Now showing 1 - 10 of 88
  • Publication
    Extreme measures of agricultural financial risk
    (University College Dublin. School of Business. Centre for Financial Markets, 2008-10-06) ; ;
    Risk is an inherent feature of agricultural production and marketing and accurate measurement of it helps inform more efficient use of resources. This paper examines three tail quantile-based risk measures applied to the estimation of extreme agricultural financial risk for corn and soybean production in the US: Value at Risk (VaR), Expected Shortfall (ES) and Spectral Risk Measures (SRMs). We use Extreme Value Theory (EVT) to model the tail returns and present results for these three different risk measures using agricultural futures market data. We compare the estimated risk measures in terms of their size and precision, and find that they are all considerably higher than normal estimates; they are also quite uncertain, and become more uncertain as the risks involved become more extreme.
      433
  • Publication
    Time varying risk aversion : an application to energy hedging
    (University College Dublin. School of Business. Centre for Financial Markets, 2009-08) ;
    Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying measure of risk aversion that is based on the observed risk preferences of energy hedging market participants. The resulting estimates are applied to derive explicit risk aversion based optimal hedge strategies for both short and long hedgers. Out-of-sample results are also presented based on a unique approach that allows us to forecast risk aversion, thereby estimating hedge strategies that address the potential future needs of energy hedgers. We find that the risk aversion based hedges differ significantly from simpler OLS hedges. When implemented in-sample, risk aversion hedges for short hedgers outperform the OLS hedge ratio in a utility based comparison.
      422
  • Publication
    Housing risk and return : evidence from a housing asset-pricing model
    (University College Dublin. Geary Institute, 2009-11) ; ;
    This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a housing asset pricing model (H-CAPM), whereby expected returns of metropolitan-specific housing markets are equated to the market return, as represented by aggregate US house price time-series. We augment the model by examining the impact of additional risk factors including aggregate stock market returns, idiosyncratic risk, momentum, and Metropolitan Statistical Area (MSA) size effects. Further, we test the robustness of H-CAPM results to inclusion of controls for socioeconomic variables commonly represented in the house price literature, including changes in employment, affordability, and foreclosure incidence. Consistent with the traditional CAPM, we find a sizable and statistically significant influence of the market factor on MSA house price returns. Moreover we show that market betas have varied substantially over time. Also, we find the basic housing CAPM results are robust to the inclusion of other explanatory variables, including standard measures of risk and other housing market fundamentals. Additional tests of the validity of the model using the Fama-MacBeth framework offer further strong support of a positive risk and return relationship in housing. Our findings are supportive of the application of a housing investment risk-return framework in explanation of variation in metro-area cross-section and time-series US house price returns. Further, results strongly corroborate Case-Shiller behavioral research indicating the importance of speculative forces in the determination of U.S. housing returns.
      974
  • Publication
    Volatility and Irish exports
    (University College Dublin. School of Business. Centre for Financial Markets, 2004-10-12) ;
    We analyse the impact of volatility per se on exports for a a small open economy concentrating on Irish trade with the UK and the US. An important element is that we take account of the time lag between the trade decision and the actual trade or payments taking place by using a flexible lag approach. Rather than adopt a single measure of risk we also adopt a spectrum of risk measures and detail varied size characteristics and statistical properties. We find that the ambiguous results found to date may well be due to not taking account of the timing effect which varies substantially depending on which volatility measure is used. However, the foreign exchange volatility effect is consistently positive, indicating the dominance of exporters expectations of possible profitable opportunities from future cash flows. The potential negative aspects of trade, the entry and exit costs, are accounted for by a negative influence of income volatility on trade.
      321
  • Publication
    The Conditional Pricing of Systematic and Idiosyncratic Risk in the UK Equity Market
    (University College Dublin. Geary Institute, 2014-03) ; ;
    We test whether firm idiosyncratic risk is priced in a large cross-section of U.K. stocks. A distinguishing feature of our paper is that our tests allow for a conditional relationship between systematic risk (beta) and returns in our tests, i.e., conditional on whether the excess market return is positive or negative. We find strong evidence in support of a conditional beta/return relationship which in turn reveals conditionality in the pricing of idiosyncratic risk. We find that idiosyncratic risk is significantly negatively priced in stock returns in down-markets. Although perhaps initially counter-intuitive, we describe the theoretical support for such a finding in the literature. Our results also reveal a strong role for liquidity, size and momentum factors in explaining the cross-section of U.K. stock returns.
      363
  • Publication
    Modelling extreme financial returns of global equity markets
    (Papazisis Press, 2004-11)
    Extreme asset price movements appear to be more pronounced recently and have major consequences for an economy’s financial stability and monetary policies. This paper investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking fourteen major equity markets the study is able to ascertain similarities and divergences in the tail returns from around the world. To do so, it applies extreme value theory to equity indices representing American, Asian and European markets. The paper finds that all markets tail realisations are adequately modelled with the fat-tailed Fréchet distribution. Furthermore tail realisations associated with the downside of a distribution are greater than those associated with the upside, and extreme returns for Asian markets are usually larger than their European and American counterparts.
      285
  • Publication
    Downside Risk and the Energy Hedger’s Horizon
    (University College Dublin Geary Institute, 2012-08) ;
    In this paper, we explore the impact of investor time-horizon on an optimal downside hedged energy portfolio. Previous studies have shown that minimum-variance hedging effectiveness improves for longer horizons using variance as the performance metric. This paper investigates whether this result holds for different hedging objectives and effectiveness measures. A wavelet transform is applied to calculate the optimal heating oil hedge ratio using a variety of downside objective functions at different time-horizons. We demonstrate decreased hedging effectiveness for increased levels of uncertainty at higher confidence intervals. Moreover, for each of the different hedging objectives and effectiveness measures studied, we also demonstrate increasing hedging effectiveness at longer horizons. While small differences in effectiveness are found across the different hedging objectives, time horizon effects are found to dominate confirming the importance of considering the hedgers horizon. The findings suggest that while downside risk measures are useful in the computation of an optimal hedge ratio that accounts for unwanted negative returns, hedging horizon and confidence intervals should also be given careful consideration by the energy hedger.
      485
  • Publication
    The Intervaling Effect on Higher-Order Co-Moments
    (University College Dublin. Geary Institute, 2016-01-14) ; ;
    This paper investigates the sensitivity of higher-order co-moments for different return measurement intervals. The levels of systematic skewness and kurtosis are found to be significantly influenced by the length of return interval. An asset preferred because of its positive co-skewness and low co-kurtosis when measured in one particular interval may have negative co-skewness or high co-kurtosis for another interval. We find the intervaling effect varies according to the level of price adjustment delay as proxied by market capitalization and illiquidity. Findings persist for intervals of up to twelve months, and are consistent during both volatile and stable periods.
      344
  • Publication
    Uncovering volatility dynamics in daily REIT returns
    (University College Dublin. School of Business. Centre for Financial Markets, 2004) ;
    Using a time-varying approach, this paper examines the dynamics of volatility in the REIT sector. The results highlight the attractiveness and suitability of using GARCH based approaches in the modeling of daily REIT volatility. The paper examines the influencing factors on REIT volatility, documenting the return and volatility linkages between REIT sub-sectors and also examines the influence of other US equity series. The results contrast with previous studies of monthly REIT volatility. Linkages within the REIT sector and with related sectors such as value stocks are diminished, while the general influence of market sentiment, coming through the large cap indices is enhanced. This would indicate that on a daily basis general market sentiment plays a more fundamental role than more intuitive relationships within the capital markets.
      1813