced on Sepember 7 h 200, which was he firs day of rading on US exchanges following he aacks of Sepember h. While his rae change was in direc response o he erroris aacks i is effecively impossible o isolae he impac of he rae change on he markes. Specificaion 3 in Table, excludes his dae and he coefficien associaed wih he unexpeced ineres rae change becomes more significan while specificaion 4 which includes same day S&P reurns we find he surprise ineres rae change is now negaive and saisically significan. 4 The coefficien relaing o he unexpeced componen of he rae change is 2.79, is saisically significan and is very similar o he iniial coefficien of 2.20 and ha repored for he general sock marke repored in Bernanke & Kuner (2005). The resuls repored here would sugges ha he paricular srucure associaed wih REIT s does no unduly influence he behaviour of REIT reurns as a resul of a surprise change in moneary policy. 3: Variance Decomposiion of REIT s Reurns The second par of his paper builds on he preceding analysis and endeavours o idenify he sources underlying he response in REIT reurns wih respec o an unanicipaed policy rae change. The approach adoped here draws on he work of Campbell (99) and Bernanke & Kuner (2005). Campbell (99) decomposes unanicipaed changes in excess reurns ino revisions in expecaions concerning; fuure dividends, curren and fuure real raes and fuure excess reurns. Bernanke & Kuner (2005) exends his analysis by examining he response of each of hese facors o unanicipaed policy rae changes. 8

9 If we define he one-period excess reurn as he oal one-period reurn minus he riskfree rae, he unanicipaed componen of he excess reurn is simply he difference beween he expeced excess reurn and he acual reurn. Therefore, he unexpeced excess reurn (e y ) can be defined as equal o revision in expecaions concerning fuure dividends (e d ), minus news concerning fuure real ineres raes (e r ) and fuure excess reurns (e y ) i.e,: = ~ ~ ~ (2) y d r y e e + e e Each of hese componens are defined respecively as: ( ) E E j= e~ ρ (3) d j = d j+ 0 ( ) E E j= ~ j e ρ r (4) r = ( ) E E j= y = 0 j+ ~ j e ρ y (5) j+ In hese definiions ρ refers o he discoun facor. We use a forecasing VAR o model expecaions of he variables in equaions (3) o (5) and his can be represened as: z Az ω (6) = + where z consiss of he following variables: excess reurns, he real ineres rae and any addiional variables appropriae for use in he conex of forecasing hese wo variables of ineres. Based on esimaes from he VAR i is possible o exrac he discouned sum of revisions in expecaions for each of he erms in equaion (2) as follows: e s ω (7) y = y 9

10 ~ s y ρaϖ y e = (8) ( ρa) r sr e~ ϖ + = (9) ~ ( ρa) = ~ ~ (0) d y y r e e + e + e where s y and s r are appropriae selecion marices. Campbell and Ammer (993) illusraes how he variance of news concerning curren excess reurns can be decomposed by aking he variance of boh sides of equaion (2). var y d r y ( e ) ( e~ ) ( ~ e ) ( e~ + = var + + var + + var ) d r d y r y ( e~, e ~ ) 2cov( e~, e ~ ) + 2cov( e~, e~ ) 2cov () Bernanke & Kuner (2005) adap he framework of Campbell (99) o specifically examine he impac of moneary policy surprises on revisions in expeced excess reurns. The VAR is exended o incorporae unanicipaed policy rae changes as follows: u + = Az + φ + z i ω (2) The impac of he surprise elemen of moneary policy is incorporaed hrough he variable u i +, and he coefficien marix φ capures he conemporaneous response of elemens in z. The disurbance erm is orhogonal o he moneary shock. Consisen esimaes of A and φ are obained hrough iniially esimaing he VAR as specified in equaion (6) and hen regressing he one-sep ahead forecass on he moneary surprise. Bernanke & Kuner (2005) show ha hrough he examinaion of he effec of a moneary shock on each of he discouned sums of expeced fuure excess reurns, dividends and real ineres raes, i is possible o elucidae he source of he response of sock reurns o he moneary policy surprise. Based on equaions (8) o (0) he impac of he moneary surprise wih regard o news regarding curren excess reurns and each of is componens are derived below. For example, he impac of he policy surprise in relaion o excess reurns leads o equaion (8) being re-defined as: 0

11 u ( φ i + ϖ ) ~ s y ρa y e = (3) ( ρa) Therefore, he response of he presen value of news regarding fuure excess reurns can be defined as: s y ρa ρφ ( A) (4) The response in real reurns and dividends can herefore be similarly defined as in Equaions (5) and (6) respecively. s r φ ρa ( ) ( s + s ) r y φ ( ρa) (5) (6) A problem in he esimaion of he VAR concerns he need for an adequae sample size. Furhermore, facors such as he change in fed policy in 994 and he fac ha he fed funds fuures conrac only daes back o 989 furher limis our abiliy o esimae equaion (2) wih he moneary shock direcly incorporaed ino he VAR. We herefore follow he approach of Bernanke & Kuner (2005). Using monhly daa he iniial VAR in equaion (6) is esimaed over he sample period January 974 o December 2004 and he resuls from his serve as he basis for he variance decomposiion analysis. We nex examine how moneary policy informaion impacs upon excess reurns using he pos 996 daa by regressing he -sep ahead forecas errors of he VAR on he unanicipaed change in moneary policy. This is possible as can be viewed as being a predicion error from a raional forecas made a ime. u i + As Bernanke & Kuner (2005) noe i should also be orhogonal o z. 3.: Daa and Variance Decomposiion Resuls

