This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters’ performance is skill-based. ‘Superior’ forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.
{"title":"Exchange Rate Forecasters' Performance: Evidence of Skill?","authors":"R. MacDonald, Lukas Menkhoff, Rafael R. Rebitzky","doi":"10.2139/ssrn.1392158","DOIUrl":"https://doi.org/10.2139/ssrn.1392158","url":null,"abstract":"This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters’ performance is skill-based. ‘Superior’ forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"117 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117274336","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}
Pub Date : 2009-04-01DOI: 10.5089/9781451872422.001.A001
A. Carvajal, Hunter Monroe, B. Wynter, Catherine A. Pattillo
In several Caribbean states, unregulated investment schemes grew quickly in recent years by claiming unusually high monthly returns and through a system of referrals by existing members. These are features shared with traditional Ponzi schemes and pyramid schemes. This paper describes the growth of such schemes, their subsequent collapse, and the policy response of regulators, and presents key policy lessons. The analysis and recommendations draw on country experiences in the Caribbean, and in such diverse countries as the United States, Colombia, Lesotho, and Albania.
{"title":"Ponzi Schemes in the Caribbean","authors":"A. Carvajal, Hunter Monroe, B. Wynter, Catherine A. Pattillo","doi":"10.5089/9781451872422.001.A001","DOIUrl":"https://doi.org/10.5089/9781451872422.001.A001","url":null,"abstract":"In several Caribbean states, unregulated investment schemes grew quickly in recent years by claiming unusually high monthly returns and through a system of referrals by existing members. These are features shared with traditional Ponzi schemes and pyramid schemes. This paper describes the growth of such schemes, their subsequent collapse, and the policy response of regulators, and presents key policy lessons. The analysis and recommendations draw on country experiences in the Caribbean, and in such diverse countries as the United States, Colombia, Lesotho, and Albania.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121799751","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}
The aim of this paper is to test for and model for non-linearities in the spot exchange rate Greece-U.S.A.. To exploit for non-linear dependencies we apply the Smoothing Transition Autoregressive (STAR) models family and we examine if there is actually a non-linear behavior or not on the specific spot exchange rate we investigate. If there is non-linear dependency we estimate the proper non-linear models, based on selection tests and we apply in-sample and out-of-sample forecasting.
{"title":"Estimation and Forecasting with Smoothing Transition Autoregressive Model: Evidence from Drachma-US Dollar Spot Exchange Rate","authors":"Eleftherios Giovanis","doi":"10.2139/ssrn.1366223","DOIUrl":"https://doi.org/10.2139/ssrn.1366223","url":null,"abstract":"The aim of this paper is to test for and model for non-linearities in the spot exchange rate Greece-U.S.A.. To exploit for non-linear dependencies we apply the Smoothing Transition Autoregressive (STAR) models family and we examine if there is actually a non-linear behavior or not on the specific spot exchange rate we investigate. If there is non-linear dependency we estimate the proper non-linear models, based on selection tests and we apply in-sample and out-of-sample forecasting.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126897407","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}
Previous research on the impact of currency risk on stock returns has failed to find a significant role for foreign exchange rates. This paper addresses several explanations of this finding with a unique dataset of U.S. firms that acquire targets in other countries. The dataset allows estimation of the impact of exchange rates using firm-specific bilateral exchange rates and a time period over which underlying exposure is known to significantly change. We also relate the change in exposure from before to after the acquisition to various characteristics of the acquirer, such as its presence in the target country prior to the deal and its hedging activities, and characteristics of the target, such as the exposure of the target prior to the deal. The results suggest that identifying a relevant exchange rate can be an important consideration in studying the impact of exchange rate risk on stock returns, but identifying financial hedging information is not. Further, foreign targets often provide operational hedging benefits to the U.S. acquirers, as exposure estimates are significantly affected by the acquisition.
