Intraday return and volatility relationships between the Ibex 35 spot and futures markets

This paper analyses the intraday lead-lag relationships between returns and volatilities in the Ibex 35 spot and futures markets. Using hourly data, we jointly analyze the interactions between markets, estimating a bivariate error correction model with GARCH perturbations which captures stochastically the presence of an intraday U-shaped curve for both spot and futures market volatility. Our findings show a bidirectional causal relationship between market volatilities, with a positive feedback. This two-way transmission of volatility is consistent with market prices evolving according to a long-run equilibrium relationship, and shocks affecting both markets in the same direction. Our empirical results also support a unidirectional cross interaction from futures to spot market returns. This pattern suggests that the futures market leads the spot market in order to incorporate the arrival of new information.     

Mutual Fund Advisory Contracts: An Empirical Investigation

We investigate marginal compensation rates in mutual fund advisory contracts and find the following. Equity and foreign fund advisors receive higher marginal compensation than debt and domestic fund advisors. Advisors of funds with greater turnover receive higher marginal compensation. Also, closed-end fund advisors receive higher marginal compensation than open-end fund advisors. Finally, we find that marginal compensation is lower for advisors of large funds and members of large fund families. We argue that these differences in marginal compensation reflect differences in advisor marginal product, differences in the difficulty of monitoring performance, differences in control environments, and scale economies.     

Use of climate scenarios to aid in decision analysis for interannual water supply planning

This work addresses the issue of climate change in the context of water resource planning on the time scale of a few years. Planning on this time scale generally ignores the role of climate change. However, where the climate of a region has already shifted, the use of historical data for planning purposes may be misleading. In order to test this, a case study is conducted for a region, the Australian Capital Territory, where long term drought is raising concerns of a possible climate shift. The issue is cast in terms of a particular planning decision; the option to augment water supply in the next few years to hedge against the drought persisting. A set of climate scenarios are constructed for the region corresponding to the historical climate regime and to regimes where progressively greater levels of change are assumed to have already taken place (5%, 10%, 20% reductions in mean rainfall). Probabilities of the drought persisting are calculated for each of the scenarios. The results show substantial increases in the probability of the drought persisting for even moderate reductions in mean rainfall. The sensitivity of the decision to augment supply to the scenario results depends ultimately on the planners tolerable thresholds for the probability of the drought persisting. The use of different scenarios enables planners to explore the sensitivity of the decision in terms of their risk tolerance to ongoing drought and to their degree of belief in each of the scenarios tested.     

A new approach to aid urban water management decision making using trade-off sacrifice modelled by fuzzy logic.

An approach to aid decision making for urban water management is presented that is based on the concept of trade-off sacrifice level in pairwise comparisons between criteria, modelled using fuzzy logic. This approach is illustrated by a case study - selection of alternative water supplies for a Sydney household. Four key decision making criteria covering health, economic, environment and technical aspects are selected: annual probability of infection, life cycle energy use, life cycle cost and reliability. The decision making problem is to select between cases with different volume and application of recycled greywater and rainwater in light of the four criteria. Decision maker's preference is expressed by five levels of trade-off sacrifice between pairs of criteria. The decision makers can assign their preferences for sacrifice level by linguistic assessment and the output trade-off weight (TOW). Measures of decision makers' perceived trade-off level are modelled by a rule-based fuzzy logic control system. The final analysis shows the performance for each sacrifice class for each case, to aid overall decision making with stakeholders.