12 Given ha he forecasing VAR requires periodic ime series daa, his secion uses monhly daa, again colleced from Daasream. The forecasing VAR in our sudy is run wihou he moneary shock. This allows us o have a longer sample for he forecasing VAR, , and a resriced (and consisen wih ha used in he previous secion) sample over which we measure our moneary shock The longer sample period for he forecasing VAR should give greaer precision o our esimaes and such an approach has been adoped boh by Bernanke and Kuner (2005) and Faus, Swanson and Wrigh (2004). The variables included in he VAR are he REIT excess reurn, he real ineres rae ( monh Treasury Bill yield minus he CPI), he log dividend price raio, he monh change in he shor rae (reasury bill), he spread beween he 0 year and he monh Treasury yield and finally he relaive bill rae (3 monh bill rae minus is 2 monh lagged moving average). 6 Besides he excess reurn and he real ineres rae, which are required for he decomposiion, we also include variables ha have been found o be successful a sock reurn predicabiliy (see Campbell & Ammer, 993). The marke excess reurn is measured using he change in he log oal marke reurn index, incorporaing prices and dividends, in excess of he shor-erm ineres rae. The real ineres rae is calculaed using he shor-erm ineres rae minus he CPI inflaion rae. 7 Our definiion of he moneary policy shock using monhly daa is he following; 8 i u = D D d = i, d f, D (7) where i,d is he funds rae arge on day d of monh and f -,D is he rae corresponding o he monh fuures conrac on he las day of monh -. The variance decomposiion resuls are repored in Table 2 along wih a full se of diagnosic es resuls. The diagnosic es resuls indicae ha here is no evidence of incorrec funcional form, serial correlaion or heeroscedasiciy in he errors of he forecasing VAR. However, here is evidence of non-normaliy in he residuals and as a resul we boosrap our sandard errors. 9 The resuls from he variance decomposiion for news regarding curren excess reurns for REIT s are broadly consisen wih boh Campbell and Ammer (993) and 2

13 Bernanke & Kuner (2005) for he aggregae sock excess reurns. Overall he level of forecasabiliy of REIT reurns, 6.%, are comparable o hose repored for marke reurns repored in Campbell and Ammer (993), bu considerably higher han hose repored in Bernanke & Kuner (2005). However, i is eviden ha he imporance of dividends in a REIT conex is enhanced in comparison o he analysis of he aggregae sock marke index conained in Bernanke & Kuner (2005). Whereas ha paper repored ha dividends conribued 24.5% he comparable finding wih regard o REIT s is 33.0%. Given he minimum dividend payou requiremen wih REIT s and he resuling relaively high dividend yield his is no an unexpeced resul. Furhermore, i can be observed ha he resuls wih regard o he covariance erms are of enhanced imporance in his case. In erms of levels of significance, we find ha news abou dividends is no precisely esimaed. One reason for he lack of saisical significance in our work relaive o oher papers in he lieraure is ha we calculae -saisics based on boosrapped sandard errors while oher auhors use he dela mehod. Boosrapped saisics are likely o be more accurae as he dela mehod is well known o undersae rue sandard errors. 0 We also find ha news regarding he real rae accouns for almos 0% in he variance decomposiion and is highly saisically significan. This resul is again consisen wih he previous evidence using general marke reurns. Boh he signs and he coefficien weighs on he covariance erms are boh inuiive and broadly consisen wih recen sudies, e.g., he negaive relaionship beween news regarding fuure real raes and excess reurns. The resuls relaing he source of he response of REIT s o moneary policy surprises are repored in Table 3. We find ha he decline in curren excess reurns due o an unanicipaed change in ineres raes is driven by a revision in expecaions regarding fuure excess reurns. Furhermore, a moneary policy surprise does no have a significan effec on news regarding fuure dividends or he real rae. I is perhaps surprising ha given he imporance of dividends in a REIT conex ha an enhanced, or indeed significan, response is no noed. 2 In addiion, he resuls repored here are broadly in line wih hose repored by Bernanke & Kuner (2005) for he aggregae sock marke. The poin esimae of he impac of a shock o news regarding curren 3

14 REIT excess reurns (alhough only significan a 0%) is very similar o he impac for he general sock marke. There is evidence o sugges he impac on news regarding fuure REIT excess reurns is larger, wih a larger and highly saisically significan poin coefficien compared o he general sock marke. 3 The resuls indicae ha he dividend resricion on REIT s, does no influence he effec of moneary policy surprises on reurns. However, he underlying asse, real esae, does have a significan implicaion, wih a persisen fuure excess reurns response o surprises. Implicaions for he general real esae marke. 4: Conclusion This paper has examined boh he response and he source of response of REIT reurns o unanicipaed changes in moneary policy. The even sudy resuls indicae ha REIT s do reac in a manner consisen wih marke efficiency, wih a negaive saisically significan response in reurns o an ineres rae surprise. Consisency wih he efficien markes is furher suppored by he finding ha he expeced componen is no saisically significan. The subsequen variance decomposiion analysis aims o examine he poenial causes behind he response in he REIT secor. The baseline VAR model for he REIT marke is broadly similar o resuls repored for he general equiy marke, wih he excepion of he heighened role played by news abou fuure dividends. When addressing he impac of moneary policy shocks we find ha he response is largely consisen wih he findings for he sock marke, as repored in Bernanke & Kuner (2005), and does no appear o be overly affeced by characerisics associaed wih he REIT marke. The curren REIT excess reurn reacs in a similar fashion o he surprise, alhough our resuls do sugges ha he impac on fuure REIT excess reurns is considerably larger. Overall he resuls do sugges ha a moneary policy surprise does lead o behaviour in he REIT s secor ha is consisen wih efficien markes and wih he general sock marke. The insiuional naure of REIT s and of he general real esae marke does no appear o adversely influence reacions o moneary policy surprises. 4

