scholarly journals Price distortions and municipal bonds premiums: evidence from Switzerland

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Darko B. Vukovic ◽  
Carlos J. Rincon ◽  
Moinak Maiti
Keyword(s):  
Instrumental Variables ◽  
Default Risk ◽  
Structural Breaks ◽  
Structural Break ◽  
Lagrangian Multiplier ◽  
Municipal Bonds ◽  
Municipal Bond ◽  
Cross Sectional ◽  
Bond Spreads ◽  
Price Distortions

AbstractThis study examines the pricing of municipal bonds before and after a currency shock in Switzerland. Two approaches are used to decompose the municipal to treasuries bond spreads into liquidity, maturity, and default risk premiums. The first approach is the model of the cross-sectional instrumental variables, and the second approach is the model of the instrumental variables with panel data. This study examines the composition of spreads for both approaches, in three scenarios: before, throughout, and after the currency shock. The study performed Durbin-Wu-Hausman tests for each decisive model to verify endogeneity issues, including the Lagrangian Multiplier test, the Cragg-Donald Wald F statistic to confirm the relationship of instrumental and endogenous variables, and the structural break test (Bai-Perron test) to determine the existence of structural breaks in bond distortions. This study finds that the currency price distortions of the Swiss franc in January 2015 made long-run changes in the composition of the municipal bond spreads. This research contributes to the understanding of municipal bond pricing by showing that default risk accounts for a large portion of the municipal bond spread, while maturity risk plays a lesser role. According to our empirical findings, unexpected large currency price shocks may have long-term implications on the municipal bond spreads.

Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads

2011 ◽  
Author(s):  
Vladimir Borgy ◽  
Thomas Laubach ◽  
Jean-Stéphane Mésonnier ◽  
Jean-Paul Renne
Keyword(s):  
Euro Area ◽  
Default Risk ◽  
Fiscal Sustainability ◽  
Sovereign Bond ◽  
Bond Spreads

Does Board Independence Increase Firm Value? Evidence from Closed-End Funds

2019 ◽  
pp. 1-24
Author(s):  
Matthew E. Souther
Keyword(s):  
Instrumental Variables ◽  
Firm Value ◽  
Board Independence ◽  
Difference In Differences ◽  
Cross Sectional ◽  
Closed End Funds ◽  
The Impact ◽  
New Evidence

Researchers disagree about the impact of board independence on firm value. The disagreement generally stems from the endogenous nature of board appointments. I add new evidence to this discussion by using a sample of closed-end funds to document the value-enhancing effects of independent boards. Using cross-sectional, difference-in-differences, and instrumental variables techniques, I address these endogeneity concerns and find consistent evidence that board independence is associated with higher firm value.

scholarly journals Selecting a Model for Forecasting

Econometrics ◽  
2021 ◽  
Vol 9 (3) ◽  
pp. 26
Author(s):  
Jennifer L. Castle ◽  
Jurgen A. Doornik ◽  
David F. Hendry
Keyword(s):  
Structural Breaks ◽  
Simulation Experiment ◽  
Structural Break ◽  
Static Model ◽  
Forecast Period ◽  
Forecast Performance ◽  
Significance Level ◽  
Forecasting Models ◽  
Theoretical Results

We investigate forecasting in models that condition on variables for which future values are unknown. We consider the role of the significance level because it guides the binary decisions whether to include or exclude variables. The analysis is extended by allowing for a structural break, either in the first forecast period or just before. Theoretical results are derived for a three-variable static model, but generalized to include dynamics and many more variables in the simulation experiment. The results show that the trade-off for selecting variables in forecasting models in a stationary world, namely that variables should be retained if their noncentralities exceed unity, still applies in settings with structural breaks. This provides support for model selection at looser than conventional settings, albeit with many additional features explaining the forecast performance, and with the caveat that retaining irrelevant variables that are subject to location shifts can worsen forecast performance.

