Premium Spread Research Articles

Subnational borrowing and bailouts: When the federal government looks at the votes (differently) and its borrowing matters

AbstractSometimes it is difficult to find a rationale for episodes of bailouts in which the political motivations of the federal government are not clear cut. In other cases, the soft‐budget constraint of subnational governments (SNGs) seems to be based on unlimited federal resources. This paper aims to shed some light on both issues taking as a reference the workhorse model developed by Goodspeed. The principal change in its basic assumptions lies in allowing the federal government to borrow to finance its grants to SNGs. The results indicate that the way in which the federal government translates voters' preferences into electoral probabilities is crucial to determine grants. Moreover, the SNGs do not borrow excessively. When the model is extended to consider risk premium spreads in the SNGs debt and the option of transferring part of their borrowing to the upper level, the main outcomes remain.

Who moved the Market? Analyzing the role of Central Bank speeches

We show that the tone of speeches delivered by Federal Reserve's senior functionaries is significantly associated with movements in the US stock markets and term premiums. Negative (positive) speeches are associated with depressed (elevated) returns, amplified (lowered) volatilities and higher term premium spreads. The US stock market reacts strongly to forward-looking Fed speeches, and the impact of negative speeches is higher than that of positive speeches. To establish our results, we introduce a new method of tone quantification for Federal Reserve speeches which additionally incorporates i) “valence shifters”: adjectives and adverbs (such as “massive”, “although”, “faintly” etc.) which alter the tone of speeches but have been given no weights in the current methods, and ii) ngrams derived from using the sentence as a unit of analysis which enables our technique to quantify the tone of multi-clausal phrases (e.g., “slight slowdown in productivity”) more accurately than is currently possible.

A Study On Role Of Union Budget On Banking Fund Flows

Dr. P Alekhya1, P Samyukta2,
 The center target of this examination is to dissect the effect of association spending plan on chosen open and private bank part reserve streams by inspecting the budget reports of five noteworthy Public and private area banks during 2008 to 2017. The proficiency of banking division is viewed as most significant for financial development, money related arrangement usage and large scale monetary soundness. From the previous couple of years, premium spread of banking area is ascending in India. In this paper the relationship of association spending reserves
 
 allocation with selected banks fund flows. Pearson correlation, Multi-regression, Linear regression method is used in this study. As a result it is found that there is positive correlation between union budget funds allocation with public and private sector banks. It found the linear regression that public and Private Banks are having negative influence on fiscal deficit.

Individual market health plan affordability after cost-sharing reduction subsidy cuts.

To investigate how changes in insurer participation and composition as well as state policies affect health plan affordability forindividual market enrollees. 2014-2019 Qualified Health Plan Landscape Files augmented with supplementary insurer-level information. We measured plan affordability for subsidized enrollees using premium spreads, the difference between the benchmark plan and the lowest cost plan, and premium levels for unsubsidized enrollees. We estimated how premium spreads and levels varied with insurer participation, insurer composition, and state policies using log-linear models for 15222 county-years. Increased insurer participation reduces premium levels, which is beneficial for unsubsidized enrollees. However, it also reduces premium spreads, leading to lower plan affordability for subsidized enrollees. States responding to cost-sharing reduction subsidy payment cuts by increasing only silver plans' premiums increase premium spreads, particularly when premium increases are restricted to on-Marketplace silver plans. The latter approach also protects unsubsidized, off-Marketplace enrollees from experiencing premium shocks. Insurer participation and insurer composition affect subsidized and unsubsidized enrollees' health plan affordability in different ways. Decisions by state regulators regarding health plan pricing can significantly affect health plan affordability for each enrollee segment.

Style timing with the value spread in Australia

AbstractThe value spread is shown to be positively related to the value premium in the Australian market. The relationship is especially strong for small cap portfolios and typically stronger when using the book‐to‐price ratio than other value metrics. In small cap portfolios, the positive value premium–spread relationship is primarily driven by the short side. Our results are consistent with previous findings in US and Asian markets. We also show that the small cap–large cap value spread differential is positively related to the corresponding value premium differential, suggesting the value spread can also be used for timing the large/small cap tilt.