15 References Bernanke, B.S. & Kuner, K.N. (2005). Wha Explains he Sock Marke s Reacion o Federal Reserve Policy?, Journal of Finance, 60, Bomfim, A. (2003). Pre-announcemen Effecs, News Effecs and Volailiy, Journal of Banking & Finance, 27, Bomfim, A. & Reinhar, V. (2000). Making News: Financial Marke Effecs of Federal Reserve Disclosure Pracices, Manuscrip, Federal Reserve Board. Bredin, D., O Reilly, G. & Sevenson, S. (2008). Moneary Shocks and REIT Reurns, Journal of Real Esae Finance & Economics, forhcoming. Campbell, J. (99). A Variance Decomposiion for Sock Reurns, The Economic Journal, 0, Campbell, J. & Ammer, J. (993). Wha Moves he Sock and Bond Markes? A Variance Decomposiion for Long-Term Asse Reurns, Journal of Finance, 48, Devaney, M. (200). Time-Varying Risk Premia for Real Esae Invesmen Truss: A GARCH-M Model, Quarerly Review of Economics & Finance, 4, Faus, J., Swanson, E. & Wrigh, J. (2004) Idenifying VARs Based on High Frequency Fuures Daa, Journal of Moneary Economics, 5, Flannery, M.J. & Proopapadakis, A.A. (2002). Macroeconomic Facors Do Influence Aggregae Sock Reurns, Review of Financial Sudies, 5, Gurkaynak, R., Sack, B. & Swanson, E. (2002). Marke Based Measures of Moneary Policy Expansion, working paper, Board of Governors of he Federal Reserve Sysem. He, L.T., Webb, J.R. & Myer, F.C.N. (2003). Ineres Rae Sensiiviies of REIT Reurns, Inernaional Real Esae Review, 6, -2. Kuner, K.N. (200). Moneary Policy Surprises and Ineres Raes: Evidence from he Feds Funds Fuures Marke, Journal of Moneary Economics, 47, Liang, Y. & Webb, J. (995). Pricing of Ineres Rae Risk for Morgage REIT s, Journal of Real Esae Research, 0, Mueller, G. & Pauley, K. (995). The Effec of Ineres Rae Movemens on Real Esae Invesmen Truss, Journal of Real Esae Research, 0, Paelis, A.D. (997). Sock Reurn Predicabiliy and he Role of Moneary Policy, Journal of Finance, 52, Pearce, D.K. & Roley, V.V. (985). Sock Prices and Economic News, Journal of Business, 58, Poole, W. & Rasche, R.H. (2000). Perfecing he Marke s Knowledge of Moneary Policy, Journal of Financial Services Research, 8,

16 Reinhar, V. & Simin, T. (997). The Marke Reacion o Federal Reserve Policy Acion from 989 o 992, Journal of Economics and Business, 49, Rigobon, R. & Sack, B. (2003). Measuring he Reacion of Moneary Policy o he Sock Marke, Quarerly Journal of Economics, 8, Rigobon, R. & Sack, B. (2004). The Impac of Moneary Policy on Asse Prices, Journal of Moneary Economics, 5, Roley, V. & Sellon, G. (998). Marke Reacion o Moneary Policy Non-Announcemens, Federal Reserve Bank of Kansas Ciy, working paper Thorbecke, W. (997). On Sock Marke Reurns and Moneary Policy, Journal of Finance, 52, Thornon, D. (998). Does he Fed s New Policy of Immediae Disclosure Affec he Marke, working paper, Federal Reserve Bank of S. Louis. 6

17 Tables Table : Influence of Moneary Policy Changes on REIT Reurns i ii iii iv Consan (.509) (0.422) (2.900) (2.348) Expeced (.382) (-0.703) (0.829) (0.34) Unexpeced (-.933) (.28) (-4.007) (-2.053) S&P (3.06) (0.903) R Sandard Error Durbin-Wason Noe: The hird and fourh specificaions exclude Sepember h 200. Values in parenheses below coefficien values are robus -saisics. 7

18 Table 2: Variance Decomposiion of REIT Reurns Toal % Share Var (e y ) Var (e d ) (0.6) Var (e r ) (6.70) Var (e y ) (0.4) -2Cov (e d, e r ) (0.45) -2Cov (e d, e y ) (-0.62) 2Cov (e y, e r ) (-0.62) Diagnosic Tes Resuls and adjused R 2 from REIT Excess reurn equaion Adjused R 2 from REIT Excess Reurn 0.06 Equaion LM es for serial correlaion Ramsey Rese es for funcional form 0.88 Normaliy es of he residuals Heeroscedasiciy es Noe: The able repors resuls from he variance decomposiion of revision in expecaions abou curren excess reurn, e y, Dividends, e d, real ineres raes, e r, and fuure excess reurns, e y. The numbers in parenhesis conain - saisics which use he boosrap simulaion (0,000 runs). The repored resuls are for he sample January 974 o December All Diagnosic resuls refer o P values 8

19 Table 3: Impac of Moneary Policy on News Regarding Curren REIT excess reurns, fuure dividends, fuure real ineres raes and fuure REIT excess reurns e y e d e r e y Consan (-.85) (-0.7) (0.3) (2.55) Noe: The numbers in parenheses conain boosrap esimaed -saisics (0,000 runs). 9

