Term Interest Research Articles

Interest Rates and Institutional Investors’ Preferences for Risk

We analyze the effect of different interest rate environments on the institutional investors’ preferences towards risk using data on their holdings from 13f filings. We find strong empirical evidence for the predictions Rajan (2006) on how different interest rate characteristics affect institutional investors’ preferences for risk. First, in low interest rate environment, institutional investors prefer riskier stocks, especially those with higher systematic, rather than idiosyncratic, risk. Second, institutional investors migrate to stocks with high systematic and medium idiosyncratic risk in decreasing interest rate environments. Third, decreases in the interest rate level have statistically and economically more important effects on institutional investors’ preferences towards risk than increases in the interest rate level. Fourth, the persistence or volatility of interest rate do not seem to affect institutional investors’ preferences for stocks with different risk characteristics. Fifth, long term interest rate expectations do not significantly alter institutional investors’ preferences toward risk. These results hold for quasi-indexers and dedicated investors but not for transient investors due to their shorter investment horizons.

Securing Trade Deals: Matters of Longer Term National Interests or Short Term Economic Interests?

When could matters of mere economic interests be considered to be damaging to matters of national interests and national security? Why is it necessary to ensure that trade-offs in the realization of economic gains do not unintentionally impede overall economic benefits, and more importantly, longer term gains to be derived? Is it in the longer term interest of the economy to subordinate vital policy matters relating to national interests and security or are these aspects so intricately linked - such that national interests also encompass, or rather imply a compromise of national security measures and standards? Domestic policy matters it may appear, could be justified, where these assume precedence over foreign policy matters – particularly in respect of trade , and more specifically, protectionist stances – and particularly as a means of regaining a more competitive, balanced and fair playing field where it is considered that trade partners have exploited many policies and gained considerable competitive advantages particularly in matters relating to patents, copyrights and intellectual property. This is increasingly evident in the current spheres and environment of ever thriving emerging technologies where particularly less advanced economies or corporations with less bargaining powers, require greater protection through the implementation of rules designed to facilitate anti competitive practices whilst not unduly stifling innovation. However, it may also be in the interests of national security to elevate matters of foreign policy – as a means of securing stronger ties and connections with foreign allies – particularly where matters of national security are at stake. This may incorporate the embrace of vital policy matters relating to climate and environmental policy matters – which are increasingly constituting the core and primary elements of many national interests and concerns. As well as a consideration of the above mentioned questions and issues, this paper, aims to reiterate how a “ No Deal Brexit Scenario” could be averted – as well as highlight why it is necessary to ensure that economic interests are not placed in a situation whereby shorter term interests prevail over more beneficial longer term objectives.

The Determinants of Stock Returns in the Emerging Market of Kenya: An Empirical Evidence

This study examined the determinants of stock returns for the emerging market of Kenya: The Nairobi Securities Exchange. The specific objectives were to establish if certain selected macroeconomic variables affect stock prices in Kenya, to examine the validity of the Capital Asset Pricing Model (CAPM) in the Kenyan market and to determine the sources of risk factors priced in stock returns in the Kenya market. The study finds evidence to suggest that there indeed exist a long-run equilibrium relationship between the selected macroeconomic variables and stock prices. Unexpected inflation is found to have a negative, but statistically insignificant long-run equilibrium relationship with stock prices in Kenya. Money supply has a negative and statistically significant long-run equilibrium relationship with stock prices. The exchange rates and short term interest rates are both found to have positive and statistically significant long-run relationships with stock prices. Further, the study finds evidence to suggest that excess market premium (β) is statistically significant as a source of the risk factor for the Kenyan market. The macro variables are found to be statistically insignificant.

Term structure and interest rate stabilization policies in the Greenspan era

Previous studies attribute the failure of the expectations theory, using the 3–6-month Treasury bill spread, to the Federal Reserve’s commitment to stabilizing interest rates. We find that with the advent of Greenspan, this spread predicts future changes in the short rate in the USA. This success can be explained by interest rate smoothing and greater transparency by the Fed. By enhancing the management of market expectations and reducing uncertainty, the central bank improves interest rate predictability and gains credibility from the market, as lower term premia suggest.

