The issuer effect on default risk insured municipal bond yields

In this study, an interesting aspect of the secondary market's pricing of the riskiness of insured municipal bonds is examined. Do secondary market investors still consider the underlying intrinsic credit quality of the issuer in pricing insured bonds? Is the pricing of this “issuer effect” treated equally for both revenue and general obligation bonds? We find that, while the market does not differentiate between equally insured revenue and general obligation bonds, the intrinsic credit quality of the issuer is reflected in the bond issue's quality spread. The results suggest that investors are concerned with the default risk protection of insured municipal bonds regardless of whether they are revenue or general obligation bonds. The market does not perceive insurers to be perfect substitutes for issuers in a risk transfer. Further, the results suggest there is justification for obtaining an agency rating according to issuer credit quality even for insured bonds.     

Forecasting bond yields in the Brazilian fixed income market

This paper studies the predictive ability of a variety of models in forecasting the yield curve for the Brazilian fixed income market. We compare affine term structure models with a variation of the Nelson–Siegel exponential framework developed by Diebold and Li [Diebold, F., & Li, C. (2006). Forecasting the Term Structure of Government Yields. Journal of Econometrics, 130, 337–364]. Empirical results suggest that forecasts made with the latter methodology are superior, and appear to be more accurate at long horizons than other different benchmark forecasts. These results are important for policy-makers, as well as for portfolio and risk managers. Further research could study the predictive ability of such models in other emerging markets.     

An empirical analysis of market and institutional mechanisms for alleviating information asymmetry in the municipal bond market

This article examines how various market and institutional mechanisms resolve information asymmetry problems in the municipal bond market in the U.S. Information asymmetry exists in this market since a significant percentage of the investors are individuals on one side and many of the issuers are infrequent and relatively small ones on the other side. Using a two-stage switching regression model, we find that these mechanisms, including self-certification, method of sale, underwriter certification, and underlying credit ratings for insured municipal bonds, all help resolve information asymmetry problems and thus reduce borrowing cost for the issuers. (JEL G14)     

Causality-in-variance and causality-in-mean between the Greek sovereign bond yields and Southern European banking sector equity returns

This paper adopts the robust cross-correlation function methodology developed by Hong (J Econom 103:183–224, 2001) in order to test for volatility and mean spillovers between Greek long-term government bond yields and the banking sector stock returns of four Southern European countries, namely Greece, Portugal, Italy, and Spain. Its primary focus is on investigating the potential impacts of the recent European sovereign debt crisis. While most previous studies have focused on within-country causalities, we rather assess cross-country transmission effects. The presented results provide evidence of bidirectional volatility spillovers between Greek long-term interest rates and the banking sector equities of Portugal, Italy, and Spain that emerged during the European sovereign debt crisis. We also find significant unidirectional causality-in-mean from bank stock returns in Greece to Greek long-term bond yields during the crisis period as well as significant causality at the mean level from the bank equity returns in Portugal, Italy, and Spain to Greek bond yields.     

Oil price shocks,geopolitical risks,and green bond market dynamics

This research explores the causal relation among oil price, geopolitical risks, and green bond index in the United States from December 2013 to January 2019. Unlike the conventional linear model specification used in earlier works, we evaluate causal relations based on Granger-causality in quantile analysis. Our empirical results reveal unidirectional Granger-causality from geopolitical risk to oil price at the extreme quantiles. We also observe a significant bi-directional causality from oil price to green bond index for the lower quantiles. Findings also reveal causality from geopolitical risk to green bond index in the lower quantiles of the distribution. Therefore, knowledge of these causal relationships can help policy makers to evaluate and implement effective policies to prevent sudden and substantial oil price shocks and geopolitical risk.     