20 Endnoes: A relaed lieraure has examined he response in volailiy o moneary shocks. Bomfim (2003) examines he S&P 500 Composie and is response o Fed Funds Rae changes. The auhor finds evidence of a calm before he sorm effec wih volailiy reduced he day prior o a fed funds rae change and higher on he day of he announcemen. Bredin e al. (2008) in heir examinaion of REIT s however no only find no evidence of his effec in he REIT secor bu also highligh he sensiiviy of such effecs in relaion o he sample wih no evidence also repored wih respec o S&P Noe ha due o heir quie differen characerisics he Morgage REIT secor is no examined. 3 Due o REIT s daa availabiliy our sample begins in January 996 and so we have a consisen sample in relaion o Fed announcemen policy. 4 This resul is in marked conras o when he marke proxy was iniially included. 5 The raionale for using a shorer sample in measuring he moneary shock is o avoid issues such as analysing moneary policy over fundamenally differen moneary policy regimes and differen announcemen procedures. 6 The marke (S&P500) excess reurn is also included in he VAR. Omiing his variable does no appear o make any qualiaive difference o he resuls. 7 We esimae a one lag VAR. The opimal lag lengh of he VAR was seleced using he sandard informaion crieria, Akaike informaion (AIC) and Schwarz Bayesian (SBC). 8 For he even sudy mehodology, daily daa is adoped, hence he definiion of he moneary policy shock is he one day change in he 3 monh serling fuures conrac. However, given he VAR mehodology adops monhly daa, i is unlikely ha a similar definiion will give an appropriae measure of he shock. The measure adoped for he monhly frequency shock is consisen wih ha used by Bernanke and Kuner (2005). 9 We elec o obain sandard errors using a boosrap procedure raher han a Mone Carlo simulaion. The boosrap allows us o draw from he empirical sample error disribuion, which displays non-normaliy, raher han having o assume a given error disribuion as wih he Mone Carlo. 20

21 0 I should also be noed ha Bernanke and Kuner (2005) also found mixed evidence in relaion o levels of significance, when using he dela mehod. However, Campbell and Ammer (993) do find using US daa ha he sign on he covariance erms is sensiive o he paricular sample chosen. 2 However, as wih he variance decomposiion resuls, he use of boosrap esimaes for he -saisics may explain he lack of significance. 3 Bernanke and Kuner (2005) do find a similar sized coefficien on he news abou fuure excess reurns for heir forecasing VAR, alhough no saisically significan. 2

Vector Autoregressions (VARs): Operational Perspectives

Vector Autoregressions (VARs): Operational Perspectives Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101-115. Macroeconomericians

More information

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios

More information

Chapter 8: Regression with Lagged Explanatory Variables

Chapter 8: Regression with Lagged Explanatory Variables Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One

More information

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613. Graduae School of Business Adminisraion Universiy of Virginia UVA-F-38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised

More information

The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks

The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks The Idenificaion of he Response of Ineres Raes o Moneary Policy Acions Using Marke-Based Measures of Moneary Policy Shocks Daniel L. Thornon Federal Reserve Bank of S. Louis Phone (314) 444-8582 FAX (314)

More information

Impact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences

Impact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences S.R. No. 002 10/2015/CEFT Impac of Deb on Primary Defici and GSDP Gap in Odisha: Empirical Evidences 1. Inroducion The excessive pressure of public expendiure over is revenue receip is financed hrough

More information

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S. Paul Ferley Assisan Chief Economis 416-974-7231 paul.ferley@rbc.com Nahan Janzen Economis 416-974-0579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.

More information

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he

More information

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world

More information

Chapter 6: Business Valuation (Income Approach)

Chapter 6: Business Valuation (Income Approach) Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he

More information

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments BALANCE OF PAYMENTS DATE: 2008-05-30 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se

More information

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry

More information

Appendix D Flexibility Factor/Margin of Choice Desktop Research

Appendix D Flexibility Factor/Margin of Choice Desktop Research Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\223489-00\4

More information

Morningstar Investor Return

Morningstar Investor Return Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion

More information

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012 Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing Time-Varying Equiy Risk Premium The Japanese Sock Marke 1980-2012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA

More information

Usefulness of the Forward Curve in Forecasting Oil Prices

Usefulness of the Forward Curve in Forecasting Oil Prices Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,

More information

Macroeconomic Cycles and the Stock Market s Reaction to Monetary Policy

Macroeconomic Cycles and the Stock Market s Reaction to Monetary Policy Macroeconomic Cycles and he Sock Marke s Reacion o Moneary Policy Arabinda Basisha and Alexander Kurov ** December 2006 Absrac This paper examines cyclical variaion in he effec of Fed policy on he sock

More information

YTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment.

YTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment. . Two quesions for oday. A. Why do bonds wih he same ime o mauriy have differen YTM s? B. Why do bonds wih differen imes o mauriy have differen YTM s? 2. To answer he firs quesion les look a he risk srucure

More information

expressed here and the approaches suggested are of the author and not necessarily of NSEIL.

expressed here and the approaches suggested are of the author and not necessarily of NSEIL. I. Inroducion Do Fuures and Opions rading increase sock marke volailiy Dr. Premalaa Shenbagaraman * In he las decade, many emerging and ransiion economies have sared inroducing derivaive conracs. As was

More information

The Grantor Retained Annuity Trust (GRAT)

The Grantor Retained Annuity Trust (GRAT) WEALTH ADVISORY Esae Planning Sraegies for closely-held, family businesses The Granor Reained Annuiy Trus (GRAT) An efficien wealh ransfer sraegy, paricularly in a low ineres rae environmen Family business

More information

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya.

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya. Principal componens of sock marke dynamics Mehodology and applicaions in brief o be updaed Andrei Bouzaev, bouzaev@ya.ru Why principal componens are needed Objecives undersand he evidence of more han one

More information

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion

More information

Revisions to Nonfarm Payroll Employment: 1964 to 2011

Revisions to Nonfarm Payroll Employment: 1964 to 2011 Revisions o Nonfarm Payroll Employmen: 1964 o 2011 Tom Sark December 2011 Summary Over recen monhs, he Bureau of Labor Saisics (BLS) has revised upward is iniial esimaes of he monhly change in nonfarm

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees

More information

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework Applied Financial Economics Leers, 2008, 4, 419 423 SEC model selecion algorihm for ARCH models: an opions pricing evaluaion framework Savros Degiannakis a, * and Evdokia Xekalaki a,b a Deparmen of Saisics,

More information

The naive method discussed in Lecture 1 uses the most recent observations to forecast future values. That is, Y ˆ t + 1

The naive method discussed in Lecture 1 uses the most recent observations to forecast future values. That is, Y ˆ t + 1 Business Condiions & Forecasing Exponenial Smoohing LECTURE 2 MOVING AVERAGES AND EXPONENTIAL SMOOTHING OVERVIEW This lecure inroduces ime-series smoohing forecasing mehods. Various models are discussed,

More information

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets?

