Negative correlation between stock and futures returns: an unexploited dedging opportunity?

For over a decade, academic and industry economists argued that the negative correlation between returns on stocks and commodity futures was evidence that institutional investors should add commodity futures index funds as an asset class in their portfolio management strategies. Does this negative correlation give rise to the possibility of unexploited profit opportunity in the financial markets? Using a rational asset-pricing model, we argue that such a negative correlation could arise as a no-arbitrage equilibrium phenomenon and reflects traders’ perceptions about the fundamental processes driving the economy and commodity prices.Stocks - Rate of return ; Commodity futures

What explains the growth in commodity derivatives?

This article documents the massive increase in trading in commodity derivatives over the past decade—growth which far outstrips the growth in commodity production and the need for derivatives to hedge risk by commercial producers and users of commodities. During the past decade, many institutional portfolio managers added commodity derivatives as an asset class to their portfolios. This addition was part of a larger shift in portfolio strategy away from traditional equity investment and toward derivatives based on assets such as real estate and commodities. Institu­tional investors’ use of commodity futures to hedge against stock market risk is a relatively recent phenomenon. Trading in commodity derivatives also increased along with the rapid expansion of trading in all derivative markets. This trading was directly related to the search for higher yields in a low interest rate environment. The growth was both in organized exchanges and over-the-counter (OTC) trading, but the gross market value of OTC trading was an order of magnitude greater. This growth is important to note because a critical factor in the recent crisis was counterparty failure in OTC trading of mortgage derivatives.Over-the-counter markets ; Derivative securities ; Commodity futures

Is there a tendency for the rate of profit to fall? Econometric evidence for the U.S. economy, 1948-2007

The law of the tendential fall in the rate of profit has been at the center of theoretical and empirical debates within Marxian political economy ever since the publication of Volume III of Capital. An important limitation of this literature is the absence of a comprehensive econometric analysis of the behaviour of the rate of profit. In this paper, we attempt to fill this lacuna in two ways. First, we investigate the time series properties of the profit rate series. The evidence suggests that the rate of profit behaves like a random walk and exhibits "long waves" interestingly correlated with major epochs of U.S. economic history. In the second part, we test Marx's law of the tendential fall in the rate of profit with a novel econometric model that explicitly accounts for the counter-tendencies. We find evidence of a long-run downward trend in the general profit rate for the US economy for the period 1948-2007. JEL Categories: B51, C22, E11falling rate of profit, Marxian political economy, time series analysis, unit roots.

Nuclear incompressibility using the density dependent M3Y effective interaction

A density dependent M3Y effective nucleon-nucleon (NN) interaction which was based on the G-matrix elements of the Reid-Elliott NN potential has been used to determine the incompressibity of infinite nuclear matter. The nuclear interaction potential obtained by folding in the density distribution functions of two interacting nuclei with this density dependent M3Y effective interaction had been shown earlier to provide excellent descriptions for medium and high energy $\alpha$ and heavy ion elastic scatterings as well as $\alpha$ and heavy cluster radioactivities. The density dependent parameters have been chosen to reproduce the saturation energy per nucleon and the saturation density of spin and isospin symmetric cold infinite nuclear matter. The result of such calculations for nuclear incompressibility using the density dependent M3Y effective interaction based on the G-matrix elements of Reid-Elliott NN potential predicts a value of about 300 MeV for nuclear incompressibility.Comment: 4 Page

Scaling and universality in coupled driven diffusive models

Inspired by the physics of magnetohydrodynamics (MHD) a simplified coupled Burgers-like model in one dimension (1d), a generalization of the Burgers model to coupled degrees of freedom, is proposed to describe 1dMHD. In addition to MHD, this model serves as a 1d reduced model for driven binary fluid mixtures. Here we have performed a comprehensive study of the universal properties of the generalized d-dimensional version of the reduced model. We employ both analytical and numerical approaches. In particular, we determine the scaling exponents and the amplitude-ratios of the relevant two-point time-dependent correlation functions in the model. We demonstrate that these quantities vary continuously with the amplitude of the noise cross-correlation. Further our numerical studies corroborate the continuous dependence of long wavelength and long time-scale physics of the model on the amplitude of the noise cross-correlations, as found in our analytical studies. We construct and simulate lattice-gas models of coupled degrees of freedom in 1d, belonging to the universality class of our coupled Burgers-like model, which display similar behavior. We use a variety of numerical (Monte-Carlo and Pseudospectral methods) and analytical (Dynamic Renormalization Group, Self-Consistent Mode-Coupling Theory and Functional Renormalization Group) approaches for our work. The results from our different approaches complement one another. Possible realizations of our results in various nonequilibrium models are discussed.Comment: To appear in JSTAT (2009); 52 pages in JSTAT format. Some figure files have been replace

Weighted False Discovery Rate Control in Large-Scale Multiple Testing

The use of weights provides an effective strategy to incorporate prior domain knowledge in large-scale inference. This paper studies weighted multiple testing in a decision-theoretic framework. We develop oracle and data-driven procedures that aim to maximize the expected number of true positives subject to a constraint on the weighted false discovery rate. The asymptotic validity and optimality of the proposed methods are established. The results demonstrate that incorporating informative domain knowledge enhances the interpretability of results and precision of inference. Simulation studies show that the proposed method controls the error rate at the nominal level, and the gain in power over existing methods is substantial in many settings. An application to genome-wide association study is discussed.Comment: Revise

Some Evidence on the Importance of Sticky Wages

Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from the Survey of Income and Program Participation (SIPP) for the period 1996-1999. The SIPP provides high-frequency information on wages, employment and demographic characteristics for a large and representative sample of the US population. The main results of the analysis are as follows. 1) After correcting for measurement error, wages appear to be very sticky. In the average quarter, the probability that an individual will experience a nominal wage change is between 5 and 18 percent, depending on the samples and assumptions used. 2) The frequency of wage adjustment does not display significant seasonal patterns. 3) There is little heterogeneity in the frequency of wage adjustment across industries and occupations 4) The hazard of a nominal wage change first increases and then decreases, with a peak at 12 months. 5) The probability of a wage change is positively correlated with the unemployment rate and with the consumer price inflation rate.wage stickiness, micro-level evidence, measurement error

Who Is in the Middle: Social Class, Core Values, and Identities in India

This article examines how middle‐class identity is experienced and employed by traditional and neo‐middle‐class identifiers in India. The economically and socially heterogeneous middle‐class identifiers vote similarly, but we know very little about what they want out of politics. We focus on the subjective experiences of middle‐class identifiers, we theorize the expressive function of middle‐class identities, and we examine the socially and personally focused core values of traditional middle‐class identifiers and neo‐middle aspirers. We introduce the "Class as Social Identity" scale and analyze qualitative interviews with strong middle‐class identifiers (Study 1) and the 2006, 2012, and 2014 World Values Survey India segments (Study 2). The interviews show that upper middle class and lower middle class identifiers express similar socially focused values but different personally focused values. The WVS analyses show convergence of upper‐middle‐class and lower‐middle‐class identifiers on conservation and self‐transcendence in line with dominant political narratives and divergence on materialism, hedonism, and stimulation in line with their rising differences in income and every‐day life pressures. We discuss the significance of these findings for the understanding of the political function of middle‐class identities in India in the context of heightened Hindu nationalism and recent socioeconomic challenges aggravated by the COVID‐19 pandemic