Absence of the weekend effect and industry-style portfolios

2019 ◽  
Vol 12 (4) ◽  
pp. 463-475
Author(s):  
Selma Izadi ◽  
Abdullah Noman
Keyword(s):  
New York ◽  
Stock Market ◽  
Structural Breaks ◽  
Stock Exchange ◽  
Structural Break ◽  
Weekend Effect ◽  
Content Type ◽  
Market Portfolio ◽  
The Us ◽  
Using Data

Purpose The existence of the weekend effect has been reported from the 1950s to 1970s in the US stock markets. Recently, Robins and Smith (2016, Critical Finance Review, 5: 417-424) have argued that the weekend effect has disappeared after 1975. Using data on the market portfolio, they document existence of structural break before 1975 and absence of any weekend effects after that date. The purpose of this study is to contribute some new empirical evidences on the weekend effect for the industry-style portfolios in the US stock market using data over 90 years. Design/methodology/approach The authors re-examine persistence or reversal of the weekend effect in the industry portfolios consisting of The New York Stock Exchange (NYSE), The American Stock Exchange (AMEX) and The National Association of Securities Dealers Automated Quotations exchange (NASDAQ) stocks using daily returns from 1926 to 2017. Our results confirm varying dates for structural breaks across industrial portfolios. Findings As for the existence of weekend effects, the authors get mixed results for different portfolios. However, the overall findings provide broad support for the absence of weekend effects in most of the industrial portfolios as reported in Robins and Smith (2016). In addition, structural breaks for other weekdays and days of the week effects for other days have also been documented in the paper. Originality/value As far as the authors are aware, this paper is the first research that analyzes weekend effect for the industry-style portfolios in the US stock market using data over 90 years.

Testing Structural Break in the Relationship Between Exchange Rate and Macroeconomic Variables

2019 ◽  
Vol 23 (4) ◽  
pp. 442-453 ◽  
Author(s):  
Saidia Jeelani ◽  
Joity Tomar ◽  
Tapas Das ◽  
Seshanwita Das
Keyword(s):  
Exchange Rate ◽  
Structural Breaks ◽  
Time Series Data ◽  
Structural Break ◽  
Series Data ◽  
Ripple Effect ◽  
Macroeconomic Factors ◽  
Parameter Instability ◽  
Macroeconomic Variables ◽  
The Relationship

The article aims to study the relationship between those macroeconomic factors that the affect (INR/USD) exchange rate (ER). Time series data of 40 years on ER, GDP, inflation, interest rate (IR), FDI, money supply, trade balance (TB) and terms of trade (ToT) have been collected from the RBI website. The considered model has suggested that only inflation, TB and ToT have influenced the ER significantly during the study period. Other macroeconomic variables such as GDP, FDI and IR have not significantly influenced the ER during the study period. The model is robust and does not suffer from residual heteroscedasticity, autocorrelation and non-normality. Sometimes the relationship between ER and macroeconomic variables gets affected by major economic events. For example, the Southeast Asian crisis caused by currency depreciation in 1997 and sub-prime loan crisis of 2008 severely strained the national economies. Any global economic turmoil will affect different economic variables through ripple effect and this, in turn, will affect the ER of different economies differently. The article has also diagnosed whether there is any structural break or not in the model by applying Chow’s Breakpoint Test and have obtained multiple breaks between 2003 and 2009. The existence of structural breaks during 2003–2009 is explained by the fact that volume of crude oil imported by India is high and oil price rise led to a deficit in the TB alarmingly, which caused a structural break or parameter instability.

A revisit of the unemployment rate, interest rate, GDP growth and Inflation of Pakistan: Whether Structural break or unit root?

2021 ◽  
Vol 3 (2) ◽  
pp. 80-92
Author(s):  
Sara Muhammadullah ◽  
Amena Urooj ◽  
Faridoon Khan
Keyword(s):  
Interest Rate ◽  
Unemployment Rate ◽  
Unit Root ◽  
Structural Breaks ◽  
Inflation Rate ◽  
Structural Break ◽  
Unit Root Test ◽  
Unit Root Tests ◽  
Gdp Growth ◽  
Macroeconomic Indicators