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets? Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weak-form of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien

More information

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.

More information

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchange-raded ineres rae fuures and heir opions are described. The fuure opions include hose paying

More information

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in

More information

Risk Modelling of Collateralised Lending

Risk Modelling of Collateralised Lending Risk Modelling of Collaeralised Lending Dae: 4-11-2008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies

More information

The Interest Rate Risk of Mortgage Loan Portfolio of Banks

The Interest Rate Risk of Mortgage Loan Portfolio of Banks The Ineres Rae Risk of Morgage Loan Porfolio of Banks A Case Sudy of he Hong Kong Marke Jim Wong Hong Kong Moneary Auhoriy Paper presened a he Exper Forum on Advanced Techniques on Sress Tesing: Applicaions

More information

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand 36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,

More information

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift?

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift? Small and Large Trades Around Earnings Announcemens: Does Trading Behavior Explain Pos-Earnings-Announcemen Drif? Devin Shanhikumar * Firs Draf: Ocober, 2002 This Version: Augus 19, 2004 Absrac This paper

More information

Recovering Market Expectations of FOMC Rate Changes with Options on Federal Funds Futures

Recovering Market Expectations of FOMC Rate Changes with Options on Federal Funds Futures w o r k i n g p a p e r 5 7 Recovering Marke Expecaions of FOMC Rae Changes wih Opions on Federal Funds Fuures by John B. Carlson, Ben R. Craig, and William R. Melick FEDERAL RESERVE BANK OF CLEVELAND

More information

INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS

INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS Ilona Tregub, Olga Filina, Irina Kondakova Financial Universiy under he Governmen of he Russian Federaion 1. Phillips curve In economics,

More information

Term Structure of Prices of Asian Options

Term Structure of Prices of Asian Options Term Srucure of Prices of Asian Opions Jirô Akahori, Tsuomu Mikami, Kenji Yasuomi and Teruo Yokoa Dep. of Mahemaical Sciences, Risumeikan Universiy 1-1-1 Nojihigashi, Kusasu, Shiga 525-8577, Japan E-mail:

More information

Long-Run Stock Returns: Participating in the Real Economy

Long-Run Stock Returns: Participating in the Real Economy Long-Run Sock Reurns: Paricipaing in he Real Economy Roger G. Ibboson and Peng Chen In he sudy repored here, we esimaed he forward-looking long-erm equiy risk premium by exrapolaing he way i has paricipaed

More information

The Relationship between Stock Return Volatility and. Trading Volume: The case of The Philippines*

The Relationship between Stock Return Volatility and. Trading Volume: The case of The Philippines* The Relaionship beween Sock Reurn Volailiy and Trading Volume: The case of The Philippines* Manabu Asai Faculy of Economics Soka Universiy Angelo Unie Economics Deparmen De La Salle Universiy Manila May

More information

When Do TIPS Prices Adjust to Inflation Information?

When Do TIPS Prices Adjust to Inflation Information? When Do TIPS Prices Adjus o Inflaion Informaion? Quenin C. Chu a, *, Deborah N. Piman b, Linda Q. Yu c Augus 15, 2009 a Deparmen of Finance, Insurance, and Real Esae. The Fogelman College of Business and

More information

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements Inroducion Chaper 14: Dynamic D-S dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuing-edge

More information

The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns

The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns The Informaion Conen of Implied kewness and urosis Changes Prior o Earnings Announcemens for ock and Opion Reurns Dean Diavaopoulos Deparmen of Finance Villanova Universiy James. Doran Bank of America

More information

Flight-to-Liquidity and Global Equity Returns

Flight-to-Liquidity and Global Equity Returns Fligh-o-Liquidiy and Global Equiy Reurns Ruslan Goyenko and Sergei Sarkissian * Firs draf: November 2007 This draf: May 2008 * The auhors are from he Faculy of Managemen, McGill Universiy, Monreal, QC

More information

Why Did the Demand for Cash Decrease Recently in Korea?

Why Did the Demand for Cash Decrease Recently in Korea? Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in

More information

Do Investors Overreact or Underreact to Accruals? A Reexamination of the Accrual Anomaly

Do Investors Overreact or Underreact to Accruals? A Reexamination of the Accrual Anomaly Do Invesors Overreac or Underreac o Accruals? A Reexaminaion of he Accrual Anomaly Yong Yu* Smeal College of Business Pennsylvania Sae Universiy This draf: December 30, 2005 Absrac Sloan (996) finds ha

More information

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? Supplemenary Appendix for Depression Babies: Do Macroeconomic Experiences Affec Risk-Taking? Ulrike Malmendier UC Berkeley and NBER Sefan Nagel Sanford Universiy and NBER Sepember 2009 A. Deails on SCF

More information

Hedging with Forwards and Futures

Hedging with Forwards and Futures Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buy-side of a forward/fuures

More information

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO.

