http://repub.eur.nl/res/org/9735/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/38227/ 2013-01-08T00:00:00Z In this paper, the annual maximum daily rainfall data from 1961 to 2010 are modelled for 18 stations in Taiwan. We fit the rainfall data with stationary and non-stationary generalized extreme value distributions (GEV), and estimate their future behaviour based on the best fitting model. The non-stationary model means that the parameter of location of the GEV distribution is formulated as linear and quadratic functions of time to detect temporal trends in the maximum rainfall. Future behavior refers to the return level and the return period of the extreme rainfall. The 10, 20, 50 and 100-years return levels and their 95% confidence intervals of the return levels stationary models are provided. The return period is calculated based on the record-high (ranked 1st) extreme rainfall brought by the top 10 typhoons for each station in Taiwan. The estimates show that non-stationary model with increasing trend is suitable for the Kaohsiung, Hengchun, Taitung and Dawu stations. The Kaohsing and Hengchun stations have greater trends than the other two stations, showing that the positive trend extreme rainfall in the southern region is greater than in the eastern region of Taiwan. In addition, the Keelung, Anbu, Zhuzihu, Tamsui, Yilan, Taipei, Hsinchu, Taichung, Alishan, Yushan and Tainan stations are fitted well with the Gumbel distribution, while the Sun Moon Lake, Hualien and Chenggong stations are fitted well with the GEV distribution. Chu, L.F. McAleer, M.J. Chang, C-H. http://repub.eur.nl/res/pub/38228/ 2013-01-08T00:00:00Z This paper analyzes two indexes in order to capture the volatility inherent in El Niños Southern Oscillations (ENSO), develops the relationship between the strength of ENSO and greenhouse gas emissions, which increase as the economy grows, with carbon dioxide being the major greenhouse gas, and examines how these gases affect the frequency and strength of El Niño on the global economy. The empirical results show that both the ARMA(1,1)-GARCH(1,1) and ARMA(3,2)-GJR(1,1) models are suitable for modelling ENSO volatility accurately, and that 1998 is a turning point, which indicates that the ENSO strength has increased since 1998. Moreover, the increasing ENSO strength is due to the increase in greenhouse gas emissions. The ENSO strengths for Sea Surface Temperature (SST) are predicted for the year 2030 to increase from 29.62% to 81.5% if global CO2 emissions increase by 40% to 110%, respectively. This indicates that we will be faced with even stronger El Nino or La Nina effects in the future if global greenhouse gas emissions continue to increase unabated. Chu, L.F. McAleer, M.J. Chen, C.-C. http://repub.eur.nl/res/pub/38230/ 2013-01-08T00:00:00Z This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice. Chang, C.L. Hsu, H-K. McAleer, M.J. http://repub.eur.nl/res/pub/38232/ 2013-01-08T00:00:00Z Allen, D.E. McAleer, M.J. Powell, R.J. Singh, A.K. http://repub.eur.nl/res/pub/38233/ 2013-01-08T00:00:00Z The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing from a variety of risk models, and discuss the selection of optimal risk models. A new approach to model selection for predicting VaR is proposed, consisting of combining alternative risk models, and we compare conservative and aggressive strategies for choosing between VaR models. We then examine how different risk management strategies performed during the 2008-09 global financial crisis. These issues are illustrated using Standard and Poor’s 500 Composite Index. McAleer, M.J. Jimenez-Martin, J-A. http://repub.eur.nl/res/pub/38221/ 2013-01-04T00:00:00Z This paper examines the practical usefulness of two new journal performance metrics, namely the Eigenfactor score, which may be interpreted as measuring “Journal Influence”, and the Article Influence score, using the Thomson Reuters ISI Web of Science (hereafter ISI) data for 2009 for the 200 most highly cited journals in each of the Sciences and Social Sciences, and compares them with two existing ISI metrics, namely Total Citations and the 5-year Impact Factor (5YIF) of a journal (including journal self citations). It is shown that the Sciences and Social Sciences are different in terms of the strength of the relationship of journal performance metrics, although the actual relationships are very similar. Moreover, the journal influence and article influence journal performance metrics are shown to be closely related empirically to the two existing ISI metrics, and hence add little in practical usefulness to what is already known. These empirical results are compared with existing results in the literature. Chang, C.L. McAleer, M.J. Oxley, L. http://repub.eur.nl/res/pub/38222/ 2013-01-01T00:00:00Z The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diffusion process which accommodates leverage, feedback effects and multifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform of the AMWSV models. The paper also suggests estimating the AMWSV model by the generalized method of moments using information not only of stock prices but also of realized volatilities and co-volatilities. The empirical results for the bivariate data of the NASDAQ 100 and S&P 500 indices show that the general AMWSV model is preferred among several nested models. Asai, M. McAleer, M.J. http://repub.eur.nl/res/pub/38224/ 2012-12-31T00:00:00Z This paper has two primary purposes. First, we fit the annual