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1 – 10 of over 82000Pierre-Arnaud Henri Drouhin and Arnaud Simon
This paper aims to analyze the statistical characteristics of changes in property forward prices. As highlighted in a survey conducted at the MIT Center for Real Estate in 2006…
Abstract
Purpose
This paper aims to analyze the statistical characteristics of changes in property forward prices. As highlighted in a survey conducted at the MIT Center for Real Estate in 2006, the relatively weak understanding in their prices is one of the most important barriers in their use. In this context, the analysis of the forward price term structure is essential. Do the short- and long-term forward prices behave similarly? Do property derivatives behave like other derivative assets or other related assets? This study also investigates the lead–lag relationship between spot and forward returns for different maturities.
Design/methodology/approach
Using four years and nine months of data on the UK Investment Property Databank (IPD), all property total return swaps are examined. We strip the swaps into their forwards and study their statistical characteristics (the first four moments and their autocorrelation levels). The relationships among the forward contracts, the underlying asset (IPD index and IPD unsmoothed) and other assets (risk-free rate, listed real estate) are explored. Using the Yiu et al. (2005) methodology, the lead–lag relationship between the spot and the forwards is assessed.
Findings
The index appears to be significantly less volatile and less efficient, in terms of correlation than its own derivative contracts. Moreover, changes in forward prices are leading indicators of the IPD index. Their risks tend to converge with the implied volatility of the REIT’s operating asset but without being affected by the general stock market risks. Regarding the forward price–discovery function, investors should collect information not only from the spot market but also, maybe primarily, from the derivative market.
Originality/value
In this paper, we use a never-exploited database that is relative to the quotes of the UK IPD swaps. It is the first attempt to analyze the statistical characteristics of their changes. Our results show that these prices are clearly superior to the spot series, in terms of risks but without behaving affected by the tyranny of the past values. These findings may conduct to consider new methods to unsmooth current real estate indices. Characterized by a strong sensitivity to the changes in the information set, property derivative-based indicators should lead to increased efficiency in the spot market.
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Zsuzsa R. Huszár, Ruth S. K. Tan and Weina Zhang
This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets.
Abstract
Purpose
This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets.
Methodology/approach
In the onshore and offshore foreign exchange markets, the RMB forward contracts are designed in similar ways. However, the underlying economic forces and regulatory frameworks are very different in these two markets. We first analyze the functioning of each market, by examining the covered interest rate parity (CIRP) conditions. Second, we explore the CIRP deviations in the two markets and quantify the role of market frictions and government interventions.
Findings
We find that the CIRP condition does not hold in either the onshore or the offshore RMB forward markets. We also find that the offshore market is more efficient than the onshore market in conveying private information about investors’ expectation.
Originality/value
Our results reveal that the onshore RMB forward market provides an imperfect platform for investors to manage their currency exposures. We suggest that by opening the offshore market to domestic participants and the onshore market to more foreigners, the forward rates may become more informative with a greater investor mix. These liberalization efforts are important steps in the right directions to improve market efficiency in the Chinese FOREX market.
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Steen Koekebakker and Fridthjof Ollmar
The forward curve dynamics in the Nordic electricity market is examined. Six years of price data on futures and forward contracts traded in the Nordic electricity market are…
Abstract
The forward curve dynamics in the Nordic electricity market is examined. Six years of price data on futures and forward contracts traded in the Nordic electricity market are analysed. For the forward price function of electricity, we specify a multi‐factor term structure models in a Heath‐Jarrow‐Morton framework. Principal component analysis is used to reveal the volatility structure in the market. A two‐factor model explains 75 per cent of the price variation in our data, compared to approximately 95 per cent in most other markets. Further investigations show that correlation between short‐ and long‐term forward prices is lower than in other markets. We briefly discuss possible reasons why these special properties occur, and some consequences for hedging exposures in this market.
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This article brings together and extends several strands of literature concerning the behaviour of the competitive firm operating under (spot) price uncertainty. Specifically, the…
Abstract
This article brings together and extends several strands of literature concerning the behaviour of the competitive firm operating under (spot) price uncertainty. Specifically, the article analyses a dynamic model in which the firm can hold inventories and can sell in the forward market (at a certain price). It shows that both the existence of inventories and the existence of a forward market encourages the firm to increase its output. Comparative static propositions are derived, and the results related to previous findings in the earlier literature.
Milorad Kilibarda, Svetlana Nikolicic and Milan Andrejic
The purpose of this paper is to determine how customers from different market segments assess the quality of freight forwarding services, depending on the structure of services…
Abstract
Purpose
The purpose of this paper is to determine how customers from different market segments assess the quality of freight forwarding services, depending on the structure of services, as well as the mutual relation between the freight forwarder and the customers.
Design/methodology/approach
The research is based on the SERVQUAL model and surveys. The methodology for measuring the quality of logistics services in freight forwarding companies is developed. On the basis of the proposed methodology, the empirical research was conducted. The study includes 120 logistics professionals dealing with import and export trade flows who thereby use the services of freight companies. The verification of the SERVQUAL instrument, results and hypotheses are conducted using the factor analysis and ANOVA.