{"title":"Foreign Currency Exposure and Hedging: Evidence from Foreign Acquisitions","authors":"Söhnke M. Bartram, Natasha Burns, Jean Helwege","doi":"10.2139/ssrn.1116409","DOIUrl":"https://doi.org/10.2139/ssrn.1116409","url":null,"abstract":"Previous research on the impact of currency risk on stock returns has failed to find a significant role for foreign exchange rates. This paper addresses several explanations of this finding with a unique dataset of U.S. firms that acquire targets in other countries. The dataset allows estimation of the impact of exchange rates using firm-specific bilateral exchange rates and a time period over which underlying exposure is known to significantly change. We also relate the change in exposure from before to after the acquisition to various characteristics of the acquirer, such as its presence in the target country prior to the deal and its hedging activities, and characteristics of the target, such as the exposure of the target prior to the deal. The results suggest that identifying a relevant exchange rate can be an important consideration in studying the impact of exchange rate risk on stock returns, but identifying financial hedging information is not. Further, foreign targets often provide operational hedging benefits to the U.S. acquirers, as exposure estimates are significantly affected by the acquisition.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129055727","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}
Euro was launched on January 1, 1999 as a common currency for members of the European Union that complied with the Maastricht Treaty. The Maastricht Treaty calls for coordination of major macroeconomic policies such as inflation, budget balance, public debt and long-term interest rate. Theoretically, coordination of these policy issues and the launching of a common currency increase the degree of market integration among the member countries. This paper empirically tests the impact of the Euro on the degree of co-movement of the European equity markets and a sample of OECD equity markets. Weekly stock market indices for the period of seven years before the Euro and seven years after the Euro are used. The results show that cross-country divergences of stock markets continue after the euro. There is no evidence of cointegration after the adoption of the euro. Cross-country portfolio diversification continues to be beneficial even among the euro countries.
{"title":"Co-Movement of European Equity Markets after the Euro","authors":"Demissew Diro Ejara","doi":"10.2139/ssrn.1354658","DOIUrl":"https://doi.org/10.2139/ssrn.1354658","url":null,"abstract":"Euro was launched on January 1, 1999 as a common currency for members of the European Union that complied with the Maastricht Treaty. The Maastricht Treaty calls for coordination of major macroeconomic policies such as inflation, budget balance, public debt and long-term interest rate. Theoretically, coordination of these policy issues and the launching of a common currency increase the degree of market integration among the member countries. This paper empirically tests the impact of the Euro on the degree of co-movement of the European equity markets and a sample of OECD equity markets. Weekly stock market indices for the period of seven years before the Euro and seven years after the Euro are used. The results show that cross-country divergences of stock markets continue after the euro. There is no evidence of cointegration after the adoption of the euro. Cross-country portfolio diversification continues to be beneficial even among the euro countries.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121018994","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}
The argument put forward in this paper is twofold. First, the financial crisis of 2007-08 was made global by the current account deficit in the United States; and second, there is global dependence on the United States trade deficit as a means of maintaining liquidity in financial markets. The outflow of dollars from the United States was invested in U.S. capital markets, causing inflation in asset markets and leading to a bubble and bust in the subprime mortgage sector. Since the U.S. dollar is the international reserve currency, international debt is mostly denominated in dollars. Because there is a high degree of global financial integration, any reduction in the U.S. balance of trade will have negative effects on many countries throughout the world--for example, those countries dependent on exporting to the United States in order to finance their debt.
{"title":"Macroeconomic Imbalances in the United States and Their Impact on the International Financial System","authors":"Julia S. Perelstein","doi":"10.2139/SSRN.1335287","DOIUrl":"https://doi.org/10.2139/SSRN.1335287","url":null,"abstract":"The argument put forward in this paper is twofold. First, the financial crisis of 2007-08 was made global by the current account deficit in the United States; and second, there is global dependence on the United States trade deficit as a means of maintaining liquidity in financial markets. The outflow of dollars from the United States was invested in U.S. capital markets, causing inflation in asset markets and leading to a bubble and bust in the subprime mortgage sector. Since the U.S. dollar is the international reserve currency, international debt is mostly denominated in dollars. Because there is a high degree of global financial integration, any reduction in the U.S. balance of trade will have negative effects on many countries throughout the world--for example, those countries dependent on exporting to the United States in order to finance their debt.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121929541","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 is the fourth in a series of research bulletins marking the launch of the new and enhanced Barra Global Equity Model (GEM2). In this piece, we focus on characteristics of the global momentum factor. Under varying market conditions, the performance of the momentum factor will be examined, especially in bull versus bear markets. In addition, the global diversification benefits for this strategy will be analyzed. We also consider the implied country and sector tilts in a momentum strategy, as well as the interaction between momentum and other style factors, such as value and growth.
