http://repub.eur.nl/res/aut/2230/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/13885/ 2008-03-01T00:00:00Z Increasing correlation during turbulent market conditions implies a reduction in portfolio diversification benefits. We investigate the robustness of recent empirical results that indicate a breakdown in the correlation structure by deriving theoretical truncated and exceedance correlations using alternative distributional assumptions. Analytical results show that the increase in conditional correlation could be a result of assuming conditional normality for the return distribution. When assuming a popular alternative distribution – the bivariate Student-tr – we find significantly less support for an increase in conditional correlation and conclude that this is due to the presence of fat tails when assuming normality in the return distribution. http://repub.eur.nl/res/pub/12956/ 2000-01-01T00:00:00Z We derive the equilibrium joint distribution of exchange rate and commodity price in a two-country rational expectations model. The correlation between commodity price and exchange rate appears crucial for the stability of commodity markets. This result arises from the common practice to quote commodity prices in consuming countries' currency, which subjects producing countries to the currency risk. Welfare results of commodity price stabilization are obtained and facilitate the interpretation of the position taken by industrialized countries long opposed to international commodity agreements. We apply our model to the Philippines and investigate the potential effects of the International Sugar Agreement (ISA) on the various conditional volatilities of the model. We conclude on the relative ineffectiveness of these agreements in limiting fluctuations of sugar prices. http://repub.eur.nl/res/pub/2111/ 1997-12-01T00:00:00Z We analyze intraday volatility behavior for the Bund futures contract that is traded simultaneously at two competing exchanges. We investigate the transmission of volatility between the exchanges. We find that the lead/lag relations are restricted to a few minutes and do not reveal a dominant leader. We then analyze patterns in intraday volatility. We find that volatility behaves similarly at both exchanges; i.e., it decreases from the opening until early afternoon and increases thereafter. The same pattern is detected in explanatory variables such as traded volume and time-between-trades. http://repub.eur.nl/res/pub/2109/ 1994-03-01T00:00:00Z This article discusses the effects of GARCH type error processes on the use of the Engle and Granger cointegration test for two variables. Simulation results indicate that (nearly) integrated GARCH processes, as well as GARCH processes that are not covariance stationary, change the critical values. An application to testing for cointegration between spot and futures prices illustrates the practical relevance of using the appropriate critical values. http://repub.eur.nl/res/pub/12420/ 1993-01-01T00:00:00Z Non-parametric tolerance limits are employed to calculate soft margins such as advocated in Williamson's target zone proposal. In particular, the tradeoff between softness and zone width is quantified. This may be helpful in choosing appropriate margins. Furthermore, it offers policymakers a framework for reference in the case of changing exchange rate policy. The empirical applications include an evaluation of the EMS zone width. We also show that the procedures for calculating the soft margins are robust against alternative data-generating mechanisms. http://repub.eur.nl/res/pub/2108/ 1991-01-01T00:00:00Z A stock price parity reflects the known resources of the commodities, while a flow parity concerns short-term supplies. Prices may not only converge in the long-run to a fixed stock parity, but also move toward sequences of short-run flow equilibria. Cointegration analysis is used in an empirical test for price parities at the London Metal Exchange (LME). The analysis focuses on the behavior of 5 nonferrous metals in 1981. One cointegration relationship, or parity, is found to exist between the 5 forward metal prices on the LME over 251 trading days in 1981. The kurtosis of the cointegration relationship may come close to the normality value, while those of the individual returns may not. Unreported calculations show that this is indeed the case.