Economic fundamentals,policy responses,and state-level municipal bond sensitivity to COVID-19 prevalence

This paper conducts a state-by-state analysis of the financial impact of the COVID-19 pandemic on the U.S. municipal bond market. Using panel regressions and state-by-state regressions, we find that the prevalence rates of the COVID-19 virus negatively impacted the aggregate performance of municipal bonds. The study also explored whether the disparities in the economic fundamentals of U.S. states, as well as the COVID-19 mitigation policies employed by each state, can explain the sensitivity of the state’s municipal bond to its COVID-19 prevalence rates. States with more desirable economic fundamentals and robust COVID-19 mitigation policies appeared to have higher COVID-19 sensitivities than states that do not. This finding may be due to a baseline effect, in which the higher levels of economic activities in these states also make them more susceptible to the deleterious effects of the stronger mitigation policies enacted by them.     

Corporate bond market interdependence: Credit spread correlation between and within U.S. and Canadian corporate bond markets

This study investigates the correlation and interdependence between and within the U.S. and Canadian corporate bond markets. The empirical framework adopted allows credit spreads to depend on common systematic risk factors derived from structural models and incorporates dynamic conditional correlations (DCC) between spreads. Results show that there is a surprisingly weak correlation between the two markets in normal times. However, during crises, there is a sudden and strong increase in the correlation between U.S. and Canadian credit spreads. The analysis of credit spread correlation within each market also shows an unusual increase in credit spread correlations between sectors and between risk classes in the U.S. during the 2007–2009 global financial crisis. This increase persists over the post-crisis period. By contrast, in Canada, credit spread correlations between sectors remain remarkably stable over time, suggesting an interdependence of credit spreads within the Canadian market.     

Replacement rates and labour market behaviour

This paper studies how the replacement rate, defined as the ratio of disposable income when unemployed to expected disposable income if beginning to work, affects individuals’ transition rate from unemployment. Linked register data, representing a local Finnish labour market in 1996, are analysed with piece-wise constant exponential hazard models. Results suggest that the effect of the replacement rate and, thus, of “unemployment traps”, is fairly modest. It does not seem to change with time spent unemployed. The impact on the transition rate into employment is lower than on the transition rate out of the labour force. Unemployment insurance recipients are found to be less sensitive to changes in the replacement rate than are unemployment assistance recipients.     

Long-run and short-run determinants of sovereign bond yields in advanced economies

We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980–2010 period using panel cointegration techniques. The application of the cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in the potential growth rate. In the short run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe-haven” flows.     

Economic freedom and the mispricing of single-state municipal bond closed-end funds

The Economic Freedom of North America Index (EFI) is a measure of the state-level institutional characteristics that promote economic activity. We use this index as a proxy for the degree of local market segmentation and test the hypothesis that single-state, municipal bond closed-end fund mispricing can be partially explained by a state’s EFI value. Using panel data analysis we find that EFI is significant in explaining observed variability in fund mispricing.     

Bond risk, bond return volatility, and the term structure of interest rates

This paper explores the time variation in the bond risk, as measured by the covariation of bond returns with stock returns and consumption growth, and in the volatility of bond returns. A robust stylized fact in empirical finance is that the spread between the yields on long- and short-term bonds forecasts future excess returns on bonds at varying horizons positively; in addition, the short-term nominal interest rate forecasts both the stock return volatility and the exchange rate volatility positively. This paper presents evidence that movements in both the short-term nominal interest rate and the yield spread are positively related to changes in the subsequent realized bond risk and bond return volatility. The yield spread appears to proxy for business conditions, while the short rate appears to proxy for inflation and economic uncertainty. A decomposition of bond betas into a real cash flow risk component and a discount rate risk component shows that yield spreads have offsetting effects in each component. A widening yield spread is correlated with a reduced cash-flow (or inflationary) risk for bonds, but it is also correlated with a larger discount rate risk for bonds. The short rate only forecasts the discount rate component of the bond beta.     

我国企业债券市场发育迟缓原因及建议

目前,我国企业的外部融资主要来自银行贷款和股票市场,1997年到1999年的三年中,企业通过股票市场融资均在1000亿元左右,而通过债券融资仅有几百亿元.1999年我国共发行企业债券420亿元,这仅占当年GDP总值8.2万亿元的0.51%,而同年美国的企业债券发行额达到2500亿美元,占当年GDP的3%,企业债券的发行量为同期股票发行量的5.8倍.在当前的经济情况下,给企业债券市场以准确定位,采取相应的措施促进其发展,对拓宽企业融资渠道、促进企业实力增强,甚至对保证国民经济的持续、健康发展都有重要意义.     

