Stock-bond co-movements and cross-country linkages

This paper shows empirically that the level of stock-bond correlation depends more on crosscountry influences than on stock and bond market interaction. The study examines the relation of cross-country and cross-asset stock and bond market linkages for eight developed countries and finds that (i) stock market returns primarily depend on the US stock market and (ii) bond market returns primarily depend on the US bond market. Recursive Granger causality tests further show that the dominance of the US stock and bond market has increased in recent years and that there is both Granger causality from stocks to bonds and from bonds to stocks in several periods. We argue that the relatively low level of stock-bond correlations is due to an increased cross-country interdependence of financial markets leading to more frequent portfolio reallocations between stocks and bonds in order to compensate for lower cross-country diversification benefits.financial market integration, stock market co-movements, bond market co-movements, stock-bond linkages, flight-to-quality, contagion

Does the Mobility of Football Players Influence the Success of the National Team?

This paper is motivated by the observation that there is a large discrepancy among football nations regarding the number of football players that play in the national team and also in their home league. Two extreme examples are Argentina and Italy : Almost all members of the national team of Argentina play in a foreign football league and all national team players of Italy play in their home league. We focus on the question whether a country's success in international competitions significantly depends on the mobility of its football players. More specifically, we analyze whether a country's success is influenced (i) by the number of national team players that do not play in the home league and (ii) by the number of national team players from other countries that play in the home league. Our study is based on data of all 32 national football teams qualified for the FIFA World Cup in Germany 2006 including more than 700 players with a total estimated market value of almost four billion Euros. The main finding is that a country's success crucially depends on both imports and exports. This suggests that all countries that qualified for the World Cup gain from trade.football, international trade, transfer market

House Prices and Economic Risks - Are Irish Households Rational?

This study analyzes the evolution of house prices in Ireland and investigates the question of whether Irish households are overexposed to certain economic risks rendering the decision to buy a house too risky and hence irrational. We use a simple theoretical framework to demonstrate the investment options of a typical household and derive the risk factors associated with the purchase of a house with respect to other types of investment. Irish households hold the majority of their investments in property, specifically in their own houses. The empirical results illustrate that this wealth is exposed to inflation, interest rate changes and the business cycle. This exposure, while not problematic in times of low interest rates, moderate inflation and economic expansion, amplifies the risk to the value of households’ investments if inflation increases, interest rates rise or the economy is in recession. We argue that the adoption of the euro has increased this risk because interest rates are exogenous to the Irish economy which could lead to a situation of deteriorating economic conditions and rising interest rates. Our findings indicate that Irish households potentially underestimate the risk of buying a house. Viewing the purchase of a house as a risky investment could help reduce private debt in the future.

Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

This paper addresses two questions. First, we investigate whether gold is a hedge against stocks and/or bonds and second, we investigate whether gold is a safe haven for investors if either stocks or bonds fall. A safe haven is defined as a security that loses none of its value in case of a market crash. This is counterpoised against a hedge, defined as a security that does not co-move with stocks or bonds on average. We study constant and time-varying relationships between stocks, bonds and gold in order to investigate the existence of a hedge and a safe haven. The empirical analysis examines US, UK and German stock and bond prices and returns and their relationship with the Gold price. We find that (i) Gold is a hedge against stocks, (ii) Gold is a safe haven in extreme stock market conditions and (iii) Gold is a safe haven for stocks only for 15 trading days after an extreme shock occurred.Safe haven, gold, stock-bond correlation, flight-to-quality

The Benefits of Financial Markets: A Case Study of European Football Clubs

This study analyses the performance of European football clubs which undergo an initial public offering (IPO). We use a unique time-series and cross-section dataset consisting of domestic and international performance data to develop an event study to investigate the effects of a football club’s on-field performance before and after the IPO. The study follows from the observation that, as financial markets are expected to exhibit a positive influence on the economy as a whole, football clubs who access these markets should benefit as well. However, the conclusions of our study are similar to those in the corporate finance literature, where firms who undertake an IPO find their stock price underperforming similar firms in the medium term. Using our metric, football clubs have a diminished domestic and international performance after the stock market listing.

Production of Low Mass Electron Pairs Due to the Photon-Photon Mechanism in Central Collisions

We calculate the probability for dilepton production in central relativistic heavy ion collisions due to the gamma-gamma mechanism. This is a potential background to more interesting mechanisms. We find that this mechanism is negligible in the CERES experiments. Generally, the contribution due to this mechanism is small in the central region, while it can be large for small invariant masses and forward or backward rapidities. A simple formula based on the equivalent photon approximation and applications to a possible scenario at RHIC are also given.Comment: 10 pages REVTeX, 5 Figures, for related work see http://quasar.physik.unibas.ch/~hencken

How Bad Must Conditions Be To Make Investors Flee?

