In credit default prediction models, the need to deal with time-varying covariates often arises. For instance, in the context of corporate default prediction a typical approach is to estimate a hazard model by regressing the hazard rate on time-varying covariates like balance sheet or stock market variables. If the prediction horizon covers multiple periods, this leads to the problem that the future evolution of these covariates is unknown. Consequently, some authors have proposed a framework that augments the prediction problem by covariate forecasting models. In this paper, we present simple alternatives for multi-period prediction that avoid the burden to specify and estimate a model for the covariate processes. In an application to North American public firms, we show that the proposed models deliver high out-of-sample predictive accuracy.
{"title":"Multi-Period Credit Default Prediction with Time-Varying Covariates","authors":"W. Orth","doi":"10.2139/ssrn.1788826","DOIUrl":"https://doi.org/10.2139/ssrn.1788826","url":null,"abstract":"In credit default prediction models, the need to deal with time-varying covariates often arises. For instance, in the context of corporate default prediction a typical approach is to estimate a hazard model by regressing the hazard rate on time-varying covariates like balance sheet or stock market variables. If the prediction horizon covers multiple periods, this leads to the problem that the future evolution of these covariates is unknown. Consequently, some authors have proposed a framework that augments the prediction problem by covariate forecasting models. In this paper, we present simple alternatives for multi-period prediction that avoid the burden to specify and estimate a model for the covariate processes. In an application to North American public firms, we show that the proposed models deliver high out-of-sample predictive accuracy.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"16 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-11-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81371547","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This note contains supplementary material for "Asset Pricing Restrictions on Predictability: Frictions Matter."
本说明包含“可预测性的资产定价限制:摩擦问题”的补充材料。
{"title":"Supplementary Material for 'Asset Pricing Restrictions on Predictability: Frictions Matter'","authors":"Frans de Roon, M. Szymanowska","doi":"10.2139/ssrn.1764328","DOIUrl":"https://doi.org/10.2139/ssrn.1764328","url":null,"abstract":"This note contains supplementary material for \"Asset Pricing Restrictions on Predictability: Frictions Matter.\"","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"80 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73724360","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates fundamentals-based exchange rate predictability from a different perspective. We focus on predicting currency swings (major trends in depreciation or appreciation) rather than on quantitative changes of exchange rates. Having used a nonparametric approach to identify swings in exchange rates, we examine the links between fundamentals and swings in exchange rates using both in-sample and out-of-sample forecasting tests. We use data from 12 developed countries, and our empirical evidence suggests that the uncovered interest parity fundamentals and Taylor rule model with interest rate smoothing are strong predictors of exchange rate swings.
{"title":"Predicting Swings in Exchange Rates with Macro Fundamentals","authors":"Shiu‐Sheng Chen","doi":"10.2139/ssrn.1878369","DOIUrl":"https://doi.org/10.2139/ssrn.1878369","url":null,"abstract":"This paper investigates fundamentals-based exchange rate predictability from a different perspective. We focus on predicting currency swings (major trends in depreciation or appreciation) rather than on quantitative changes of exchange rates. Having used a nonparametric approach to identify swings in exchange rates, we examine the links between fundamentals and swings in exchange rates using both in-sample and out-of-sample forecasting tests. We use data from 12 developed countries, and our empirical evidence suggests that the uncovered interest parity fundamentals and Taylor rule model with interest rate smoothing are strong predictors of exchange rate swings.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-10-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88333084","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Felipe Mejia-Pelaez, Ignacio Vélez-Pareja, J. Kolari