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO. WORKING PAPER SERIES NO. 452 / MARCH 25 STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MSURING INTERNATIONAL FINANCIAL TRANSMISSION by Michael Ehrmann, Marcel Frazscher and Robero Rigobon WORKING PAPER

More information

Cointegration: The Engle and Granger approach

Cointegration: The Engle and Granger approach Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be non-saionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require

More information

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA Journal of Applied Economics, Vol. IV, No. (Nov 001), 313-37 GOOD NEWS, BAD NEWS AND GARCH EFFECTS 313 GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA CRAIG A. DEPKEN II * The Universiy of Texas

More information

Price elasticity of demand for crude oil: estimates for 23 countries

Price elasticity of demand for crude oil: estimates for 23 countries Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh

More information

House Price Index (HPI)

House Price Index (HPI) House Price Index (HPI) The price index of second hand houses in Colombia (HPI), regisers annually and quarerly he evoluion of prices of his ype of dwelling. The calculaion is based on he repeaed sales

More information

Investor sentiment of lottery stock evidence from the Taiwan stock market

Investor sentiment of lottery stock evidence from the Taiwan stock market Invesmen Managemen and Financial Innovaions Volume 9 Issue 1 Yu-Min Wang (Taiwan) Chun-An Li (Taiwan) Chia-Fei Lin (Taiwan) Invesor senimen of loery sock evidence from he Taiwan sock marke Absrac This

More information

THE SUPPLY OF STOCK MARKET RETURNS. Roger G. Ibbotson Yale University. Peng Chen Ibbotson Associates, Inc.

THE SUPPLY OF STOCK MARKET RETURNS. Roger G. Ibbotson Yale University. Peng Chen Ibbotson Associates, Inc. THE SUPPLY OF STOCK MARKET RETURNS Roger G. Ibboson Yale Universiy Peng Chen Ibboson Associaes, Inc. June 2001 The Supply of Sock Marke Reurns Roger G. Ibboson, Ph.D. Professor in he Pracice of Finance

More information

Journal Of Business & Economics Research September 2005 Volume 3, Number 9

Journal Of Business & Economics Research September 2005 Volume 3, Number 9 Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy Yi-Kang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo

More information

Why does the correlation between stock and bond returns vary over time?

Why does the correlation between stock and bond returns vary over time? Why does he correlaion beween sock and bond reurns vary over ime? Magnus Andersson a,*, Elizavea Krylova b,**, Sami Vähämaa c,*** a European Cenral Bank, Capial Markes and Financial Srucure Division b

More information

WORKING CAPITAL ACCRUALS AND EARNINGS MANAGEMENT 1

WORKING CAPITAL ACCRUALS AND EARNINGS MANAGEMENT 1 Invesmen Managemen and Financial Innovaions, Volume 4, Issue 2, 2007 33 WORKING CAPITAL ACCRUALS AND EARNINGS MANAGEMENT Joseph Kersein *, Aul Rai ** Absrac We reexamine marke reacions o large and small

More information

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith** Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia

More information

Fair games, and the Martingale (or "Random walk") model of stock prices

Fair games, and the Martingale (or Random walk) model of stock prices Economics 236 Spring 2000 Professor Craine Problem Se 2: Fair games, and he Maringale (or "Random walk") model of sock prices Sephen F LeRoy, 989. Efficien Capial Markes and Maringales, J of Economic Lieraure,27,

More information

Influence of the Dow returns on the intraday Spanish stock market behavior

Influence of the Dow returns on the intraday Spanish stock market behavior Influence of he Dow reurns on he inraday Spanish sock marke behavior José Luis Miralles Marcelo, José Luis Miralles Quirós, María del Mar Miralles Quirós Deparmen of Financial Economics, Universiy of Exremadura

More information

Yale ICF Working Paper No. 00-44 March 2002

Yale ICF Working Paper No. 00-44 March 2002 Yale ICF Working Paper No. 00-44 March 2002 STOCK MARKET RETURNS IN THE LONG RUN: PARTICIPATING IN THE REAL ECONOMY Roger G. Ibboson Yale School of Managemen Peng Chen Ibboson Associaes, Inc. This paper

More information

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? *

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? * Does Opion Trading Have a Pervasive Impac on Underlying Sock Prices? * Neil D. Pearson Universiy of Illinois a Urbana-Champaign Allen M. Poeshman Universiy of Illinois a Urbana-Champaign Joshua Whie Universiy

More information

I. Basic Concepts (Ch. 1-4)

I. Basic Concepts (Ch. 1-4) (Ch. 1-4) A. Real vs. Financial Asses (Ch 1.2) Real asses (buildings, machinery, ec.) appear on he asse side of he balance shee. Financial asses (bonds, socks) appear on boh sides of he balance shee. Creaing

More information

Forecasting the dynamics of financial markets. Empirical evidence in the long term

Forecasting the dynamics of financial markets. Empirical evidence in the long term Leonardo Franci (Ialy), Andi Duqi (Ialy), Giuseppe Torluccio (Ialy) Forecasing he dynamics of financial markes. Empirical evidence in he long erm Absrac This sudy aims o verify wheher here are any macroeconomic

More information

CVA calculation for CDS on super senior ABS CDO

CVA calculation for CDS on super senior ABS CDO MPRA Munich Personal RePEc Archive CVA calculaion for CDS on super senior AS CDO Hui Li Augus 28 Online a hp://mpra.ub.uni-muenchen.de/17945/ MPRA Paper No. 17945, posed 19. Ocober 29 13:33 UC CVA calculaion

More information

NASDAQ-100 Futures Index SM Methodology

NASDAQ-100 Futures Index SM Methodology NASDAQ-100 Fuures Index SM Mehodology Index Descripion The NASDAQ-100 Fuures Index (The Fuures Index ) is designed o rack he performance of a hypoheical porfolio holding he CME NASDAQ-100 E-mini Index