Findings
The results show that logistics service quality (LSQ) of freight forwarding companies in Serbia is not at a satisfactory level. Different market segments evaluate the level of quality of service in a different way. Also, customer exceptions and the level of quality depend on the structure of services, as well as the mutual relation between the freight forwarder and the customers.
Research limitations/implications
Empirical research and the results are limited to the Serbian market, and only one measurement tool.
Practical implications
The procedure and results of the research have practical applications and set the basis for the improvement of forwarding and logistics services.
Originality/value
This is one of the first papers dealing with the LSQ of freight forwarding companies in Serbia. Generally, the developed approach can be successfully applied on other markets, which adds value to this paper. New research hypotheses are developed and tested. In that manner, this paper makes contribution in measuring and improving the LSQ.
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Corporate treasurers, in managing their foreign currency payables and receivables, are continually forced to decide whether to deal forward or to wait and to deal spot in the…
Abstract
Corporate treasurers, in managing their foreign currency payables and receivables, are continually forced to decide whether to deal forward or to wait and to deal spot in the future. The forward market provides a market where, for a price, the risk of adverse foreign exchange rate fluctuations can be sold off to professional risk bearers. The last ten years have seen considerable turmoil in the foreign exchange markets. In this article I want to examine several issues. Firstly, how do you measure the cost of forward cover under flexible rates and has there been any change in the cost of cover of flexible compared with fixed rates? Secondly, to what extent is the forward market a reliable forecaster of future spot rates? Thirdly, what, if any, are the corporate hedging implications of the behaviour of the forward market?
Midwest Independent Transmission System Operator, Inc. (MISO) is a nonprofit regional transmission organization (RTO) that oversees electricity production and transmission across…
Abstract
Midwest Independent Transmission System Operator, Inc. (MISO) is a nonprofit regional transmission organization (RTO) that oversees electricity production and transmission across 13 states and 1 Canadian province. MISO also operates an electronic exchange for buying and selling electricity for each of its five regional hubs.
MISO oversees two types of markets. The forward market, which is referred to as the day-ahead (DA) market, allows market participants to place demand bids and supply offers on electricity to be delivered at a specified hour the following day. The equilibrium price, known as the locational marginal price (LMP), is determined by MISO after receiving sale offers and purchase bids from market participants. MISO also coordinates a spot market, which is known as the real-time (RT) market. Traders in the RT market must submit bids and offers by 30minutes prior to the hour for which the trade will be executed. After receiving purchase and sale offers for a given hour in the RT market, MISO then determines the LMP for that particular hour.
The existence of the DA and RT markets allows producers and retailers to hedge against the large fluctuations that are common in electricity prices. Hedge ratios on the MISO exchange are estimated using various techniques. No hedge ratio technique examined consistently outperforms the unhedged portfolio in terms of variance reduction. Consequently, none of the hedge ratio methods in this study meet the general interpretation of FASB guidelines for a highly effective hedge.
This chapter examines the efficiency of the Midcontinent Independent System Operator (MISO), Inc., electricity exchange following its major expansion in terms of market…
Abstract
This chapter examines the efficiency of the Midcontinent Independent System Operator (MISO), Inc., electricity exchange following its major expansion in terms of market participants and geographic scope in 2014. Specifically, hourly day-ahead (forward) and real-time (spot) prices from 2014 to 2016 reveal that forward premiums are prevalent despite the increase in market size. Furthermore, these forward premiums do not adhere to Bessembinder and Lemmon’s (2002) commonly used general equilibrium model for electricity forward premia. A technical trading rule based on the relationship between day-ahead prices across hubs that was found to be profitable prior to MISO’s expansion still produces economically and statistically significant returns after the exchange’s growth.
Details
Keywords
- Midcontinent Independent System Operator (MISO)
- electricity exchange
- spot prices for electricity
- forward prices for electricity
- forward premiums for electricity
- electricity forward premia
- Bessembinder and Lemmon equilibrium
- day-ahead prices for electricity
- Federal Energy Regulatory Committee (FERC)
- regional transmission operators (RTOs)
The national objectives of forward exchange controls are to restrain speculation in foreign exchange, to limit international capital flows and to affect the forward exchange…
Abstract
The national objectives of forward exchange controls are to restrain speculation in foreign exchange, to limit international capital flows and to affect the forward exchange rates. Restrictions on forward transactions are economic welfare costs for enterprises and banks, which are analysed in terms of risk‐return and supply‐demand theory. Empirical answers to whether forward exchange control is really necessary await collection and disclosure of company currency exposure, which itself may contribute to the national objectives implicit in forward exchange controls.
The greatest revolution in financial management over the last 20 years must be the growth in the use of derivative securities. We can also consider this area to be part of the…
Abstract
The greatest revolution in financial management over the last 20 years must be the growth in the use of derivative securities. We can also consider this area to be part of the much larger concept of financial engineering. Limited in their use for many years, innovative financial institutions have now introduced derivatives of every colour and flavour. Principal driving forces in this growth have been: