A Dynamical Theory of Electron Transfer: Crossover from Weak to Strong Electronic Coupling

We present a real-time path integral theory for the rate of electron transfer reactions. Using graph theoretic techniques, the dynamics is expressed in a formally exact way as a set of integral equations. With a simple approximation for the self-energy, the rate can then be computed analytically to all orders in the electronic coupling matrix element. We present results for the crossover region between weak (nonadiabatic) and strong (adiabatic) electronic coupling and show that this theory provides a rigorous justification for the salient features of the rate expected within conventional electron transfer theory. Nonetheless, we find distinct characteristics of quantum behavior even in the strongly adiabatic limit where classical rate theory is conventionally thought to be applicable. To our knowledge, this theory is the first systematic dynamical treatment of the full crossover region.Comment: 11 pages, LaTeX, 8 Postscript figures to be published in J. Chem. Phy

Developing the ECU Markets: Perspectives on Financial Innovation

The European Currency Unit (ECU) was officially introduced in March 1979 and has joined the ranks of innovative financial products that are rapidly appearing. The purpose of the paper is to explore the properties of the ECU and analyze those characteristics of the ECU, and products denominated in ECU, that offer value-added. Changes in communications and information technology, changes in the regulatory climate, and changes in the macroeconomic environment have generally encouraged recent financial innovations. We argue that the ECU has gained an edge on its component currencies because of its portfolio properties, its role in reducing transaction costs, the role of the European Monetary System, and trading factors peculiar to the ECU. Private participants should continue to gravitate toward the ECU as a useful vehicle to fulfill the services of money.

Ratings, rating agencies and the global financial system: Summary and policy implications

In this introductory chapter, we begin with a brief overview of the issues that have Motivated our research into the role of credit ratings and credit rating agencies in the global financial system. We then summarize the main themes in each of the papers and highlight the major findings. In the final section, we suggest several policy implications and conclusions that can be drawn from this research.Rating credit sovereign corporate risk lending

Analyzing the Accuracy of Foreign Exchange Advisory Services: Theory AndEvidence

With the introduction of floating exchange rates, the variability of unanticipated exchange rate changes has increased dramatically. A small forecasting industry has developed to provide information about future exchange rates. From an academic viewpoint, it is of interest to examine some of the statistical properties of these forecasts and to relate the forecast errors to other fundamental economic variables in a model with rational behavior. Second, from a more practical viewpoint, we would like to know if foreign exchange forecasts are useful to decision makers. The purpose of this paper is to provide an objective analysis which addresses some of the above questions for a large sample of forecasts. On the basis of the current research, we can draw several conclusions. First, most advisory service forecasts are not as accurate as the forward rate in terms of mean squared error. Second, judgmental forecasters are superior to econometric forecasters for short-term forecasts; the relationship is reversed for longer-term forecasts (one year). Third, two statistical tests indicate that the fraction of "correct" forecasts is significantly larger than what would be expected if the advisory services were only guessing at the direction of the future spot rate. In this sense, the forecast services appear to demonstrate expertise and usefulness. However, a full analysis of the risk-return opportunities available to advisory service users is still incomplete. It should be cautioned that if the forward rate contains a risk premium, then we expect advisory service models to beat the forward rate according to the tests we have outlined. In this case we must measure speculative returns relative to a risk measure. While advisory service forecasts may lead to profits, they may not be unusual after adjusting for risk.

Beyond the carry trade: optimal currency portfolios

This article has been accepted for publication in the Journal of Financial and Quantitative Analysis and will appear in a revised form, subsequent to peer review and/or editorial input by Cambridge University Press. Copyright (c) 2013 Cambridge University PressWe test the relevance of technical and fundamental variables in forming currency portfolios. Carry, momentum and reversal all contribute to portfolio performance, whereas the real exchange rate and the current account do not. The resulting optimal portfolio outperforms the carry trade and other naive benchmarks in an extensive 16 year out-of-sample test. Its returns are not explained by risk and are valuable to diversified investors holding stocks and bonds. Exposure to currencies increases the Sharpe ratio of diversified portfolios by 0.5 on average, while reducing crash risk. We argue that currency returns are an anomaly which is gradually being corrected as hedge fund capital increases

FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets

The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd-Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade currency futures on existing futures markets which standardize counterparty risks. Evidence for the period 2005-11 indicates that the market share of currency futures trading has grown relative to the pre-crisis period. This shift may be the result of a perceived increase in counterparty risk among banks, as well as changes in relative trading costs or changes in other institutional factors

Hunting for Alpha Hunters in the Currency Jungle

When equity markets are churning out double digit returns and fixed income markets offer normal yields or declining rates, institutional investors can be somewhat relaxed. They can earn reasonable absolute returns with conventional strategies. “Beta grazing” goes a long way without much need to look for exotica.1 Put differently, when traditional assets are likely to provide reasonable returns, the need for so called alternatives is less urgent. But when expected returns in equity markets seem slight and fixed income has been overrun by scared rabbits looking for safety or a small yield-to-maturity, things are different. What should institutional investors do to satisfy their need for more acceptable absolute rates of return?2 In such an environment, the marginal contribution of alpha hunting is far greater. It goes beyond the desire to diversity into the necessity to earn a critical level of absolute return

Are All Currency Managers Equal?

We present a post-sample study of currency fund managers showing that alpha hunters and especially alpha generators are more effective in providing diversification benefits for a global equity portfolio than currency managers who earn beta returns from popular style strategies or managers with high total returns regardless of their source. Our study is unusual in that we measure the alpha from currency investing using a simple factor model rather than based on total excess returns, that we use rankings of currency managers from an earlier published study and examine their performance truly out-of-sample, and finally that our data reflect actual trades and returns earned by these managers, so the data are not contaminated by the usual biases in hedge fund databases. Our results suggest that a factor model approach to analyzing currency fund returns, coupled with the revealed degree of alpha and beta persistence in our data, offer institutional investors with large equity exposure a useful tool for improving their performance

Underpricing of New Equity Offerings by Privatized Firms: An International Test

In this paper, we study a large sample of 507 privatization offerings from 39 countries over the period 1979-1996. Our objectives are twofold. First, we document the extent of short-run underpricing of these privatization offerings and measure their variation across countries, industries, and years, as well as drawing comparisons to private company IPOs. Second, we test alternative explanations of the determinants of short-run underpricing drawing on various models of maximizing behavior by underwriters, augmented by variables that proxy for national political objectives. Overall, we find support for elements of asymmetric information theory, investor sentiment theory and the reputation building hypothesis. With the exception of the Gini coefficient, our political proxy variables are typically not significant. Thus to a significant degree, the investment banking strategies believed to characterize IPOs of private companies in industrial countries may also play a role in the IPO strategies of state-owned-enterprises in both industrial and lesser developed economies

Do Professional Currency Managers Beat the Benchmark?

We investigate an index of returns on professionally managed currency funds and a subset of returns from 34 individual currency fund managers. Over the period 1990-2006, excess returns earned by currency fund managers have averaged 25 basis points per month. We examine the relationship of these returns to four factors representing returns based on carry trading, trend-following, value trading and currency volatility. These four factors explain a substantial portion of the variability in index returns in the entire period and in sub-periods. We perform similar regressions for the 34 individual funds, and find many funds where returns are significantly related to these four factors. Our approach impacts the definition of alpha returns from currency speculation, modifying it from the excess return earned by the fund, to only that portion of the excess returns not explained by the four factors. While the impact on measured alpha is substantial, we find that some currency fund managers continued to generate alpha returns in the most recent sample period