More information

Markit Excess Return Credit Indices Guide for price based indices

Markit Excess Return Credit Indices Guide for price based indices Marki Excess Reurn Credi Indices Guide for price based indices Sepember 2011 Marki Excess Reurn Credi Indices Guide for price based indices Conens Inroducion...3 Index Calculaion Mehodology...4 Semi-annual

More information

4. International Parity Conditions

4. International Parity Conditions 4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency

More information

Oil Price Fluctuations and Firm Performance in an Emerging Market: Assessing Volatility and Asymmetric Effect

Oil Price Fluctuations and Firm Performance in an Emerging Market: Assessing Volatility and Asymmetric Effect Journal of Economics, Business and Managemen, Vol., No. 4, November 203 Oil Price Flucuaions and Firm Performance in an Emerging Marke: Assessing Volailiy and Asymmeric Effec Hawai Janor, Aisyah Abdul-Rahman,

More information

LEASING VERSUSBUYING

LEASING VERSUSBUYING LEASNG VERSUSBUYNG Conribued by James D. Blum and LeRoy D. Brooks Assisan Professors of Business Adminisraion Deparmen of Business Adminisraion Universiy of Delaware Newark, Delaware The auhors discuss

More information

A Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM)

A Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM) A Brief Inroducion o he Consumpion Based Asse Pricing Model (CCAPM We have seen ha CAPM idenifies he risk of any securiy as he covariance beween he securiy's rae of reurn and he rae of reurn on he marke

More information

Present Value Methodology

Present Value Methodology Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer

More information

INTRODUCTION TO FORECASTING

INTRODUCTION TO FORECASTING INTRODUCTION TO FORECASTING INTRODUCTION: Wha is a forecas? Why do managers need o forecas? A forecas is an esimae of uncerain fuure evens (lierally, o "cas forward" by exrapolaing from pas and curren

More information

How Useful are the Various Volatility Estimators for Improving GARCH-based Volatility Forecasts? Evidence from the Nasdaq-100 Stock Index

How Useful are the Various Volatility Estimators for Improving GARCH-based Volatility Forecasts? Evidence from the Nasdaq-100 Stock Index Inernaional Journal of Economics and Financial Issues Vol. 4, No. 3, 04, pp.65-656 ISSN: 46-438 www.econjournals.com How Useful are he Various Volailiy Esimaors for Improving GARCH-based Volailiy Forecass?

More information

The impact of Federal Reserve asset purchase programmes: another twist 1

The impact of Federal Reserve asset purchase programmes: another twist 1 Jack Meaning jm583@ken.ac.uk eng Zhu feng.zhu@bis.org The impac of ederal Reserve asse purchase programmes: anoher wis 1 This aricle examines he effeciveness of recen ederal Reserve asse purchase programmes.

More information

THE EFFECTS OF INTERNATIONAL ACCOUNTING STANDARDS ON STOCK MARKET VOLATILITY: THE CASE OF GREECE

THE EFFECTS OF INTERNATIONAL ACCOUNTING STANDARDS ON STOCK MARKET VOLATILITY: THE CASE OF GREECE Invesmen Managemen and Financial Innovaions, Volume 4, Issue 1, 007 61 THE EFFECTS OF INTERNATIONAL ACCOUNTING STANDARDS ON STOCK MARKET VOLATILITY: THE CASE OF GREECE Chrisos Floros * Absrac The adopion

More information

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction.

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction. Applied Economerics and Inernaional Developmen. AEID.Vol. 5-3 (5) EFFECT OF OIL PRICE SHOCKS IN THE U.S. FOR 1985-4 USING VAR, MIXED DYNAMIC AND GRANGER CAUSALITY APPROACHES AL-RJOUB, Samer AM * Absrac

More information

Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence

Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence Does Sock Price Synchroniciy Represen Firm-Specific Informaion? The Inernaional Evidence Hollis Ashbaugh-Skaife Universiy of Wisconsin Madison 975 Universiy Avenue Madison, WI 53706 608-63-7979 hashbaugh@bus.wisc.edu

More information

Florida State University Libraries

Florida State University Libraries Florida Sae Universiy Libraries Elecronic Theses, Treaises and Disseraions The Graduae School 2008 Two Essays on he Predicive Abiliy of Implied Volailiy Consanine Diavaopoulos Follow his and addiional

More information

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Finance and Economics Discussion Series Divisions of Research & Saisics and Moneary Affairs Federal Reserve Board, Washingon, D.C. Volailiy, Money Marke Raes, and he Transmission of Moneary Policy Seh

More information

Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Option Put-Call Parity Relations When the Underlying Security Pays Dividends Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 225-23 Opion Pu-all Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,

More information

The Behavior of China s Stock Prices in Response to the Proposal and Approval of Bonus Issues

The Behavior of China s Stock Prices in Response to the Proposal and Approval of Bonus Issues The Behavior of China s Sock Prices in Response o he Proposal and Approval of Bonus Issues Michelle L. Barnes a* and Shiguang Ma b a Federal Reserve Bank of Boson Research, T-8 600 Alanic Avenue Boson,

More information

Anchoring Bias in Consensus Forecasts and its Effect on Market Prices

Anchoring Bias in Consensus Forecasts and its Effect on Market Prices Finance and Economics Discussion Series Divisions of Research & Saisics and Moneary Affairs Federal Reserve Board, Washingon, D.C. Anchoring Bias in Consensus Forecass and is Effec on Marke Prices Sean

More information

Hiring as Investment Behavior

Hiring as Investment Behavior Review of Economic Dynamics 3, 486522 Ž 2000. doi:10.1006redy.1999.0084, available online a hp:www.idealibrary.com on Hiring as Invesmen Behavior Eran Yashiv 1 The Eian Berglas School of Economics, Tel

More information

DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS

DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS Hong Mao, Shanghai Second Polyechnic Universiy Krzyszof M. Osaszewski, Illinois Sae Universiy Youyu Zhang, Fudan Universiy ABSTRACT Liigaion, exper

