Asset Prices and Pandemics: The Effects of Lockdowns

2021 ◽  
pp. 2240002
Author(s):  
Jerome Detemple
Keyword(s):  
Interest Rate ◽  
Stock Market ◽  
Real Wage ◽  
Asset Prices ◽  
Market Price ◽  
Market Price Of Risk ◽  
Economy Model ◽  
Price Of Risk ◽  
The Impact

We examine the impact of pandemics on equilibrium in an integrated epidemic-economy model with production. Two types of technologies are considered: a neo-classical technology and one capturing the notion of time-to-produce. The impact of a shelter-in-place policy with and without layoffs is studied. The paper documents adjustments in interest rate, market price of risk, stock market and real wage as the epidemic propagates. It shows the qualitative effects of a shelter-in-place policy in the model are consistent with the patterns displayed by the stock market and real wage during the COVID-19 outbreak. Puzzles emerging from the analysis are outlined.

scholarly journals Factors affecting stock market index volatility: Empirical study

2021 ◽  
Vol 10 (3) ◽  
pp. 169-176
Author(s):  
Mohammed Ali Al-Rimawi ◽  
Thair Adnan Kaddumi
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Foreign Investment ◽  
Inflation Rate ◽  
Market Price ◽  
Economic Growth Rate ◽  
Macroeconomic Variables ◽  
The Impact

How is stock market price volatility affected, and what is the nature of the impact that macroeconomic variables do on the stock market price direction? The main objective of this study is to investigate the impact of some selected macroeconomic variables (inflation rate (INR), interest rate (IR), economic growth rate (EGR), and foreign investment (FI)) on Amman Stock Exchange (ASE) fluctuation for the period 1999–2018. The information is based on the annual data published by industrial companies listed at ASE. The study adopted a descriptive-analytical approach, also simple and multiple linear regression analysis was employed for the mentioned purpose (Nurfadilah & Samidi, 2017). The results revealed that there is no statistically significant impact of INR, IR, EGR, and FI collectively on ASE performance (Niewińska, 2020). Individually, the results indicated that there is a statistically significant impact of all variables (INR, IR, EGR, and FI) on ASE performance. Additionally, the results concluded that foreign investment, portrayed the highest impact factor on ASE performance, followed by a change in average interest rate, then inflation rate, and the least impact attributes to the economic growth rate. Finally, the research recommends that Jordanian banks should reduce the lending interest rate to enhance investment in securities and improve economic growth rate, also Jordanian authorities should encourage foreign direct and indirect investment and make more efforts to attract more foreign investment, either in the form of tax incentives or by extending finance at low-interest rates.

scholarly journals The Market Price of Risk in Interest Rate Swaps: The Roles of Default and Liquidity Risks*

2006 ◽  
Vol 79 (5) ◽  
pp. 2337-2359 ◽  
Author(s):  
Jun Liu ◽  
Francis A. Longstaff ◽  
Ravit E. Mandell
Keyword(s):  
Interest Rate ◽  
Market Price ◽  
Market Price Of Risk ◽  
Interest Rate Swaps ◽  
Price Of Risk

Theoretical Identifications of the Market Price of Risk under the Affine Interest Rate Model with Jumps

2005 ◽  
Vol 13 (2) ◽  
pp. 133-143
Author(s):  
Joon Hee Rhee
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Empirical Studies ◽  
Market Price ◽  
Rate Theory ◽  
Rate Model ◽  
Change Of Measure ◽  
Market Price Of Risk ◽  
Price Of Risk ◽  
Interest Rate Model

Any finance models must specify the market prices of risk that determines the relationship between the two probability measures. Although the general form of the change of measure is well known, few papers have investigated the change of measure for interest rate models and their implications for the way a model can fit to empirical facts about the behaviour of interest rates. This paper demonstrates that arbitrary specifications of market price of risk in empirical studies under the two factor affine interest rate model with jumps are not compatible with the theory of original interest rate model. Particularly, the empirical models of Duffee (2002) and Duarte (2003) may be wrong specifications in some parts under a rigorous theoretical interest rate theory.

scholarly journals Maximum likelihood estimator of the volatility of forward rates driven by geometric spatial AR sheet