{"title":"Global Momentum","authors":"Msci Inc.","doi":"10.2139/ssrn.1334862","DOIUrl":"https://doi.org/10.2139/ssrn.1334862","url":null,"abstract":"This is the fourth in a series of research bulletins marking the launch of the new and enhanced Barra Global Equity Model (GEM2). In this piece, we focus on characteristics of the global momentum factor. Under varying market conditions, the performance of the momentum factor will be examined, especially in bull versus bear markets. In addition, the global diversification benefits for this strategy will be analyzed. We also consider the implied country and sector tilts in a momentum strategy, as well as the interaction between momentum and other style factors, such as value and growth.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130917171","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 examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and US securities markets. Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the EU ones, in strengthening competition for order flow among trading venues. The paper also provides an investigation of the degree of market fragmentation among incumbent exchanges and new trading venues in European and US securities markets, and suggests possible explanations for understanding the current macrostructure of such markets.
{"title":"MiFID, Reg NMS and Competition Across Trading Venues in Europe and United States","authors":"Giovanni Petrella","doi":"10.2139/ssrn.1442874","DOIUrl":"https://doi.org/10.2139/ssrn.1442874","url":null,"abstract":"This paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and US securities markets. Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the EU ones, in strengthening competition for order flow among trading venues. The paper also provides an investigation of the degree of market fragmentation among incumbent exchanges and new trading venues in European and US securities markets, and suggests possible explanations for understanding the current macrostructure of such markets.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115326031","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 merges two branches of the literature. On one hand we study a heterogeneous agents framework to model exchange rates and stock prices. On the other hand we model the relationship between these two series through a DSGE model. Investors choose one of two rules to form their expectations. One rule is based on an open economy model, which reacts to the information from the financial markets. The second rule follows a backward looking approach. We find that when DSGE agents misinterpret the information coming from the financial markets as exogenous productivity shocks they unknowingly amplify the volatility of these markets. The simulated series replicate the stylized facts of real data. We also estimate the DSGE and chartists expectations, and we find that our DSGE agents make output forecasts that are not qualitatively different than the DSGE forecasts from the recent Bayesian literature.
{"title":"Exchange Rates and Asset Prices: Heterogeneous Agents at Work","authors":"Giulia Piccillo","doi":"10.2139/ssrn.1360645","DOIUrl":"https://doi.org/10.2139/ssrn.1360645","url":null,"abstract":"This paper merges two branches of the literature. On one hand we study a heterogeneous agents framework to model exchange rates and stock prices. On the other hand we model the relationship between these two series through a DSGE model. Investors choose one of two rules to form their expectations. One rule is based on an open economy model, which reacts to the information from the financial markets. The second rule follows a backward looking approach. We find that when DSGE agents misinterpret the information coming from the financial markets as exogenous productivity shocks they unknowingly amplify the volatility of these markets. The simulated series replicate the stylized facts of real data. We also estimate the DSGE and chartists expectations, and we find that our DSGE agents make output forecasts that are not qualitatively different than the DSGE forecasts from the recent Bayesian literature.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"290 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124500644","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}
In this second part, we focus on implied choices of a financial investment. In particular, we appreciate the importance of sectors diversification.
在第二部分中，我们将重点讨论金融投资的隐含选择。我们特别赞赏部门多样化的重要性。
{"title":"International Investment in Equities and Thematic Diversification","authors":"M. Leblanc","doi":"10.2139/ssrn.1559392","DOIUrl":"https://doi.org/10.2139/ssrn.1559392","url":null,"abstract":"In this second part, we focus on implied choices of a financial investment. In particular, we appreciate the importance of sectors diversification.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122186351","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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