MACROECONOMIC IMPACT ON THE EXCESS RETURNS OF ASIAN REITS

The increasing development all over the world gives the real estate industry an opportunity to thrive which includes the REITs sector. Since the establishment of J-REITs in 2001, it has been growing rapidly across Asia. The IMF report showed that Asia continues to be the main growth engine of the world and is projected to grow in years to come. However, investors still remain cautious when dealing with Asian REITs because the markets are not established yet. Previous studies have proved that Asian REITs is able to show competitive advantage in most of mixed-asset scenarios and have significant roles in improving efficient global REITs portfolio returns. Since real estate is an essential part of the economy, its returns are related to the macroeconomic factors such as inflation and GDP. Excess return is used to measure the risk-adjusted performance by measuring how much risk from the macroeconomic factors is involved in producing that return. Hence, the aim of this paper is to evaluate the macroeconomic factors impact on the excess returns of Asian REITs. The data are retrieved from previous researches. The macroeconomic factors that impacted the returns are long term interest rates, short term interest rates, inflation, gross domestic product, construction index, industrial production, money supply, exchange rates and consumption risk. The excess return is found to be a good performance measurement in order for the investors to evaluate the expected returns before making an investment decision.

The Amazing, Elastic, Ever-Expanding Exportation Doctrine and Its Effect on Predatory Lending Regulation

Recent dramatic growth in predatory lending practices has reinvigorated calls for more effective regulation of consumer credit, primarily at the state level. This paper argues that a banking law principle known as the Exportation Doctrine has rendered individual state laws largely ineffectual in curbing predatory lending. However, this paper concludes that the expanded Exportation Doctrine, with a little bit of tweaking, could be shaped into a potent legal tool for regulating predatory lending, more effective than individual state legislation currently under consideration. The Exportation Doctrine has evolved from a discrete statutory privilege enacted during the Civil War to promote the national bank system, to an expansive legal doctrine allowing almost any type of corporate entity to establish a nationwide consumer lending program unrestrained by individual state consumer credit laws. This evolution was the result of a confluence of forces, including: individual depository institutions challenging various banking regulations; banking regulatory agencies accommodating their constituencies; power plays among the federal banking agencies, as well as among the state and the federal banking agencies; occasional Congressional actions in discrete, often seemingly unrelated areas of banking law; and courts almost uniformly deferring to the judgments of the federal banking agencies in issues related to the regulation of financial institutions. The Doctrine originated in a federal banking law permitting national to charge at the rate allowed under the laws of the state where the bank is located (12 U.S.C. Section 85). This paper traces the historical expansion of the Exportation Doctrine along three distinct dimensions. First, the geographic reach of the Doctrine was expanded, to transform the location of a bank from a meaningful restrictive concept to matter of choice. Second, the substantive scope of the Doctrine was expanded, as the term interest was interpreted to include not just numerical rates, but all credit terms material to the determination of the rate. Third, the orbit of the beneficiaries of the Doctrine was expanded, initially to include state and savings and loan associations, and, more recently, to include corporate entities acquiring nonbank banks (such as credit card banks, unitary thrifts, or industrial loan companies) or entering into contractual arrangements with to offer products such as cobranded credit cards, refund anticipation loans, and payday loans. After describing the evolution of the Doctrine, this paper analyzes whether the various dimensions of the expansion are justified under basic principles of banking law. The paper concludes that the expansion of the geographic reach and substantive scope of the Doctrine is compatible with banking law doctrine and probably not susceptible to legal challenge. However, the expansion of the orbit of the beneficiaries of the Doctrine is incompatible with the separation of banking and commerce, and thus susceptible to legal challenge. Nevertheless, after examining the recent actions of the federal banking regulators in curbing predatory lending practices conducted by depositary institutions, this paper concludes that a robust Exportation Doctrine might be the most effective legal mechanism that exists for curbing predatory lending practices.

Time series of functional data with application to yield curves

AbstractWe develop time series analysis of functional data observed discretely, treating the whole curve as a random realization from a distribution on functions that evolve over time. The method consists of principal components analysis of functional data and subsequently modeling the principal component scores as vector autoregressive moving averag (VARMA) process. We justify the method by showing that an underlying ARMAH structure of the curves leads to a VARMA structure on the principal component scores. We derive asymptotic properties of the estimators, fits, and forecast. For term structures of interest rates, these provide a unified framework for studying the time and maturity components of interest rates under one setup with few parametric assumptions. We apply the method to the yield curves of USA and India. We compare our forecasts to the parametric model that is based on Nelson‐Siegel curves. In another application, we study the dependence of long term interest rate on the short term interest rate using functional regression.