The study investigates the query of structural break or unit root considering four macroeconomic indicators; unemployment rate, interest rate, GDP growth, and inflation rate of Pakistan. The previous studies create ambiguity regarding the stationarity and non-stationarity of these variables. We employ Zivot & Andrews (1992) unit root test and Step Indicator Saturation (SIS) method for multiple break detection in mean. GDP growth and inflation rate are stationary at level whereas unit root tests fail to reject the null hypothesis of the unemployment rate and interest rate at level. However, Zivot and Andrew unit root test with a single endogenous break indicates that the unemployment rate and interest rate are stationary at level with a single endogenous break. On the other hand, the SIS method reveals that the series are stationary with multiple structural breaks. It is inferred that it is inappropriate to take the first difference of the unemployment rate and interest rate to attain stationarity. The results of this study confirmed that there exist multiple breaks in the macroeconomic variables considered in the context of Pakistan.

scholarly journals Transportation Dynamic Behaviour of Structural Break and Consumer Price Index

2019 ◽  
Vol 8 (2) ◽  
pp. 283-290
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Price Index ◽  
Dynamic Behaviour ◽  
Structural Break ◽  
Consumer Price Index ◽  
Unit Root Test ◽  
Peninsular Malaysia ◽  
Cointegration Tests ◽  
Break Points

This paper studies the dynamic behaviour of transportation price in Peninsular Malaysia and Sabah from 2004 to 2015 using disaggregated monthly price data of consumer price index (CPI). For that, unit root tests and cointegration tests with structural breaks are incorporated. The findings indicated that (i) both Zivot and Andrews unit root test and Perron unit root test provided fairly similar results; most of the break points occurred in 2008, (ii) the variables cointegrate in the Johansen cointegration test which indicates that there is a long-run relationship and (iii) the Gregory and Hansen test also demonstrated some form of cointegration with structural break(s), especially in 2008. Overall, this study intends to match the structural break points with the comparable critical economic events

scholarly journals GROWTH SLOWDOWNS AND MIDDLE-INCOME TRAP: EVIDENCE FROM NEW UNIT ROOT FRAMEWORK

2020 ◽  
pp. 1-17
Author(s):  
FUMITAKA FURUOKA ◽  
KIEW LING PUI ◽  
CHINYERE EZEOKE ◽  
RAY I. JACOB ◽  
OLAOLUWA S. YAYA
Keyword(s):  
Unit Root ◽  
Structural Break ◽  
Testing Procedure ◽  
Policy Implications ◽  
Unit Root Tests ◽  
Cross Sectional ◽  
Middle Income ◽  
Middle Income Countries ◽  
Middle Income Trap ◽  
High Possibility

This paper suggests a new testing procedure to systematically examine the middle-income trap (MIT). To empirically demonstrate this procedure, one high income and 14 middle-income countries are examined using newly developed unit root tests — Fourier ADF with structural break (FADF-SB) and Seemingly Unrelated Regressions Fourier ADF (SUR-FADF). The FADF-SB test incorporates unknown nonlinearity and smooth break in the time-series, while the SUR-FADF test accounts for cross-sectional dependency. The empirical findings produced mixed results: 10 countries have a relatively high possibility of facing the MIT problem, while only one country has a relatively low possibility of facing the problem. For the remaining three countries, it is uncertain whether they will face the problem of MIT. These empirical findings have significant policy implications.

THE IMPACT OF LEARNING ON BUSINESS CYCLE FLUCTUATIONS IN THE CONSUMER UNSECURED CREDIT MARKET

2018 ◽  
Vol 24 (5) ◽  
pp. 1087-1123 ◽  
Author(s):  
Matthew N. Luzzetti ◽  
Seth Neumuller
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Default Risk ◽  
Credit Market ◽  
Credit Spread ◽  
Cross Sectional ◽  
Business Cycle Fluctuations ◽  
Unsecured Debt ◽  
Consumer Default ◽  
The Impact

We document that the credit spread on consumer unsecured debt exhibits a persistent, hump-shaped response to an increase in the charge-off rate. This stylized fact poses a significant challenge for a standard model of consumer default in which lenders have rational expectations and, therefore, the credit spread continuously adjusts to reflect the true default incentives of each borrower. In an effort to explain this feature of the data, we construct a model of consumer default with countercyclical income risk in which lenders learn about default risk over time by observing the history of repayment decisions, as is the case in practice. In addition to matching credit spread dynamics, allowing lenders to learn about default risk substantially improves the model’s ability to generate realistic business cycle fluctuations in the consumer unsecured credit market and match the cross-sectional distribution of unsecured debt and dispersion of interest rates observed in the data.

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