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Articles 1 - 30 of 221
Full-Text Articles in Finance
Locally Robust Implementation Of Efficient Bilateral Trade With Correlated Beliefs, Takashi Kunimoto, Cuiling Zhang
Locally Robust Implementation Of Efficient Bilateral Trade With Correlated Beliefs, Takashi Kunimoto, Cuiling Zhang
Research Collection School Of Economics
We identify the ex ante welfare (EAW) condition as a necessary requirement to implement ex post efficient bilateral trade in any finite type space with interdependent values and correlated beliefs. As these finite settings become finer to approximate a continuous type space, we derive a limit EAW condition by taking the EAW condition in finite settings to its limit. We show that this limit condition trivially holds in the benchmark continuous setting admitting a full-support density function. We then insist on locally robust implementation by requiring efficient trade to be implemented uniformly across all finite type spaces that approximate the …
Modeling And Forecasting Intraday Spot Volatility, Adam Clements, Daniel P. A. Preve
Modeling And Forecasting Intraday Spot Volatility, Adam Clements, Daniel P. A. Preve
Research Collection School Of Economics
We propose a multiple-equation regression-based method for modeling and forecasting intraday spot volatility. In this approach, intraday intervals are treated as individual time series, deviating from the common practice of treating the data as one continuous sample. Our empirical study, which spans more than two decades and encompasses six US blue-chip stocks, employs the recent OK volatility estimator developed by Li, Wang, and Zhang (2024) to expose the dynamics of latent intraday spot volatility over time. We demonstrate that the proposed method effectively captures the intricate dynamics of intraday spot volatility and find strong evidence that it outperforms a competing …
Assessing Ethereum’S Diversification Role With Bitcoin And Major Equity Index – A Bayesian Mixture Copula Approach, Jackie Li, Jacie Jia Liu
Assessing Ethereum’S Diversification Role With Bitcoin And Major Equity Index – A Bayesian Mixture Copula Approach, Jackie Li, Jacie Jia Liu
Research Collection School Of Economics
With the introduction of spot Ethereum ETFs, Ethereum plays an increasingly important role in the cryptocurrency market. In this paper, we propose a Bayesian modelling framework incorporating a mixture copula for co-modelling Ethereum returns with Bitcoin or FTSE 100 returns. The mixture copula is designed as a combination of the Clayton copula and its three rotations, Frank, and Gaussian copulas. It provides substantial flexibility for handling a variety of dependency structures. The Bayesian approach offers the advantage of jointly estimating both the margins and copulas and simulating future returns in a coherent procedure. Using 10 different risk or risk-return measures, …
Is R&D Rivalry Slowing The Growth Of Productive Firms?, Yoshiki Ando, James Bessen, Xiupeng Wang
Is R&D Rivalry Slowing The Growth Of Productive Firms?, Yoshiki Ando, James Bessen, Xiupeng Wang
Research Collection School Of Economics
The reallocation of jobs to more productive firms is a substantial component of aggregate productivity growth, yet job reallocation rates have declined substantially in the United States. This paper explores the hypothesis that greater technological rivalry has exacerbated adjustment costs, slowing reallocation. Using microdata at the US Census and estimates of technological rivalry in firm growth regressions, we find that technological rivalry slows firm responses to productivity shocks. Firms do not expand as rapidly in the face of higher obsolescence risk. Estimating counterfactual firm growth from 1997-2018, we find that growing technological rivalry accounts for most of the decline in …
Do Search Costs Explain Persistent Investment In Active Mutual Funds?, Aljoscha Janssen, Jurre Thiel
Do Search Costs Explain Persistent Investment In Active Mutual Funds?, Aljoscha Janssen, Jurre Thiel
Research Collection School Of Economics
Active funds, though losing market share since the 1990s, make up nearly half of all mutual funds but charge more without better performance. We analyze fund data and a search model, highlighting the impact of search costs and active fund preferences. From 1993 to 2018, reduced search costs expanded the market and heightened competition, while a preference shift from active to passive funds increased the latter's market share. However, investors who choose active funds, facing higher search costs, and continue to show a strong preference for them, allow these funds to keep charging higher fees.