Family ownership and earnings quality of Thai firms

PurposeThe purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.Design/methodology/approachThis is an empirical archival research.FindingsThe authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.Research limitations/implicationsThe authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.Practical implicationsThe study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.Social implicationsThe society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.Originality/valueThis if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

Basis Risk When Hedging a Global Credit Portfolio

We examine the efficiency of hedging a credit derivative portfolio with a contrary position in a credit index in the face of decreased correlations between single name CDSs and credit indices. The interest of such hedge comes from the fact that the calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is usually rather unstable due to the volatility of CDS spreads. Since credit derivatives on single names are not very liquid, the implied adjustments in capital charges could be reduced by the mentioned hedging strategy, and we show that there is enough diversification of risk in a global credit portfolio to allow for a good hedge. Over the whole sample, the reduction in the variance of the portfolio’s profit and losses (P&L) is of 80% for a European portfolio, 60% for North American and Japanese portfolios, and around 70% for a global portfolio. Using a strategy that takes into account the quality of the credit counterpart improves the effectiveness of the hedge, although it requires using less liquid credit indices, with higher transaction costs. Standard conditional volatility models provide the same results as a least squares hedge. The efficiency of the hedge for a credit portfolio made up of the most idiosyncratic firms seems to require more than 50 firms, while the hedge for portfolios made up of the less idiosyncratic firms achieves high efficiency even for a small number of firms. The efficiency of the hedge is higher when portfolio volatility is high and also when short term interest rates or exchange rate volatility are high. Increases in VIX, in the 10-year swap rate or in liquidity risk tend to decrease hedging efficiency.

The Redistributive Effects of Monetary Policy: Evidence from a Century of Modern Economic History

This paper examines the distributional implications of monetary policy from a long-run perspective, with data spanning 100 years of modern economic history in 12 advanced economies. We employ a two-step approach, by estimating a Panel VAR and a single-equation model with local projections, to obtain the dynamic responses of the top 1% income share to a monetary policy shock. We exploit the implications of the macroeconomic policy trilemma, in order to identify exogenous variations in monetary conditions. This offers a genuine orthogonal perspective to capture fluctuations in short term interest rates unrelated to home economic conditions. The obtained results indicate that expansionary monetary policy strongly increases income inequality and vice-versa. These results have important implications for monetary policy coordination and the design of economic policies that aim to reduce income inequality.

Yield Curve and Financial Uncertainty: Evidence Based on US Data

How do short and long term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962-2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short and long term interest rates. The response of the short end of the yield curve (i.e., of short term interest rates) is found to be stronger than that of the long end (i.e., of long term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock.

Yield Curve and Financial Uncertainty: Evidence Based on Us Data

How do short and long term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962-2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short and long term interest rates. The response of the short end of the yield curve (i.e., of short term interest rates) is found to be stronger than that of the long end (i.e., of long term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock.

Análise da viabilidade econômica e financeira da integração pecuária-floresta: uma simulação.

This work analyzes the economic and financial viability of eucalyptus grown in an extensive beef cattle system, aimed at producing store cattle in feedlot conditions In this study, the strategy of annually forming eucalyptus stands in the pasture area provided the cattle production system with a cash flow higher than that of the forestless system, as of the sixth year. From the twelfth year on, farmers can finance their reforestation using their own resources — if they find it financially interesting—, although the conditions offered by the ABC programme are very attractive in terms of interest rate and grace period for amortizing the loan. It is concluded, therefore, that livestock-forest integration is attractive for extensive beef farms, provided that wood market prices enable the enterprise. The annualized-per-hectare net present values for the extensive system with and without forest were, respectively, R$197.92 and R$121.06.

Fiscal Activism in the Euro Area and in Other Advanced Economies: New Evidence

We review the determinants of the discretionary fiscal policy action of governments in the euro area and in other advanced economies during the past 20 years. This is done by estimating fiscal reaction functions using dynamic panel techniques and country-by-country estimates. The results suggest that, on average, discretionary fiscal policy did not deliver economic stabilisation: during good economic times (positive output gaps) it has been on average pro-cyclical both in the euro area and in the other regions. However, the loosening bias during good times has been countered by the presence of efficient public institutions, higher long term interest rates and higher debt-to-GDP ratios. Overall, as a result of various counterbalancing forces, fiscal activism has not been a major feature of policy making in the euro area, nor in other advanced economies during the past 20 years. JEL Classification: E62, H6, C23

Decoding Policy Puzzles and Monetary Policy Transmission in Sri Lanka through Time-Varying Dynamics

This study analyses the evolution of key macroeconomic variables and their linkages to understand and resolve some of the policy puzzles in Sri Lanka and to check whether responses to monetary policy shocks exhibit any time-variation over two decades employing time-varying parameter vector autoregression with stochastic volatility (TVP-SVOL). In addition, interest rate pass-through is also measured employing Autoregressive Distributed Lag (ARDL) method to update evidence on transmission of policy rates to other interest rates, including the periods that recognizes short term interest rate as operational target of the monetary policy. The findings from the interest rate pass-through analysis reconfirms the existing evidence of complete pass-through from policy interest rates to money market interest rates and sluggish pass-through from money market rates to other market interest rates, though the size and speed of adjustment are somewhat different from past findings. The time-varying analysis of macroeconomic dynamics leads to four main conclusions. Firstly, time varying mean did not show any substantial moderation in GDP growth trend over the years though a marginal moderation is observed recently. The level and volatility of inflation exhibit systematic moderation since late 2000s. The weaker linkages of money growth with GDP growth and interest rate evolve over the years, supporting the policy move to discontinue monetary targeting. Finally, the responses of growth and inflation to monetary policy shocks show time-dependence.

Market Risk When Hedging a Global Credit Portfolio

Hedging a credit portfolio using single name CDS is affected by high spread volatility that induces continuous changes in a portfolio mark to market, which is a nuisance. Often, the problem is that CDS on firms in the portfolio are not being traded. To get around that, a derivative portfolio can be hedged by taking a contrary position in a credit index, and we examine in this paper the efficiency of such an imperfect hedge. We find over the 2007-2012 period an 80% hedging efficiency for a European portfolio, 60% for North American and Japanese portfolios, and around 70% for a global portfolio, as measured by the reduction in mark-to-market variance. We also consider sectorial credit portfolios for Europe and North America, for which hedging efficiency is not as high, due to their more import- ant idiosyncratic component. Taking into account the quality of the credit counterpart improves the effectiveness of the hedge, although it requires using less liquid credit indices, with higher transaction costs. Standard conditional volatility models provide similar results to the least squares hedge, except for extreme market movements. An efficient hedge for a credit portfolio made up of the most idiosyn- cratic firms would seem to require more than 50 firms, while the hedge for portfolios made up of the less idiosyncratic firms achieves high efficiency even for a small number of firms. The efficiency of the hedge is higher when portfolio volatility is high and also when short term interest rates or exchange rate volatility are high. Increases in VIX, in the 10-year swap rate or in liquidity risk tend to decrease hedging efficiency. Credit indices offer a moderately efficient hedge for corporate bond portfolios, which we have examined with a reduced sample of firms over 2006-2018. This analysis also shows that the current efficiency of a credit index hedge has recovered at pre-crisis levels.

Is Long Rate Decoupling From Short Rate? Revisiting Expectation Hypothesis Of Australian Term Structure Of Interest Rate

Background and statement of the problem: Previous studies on Australian data provide inconclusive results on expectation hypothesis. Moreover, it is argued that Australian long-term rate is influenced by US long term rate, which signals decoupling of short rate from long rate. This decoupling, if true, makes monetary policy transmission ineffective. Accordingly, the paper examines expectation hypothesis with Australian data. Research methodology and data: Daily, weekly, monthly and quarterly data on 30-day, 90-day and 180-day dealers bill and 5-year and 10-year Australian government bond rate over the period from 1976 to 2016 are sourced from Datastream. Unit root test with structural break is applied to check the stationarity of data. Threshold co-integration approach is followed to test the expectation hypothesis of interest rate. Principal component analysis is used to identify common global factors affecting long rates in developed countries. Finally, Gewek’s instantaneous feedback method is applied to examine contemporaneous movement of long rate in developed countries. Research findings: Empirical analysis shows that all interest rate series are nonstationary at level; however, stationary at their first differences, which are suitable for co-integration analysis. Threshold co-integration results show that short rate and long rate in Australia are co-integrated, that is, expectation hypothesis holds. We also find evidence of threshold effect in some cases. Using principal component and instantaneous feedback method we find that long term bond yields in developed markets are driven by some unobserved global factors and the USA long rate has no causal influence on other developed markets’ long rate. We conclude that in Australia short rate is not de-coupling from long rate and hence effectiveness of monetary policy is well maintained. Policy implications: Expectation hypothesis is essential for the effective transmission of monetary policy. The hypothesis, if does not hold, causes interruption in monetary policy transmission. We find that expectation hypothesis holds for Australian data; hence RBA’s monetary policy transmission should not foresee any interruption. Moreover, bond contains premium for expected inflation, so it can be used as an indicator of RBA’s commitment for low inflation. Besides, financial intermediaries can effectively use the link between short and long rate in setting their interest on long-term loans based on short term interest rates.