Consumption, Dividends, and the Cross-Section of Equity Returns

A central economic idea is that an asset's risk premium is determined by its ability to insure against fluctuations in consumption (i.e., by the consumption beta). Cross-sectional differences in consumption betas mirror differences in the exposure of the asset's dividends to aggregate consumption, an implication of many general equilibrium models. Hence, cross-sectional differences in the exposure of dividends to consumption may provide valuable information regarding the cross-sectional dispersion in risk premia. We measure the exposure of dividends to consumption (labeled as consumption leverage) by the covariance of ex-post dividend growth rates with the expected consumption growth rate, and alternatively by relying on stochastic cointegration between dividends and consumption. Cross-sectional differences in this consumption leverage parameter can explain about 50% of the variation in risk premia across 30 portfolios - which include 10 momentum, 10 size, and 10 book-to-market sorted portfolios. The consumption leverage model can justify much of the observed value, momentum, and size risk premium spreads. For this asset menu, alternative models proposed in the literature (including time varying beta models) have considerable difficulty in justifying the cross-sectional dispersion in the risk premia. Our measures of consumption leverage are driven by the exposure of dividend growth rates to low frequency movements in consumption growth. We document that it is this exposure that contains valuable information regarding the cross-sectional differences in risk premia across assets.

DEVALUATION: ITS INTERSPATIAL AND INTERTEMPORAL PRICE EFFECTS ON FUTURES MARKETS*

THE PRINCIPAL PURPOSE of this dissertation was to determine the interspatial and intertemporal price effects that devaluation transmits between two international competitive markets transacting a homogeneous commodity. The thesis examines and explains international price-spread movements between futures markets in the United States and Great Britain during Sterling crisis periods. Typically, most of the work that has been done in the areas of international finance and economics has addressed itself solely to the static case in which goods or assets are priced and transacted for immediate delivery. The approach of this thesis differs considerably from previous studies in that the element of time is introduced into the analysis of a two-country, one asset model. Another interesting aspect of this study is that commodity futures are metamorphic and can take the form of either an investor's or speculator's asset, or a producer's or consumer's good. The thesis begins by describing the evolution of commodity futures exchanges, the institutional structure of futures markets, and the economic and legal aspects of futures trading. It then focuses on the static and dynamic elements of arbitrage theory. The theory of arbitrage is formulated within the context of the conditional statements regarding time and space, and certainty and uncertainty. Four general types of arbitrage models are formulated: (I) Static One-Period Arbitrage Under Certainty (II) Dynamic Two-Period Arbitrage Under Certainty (III) Static One-Period Arbitrage Under Uncertainty (IV) Dynamic Two-Period Arbitrage Under Uncertainty From these models a general arbitrage incentive model is developed. This model serves to measure empirically through time the interspatial price relationships between the New York and London Cocoa Exchanges during the Sterling Devaluation of 1967 and during Sterling crisis periods in which devaluation was not realized. In the cross-sectional time series investigation of devaluation's price effects on the joint cocoa futures markets of London and New York, it was found that certain types of arbitrage activity are ignited by arbitrageurs' expectations that a currency parity change will disturb the interspatial equilibrium basis between London and New York. Empirical evidence indicates that a premium spread between international markets can be interpreted as market anticipation of a permanent upward shift in the interspatial equilibrium basis. A cross-sectional time trend analysis was also conducted on the interspatial spread behavior during different crisis periods in which devaluation was not realized: the 1957 September crisis, the 1961 July crisis, the 1965 November-December crisis, the 1965 July-August crisis, and the 1966 July-September crisis. The results indicate that only when devaluation expectations are present will the interspatial spread compound its premium motion during a Sterling crisis. After examining the non-devaluation Sterling crisis periods, it was concluded that