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1 – 10 of over 35000In an introductory finance course, business school students often report difficulty in dealing with several variables and regression equations in testing the forward market…
Abstract
Purpose
In an introductory finance course, business school students often report difficulty in dealing with several variables and regression equations in testing the forward market efficiency and its relevant hypotheses: forward rate unbiasedness, rational expectations, risk neutrality and homogeneous expectations. The paper aims to discuss these issues.
Design/methodology/approach
Although each of these hypotheses may be relatively easy to understand one by one, it is harder to see their linkages. Thus, the author develops the loop diagram for supplementing traditional instruction methods.
Findings
The author finds that a significant majority of students prefer the loop diagram approach. Furthermore, students using loop diagram display more understanding of the forward market efficiency than those with access to a conventional instruction.
Originality/value
The loop diagram provides students a simple visual aid for formulating a complete set of regressions and enables them to analyze a richer set of relationships between several hypotheses than what they typically see in finance textbooks.
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It is widely recognized that expectations of future events have significant impact on exchange rates movements. The role of expectations in exchange rate movements can be…
Abstract
It is widely recognized that expectations of future events have significant impact on exchange rates movements. The role of expectations in exchange rate movements can be considered as a source of exchange rate estimation error. In a sense it is a pity that the majority of empirical evidence on the exchange rate fluctuation clearly negates the validity of such models that are more sophisticated and comprehensive.
Following Clarida and Taylor, the term structure of forward exchange premiums can be interpreted as multiple cointegration vectors, if it is assumed that departures from the…
Abstract
Following Clarida and Taylor, the term structure of forward exchange premiums can be interpreted as multiple cointegration vectors, if it is assumed that departures from the risk‐neutral efficient markets hypothesis are stationary. This hypothesis is tested using spot rates and one‐month and three‐month forward rates for six European countries during the 1920s floating rate era. Beginning in late 1924, speculation about a return to gold may have resulted in a non‐stationary forward premium. However, except for this speculative period, the term structure of forward premiums was stationary for three currencies. Thus the empirical results presented are broadly consistent with the analysis of Taylor and McMahon, MacDonald and Taylor and Miller and Sutherland.
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Examines the formation of expectations, efficiency and conditional volatility in the foreign exchange market for the Greek drachma using 1987‐1998 data. Presents the statistical…
Abstract
Examines the formation of expectations, efficiency and conditional volatility in the foreign exchange market for the Greek drachma using 1987‐1998 data. Presents the statistical results in detail and considers consistency with other research. Identifies the theoretical and empirical implications of the study and suggests further research.
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Cigdem Z. Gurgur and Emily K. Newes
The non‐storable nature of electricity and the increasing complexity of financial instruments as a tool for hedging against risk make the area of research very useful in the real…
Abstract
Purpose
The non‐storable nature of electricity and the increasing complexity of financial instruments as a tool for hedging against risk make the area of research very useful in the real world. Many power portfolio optimization problems have been developed to combat the issue of risk tolerance, but very few (if any) have included transmission constraints. The purpose of this paper is to consider optimization of portfolios of real and contractual assets, including derivative instruments, in a multi‐period setting where transmission constraints also exist.
Design/methodology/approach
Rather than using a flowgate constraint as a representation of transmission congestion, the authors use fixed transmission rights. A model is introduced that involves a three‐node unidirectional network in order to evaluate the significance of transmission constraints. Data from the PJM, which is located in the eastern USA, were used for model implementation.
Findings
The stochastic nonlinear mixed‐integer model presented shows that transmission constraints and fixed transmission rights can have a significant effect on the choices a utility will make when dealing with power procurement. It is demonstrated that the inclusions drastically decrease the value of the objective function.
Research limitations/implications
Conditional value at risk (CVaR) was chosen over VaR as a risk measurement for two different reasons. First, it is important to have a good representation of the trade‐off between the best expected profit and the volatility experienced when obtaining that profit. Second, it provides protection against very undesirable scenarios that may occur with low probability. In order to simplify the fixed transmission rights contracts, a three‐node network is used with unidirectional flow.
Practical implications
When markets were regulated, transmission lines were owned and operated by local utilities, and all power sent over the lines was either owned by the operating utility or wheeled for another utility based on existing agreements. With the advent of deregulation, utilities were forced to wheel other companies' power, which introduced more risk in terms of transmission constraints.
Originality/value
The contribution of this research is to help companies not only hedge the risk of unknown power prices but also unknown transmission congestion. One distinctive feature of the authors' research is to expand upon existing “power portfolio optimization with risk” literature by introducing a transmission constraint into the model. Historically, transmission congestion has been modeled in different ways, including flowgates, transmission rents and fixed transmission rights.