2004 ◽  
Vol 2004 (4) ◽  
pp. 293-309 ◽  
Author(s):  
József Gáll ◽  
Gyula Pap ◽  
Martien C. A. van Zuijlen
Keyword(s):  
Maximum Likelihood ◽  
Interest Rate ◽  
Maximum Likelihood Estimator ◽  
Discrete Time ◽  
Market Price ◽  
Likelihood Estimator ◽  
Market Price Of Risk ◽  
Forward Rates ◽  
No Arbitrage ◽  
Price Of Risk

Discrete-time forward interest rate curve models are studied, where the curves are driven by a random field. Under the assumption of no-arbitrage, the maximum likelihood estimator of the volatility parameter is given and its asymptotic behaviour is studied. First, the so-called martingale models are examined, but we will also deal with the general case, where we include the market price of risk in the discount factor.

Defined contribution pension planning with a stochastic interest rate and mean-reverting returns under the hyperbolic absolute risk aversion preference

2019 ◽  
Author(s):  
Hao Chang ◽  
Chunfeng Wang ◽  
Zhenming Fang ◽  
Dan Ma
Keyword(s):  
Interest Rate ◽  
Absolute Risk ◽  
Market Price ◽  
Optimal Strategies ◽  
Stochastic Interest Rate ◽  
Market Price Of Risk ◽  
Absolute Risk Aversion ◽  
Stochastic Interest ◽  
Price Of Risk ◽  
The Interest Rate

Abstract The interest rate and the market price of risk may be stochastic in a real-world financial market. In this paper, the interest rate is assumed to be driven by a stochastic affine interest rate model and the market price of risk from the stock market is a mean-reverting process. In addition, the dynamics of the stock are simultaneously driven by random sources of interest rate and the stock market itself. In pension fund management, different fund managers may have different risk preferences. We suppose risk preference is described by the hyperbolic absolute risk aversion utility, which is a general utility function describing different risk preferences. Legendre transform-dual theory is presented to successfully obtain explicit expressions for optimal strategies. A numerical example illustrates the sensitivity of optimal strategies to market parameters. Theoretical results imply that the risks from stochastic interest rate and stochastic return may be completely hedged by adopting specific portfolios.

scholarly journals The impact of the coronavirus crisis on the market price of risk

2021 ◽  
Vol 53 ◽  
pp. 100840
Author(s):  
Manthos D. Delis ◽  
Christos S. Savva ◽  
Panayiotis Theodossiou
Keyword(s):  
Market Price ◽  
Market Price Of Risk ◽  
Price Of Risk ◽  
The Impact

EQUILIBRIUM WITH EXCESSIVE HOLDINGS CONSTRAINT: AN APPLICATION TO DC PENSION PLANS

2007 ◽  
Vol 10 (07) ◽  
pp. 1159-1190 ◽  
Author(s):  
ISSOUF SOUMARÉ
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Market Price ◽  
Pension Plans ◽  
Defined Contribution ◽  
Excess Returns ◽  
Market Price Of Risk ◽  
Price Of Risk ◽  
Special Case ◽  
Accurate Quantification

In this paper, I study the equilibrium implications when some investors in the economy overweight a subset of stocks within their portfolio. I find that the excess returns for the overweighted stocks are lower, all else being equal. This has strong testable implications for stock returns. In the special case of logarithmic preferences, the riskfree rate increases and the market price of risk for the overweighted stock decreases, which create extra incentive for unconstrained agents to exit the stock market and hold bonds, hence clearing the market. The changes of stocks' volatilities are ambiguous. Finally, I provide an accurate quantification for agents' welfare. I also discuss the implications of my model in the context of defined contribution pension plans where workers hold large shares of their employer.

scholarly journals Interest rate model with humped volatility under the real-world measure

2018 ◽  
Vol 7 (1) ◽  
Author(s):  
Takashi Yasuoka
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Real World ◽  
Model Comparison ◽  
Market Price ◽  
Yield Data ◽  
Market Price Of Risk ◽  
The Real ◽  
Volatility Model ◽  
Price Of Risk

The purpose of this paper is to develop real-world modeling for interest rate volatility with a humped term structure. We consider humped volatility that can be parametrically characterized such that the Hull–White model is a special case. First, we analytically show estimation of the market price of risk with humped volatility. Then, using U.S. treasury yield data, we examine volatility fitting and estimate the market price of risk using the Heath–Jarrow–Morton model, Hull–White model, and humped volatility model. Comparison of the numerical results shows that the real-world humped volatility model is adequately developed.

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