maximum daily rainfall data for 6 rainfall stations, both with stationary and non-stationary generalized extreme value (GEV) distributions for the periods 1911-2010 and 1960-2010 in Taiwan, and detect the changes between the two phases for extreme rainfall. The non-stationary model means that the location parameter in the GEV distribution is a linear function of time to detect temporal trends in maximum rainfall. Second, we compute the future behavior of stationary models for the return levels of 10, 20, 50 and 100-years based on the period 1960-2010. In addition, the 95% confidence intervals of the return levels are provided. This is the first investigation to use generalized extreme value distributions to model extreme rainfall in Taiwan. Chu, L.F. McAleer, M.J. Wang, S-H. http://repub.eur.nl/res/pub/38225/ 2012-12-31T00:00:00Z Jaskowski, M. McAleer, M.J. http://repub.eur.nl/res/pub/38216/ 2012-12-12T00:00:00Z We assess the effect of aggregate stock market illiquidity on U.S. Treasury bond risk premia. We find that the stock market illiquidity variable adds to the well established Cochrane-Piazzesi and Ludvigson-Ng factors. It explains 10%, 9%, 7%, and 7% of the one-year-ahead variation in the excess return for two-, three-, four-, and ve-year bonds respectively and increases the adjusted R2 by 3-6% across all maturities over Cochrane and Piazzesi (2005) and Ludvigson and Ng (2009) factors. The effects are highly statistically and economically significant both in and out of sample. We find that our result is robust to and is not driven by information from open interest in the futures market, long-run inflation expectations, dispersion in beliefs, and funding liquidity. We argue that stock market illiquidity is a timely variable that is related to " right-to-quality" episodes and might contain information about expected future business conditions through funding liquidity and investment channels. Bouwman, K.E. Sojli, E. Tham, W.W. http://repub.eur.nl/res/pub/38217/ 2012-12-12T00:00:00Z We use the introduction and the subsequent removal of the flash order facility (an actionable indication of interest, IOI) from the NASDAQ as a natural experiment to investigate the impact of voluntary disclosure of trading intent on market quality. We find that flash orders significantly improve liquidity in the NASDAQ. In addition, overall market quality improves substantially when the flash functionality is introduced and deteriorates when it is removed. One explanation for our findings is that flash orders are placed by less informed traders and fulfill their role as an advertisement of uninformed liquidity needs. They successfully attract responses from liquidity providers immediately after the announcement is placed, thus lowering the risk-bearing cost for the overall market. Our study is important in understanding the impact of voluntary disclosure, in guiding future market design choices, and in the current debate on dark pools and IOIs. Skjeltorp, J.A. Sojli, E. Tham, W.W. http://repub.eur.nl/res/pub/38219/ 2012-12-10T00:00:00Z We investigate the cyclicality of the private savings to GDP ratio for a panel of 19 OECD countries over the period 1971-2009. We find robust evidence that the private savings ratio is countercyclical. Three theories unambiguously predict a higher private savings ratio during recessions: a Ricardian offset effect, the presence of credit constraints, and precautionary savings. We find evidence only for the latter theory. Our estimations take into account a large number of econometric complications: persistence in the savings ratio, endogeneity of the regressors, cross-country parameter heterogeneity, cross-sectional dependence, stationarity issues, omitted variables, and instrument strength. Adema, Y. Pozzi, L.C.G. http://repub.eur.nl/res/pub/38215/ 2012-12-06T00:00:00Z We examine differences in altruism and laziness between public sector employees and private sector employees. Our theoretical model predicts that the likelihood of public sector employment increases with a worker's altruism, and increases or decreases with a worker's laziness depending on his altruism. Using data from the German Socio-Economic Panel Study, we find that public sector employees are significantly more altruistic and lazy than observationally equivalent private sector employees. A series of robustness checks show that these patterns are stronger among higher educated workers; that the sorting of altruistic people to the public sector takes place only within the caring industries; and that the difference in altruism is already present at the start of people's career, while the difference in laziness is only present for employees with sufficiently long work experience. Dur, A.J. Zoutenbier, R. http://repub.eur.nl/res/pub/38213/ 2012-11-30T00:00:00Z A Forecast Support System (FSS), which generates sales forecasts, is a sophisticated business analytical tool that can help to improve targeted business decisions. Many companies use such a tool, although at the same time they may allow managers to quote their own forecasts. These sales forecasters (managers) can take the FSS output as their input, but they can also fully ignore the FSS out- comes. We propose a methodology that allows to evaluate the forecast accuracy of these managers, relative to the FSS, while taking aboard latent variation across managers' behavior. We show that the results, here for a large Germany-based pharmaceutical company, can in fact be used to manage the