Now showing 1 - 10 of 88
  • Publication
    A Comparative Anatomy of REITs and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics
    (University College Dublin. School of Business. Centre for Financial Markets, 2009-10-28) ;
    Real Estate Investment Trusts (REITs) are the only truly liquid assets related to real estate investments. We study the behavior of U.S. REITs over the past three decades and document their return characteristics. REITs have somewhat less market risk than equity; their betas against a broad market index average about .65. Decomposing their covariances into principal components reveals several strong factors. REIT characteristics differ to some extent from those of the S&P/Case-Shiller (SCS) residential real estate indexes. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in real estate is far more risky than what might be inferred from the widely-followed SCS series.
  • Publication
    Eurozone bank resolution and Bail-In-Intervention, triggers and writedowns
    (University College Dublin. Geary Institute, 2015-02-05) ;
    The European Union has recently introduced the Single Resolution Mechanism (SRM) to provide a consistent set of rules concerning Eurozone bank resolution. In this study, we retrospectively examine the implications of the SRM for Eurozone banks during the global financial crisis. Empirical results indicate that large, systemically important Eurozone banks would have exclusively required equity writedowns to cover impairment losses. However, to ensure adequate capitalization post bail-in, the majority of large, listed banks would have required conversion to equity for all subordinated and some senior debt creditors. Depositors would not have experienced writedowns in any of the banks examined. Given the subjective nature of resolution triggers outlined in the SRM, we also study the potential benefits of market and balance sheet dependent triggers. While our findings suggest some weak evidence of a capacity to differentiate between failed and surviving banks, the results are indicative of the difficulties in mandating predefined quantitative resolution triggers.
  • Publication
    The non-linear trade-off between return and risk: a regime-switching multi-factor framework
    (University College Dublin. Geary Institute, 2014-10) ;
    This study develops a multi-factor framework where not only market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation between return and risk, favourable evidence can be obtained if a non-linear relation is pursued. The positive and significant risk-return trade-off is essentially observed during low volatility periods. However, this relationship is not obtained during periods of high volatility. Also, different patterns for the risk premium dynamics in low and high volatility periods are obtained both in prices of risk and market risk dynamics.  
  • Publication
    Can Metropolitan Housing Risk be Diversified? A Cautionary Tale from the Recent Boom and Bust
    (University College Dublin. Geary Institute, 2012-07) ; ;
    Geographic diversification is fundamental to risk mitigation among investors and insurers of housing, mortgages, and mortgage-related derivatives. To characterize diversification potential, we provide estimates of integration, spatial correlation, and contagion among US metropolitan housing markets. Results reveal a high and increasing level of integration among US markets over the decade of the 2000s, especially in California. We apply integration results to assess the risk of alternative housing investment portfolios. Portfolio simulation indicates reduced diversification potential and increased risk in the wake of estimated increases in metropolitan housing market integration. Research findings provide new insights regarding the synchronous non-performance of geographically-disparate MBS investments during the late 2000s.
  • Publication
    Hedging effectiveness under conditions of asymmetry
    (University College Dublin. School of Business. Centre for Financial Markets, 2007) ;
    We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies including OLS and both Symmetric and Asymmetric GARCH models. Our findings show that asymmetry reduces in-sample hedging performance and that there are significant differences in hedging performance between short and long hedgers. Thus, tail specific performance metrics should be applied in evaluating hedging effectiveness. We also find that the Ordinary Least Squares (OLS) model provides consistently good performance across different measures of hedging effectiveness and estimation methods irrespective of the characteristics of the underlying distribution.
  • Publication
    Mixed-Frequency Macro-Financial Spillovers
    (University College Dublin. Geary Institute, 2017-01) ; ;
    We develop a new methodology to analyse spillovers between the real and financial sides of the economy that employs a mixed-frequency modelling approach. This enables high-frequency financial and low-frequency macroeconomic data series to be employed directly, avoiding the data aggregation and information loss incurred when using common-frequency methods. In a detailed analysis of macro-financial spillovers for the US economy, we find that the additional high-frequency information preserved by our mixed-frequency approach results in estimated spillovers that are typically substantially higher than those from an analogous common-frequency approach and are more consistent with known in-sample events. We also show that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions, but that the bond and equity markets act heterogeneously in both transmitting and receiving shocks to the non-financial sector. We observe substantial short and medium-run variation in macro-financial spillovers that is statistically associated with key variables related to financial and macroeconomic fundamentals; the values of the term spread, VIX and unemployment rate in particular appear to be important determinants of macro- financial spillovers.
  • Publication
    Intra-day seasonality in foreign exchange market transactions
    (University College Dublin. School of Business. Centre for Financial Markets, 2007-05-18) ;
    This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day.
  • Publication
    Exponential spectral risk measures
    (University College Dublin. School of Business. Centre for Financial Markets, 2007-03-20) ;
    Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their subjective risk-aversion. This paper examines spectral risk measures based on an exponential utility function, and finds that these risk measures have nice intuitive properties. It also discusses how they can be estimated using numerical quadrature methods, and how confidence intervals for them can be estimated using a parametric bootstrap. Illustrative results suggest that estimated exponential spectral risk measures obtained using such methods are quite precise in the presence of normally distributed losses.
  • Publication
    Margin setting with high-frequency data
    Both in practice and in the academic literature, models for setting margin requirements in futures markets classically use daily closing price changes. However, as well documented by research on high-frequency data, financial markets have recently shown high intraday volatility, which could bring more risk than expected. This paper tries to answer two questions relevant for margin committees in practice: is it right to compute margin levels based on closing prices and ignoring intraday dynamics? Is it justified to implement intraday margin calls? The paper focuses on the impact of intraday dynamics of market prices on daily margin levels. Daily margin levels are obtained in two ways: first, by using daily price changes defined with different time-intervals (say from 3 pm to 3 pm on the following trading day instead of traditional closing times); second, by using 5-minute and 1-hour price changes and scaling the results to one day. Our empirical analysis uses the FTSE 100 futures contract traded on LIFFE.
  • Publication
    Minimum capital requirement calculations for UK futures
    (University College Dublin. School of Business. Centre for Financial Markets, 2004)
    Key to the imposition of appropriate minimum capital requirements on a daily basis requires accurate volatility estimation. Here, measures are presented based on discrete estimation of aggregated high frequency UK futures realisations underpinned by a continuous time framework. Squared and absolute returns are incorporated into the measurement process so as to rely on the quadratic variation of a diffusion process and be robust in the presence of fat tails. The realized volatility estimates incorporate the long memory property. The dynamics of the volatility variable are adequately captured. Resulting rescaled returns are applied to minimum capital requirement calculations.