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Asher Tishler and Chi‐Keung Woo
The objective of the paper is to analyse the economic justification of introducing deregulation to Israel's regulated electricity market and infer whether such a policy change…
Abstract
Purpose
The objective of the paper is to analyse the economic justification of introducing deregulation to Israel's regulated electricity market and infer whether such a policy change makes sense for the country.
Design/methodology/approach
The paper employs an analytical model of electricity market equilibrium under regulation and deregulation. It considers two technologies – coal‐fired generators and combined cycle gas turbines, and two time‐of‐day prices – peak and off‐peak. It analyzes pricing, revenues, profits and consumer surplus both for the regulated industry and the deregulated industry where firms compete, during the peak and off‐peak periods, according to the Cournot conjecture. The model is then applied to the Israeli case.
Findings
The analysis shows that a workably competitive electricity market with financially viable firms does not improve net benefits to Israeli society. A deregulated market is likely to yield smaller net benefits than a regulated market, and certainly a smaller consumer surplus. This happens since efficiency improvements in generation costs under deregulation will not be sufficient to compensate for the reduction in consumer surplus due to higher electricity prices under deregulation.
Research limitations/implications
The simplifications used in the analytical model for ease of analysis and presentation could have influenced some results.
Practical implications
The findings of the paper would have significant relevance for electricity sector deregulation in Israel and other regions that currently have a regulated electricity sector (e.g. Hong Kong, Africa, and many parts of North America).
Originality/value
The value of the paper lies in its ability to demonstrate the inherent weaknesses of the deregulation policy through an analytical model.
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Swarna D. Dutt and Dipak Ghosh
The purchasing power parity hypothesis is investigated within a highly economically integrated set of nations, namely the European Monetary System. We use the Phillips‐Hansen…
Abstract
The purchasing power parity hypothesis is investigated within a highly economically integrated set of nations, namely the European Monetary System. We use the Phillips‐Hansen Fully Modified Ordinary Least Squares procedure, which for the first time allows for an unrestricted cointegration test of the PPP doctrine. We sequentially test for the weak and strong form of PPP.
The purpose of this paper is to analyze cointegration and causality relationships between spot and futures markets in Turkish foreign‐exchange markets.
Abstract
Purpose
The purpose of this paper is to analyze cointegration and causality relationships between spot and futures markets in Turkish foreign‐exchange markets.
Design/methodology/approach
The research employs Bounds cointegration test and Toda‐Yamamoto causality test to detect a possible risk transmission between spot and futures markets. Time series of Turkish spot and futures foreign‐exchange markets from January 2, 2006 to March 25, 2008 on a daily basis are used for empirical analysis.
Findings
The empirical tests suggest that there is unidirectional causality running from future exchange‐rate market to spot market implying that foreign‐exchange markets have informational efficiency in Turkey.
Originality/value
The paper has originality in both employing Bounds test and Toda‐Yamamoto test to examine the relationship between spots and derivative markets, and in being one of the first empirical papers examining Turkish futures markets. In addition, the paper presents a guide on how Bounds and Toda‐Yamamoto tests can be applied to detect interactions among markets without data stationarity.
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Michael C.P. Sing, Venus W.C. Chan, Joseph H.K. Lai and Jane Matthews
Sustainable retrofitting of aged buildings plays a significant role in reducing energy demands and greenhouse gas emissions. This study aims to assess the performance and…
Abstract
Purpose
Sustainable retrofitting of aged buildings plays a significant role in reducing energy demands and greenhouse gas emissions. This study aims to assess the performance and effectiveness of energy retrofit measures (ERMs) for an archetype of aged multi-storey residential buildings.
Design/methodology/approach
The methodology consists of three parts, namely, a desktop study including the selection of a case-study building and identification of ERM options for the building; development of a computer model to simulate the building’s energy use in the baseline scenario and different scenarios of ERMs; and evaluation of the ERMs based on energy-saving rate.
Findings
Among the 13 ERMs tested, lighting-related ERMs were found to be optimal measures while window fin is the least suitable option in terms of energy saving. Based on the research findings, a two-level retrofitting framework was developed for aged multi-storey buildings.
Research limitations/implications
Future studies may take a similar approach of this study to develop retrofitting frameworks for other types of buildings, and further research paper can be extended to study retrofitting for buildings in a district or a region.
Practical implications
The findings of this study can serve as a reference for building owners to select effective ERMs for aged multi-storey buildings, which invariably exist in developed cities.
Originality/value
This study presents a pioneering work where an energy model and a building archetype were used to analyze the energy savings of a variety of ERMs that are applicable to aged multi-storey buildings.
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