Valuation Of Crypto Assets On Blockchain With Deep Learning Approach, Xi Zhou, Yin Pang, Esther Ying Yang, Jing Rong Goh, Shaun Shuxun Wang
Valuation Of Crypto Assets On Blockchain With Deep Learning Approach, Xi Zhou, Yin Pang, Esther Ying Yang, Jing Rong Goh, Shaun Shuxun Wang
Research Collection School Of Economics
With the rapid expansion of the blockchain ecosystem, crypto asset valuation has become an essential area of study for investors and institutions. Here, we introduce a deep learning framework that was designed to predict the value index of crypto assets by integrating intrinsic value variables and decomposing market prices into value and sentiment components. The Crypto Asset Value-indexing Model (CAVM) was applied to Ethereum’s cryptocurrency ETH to demonstrate its effectiveness. Four econometric tests were conducted to verify the informativeness, predictiveness, and reasonability of the generated value indices, as well as the efficiency of price decomposition. Our findings suggested that the …
How Do Insurance Companies Manage Reserves? Evidence From Reserve Errors Across Lines Of Business And Accident Years, Jing Rong Goh, Shinichi Kamiya, Pingyi Lou
How Do Insurance Companies Manage Reserves? Evidence From Reserve Errors Across Lines Of Business And Accident Years, Jing Rong Goh, Shinichi Kamiya, Pingyi Lou
Research Collection School Of Economics
We study the question of how insurance companies manage reserves. Specifically, we investigate how managerial incentives affect insurers’ reserving practice across lines of business (LOBs) and accident years (AYs). Because the tax discount factor the tax authority assigns varies across LOBs and AYs, insurers with stronger tax-saving incentives will be inclined to manage reserves across both LOBs and AYs. In contrast, since the Risk Based Capital (RBC) regime specifies different industry worst-case factors across LOBs, insurers with stronger incentives to increase their RBC ratio will be inclined to manage reserves across LOBs. Regarding income-smoothing incentives, only the overall level (and …
Redesigning Home Reversion Products To Empower Retirement For Singapore's Public Flat Owners, Koon Shing Kwong, Jing Rong Goh, Jordan Jie Xin Lee, Ting Lin Collin Chua
Redesigning Home Reversion Products To Empower Retirement For Singapore's Public Flat Owners, Koon Shing Kwong, Jing Rong Goh, Jordan Jie Xin Lee, Ting Lin Collin Chua
Research Collection School Of Economics
This paper introduces an innovative sell-type home reversion product aimed at monetizing Singapore’s public flats, serving as a new alternative to the existing Singapore Lease Buyback Scheme (LBS). This new product not only retains the LBS’s guaranteed period of residence in the property along with life annuity incomes but also enhances the product features to meet specific homeowner needs, including the ability to age in place, flexibility in retaining part of the property, options for bequests, and guaranteed principal return. By incorporating these additional features, the new product seeks to stimulate greater demand for monetizing public flats among asset-rich but …
Gauging Growth Risk In An International Financial Centre: Some Evidence From Singapore, Hwee Kwan Chow
Gauging Growth Risk In An International Financial Centre: Some Evidence From Singapore, Hwee Kwan Chow
Research Collection School Of Economics
This paper applies the growth-at-risk framework proposed by Adrian et al. (2019) to Singapore, an international financial centre whereby financial shocks are intermediated away quickly. We gauge near-term risks around growth projections taken from the survey of professional forecasters by accounting for financial stress in both local and global financial markets, as well as worldwide economic uncertainty. The conditioning variables are first linked to future growth through quantile regressions, and the estimated quantiles are fitted with skew t-distributions to produce full predictive distributions. Scenario analysis reveals that greater local financial strain tends to widen the uncertainty of growth outlook, higher …
Financial Crises, Bailouts And Monetary Policy In Open Economies, Yang Jiao
Financial Crises, Bailouts And Monetary Policy In Open Economies, Yang Jiao
Research Collection School Of Economics
I jointly study the optimal bailout policy and monetary policy in open economies that borrow in foreign currency from international lenders. A policy dilemma emerges during financial crises. Policymakers trade off the benefit of more bailouts alleviating firms’ financial constraints against the cost of larger currency devaluation, which tightens firms’ financial constraints. I embed the optimal bailout in an otherwise standard “sudden stop” model with nominal rigidities. The model sheds light on the role of bailouts and currency mismatch in driving the exchange rate dynamics, firms’ balance sheets and economic recovery. Quantitatively, the model matches key business cycle moments. A …
The Interaction Effects Of Fintech And Bank Lending On Growth: Evidence From The Asean Region, Tan Swee Liang
The Interaction Effects Of Fintech And Bank Lending On Growth: Evidence From The Asean Region, Tan Swee Liang
Research Collection School Of Economics
This study examined the interaction effects of traditional bank lending and emerging fintech credit on economic growth in six ASEAN economies from 2013 to 2020. Using a two-way fixed effects (FE) model and the panel-corrected standard error (PCSE) method, the study found a statistically significant and positive interaction effect between bank lending and fintech credit. Specifically, fintech credit became increasingly important in shaping economic growth as bank lending ratios exceeded a certain threshold. Countries with high bank lending ratios experienced greater GDP per capita growth when accompanied by greater fintech credit. These findings suggest that policies supporting fintech development alongside …
Digital Payments And Consumption: Evidence From The 2016 Demonetization In India, Sumit Agarwal, Pulak Ghosh, Jing Li, Tianyue Ruan
Digital Payments And Consumption: Evidence From The 2016 Demonetization In India, Sumit Agarwal, Pulak Ghosh, Jing Li, Tianyue Ruan
Research Collection School Of Economics
We study how consumer spending responds to digital payments, using the differential switch to digital payments across consumers induced by the sudden 2016 Indian Demonetization for identification. Usage of digital payments rose by 3.38 percentage points and monthly spending increased by 3% for an additional 10 percentage points in prior cash dependence. Spending remained elevated even when cash availability recovered. Robustness analyses show that the spending response is not driven by income shocks, credit supply, price changes, or consumers' moving to the formal market. We provide evidence that digital payments increase consumer spending due to subdued salience.