This paper has an English version and can be downloaded from: http://ssrn.com/abstract=1799605En este trabajo se muestra como encontrar la estructura optima de capital y el valor con un endeudamiento constante y variable periodo a periodo, cuando la tasa de descuento para el ahorro de impuestos es Ke, el costo de capital apalancado. Se presentan procedimientos numericos y expresiones recursivas compactas no circulares para los casos de periodos finitos y perpetuidades, lo que facilita el calculo y el analisis, incluyendo simulaciones de Monte Carlo. Asimismo, se ilustra el procedimiento en hoja de calculo con Solver como una verificacion.Ver las diapositivas que acompanan y complementan este documento en: El Juego De La Gallina Ciega: Buscando La Estructura Optima De Capital This paper shows how to proceed to find the optimal capital structure and value with period-to-period constant and variable leverage, when the discount rate for Escudo fiscal is Ke, the cost of levered equity. Numerical procedures and recursive closed-form non-circular expressions for the finite-period and perpetuity cases are presented, which facilitate any kind of implementation including Monte Carlo simulations. In addition, we illustrate the optimizing procedure with Solver for checking purposes.See the PowerPoint slides that accompany and complement this paper at: El Juego De La Gallina Ciega: Buscando La Estructura Optima De Capital
This paper你an English version and can be downloaded from: http://ssrn.com/abstract=1799605En工作是如何找到最佳的资本结构和变量值与一个常数和借贷时期时期,当贴现率为节约税收是Ke, apalancado资本成本。给出了有限周期和永续情况下的数值程序和紧递归非圆表达式，便于计算和分析，包括蒙特卡罗模拟。此外，还在计算表中说明了求解器作为验证的过程。看到acompanan所看到的幻灯片,并补充了这份文件:瞎子:游戏,寻找最佳资本结构,This paper节目how to proceed to find the connor Capital structure and value变量与period-to-period常数和财政收益,when the折扣rate for盾is Ke, the cost of levered平等。给出了有限周期和永续情况的数值过程和递归封闭非循环表达式，便于包括蒙特卡罗模拟在内的各种实现。= =地理= =根据美国人口普查，这个县的面积为。请参阅与本文配套和补充的幻灯片:盲鸡游戏:寻找最佳资本结构
{"title":"Estructura Optima de Capital Para Flujos de Caja Finitos (Optimal Capital Structure for Finite Cash Flows)","authors":"Felipe Mejia-Pelaez, Ignacio Vélez-Pareja, J. Kolari","doi":"10.2139/SSRN.1826264","DOIUrl":"https://doi.org/10.2139/SSRN.1826264","url":null,"abstract":"This paper has an English version and can be downloaded from: http://ssrn.com/abstract=1799605En este trabajo se muestra como encontrar la estructura optima de capital y el valor con un endeudamiento constante y variable periodo a periodo, cuando la tasa de descuento para el ahorro de impuestos es Ke, el costo de capital apalancado. Se presentan procedimientos numericos y expresiones recursivas compactas no circulares para los casos de periodos finitos y perpetuidades, lo que facilita el calculo y el analisis, incluyendo simulaciones de Monte Carlo. Asimismo, se ilustra el procedimiento en hoja de calculo con Solver como una verificacion.Ver las diapositivas que acompanan y complementan este documento en: El Juego De La Gallina Ciega: Buscando La Estructura Optima De Capital This paper shows how to proceed to find the optimal capital structure and value with period-to-period constant and variable leverage, when the discount rate for Escudo fiscal is Ke, the cost of levered equity. Numerical procedures and recursive closed-form non-circular expressions for the finite-period and perpetuity cases are presented, which facilitate any kind of implementation including Monte Carlo simulations. In addition, we illustrate the optimizing procedure with Solver for checking purposes.See the PowerPoint slides that accompany and complement this paper at: El Juego De La Gallina Ciega: Buscando La Estructura Optima De Capital","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"3 2 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74955516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Political involvement has long been shown to be a profitable investment for firms that seek favorable regulatory conditions or support in times of economic distress. But how important are different types of political involvement for the timing and magnitude of political support? To answer this question, we take a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of government support under the 2008 Troubled Asset Relief Program (TARP). We find that firms that lobbied or had other types of political connections were not only more likely to receive TARP funds, they also received a greater amount of support earlier than firms that were not politically involved through lobbying or direct political connections. For every dollar spent on lobbying during the five years prior to the TARP bailout, firms received between $485.77 and $585.65 in TARP support.