More information

Economics 140A Hypothesis Testing in Regression Models

Economics 140A Hypothesis Testing in Regression Models Economics 140A Hypohesis Tesing in Regression Models While i is algebraically simple o work wih a populaion model wih a single varying regressor, mos populaion models have muliple varying regressors 1

More information

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Inernaional Journal of Accouning Research Vol., No. 7, 4 SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Mohammad Ebrahimi Erdi, Dr. Azim Aslani,

More information

Market Efficiency or Not? The Behaviour of China s Stock Prices in Response to the Announcement of Bonus Issues

Market Efficiency or Not? The Behaviour of China s Stock Prices in Response to the Announcement of Bonus Issues Discussion Paper No. 0120 Marke Efficiency or No? The Behaviour of China s Sock Prices in Response o he Announcemen of Bonus Issues Michelle L. Barnes and Shiguang Ma May 2001 Adelaide Universiy SA 5005,

More information

Working paper No.3 Cyclically adjusting the public finances

Working paper No.3 Cyclically adjusting the public finances Working paper No.3 Cyclically adjusing he public finances Thora Helgadoir, Graeme Chamberlin, Pavandeep Dhami, Sephen Farringon and Joe Robins June 2012 Crown copyrigh 2012 You may re-use his informaion

More information

ANOMALIES IN INDIAN STOCK MARKET AN EMPIRICAL EVIDENCE FROM SEASONALITY EFFECT ON BSEIT INDEX

ANOMALIES IN INDIAN STOCK MARKET AN EMPIRICAL EVIDENCE FROM SEASONALITY EFFECT ON BSEIT INDEX -Journal of Ars, Science & Commerce ANOMALIES IN INDIAN STOCK MARKET AN EMPIRICAL EVIDENCE FROM SEASONALITY EFFECT ON BSEIT INDEX Dr. Pedapalli Neeraja, M.Com., M.Phil. Ph.D. Assisan Professor Business

More information

An empirical analysis about forecasting Tmall air-conditioning sales using time series model Yan Xia

An empirical analysis about forecasting Tmall air-conditioning sales using time series model Yan Xia An empirical analysis abou forecasing Tmall air-condiioning sales using ime series model Yan Xia Deparmen of Mahemaics, Ocean Universiy of China, China Absrac Time series model is a hospo in he research

More information

VIX, Gold, Silver, and Oil: How do Commodities React to Financial Market Volatility?

VIX, Gold, Silver, and Oil: How do Commodities React to Financial Market Volatility? VIX, Gold, Silver, and Oil: How do Commodiies Reac o Financial Marke Volailiy? Daniel Jubinski Sain Joseph s Universiy Amy F. Lipon Sain Joseph s Universiy We examine how implied and conemporaneous equiy

More information

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith The Effec of Moneary Policy on Privae Money Marke Raes in Jamaica: An Empirical Microsrucure Sudy Derek Leih Research Services Deparmen Research and Economic Programming Division Bank of Jamaica Absrac

More information

Default Risk in Equity Returns

Default Risk in Equity Returns Defaul Risk in Equiy Reurns MRI VSSLOU and YUHNG XING * BSTRCT This is he firs sudy ha uses Meron s (1974) opion pricing model o compue defaul measures for individual firms and assess he effec of defaul

More information

CALENDAR ANOMALIES IN EMERGING BALKAN EQUITY MARKETS

CALENDAR ANOMALIES IN EMERGING BALKAN EQUITY MARKETS INTERNATIONAL ECONOMICS & FINANCE JOURNAL Vol. 6, No. 1, January-June (2011) : 67-82 CALENDAR ANOMALIES IN EMERGING BALKAN EQUITY MARKETS Andreas G. Georganopoulos *, Dimiris F. Kenourgios ** and Anasasios

More information

Market Movements and Investors Reaction to Earnings News

Market Movements and Investors Reaction to Earnings News Marke Movemens and Invesors Reacion o Earnings News by Vishaal Baulkaran Faculy of Managemen Universiy of Lehbridge Lehbridge, AB, Canada TK 3M4 Phone: (403) 329-2074, Fax: (403) 329-2038 E-mail: vishaal.baulkaran@uleh.ca

More information

The Determinants of Trade Credit: Vietnam Experience

The Determinants of Trade Credit: Vietnam Experience Proceedings of he Second Asia-Pacific Conference on Global Business, Economics, Finance and Social Sciences (AP15Vienam Conference) ISBN: 978-1-63415-833-6 Danang, Vienam, 10-12 July 2015 Paper ID: V536

More information

Migration, Spillovers, and Trade Diversion: The Impact of Internationalization on Domestic Stock Market Activity

Migration, Spillovers, and Trade Diversion: The Impact of Internationalization on Domestic Stock Market Activity Migraion, Spillovers, and Trade Diversion: The mpac of nernaionalizaion on Domesic Sock Marke Aciviy Ross Levine and Sergio L. Schmukler Firs Draf: February 10, 003 This draf: April 8, 004 Absrac Wha is

More information

The Kinetics of the Stock Markets

The Kinetics of the Stock Markets Asia Pacific Managemen Review (00) 7(1), 1-4 The Kineics of he Sock Markes Hsinan Hsu * and Bin-Juin Lin ** (received July 001; revision received Ocober 001;acceped November 001) This paper applies he

More information

Journal Of Business & Economics Research Volume 1, Number 11

Journal Of Business & Economics Research Volume 1, Number 11 Profis From Buying Losers And Selling Winners In The London Sock Exchange Anonios Anoniou (E-mail: anonios.anoniou@durham.ac.ak), Universiy of Durham, UK Emilios C. Galariois (E-mail: emilios.galariois@dirham.ac.uk),

More information