This paper examines the conditions under which investors flee from stocks to bonds or vice versa. Daily and weekly stock and bond returns are analyzed to determine when investors start to flee from a market and rebalance their portfolios. We use a theoretical model that demonstrates why rational investors deviate from the optimal portfolio weights and under which conditions they rebalance their portfolios. Quantile Regression is employed to analyze empirically when investors flee from certain asset classes. The results demonstrate significant advantages of this approach compared to commonly employed (dynamic) correlation estimates. The approach can quasi-endogenously identify different regimes of stock-bond co-movements and directly distinguish between flight-to-quality and flightfrom-quality. Our empirical results for eight major stock and bond markets show that there are three distinct regimes of stock-bond co-movements. Time-varying quantile estimates further show that there is a positive trend in the likelihood and severity of flights. The findings show that diversification between stocks and bonds is effective especially in times when it is needed most.

Stock return autocorrelations revisited: A quantile regression approach

The aim of this study is to provide a comprehensive description of the dependence pattern of stock returns by studying a range of quantiles of the conditional return distribution using quantile autoregression. This enables us in particular to study the behavior of extreme quantiles associated with large positive and negative returns in contrast to the central quantile which is closely related to the conditional mean in the least-squares regression framework. Our empirical results are based on 30 years of daily, weekly and monthly returns of the stocks comprised in the Dow Jones Stoxx 600 index. We find that lower quantiles exhibit positive dependence on past returns while upper quantiles are marked by negative dependence. This pattern holds when accounting for stock specific characteristics such as market capitalization, industry, or exposure to market risk. --stock return distribution,quantile autoregression,overreaction and underreaction

Production of QED pairs at small impact parameter in relativistic heavy ion collisions

The STAR collaboration at RHIC is measuring the production of electron-positron pairs at small impact parameters, larger than but already close to the range, where the ions interact strongly with each other. We calculate the total cross section, as well as, differential distributions of the pair production process with the electromagnetic excitation of both ions in a semiclassical approach and within a lowest order QED calculation. We compare the distribution of electron and positron with the one coming from the cross section calculation without restriction on impact parameter. Finally we give an outlook of possible results at the LHC.Comment: 15 pages, 8 figure

The relative valuation of gold

Gold is a globally traded asset and held in large quantities by investors and central banks. Since there is no established model to assess if the price of gold is overvalued or undervalued, we propose a relative valuation framework based on gold price ratios. We analyze gold prices relative to commodity prices, consumer prices, stock prices, dividend and bond yields and find that the relative value of gold varies significantly over time indicating pronounced periods of mispricing of gold relative to other assets. An analysis of the factors which drive these variations demonstrates that inflation expectations and uncertainty have a strong influence on gold ratios while macroeconomic fundamentals are less important. More specifically, a boost in confidence decreases the relative price of gold while heightened uncertainty increases the relative price of gold which confirms the role of gold as a safe haven.Gold ist ein global gehandeltes Asset und wird in großen Mengen von Investoren und Zentralbanken gehalten. Da in der Literatur kein etabliertes Modell existiert, um zu beurteilen, ob der Goldpreis über- oder unterbewertet ist, schlagen wir eine relative Bewertung basierend auf Goldpreisrelationen vor. Wir analysieren den Goldpreis in Relation zu Rohstoffpreisen, Konsumentenpreisen, Aktienkursen, Dividenden und Renditen. Die Ergebnisse zeigen, dass der relative Wert des Goldes über die Zeit signifikant variiert. Es lassen sich Phasen identifizieren, die durch eine Fehlbewertung von Gold relativ zu anderen Vermögenswerten gekennzeichnet sind. Eine Analyse der Faktoren, die diese Schwankungen hervorrufen, weist Inflationserwartungen und Unsicherheit als entscheidende Determinanten von Fluktuationen in Goldrelationen aus, während makroökonomische Fundamentaldaten weniger relevant erscheinen. Ein Anstieg der Inflationserwartungen führt zu einem Rückgang des relativen Goldpreises, während eine Erhöhung der Unsicherheit den relativen Goldpreis ansteigen lässt, was die Rolle von Gold als "sicheren Hafen'" bestätigt