Risk premia and foreign exchange: A multiple time series approach to testing uncovered interest-rate parity

Zusammenfassung Risikopr?mien und Wechselkurs: Ein multipler Zeitreihen-Ansatz zur Prüfung des Theorems der ungedeckten Zinsparit?t. —- Das Theorem der ungedeckten Zinsparit?t besagt, daα die Zinsdifferenz zwischen zwei identischen Wertpapieren, die sich nur hinsichtlich der W?hrung unterscheiden, genau der bis zur F?lligkeit erwarteten Wechselkurs?nderung entspricht. In diesem Aufsatz wird ein effizienter direkter Test dieses Theorems entwickelt und angewandt, indem die Zinsdifferenz und die laufende Aufwertungsrate des Wechselkurses als ein station?rer Proze\ mit verbundener Kovarianz modelliert werden. Die Restriktionen dieses Theorems erscheinen dann als ein Satz nichtlinearer gleichungsübergreifender Beschr?nkungen für den vektor-autoregressiven Ansatz, dessen Existenz aus Wolds Zerlegungssatz abgeleitet werden kann. Die Anwendung dieser Methode ergibt eine unzweideutige Zurückweisung des Theorems (abgesehen vom Verh?ltnis D-Mark/Dollar und Lire/ Sterling). Wird die Hypothese der rationalen Erwartungen aufrechterhalten, dann bedeutet dies, da\ es auf dem Devisenmarkt eine betr?chtliche Risikopr?mie gibt, die sich im Zeitablauf ver?ndert.

---

Résumé Primes de risque et devises étrangères: une approche de séries chronologiques multiples à éprouver la parité de taux d’intérêt découvert. —- Le théorème de la parité de taux d’intérêt à découvert (PID) dit que les différences en taux d’intérêt entre deux actifs identiques dénommés en monnaies différentes devraient être exactement compensées par le changement attendu en taux de change pendant la période jusqu’à l’échéance. Dans l’article l’auteur dérive et applique un test efficient direct de la PID en modelant la différence en taux d’intérêt et le taux actuel de revalorisation de la monnaie comme processus stationnaire de covariance jointement déterminé. Les restrictions de la PID puis apparaissent comme série de contraintes trans-équation non-linéaires de la représentation de vecteur autorégressif, dont nous dérivons l’existence de la décomposition de Wold. L’application de cette méthodologie résulte en refus sans équivoque de la PID (excepté les relations mark/dollar et lire/sterling). Sous l’hypothèse maintenu des expectatives rationnelles, cela implique l’existence des primes significatives qui varient au marché de change quand le temps se passe.

---

Resumen Prima de riesgo y divisas: un enfoque de series de tiempo para un test de la paridad de tipos de interés sin seguro de cambio. — El teorema de la paridad de tipos de interés sin seguro de cambio (PTIS) sostiene que la diferencia entre tipos de interés de dos activos iguales, expresada en monedas distintas, debería ser exactamente igual al movimiento en la tasa de cambio esperada durante el período de depósito hasta el vencimiento. En este trabajo se deriva y aplica un test eficiente y directo de PTIS, modelando la diferencia entre los tipos de interés y la revaluation actual del tipo de cambio como un proceso común de covarianza estacionaria. Las restricciones de PTIS aparecen en las ecuaciones como un conjunto de restricciones no lineales sobre la representatión del vector autoregresivo, cuya existencia se infiere de la descomposición de Wold. La aplicación de esta metodología resulta en un rechazo inequívoco de PTIS (con excepción del tipo marco-dólar y lira-sterling). Bajo la hipótesis de expectativas rationales esto implica la existencia de primas de riesgo en el mercado de divisas, que son significantes y además variables en el tiempo.

     

Estimating consumer preferences using market data—an application to us automobile demand

This paper explores the possibility of using market data to identify consumer preferences. A utility function composed of ‘homogeneous’ characteristics and goods-specific effects is used as a basic link between the goods space and the characteristics space. The functional form for the hedonic price equation, the data requirements and issues of measurement errors for estimating demand and supply of characteristics are discussed. We illustrate the methodology by considering the US automobile demand using 1969–86 data compiled from Consumer Reports and Ward's Automotive Yearbook.     

