This paper proposes a way to study the transmission mechanism of the US monetary policy to foreign yield curves. It elaborates the high-frequency identification of monetary policy shocks from Piazzesi (2005) in an international setting and uses a sample of 125 policy rate decisions of the Fed to extract "realised" policy shocks. The Fed decisions span from February 1994 to December 2008 and are divided according to the direction of the policy rate move and weather they were anticipated by the Fed funds futures market. A consistent, two-country term structure model is estimated on daily data and used to assess both instantaneous and lagged reaction of foreign interest rates and forward term premia to the Fed policy rate decisions. Empirical analysis of the US - UK model shows that the most of the movement in the UK yields around policy action days results from estimated term premia. A surprise policy action seems to produce a spike in the UK premia around the short- and mid-range maturities, independently from the direction of the policy rate move. The estimated lagged reaction of the UK yields to a policy decision of the Fed is also negative, after both hikes and cuts of the policy rate. The results hold for different market price of risk specifications, after two robustness checks and for both two-country and single-country model output.
If central banks value the ex-post accuracy of their forecasts, previously announced interest rate paths might affect the current policy rate. We explore whether this "forecast adherence" has influenced the monetary policies of the Reserve Bank of New Zealand and the Norges Bank, the two central banks with the longest history of publishing interest rate paths. We derive and estimate a policy rule for a central bank that is reluctant to deviate from its forecasts. The rule can nest a variety of interest rate rules. We find that policymakers appear to be constrained by their most recently announced forecasts.
We analyze the forecasting ability of financial variables to predict the state of the Swiss business cycle up to eight quarters ahead. Overall, our results suggest that financial variables convey leading information for the prediction of business cycles, even when applied to a small open economy. However, we clearly find that model specifications need to be extended to include variables accounting for external shocks, such as exchange rates or international commodity prices. It also appears that the forecasting contribution of individual variables changes over time. Specifically, in the last two decades, stock market liquidity has replaced the term spread as the best single predictor.
This paper examines the persistence of raw and risk-adjusted returns for equity long/short hedge funds using the portfolio approach of Hendricks, Patel, and Zeckhauser (1993). Only limited evidence of persistence is found for raw returns. Funds with the highest raw returns last year continue to outperform over the subsequent year, although not significantly, while there is no persistence in returns beyond one year. In contrast, we find performance persistence based on risk-adjusted return measures such as the Sharpe Ratio and in particular an alpha from a multifactor model. Funds with the highest risk-adjusted performance continue to significantly outperform in the following year. The persistence does not last longer than one year except for the worst performers. Funds with significant risk-adjusted returns show less exposure to the market, have high raw returns, and low volatility. These results are robust to adjustments for stale prices and subperiod analysis.
Arbitrage ensures that covered interest parity holds. The condition is central to price foreign exchange forwards and interbank lending rates, and reflects the efficient functioning of markets. Normally, deviations from arbitrage, if any, last seconds and reach a few basis points. After the Lehman bankruptcy, instead, arbitrage profits were large, persisted for months and involved borrowing in dollars.
The first goal of this paper is to measure precisely such deviations from arbitrage. By using high frequency prices from novel datasets , we are able to exactly replicate two major arbitrage strategies: "secured" and "unsecured" arbitrage. Specifically, arbitrage can be undertaken by borrowing and lending funds on secured terms, as would a hedge fund, or on unsecured terms, as would a bank's proprietary trading desk (prop desk). The distinction draws on that made in Brunnermeier and Pedersen (2009). Both arbitrage strategies yield very similar and consistent results.
The second goal of the paper is to investigate why arbitrage broke down. Empirical analysis suggests that insufficient funding liquidity in dollars kept traders from arbitraging away excess profits. Risk factors, instead, are mostly insignificant. Liquidity factors involve intermediaries cutting back loans to arbitrageurs in order to shrink their balance sheet, and hoarding liquidity to cover their own funding strains. In addition, it seems that arbitrageurs themselves had insufficient pledge-able capital to fund their arbitrage trades.
This paper contributes to the literature on slow moving capital. It shows how capital constraints turn into enduring arbitrage opportunities. For policymakers, it shows that certain unconventional monetary policy measures (in particular central bank swap lines) were effective at providing the necessary funding liquidity in dollars and re-establishing arbitrage across money markets.
Da Transaktionen nicht immer wie geplant zustandekommen und ablaufen, erwachsen den beteiligten Parteien Risiken. Unternehmen sind um so erfolgreicher, je besser sie ihre Transaktionsrisiken bewältigen können, wofür sich die Selektion möglicher Transaktionen
und die Steuerung der Abwicklung bereits aufgenommener Transaktionen anbieten.
Diese generelle Einsicht wird hier für Handelsformen konkretisiert und empirisch validiert:
Die beim Verkauf eines Gutes von den Kunden in Anspruch genommenen Dienste und damit auch die Kosten des Anbieters variieren individuell oft sehr stark. Eine empirische Studie von über 50 Handelsunternehmungen belegt, dass erfolgreiche Selektionsdesigns und Abwicklungsstrategien diejenigen sind, die die Art der von dem jeweiligen Handelsunternehmen angebotenen Transaktionen für potentielle Kunden leicht erkennbar machen.
This study suggests that the effect of CEOs on the firms they run varies over time.We document an inverted U-shaped relation between CEO tenure and firm value as well as M&A announcement returns, consistent with the posited net effect of benefits (e.g., learning, relations) and costs (e.g., aversion to change, entrenchment) arising dynamically over the CEO's time in office. We find economically meaningful variation in the point in time at which costs of tenure start to outweigh benefits depending on a firm's economic environment that affects costs and benefits of tenure.
Nonparametric estimations, exogenous shocks to the cost-benefit relation of tenure, and an analysis of CEO sudden deaths further support our findings.