sales forecasters by giving clear-cut recommendations for improvement. Bruijn, B. de Franses, Ph.H.B.F. http://repub.eur.nl/res/pub/38214/ 2012-11-27T00:00:00Z Decisions-makers often rely on information supplied by interested parties. In practice, some parties have easier access to information than other parties. In this light, we examine whether more powerful parties have a disproportionate influence on decisions. We show that more powerful parties influence decisions with higher probability. However, in expected terms, decisions do not depend on the relative strength of interested parties. When parties have not provided information, decisions are biased towards the less powerful parties. Finally, we show that compelling parties to supply information destroys incentives to collect information. Sharif, Z. Swank, O.H. http://repub.eur.nl/res/pub/38199/ 2012-11-12T00:00:00Z This paper documents that speed is crucially important for high frequency trading strategies based on U.S. macroeconomic news releases. Using order level data of the highly liquid S&P500 ETF traded on NASDAQ from January 6, 2009, to December 12, 2011, we find that a delay of 300 milliseconds (1 second) significantly reduces returns by 3.08% (7.33%) compared to instantaneous execution over all announcements in the sample. This reduction is stronger in case of high impact news and on days with high volatility. In addition, we assess the effect of algorithmic trading on market quality around macroeconomic news. Increases in algorithmic trading activity have a positive (mixed) effect on market quality measures when we use algorithmic trading proxies that capture the top of the orderbook (full orderbook). Scholtus, M.L. Dijk, D.J.C. van Frijns, B.P.M. http://repub.eur.nl/res/pub/38212/ 2012-11-01T00:00:00Z At the start of their term, politicians often announce which issue they intend to address. To shed light on this agenda setting, we develop a model in which a politician has to decide whether or not to address a public issue. Addressing an issue means that the politician investigates the issue and next chooses for either a major reform or a minor reform. Not addressing an issue means that the status quo is maintained. Politicians differ in their ability to make correct decisions. They want to make good decisions and want to come across as able decision makers. An important characteristic of the model is that politicians and voters have different priors concerning the desirability of a major reform. We show that electoral concerns may lead to anti-pandering. Politicians tend to put issues on their political agenda when voters are relatively pessimistic about a major reform, and keep issues off the table when voters are optimistic about major reform. Sayag, R.S. Swank, O.H. http://repub.eur.nl/res/pub/38198/ 2012-10-29T00:00:00Z We propose a Bayesian combination approach for multivariate predictive densities which relies upon a distributional state space representation of the combination weights. Several specifications of multivariate time-varying weights are introduced with a particular focus on weight dynamics driven by the past performance of the predictive densities and the use of learning mechanisms. In the proposed approach the model set can be incomplete, meaning that all models can be individually misspecified. A Sequential Monte Carlo method is proposed to approximate the filtering and predictive densities. The combination approach is assessed using statistical and utility-based performance measures for evaluating density forecasts. Simulation results indicate that, for a set of linear autoregressive models, the combination strategy is successful in selecting, with probability close to one, the true model when the model set is complete and it is able to detect parameter instability when the model set includes the true model that has generated subsamples of data. For the macro series we find that incompleteness of the models is relatively large in the 70's, the beginning of the 80's and during the recent financial crisis, and lower during the Great Moderation. With respect to returns of the S&P 500 series, we find that an investment strategy using a combination of predictions from professional forecasters and from a white noise model puts more weight on the white noise model in the beginning of the 90's and switches to giving more weight to the professional forecasts over time. Billio, M. Casarin, R. Ravazzolo, F. Dijk, H.K. van http://repub.eur.nl/res/pub/38197/ 2012-10-24T00:00:00Z This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefit from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses Lansing, K.J. Markiewicz, A. http://repub.eur.nl/res/pub/38196/ 2012-10-02T00:00:00Z This paper analytically derives the conditions under which the slope of the tax reaction function is negative in a classical tax competition model. If countries maximize welfare, we show that a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions. Simulations suggest that strategic substitutability occurs under plausible parameter configurations. The strategic tax response is crucial for understanding tax competition games, as well as for assessing the welfare effects of partial tax unions (whereby a subset of countries coordinate their tax rates). Indeed, contrary to earlier findings that have assumed strategic complementarity in tax rates, we show that partial tax unions might reduce welfare under strategic substitutability. Mooij, R.A. de Vrijburg, H.