EVIDENCE ON THE COMPENSATION OF PORTFOLIO MANAGERS

We surveyed 396 portfolio managers about the structure of their compensation. Overall, more compensation packages are subjective/discretionary than objective/formula based. Firm success factors such as firm profitability have more effect on bonuses than do client success factors such as investment performance. Differences in the structure of compensation across firms, clients, job types, and manager characteristics reflect likely differences in the underlying contracting environments, especially differences in the difficulty of monitoring performance and exerting control.     

WHAT MOTIVATES GOING PRIVATE?: AN ANALYSIS OF AUSTRALIAN FIRMS

We investigate going private transactions in Australia between 1988 and 1991. Approximately ten percent of all takeovers during this period are instances of going private. In contrast to studies of similar transactions in the United States, we find no direct evidence to support a free cash flow explanation for going private, although going private is frequently preceded by the threat of a takeover offer. However, the free cash flow explanation for going private may not be applicable in Pacific Basin countries where exchange-traded investment activity is in relatively high growth sectors and foreign ownership accounts for a large part of those investment sectors where managerial abuse of free cash flow has been alleged.     

An Event Option Pricing Model with Scheduled and Unscheduled Announcement Effects

There is considerable evidence supporting the time-varying distribution of asset returns. There is also ample evidence that scheduled announcement events such as money supply announcements (in the case of foreign exchange), earnings announcements (in the case of stocks), and crop reports (in the case of commodities), as well as random unscheduled events, can affect the level and volatility of asset returns. This study provides an Event Model for European call options which explicitly addresses effects of these two classes of events. This specification requires estimation of more parameters, but it could provide a more accurate basis for pricing options than previous Poisson jump-diffusion models. Parametric analysis shows that the standard models under price the options relative to the Event Model. The Event Model may be particularly useful in pricing short-term deep out-of-the-money options when scheduled events are present in the market.     

Is ‘benchmark beating’ by Australian firms evidence of earnings management?

We investigate the extent to which Australian firms that report small profits and/or small increases in earnings (i.e. benchmark beaters) have done so by the upward manipulation of these earnings. Although evidence of an unusually large number of firms managing to just beat such earnings benchmarks has been interpreted as evidence of earnings management, this approach fails to identify those firms that are the manipulators from those where unbiased earnings fall naturally into the benchmark beating group. Our results suggest that caution is required in interpreting benchmark beating as an indicator of the extent of earnings management. Using several methods for estimating the unexpected accrual component of earnings, we show that although benchmark beaters have larger positive unexpected accruals than other firms, a similar result holds when firms with small losses or earnings declines (i.e. ‘just miss’ firms) are compared with other firms. Moreover, there is no statistically significant difference between unexpected accruals for the benchmark beating and just miss groups. At a minimum, we reject the joint hypothesis that unexpected accruals capture earnings management and that an unusual kink around zero in the distribution of earnings levels or earnings changes is caused by earnings management.     

Organisational Factors and Dimensions of Satisfaction:A Comparative Study of Accountants in Australia and the US

This paper compares perceptions of organisational characteristics and their relationship to job satisfaction dimensions of US and Australian accountants. Data were collected from accountants in an international accounting firm on perceptions of job satisfaction dimensions, autonomy, feedback on performance and access to job-related information. Given the cultural similarities of the two countries and the use of a single firm, differences were not expected. Results indicated that accountants in the two countries had similar perceptions of the organisational variables and similar levels of satisfaction. However, there were extensive differences in how the organisational variables related to the satisfaction dimensions.     

Environmental responsibility in SMEs: does it deliver competitive advantage?

Small and medium sized enterprises (SMEs) can gain a competitive advantage and create sustainable business by adopting environmental good practices. However, the perceptions of SMEs and their approach to environmental improvements suggest that there are some fundamental misunderstandings and difficulties in achieving this in practice. A questionnaire‐based study of SMEs and their responses to the current requirements of environmental good practice was carried out in South Yorkshire. Follow‐up interviews and factory visits were also carried out. The study aimed to assess the ability of SMEs to create a competitive advantage by adopting environmental good practice and making environmental improvements to their business. The main findings were that most organizations surveyed believed environmental issues to be issues affecting their business. However, the meeting of these requirements was seen as a cost that was not transferable to customers in terms of added benefits and few organizations could show that it led to a competitive advantage. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.