{"title":"Corporate Lobbying, Political Connections, and the 2008 Troubled Asset Relief Program","authors":"Benjamin M. Blau, Tyler Brough, D. Thomas","doi":"10.2139/ssrn.1878653","DOIUrl":"https://doi.org/10.2139/ssrn.1878653","url":null,"abstract":"Political involvement has long been shown to be a profitable investment for firms that seek favorable regulatory conditions or support in times of economic distress. But how important are different types of political involvement for the timing and magnitude of political support? To answer this question, we take a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of government support under the 2008 Troubled Asset Relief Program (TARP). We find that firms that lobbied or had other types of political connections were not only more likely to receive TARP funds, they also received a greater amount of support earlier than firms that were not politically involved through lobbying or direct political connections. For every dollar spent on lobbying during the five years prior to the TARP bailout, firms received between $485.77 and $585.65 in TARP support.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"3 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75038122","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present an equity valuation model that is in the spirit of the long-term value-investors Benjamin Graham and Warren Buffett. Taking a longer term view of business prospects and business risks, we explicitly consider Schumpeter’s forces of creative destruction as the central tenet of our model and capture its effect in a probabilistic manner. Assuming that our investor has log utility, we show that our valuation model answers the question of how much capital to allocate. Unlike CAPM, our model does not enforce the Efficient Market Hypothesis and qualitatively explains some well-known empirical studies on stock returns in existing literature.
{"title":"Murdering Mr. Market: An Equity Valuation and Capital Allocation Model for Long-Term Value-Investors","authors":"M. Rajaratnam, B. Rajaratnam, K. Rajaratnam","doi":"10.2139/ssrn.1935365","DOIUrl":"https://doi.org/10.2139/ssrn.1935365","url":null,"abstract":"We present an equity valuation model that is in the spirit of the long-term value-investors Benjamin Graham and Warren Buffett. Taking a longer term view of business prospects and business risks, we explicitly consider Schumpeter’s forces of creative destruction as the central tenet of our model and capture its effect in a probabilistic manner. Assuming that our investor has log utility, we show that our valuation model answers the question of how much capital to allocate. Unlike CAPM, our model does not enforce the Efficient Market Hypothesis and qualitatively explains some well-known empirical studies on stock returns in existing literature.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"38 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80079789","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a simple two-period model of the economy, we demonstrate the potential effects of natural disasters on economic growth over the medium to long term. In particular, we focus on the effect of such shocks on investment. We examine two polar cases: an economy in which agents have unconstrained access to capital markets, versus a credit-constrained version, where the economy is assumed to operate in financial autarky. Considering these extreme cases allows us to highlight the interaction of disasters and economic underdevelopment, manifested through poorly developed financial markets. The predictions of our theoretical model are tested using a panel of data on natural disaster events at the country-year level, for the period 1979–2007. We find that for countries with low levels of financial sector development, natural disasters have persistent negative effects on economic growth over the medium term. These results are robust to various checks.
{"title":"Disasters and Development: Natural Disasters, Credit Constraints and Economic Growth","authors":"T. McDermott, F. Barry, R. Tol","doi":"10.2139/ssrn.1843494","DOIUrl":"https://doi.org/10.2139/ssrn.1843494","url":null,"abstract":"Using a simple two-period model of the economy, we demonstrate the potential effects of natural disasters on economic growth over the medium to long term. In particular, we focus on the effect of such shocks on investment. We examine two polar cases: an economy in which agents have unconstrained access to capital markets, versus a credit-constrained version, where the economy is assumed to operate in financial autarky. Considering these extreme cases allows us to highlight the interaction of disasters and economic underdevelopment, manifested through poorly developed financial markets. The predictions of our theoretical model are tested using a panel of data on natural disaster events at the country-year level, for the period 1979–2007. We find that for countries with low levels of financial sector development, natural disasters have persistent negative effects on economic growth over the medium term. These results are robust to various checks.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"15 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86700427","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We try to reconcile the popular opinion that the Financial Crisis has fundamentally altered equity risk characteristics with empirical data. Our analysis based on Extreme Value Theory suggests that equity tail risks have remained remarkably stable. This means that the loss dynamics of S&P 500 experienced since October 2007 could have been anticipated by equity investors as well as equity investment managers performing quantitative risk analysis.