Multi-Layer Graph Generative Model Using AutoEncoder for Recommendation Systems

Given the glut of information on the web, it is crucially important to have a system, which will parse the information appropriately and recommend users with relevant information, this class of systems is known as Recommendation Systems (RS)-it is one of the most extensively used systems on the web today. Recently, Deep Learning (DL) models are being used to generate recommendations, as it has shown state-of-the-art (SoTA) results in the field of Speech Recognition and Computer Vision in the last decade. However, the RS is a much harder problem, as the central variable in the recommendation system’s environment is the chaotic nature of the human’s purchasing/consuming behaviors and their interest. These user-item interactions cannot be fully represented in the Euclidean-Space, as it will trivialize the interaction and undermine the implicit interactions patterns. So to preserve the implicit as well as explicit interactions of user and items, we propose a new graph based recommendation framework. The fundamental idea behind this framework is not only to generate the recommendations in the unsupervised fashion but to learn the dynamics of the graph and predict the short and long term interest of the users. In this paper, we propose the first step, a heuristic multi-layer high-dimensional graph which preserves the implicit and explicit interactions between users and items using SoTA Deep Learning models such as AutoEncoders. To generate recommendation from this generated graph a new class of neural network architecture-Graph Neural Network-can be used.

基于TCN的短期兴趣个性化序列推荐

基于TCN的短期兴趣个性化序列推荐

HUMANISTIC ASPECTS IN THE LANGUAGE PLANING POLICIES

It is believed that language policies aim to organize, encourage but sometimes even discourage language rights. Although slowly states in the Balkans started to believe that language rights could be used as a tool for creation of social cohesion, there is one aspect of language practice that is ignored but seems to cause quite negative impact, and that is hate speech. This paper investigated modes in which this dangerous tool is harming inter-ethnic and inter-cultural stability in the region. It is a long term interest to the judicial system of every country to limit the negative impact that hate speech has to certain fragile societies. The study also reflects on particular laws that aim to expand the span of freedom of speech and minimize the presence of hate speech in public life. This derogatory behavior can ultimately produce hatred and in some cases even human sacrifices. A definition that is often available in literature regarding hate speech is that “hate speech is an abusive or threatening speech or writing that expresses prejudice against a particular group, especially on the basis of race, religion, or sexual orientation”. In other words the basic concept of using language for solely communicational purpose has switched to use language to insult, intimidate, or threaten a group or an individual and is primarily based on a particular characteristic or disability. In its violent history, Europe has witnessed a considerable number of cases of human rights violations, and recent ones often get the “prefix” of hate speech. Certain domains of public speaking undoubtedly require legal measures and few societies have already designed their legal framework in order to address the issue The conditions have become even more dramatic with the introduction of social media. There are thousands of pages and blogs in which hate speech is expressed publicly. In an article published by the legaldictionary.net it states that with the advent of social media, the issue of offensive and threatening speech has become a global problem”. There are many cases in which hate speech is used as an argument of free speech. The process becomes even more challenging when the officials are expected to draw a line between where free speech ends and hate speech begins. Certain domains of public speaking undoubtedly require legal measures and as a result few societies have designed legal framework in order to address the issue and this study provides different methods and approaches are considered in the process. The study also cites a number of international cases which aim to create a greater picture of these deleterious phenomena and although there are many elements of the ethical and moral dilemma in regards to the freedom of expression it is important that we are aware of the responsibility and the impact we have when using hate speech in any public appearances.