Bubbly Booms And Welfare, Feng Dong, Yang Jiao, Haoning Sun
Bubbly Booms And Welfare, Feng Dong, Yang Jiao, Haoning Sun
Research Collection School Of Economics
We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our …
Better The Devil You Know: Improved Forecasts From Imperfect Models, Dong Hwan Oh, Andrew John Patton
Better The Devil You Know: Improved Forecasts From Imperfect Models, Dong Hwan Oh, Andrew John Patton
Research Collection School Of Economics
Many important economic decisions are based on a parametric forecasting model that is known to be good but imperfect. We propose methods to improve out-of-sample forecasts from a misspecified model by estimating its parameters using a form of local M estimation (thereby nesting local OLS and local MLE), drawing on information from a state variable that is correlated with the misspecification of the model. We theoretically consider the forecast environments in which our approach is likely to offer improvements over standard methods, and we find significant forecast improvements from applying the proposed method across four distinct empirical analyses including volatility …
Enhancing Sell-Type Home Reversion Products For Retirement Financing, Koon Shing Kwong, Jing Rong Goh, Ting Lin Collin Chua
Enhancing Sell-Type Home Reversion Products For Retirement Financing, Koon Shing Kwong, Jing Rong Goh, Ting Lin Collin Chua
Research Collection School Of Economics
Loan-type reverse mortgage plans and sell-type home reversion plans for retirement financing are two well-known equity release plans that entitle homeowners not only to release cash from their properties but also to allow them to age in place. Recently, a new hybrid equity release plan was proposed to incorporate the home reversion plan’s features with an option of staying in the property for a fixed period without being subject to survival. This additional option provides flexibility to homeowners to better meet their retirement financial and personal needs by reducing the financial uncertainty of home reversion products. In this article, we …
Cross-Border Technology Investments In Recession, Juliana Yu Sun, Huanhuan Zheng
Cross-Border Technology Investments In Recession, Juliana Yu Sun, Huanhuan Zheng
Research Collection School Of Economics
Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we evaluate how cross-border technology investments respond to economic recessions. We find that FDI embedded with intensive research and development (R&D) drops when the destination market is in a recession and the source market is in a normal state and recovers to the pre-recession levels when both destination and source markets are in recession. However, there is little evidence that recessions affect cross-border investments in other aspects of technology measured by the penetration of robots, intellectual property products and information and communications …
Optimal Nonparametric Range-Based Volatility Estimation, Tim Bollerslev, Jia Li, Qiyuan Li
Optimal Nonparametric Range-Based Volatility Estimation, Tim Bollerslev, Jia Li, Qiyuan Li
Research Collection School Of Economics
We present a general framework for optimal nonparametric spot volatility estimation based on intraday range data, comprised of the first, highest, lowest, and last price over a given time-interval. We rely on a decision-theoretic approach together with a coupling-type argument to directly tailor the form of the nonparametric estimator to the specific volatility measure of interest and relevant loss function. The resulting new optimal estimators offer substantial efficiency gains compared to existing commonly used range-based procedures.
Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yui Lim Lui, Peter C. B. Phillips, Jun Yu
Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yui Lim Lui, Peter C. B. Phillips, Jun Yu
Research Collection School Of Economics
A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite …
Dynamic Factor Copula Models With Estimated Cluster Assignments, Dong Hwan Oh, Andrew John Patton
Dynamic Factor Copula Models With Estimated Cluster Assignments, Dong Hwan Oh, Andrew John Patton
Research Collection School Of Economics
This paper proposes a dynamic multi-factor copula for use in high-dimensional time series applications. A novel feature of our model is that the assignment of individual variables to groups is estimated from the data, rather than being pre-assigned using SIC industry codes, market capitalization ranks, or other ad hoc methods. We adapt the k-means clustering algorithm for use in our application and show that it has excellent finite-sample properties. Applying the new model to returns on 110 US equities, we find around 20 clusters to be optimal. In out-of-sample forecasts, we find that a model with as few as five …
Information Loss In Volatility Measurement With Flat Price Trading, Peter C. B. Phillips, Jun Yu
Information Loss In Volatility Measurement With Flat Price Trading, Peter C. B. Phillips, Jun Yu
Research Collection School Of Economics
A model of financial asset price determination is proposed that incorporates flat trading features into an efficient price process. The model involves the superposition of a Brownian semimartingale process for the effcient price and a Bernoulli process that determines the extent of price trading. The approach is related to sticky price modeling and the Calvo pricing mechanism in macroeconomic dynamics. A limit theory for the conventional realized volatility (RV) measure of integrated volatility is developed. The results show that RV is still consistent but has an inflated asymptotic variance that depends on the probability of flat trading. Estimated quarticity is …
Financial Crisis And Female Entrepreneurship: Evidence From South Korea, Jungho Lee, Sunha Myong
Financial Crisis And Female Entrepreneurship: Evidence From South Korea, Jungho Lee, Sunha Myong
Research Collection School Of Economics
We document a drastic increase in female-owned manufacturing firms in South Korea after the 1997 financial crisis. During the crisis, a major banking sector reform was conducted, and many underperforming bank branches were forced to close down. Using a geographical variation of bank branch closures during the reform, we show that the banking sector reform resulted in a rise in female entrepreneurship. We present evidence that male-owned firms were preferred by the closeddown bank branches, despite female-owned firms exhibiting lower risks and higher returns. The banking sector reform, although not explicitly aimed at addressing gender disparities, substantially benefited female entrepreneurs …
Housing Fever In Australia 2020-23: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips
Housing Fever In Australia 2020-23: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips
Research Collection School Of Economics
Australian housing markets experienced widespread and, in some cases, extraordinary growth in prices between 2020 and 2023. Using recently developed methodology that accounts for fundamental economic drivers, we assess the existence and degree of speculative behaviour, as well as the timing of exuberance and downturns in these markets. Our findings indicate that speculative behaviour was indeed present in six of the eight capital cities at some time over the period studied. The sequence of events in this nation-wide housing bubble began in the Brisbane market and concluded in Melbourne, Canberra, and Hobart following the interest rate rise implemented by the …
Investment And The Long Swings Of Unemployment, Hian Teck Hoon, Margarita Katsimi, Gylfi Zoega
Investment And The Long Swings Of Unemployment, Hian Teck Hoon, Margarita Katsimi, Gylfi Zoega
Research Collection School Of Economics
We estimate the medium-term relationship between investment and unemployment over the period 1960–2017 in 20 OECD countries, a period that includes the years of the Great Recession. While neoclassical growth theory typically assumes full employment—with no effect of investment on unemployment—and New-Keynesian models assume that such a relationship only exists in the short term at business cycle frequencies, we find that over our sample period covering more than 5 decades, a statistically significant negative relationship does exist: in decades when investment fell, unemployment increased. Panel estimation, using a measure of stock market volatility as an instrument for investment, confirms the …
Bootstrapping Two-Stage Quasi-Maximum Likelihood Estimators Of Time Series Models, Sílvia Gonçalves, Ulrich Hounyo, Andrew John Patton, Kevin Sheppard
Bootstrapping Two-Stage Quasi-Maximum Likelihood Estimators Of Time Series Models, Sílvia Gonçalves, Ulrich Hounyo, Andrew John Patton, Kevin Sheppard
Research Collection School Of Economics
This article provides results on the validity of bootstrap inference methods for two-stage quasi-maximum likelihood estimation involving time series data, such as those used for multivariate volatility models or copula-based models. Existing approaches require the researcher to compute and combine many first- and second-order derivatives, which can be difficult to do and is susceptible to error. Bootstrap methods are simpler to apply, allowing the substitution of capital (CPU cycles) for labor (keeping track of derivatives). We show the consistency of the bootstrap distribution and consistency of bootstrap variance estimators, thereby justifying the use of bootstrap percentile intervals and bootstrap standard …
Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li
Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li
Research Collection School Of Economics
We generate new evidence on disagreement among traders in the S&P 500 options market from high-frequency intraday price and volume data. Inference on disagreement is based on a model where investors observe public information but agree to disagree on its interpretation; disagreement among investors is captured by the volume–volatility elasticity. For options, there are two natural variables related to disagreement: moneyness and tenor, which we relate to disagreement about the distribution of the market index at different quantiles and times. The estimated volume–volatility elasticity equals unity for options near the money and close to expiration, which is consistent with the …
Bubble Testing Under Polynomial Trends, Xiaohu Wang, Jun Yu
Bubble Testing Under Polynomial Trends, Xiaohu Wang, Jun Yu
Research Collection School Of Economics
This paper develops the asymptotic theory of the least squares estimator of the autoregressive (AR) coefficient in an AR(1) regression with intercept when data is generated from a polynomial trend model in different forms. It is shown that the commonly used right-tailed unit root tests tend to favor the explosive alternative. A new procedure, which implements the right-tailed unit root tests in an AR(2) regression, is proposed. It is shown that when the data generating process has a polynomial trend, the test statistics based on the new procedure cannot find evidence of explosiveness. Whereas, when the data generating process is …
Bayesian Methods In Economics And Finance: Editor's Introduction, Jun Yu
Bayesian Methods In Economics And Finance: Editor's Introduction, Jun Yu
Research Collection School Of Economics
Modern days, Bayesian methods have gained prominence in theoretical work and applications in economics and finance due to the rapid development of computational technologies and their ability to learn. The special issue intends to examine central aspects in Bayesian analysis and applications, including prior choices, model selection with massive data and latent variables, hypothesis testing, Bayesian learning. In total, this special issue contains ten papers, all subject to the Journal of Econometrics (JOE)’s normal refereeing process. Most of these papers came from a conference held at the ESSEC Singapore campus on 10 December 2018.
Political Connections, Informational Asymmetry, And The Efficient Resolution Of Financial Distress, Madhav S. Aney, Sanjay Banerji
Political Connections, Informational Asymmetry, And The Efficient Resolution Of Financial Distress, Madhav S. Aney, Sanjay Banerji
Research Collection School Of Economics
We show that securities issued by a distressed firm, often through exchange offers, providethe most efficient resolution of financial restructuring. Information asymmetry between thefirm-bank coalition and small bondholders gives rise to other forms of distress resolutionsuch as refinancing, public workout, and the inefficiency of liquidation. We find that politicallobbying by the firm-bank amplifies these inefficiencies and inhibits the development of privatemarket for distressed securities. Cross-country evidence is consistent with this and indicatesthat improved creditor rights, and information facilitating credit bureaus interact in reducingthe likelihood of inefficient distress resolution.
What, Why And How Financial Development Matters: Evidence Of Asean-5, Asia-5 And Oecd-7 Economies, Swee Liang Tan
What, Why And How Financial Development Matters: Evidence Of Asean-5, Asia-5 And Oecd-7 Economies, Swee Liang Tan
Research Collection School Of Economics
This paper analyzed the association between bank and capital markets financial development with income per capita in three regions; ASEAN-5 economies (Singapore, Malaysia, Thailand, Philippines, Indonesia), Asia-5 (Japan, China, Hong Kong SAR, South Korea, and India), and OECD-7 (Australia, Canada, Denmark, Norway, Sweden, UK, and US) from 2000 to 2017 using panel data regressions. A key lesson ASEAN-5 can learn from Asia-5 and OECD-7 experience is that bank size does matter despite digital disruptions to their banking system; yet large financial structure that favors banks is negatively associated with Asia-5, and importantly, efficient banking system (not bank size alone) is …
Bank, Stock Market Efficiency And Economic Growth: Panel Data Evidence From Asean-5, Asia-5 And Oecd-7 Countries, Swee Liang Tan
Bank, Stock Market Efficiency And Economic Growth: Panel Data Evidence From Asean-5, Asia-5 And Oecd-7 Countries, Swee Liang Tan
Research Collection School Of Economics
This paper estimates bank and stock market efficiency associations with real per capita GDP growth by examining panel-data across three different regions using Beck-Katz Panel-Corrected Standard Errors (PCSE) regression. It allows heteroskedastic and/or contemporaneously correlated disturbances across panels, with to specify a common first-order autocorrelation within the panel. The results suggest efficiency effects on growth is not unambiguous. The results suggest a threshold beyond which increase in bank overhead cost hurts economic growth, for developing countries. Likewise, there is a threshold beyond which increase in stock market turnover ratio hurts economic growth, for developed countries. One policy implication of the …