{"title":"Equity Tail Risk Before and after the Financial Crisis","authors":"Andreas Steiner","doi":"10.2139/ssrn.1935035","DOIUrl":"https://doi.org/10.2139/ssrn.1935035","url":null,"abstract":"We try to reconcile the popular opinion that the Financial Crisis has fundamentally altered equity risk characteristics with empirical data. Our analysis based on Extreme Value Theory suggests that equity tail risks have remained remarkably stable. This means that the loss dynamics of S&P 500 experienced since October 2007 could have been anticipated by equity investors as well as equity investment managers performing quantitative risk analysis.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81035330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate whether performance enhancement motivates the changes to the constituents of the Standard and Poor’s 500 Index, and whether these changes in fact enhance the Index’s performance. To test these, we compare the performance of the stocks that were deleted from the Index to the performance of those that were added before and after the delete/add events. Our results show that stocks that were added to the Index outperform those that were replaced before the events, suggesting that performance enhancement is a driver of the S&P committee’s delete/add decisions. Also, we find that the stocks that were added to the Index outperform those that were replaced after the events, indicating the delete/add events enhance the Index’s performance.
{"title":"Changes in the Constituents of the S&P 500 Index and the Performance of the Index","authors":"Ebenezer Asem, S. Alam","doi":"10.2139/ssrn.1933197","DOIUrl":"https://doi.org/10.2139/ssrn.1933197","url":null,"abstract":"We investigate whether performance enhancement motivates the changes to the constituents of the Standard and Poor’s 500 Index, and whether these changes in fact enhance the Index’s performance. To test these, we compare the performance of the stocks that were deleted from the Index to the performance of those that were added before and after the delete/add events. Our results show that stocks that were added to the Index outperform those that were replaced before the events, suggesting that performance enhancement is a driver of the S&P committee’s delete/add decisions. Also, we find that the stocks that were added to the Index outperform those that were replaced after the events, indicating the delete/add events enhance the Index’s performance.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85861125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
England has very volatile house prices. We use pseudo-panel data spanning multiple house-price cycles over nearly forty years, to assess the extent to which house prices affect access to home ownership by age thirty, and whether differences in ownership rates persist. We find that ownership rates at age thirty have varied substantially, with this variation significantly related to prices. Measurement error problems - attenuation bias and other biases - complicate an analysis of the persistence of these differences in ownership. We use two methods - including one that develops the ideas of Deaton (1985) - to deal with this and find robust evidence that cohorts with low ownership rates at thirty close about 80% of the ownership gap by age forty.
{"title":"House Prices and Home Ownership: A Cohort Analysis","authors":"R. Bottazzi, Thomas F. Crossley, M. Wakefield","doi":"10.2139/ssrn.1932634","DOIUrl":"https://doi.org/10.2139/ssrn.1932634","url":null,"abstract":"England has very volatile house prices. We use pseudo-panel data spanning multiple house-price cycles over nearly forty years, to assess the extent to which house prices affect access to home ownership by age thirty, and whether differences in ownership rates persist. We find that ownership rates at age thirty have varied substantially, with this variation significantly related to prices. Measurement error problems - attenuation bias and other biases - complicate an analysis of the persistence of these differences in ownership. We use two methods - including one that develops the ideas of Deaton (1985) - to deal with this and find robust evidence that cohorts with low ownership rates at thirty close about 80% of the ownership gap by age forty.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"48 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89922936","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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