Tax-free trading on calendar stock and bond market patterns

This study investigates the feasibility of using individual retirement accounts to exploit well-known calendar anomalies in the financial markets. We find no evidence of either a January effect or a weekend effect which may imply that investors have traded them out of existence. However, we find a significant turn-of-the-month effect in both stocks and bonds and show that investors may be able to enhance the performance of their retirement portfolios. We demonstrate that investors using a turn-of-the-month switching strategy would have outperformed a buy-and-hold strategy in stocks or bonds. Finally, our results have policy implications for investment companies.     

The impact of inflationary news on money market yields and volatilities

This study investigates the impact of surprises in hourly wages, non-farm payroll, unemployment rate, and producer price index on the yields and volatilities of money market securities. The methodology is conducted in a framework that preserves the strong substitutability among the instruments. We find first the short-term interest rate nexus is inherently a steady state long-run phenomenon. Second, yield variability is fundamentally linked to the release of macroeconomic news that conveys important information on inflation. Third, results from the equality of variance tests suggest that volatilities on announcement days are significantly higher than non-announcement day volatilities across all securities.     

Transportation rates, market structure and the production-location decision : A note

This note examines the effects of market structure on production and location decisions of an oligopolistic firm. It shows that if transportation rates are a function of quantity shipped and distance traveled, a linearly homogeneous production function is not sufficient to ensure independence between the optimum location and market structure unless (i) the elasticities of transportation rates with respect to quantity shipped are constant and identical, and (ii) the ratios of marginal products to the marginal transportation costs are equal for each input. This results is significantly different from Hwang and Mai's in the constant transportation rates case.     

适应市场经济体制转变地方政府职能

地方政府作为国家政权组织的一个重要组成部分,如何按照市场经济的要求,加快职能转变,既是深化经济体制改革的需要,也是中国即将加入世界贸易组织的新形势对政府自身改革的需求.本文从市场经济条件下地方政府职能定位出发,对转变政府职能、深化政府自身改革作一些粗浅的思考和探讨.     

The dynamic relationship between stock,bond and foreign exchange markets

This paper investigates whether the deviation of a currency from its fundamentally determined rate of return affects the relationship between interest rates and stock market yields. A time-varying transition probability, the Markov-switching vector autoregressive (MS-VAR) model, is utilized for this purpose. Wald and likelihood ratio tests are computed and used as model adequacy measures. In order to analyze the link between the variables, impulse–response functions are employed. A sticky price exchange rate model is used to show the fundamentally determined rate of return of currencies. States are defined as either overvalued or undervalued, depending on the position of the observed exchange rate compared to its fundamentally determined rate. The model is applied to four major currencies: the Australian Dollar, the Canadian Dollar, the Japanese Yen, and the British Pound. Transition between the states is linked to the risk-adjusted excess return (the Sharpe ratio) of the debt and equity markets of the respective currencies in order to understand whether over- and undervaluation is connected to the returns in these markets. The results provide evidence that the relationship between economic fundamentals and nominal exchange rates are subject to change depending on the over- or undervaluation of the currencies relative to their fundamentally determined rate of return. An extension of this result shows that the Sharpe ratios of debt and equity investments in the currencies influence the evolution of the transitional dynamics of the exchange rates’ deviation from their fundamental values.     

Relationships between implementation of TQM, JIT, and TPM and manufacturing performance

Research on Total Quality Management (TQM), Just-in-Time (JIT) and Total Productive Maintenance (TPM) generally investigates the implementation and impact of these manufacturing programs in isolation. However, many researchers believe and argue conceptually the value of understanding the joint implementation and effect of manufacturing programs. This study investigates the practices of the three programs simultaneously. We find that there is evidence supporting the compatibility of the practices in these programs and that manufacturing performance is associated with the level of implementation of both socially- and technically-oriented practices of the three programs.     

Quoted spreads and trade imbalance dynamics in the European Treasury bond market

Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) orders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider (narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, stock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities.