The exchange rate and purchasing power parity in arbitrage-free models of asset pricing.

Exchange; Purchasing; Purchasing power; Power; Models; Model; Asset pricing; Pricing;

Advances in Very Deep Convolutional Neural Networks for LVCSR

Very deep CNNs with small 3x3 kernels have recently been shown to achieve very strong performance as acoustic models in hybrid NN-HMM speech recognition systems. In this paper we investigate how to efficiently scale these models to larger datasets. Specifically, we address the design choice of pooling and padding along the time dimension which renders convolutional evaluation of sequences highly inefficient. We propose a new CNN design without timepadding and without timepooling, which is slightly suboptimal for accuracy, but has two significant advantages: it enables sequence training and deployment by allowing efficient convolutional evaluation of full utterances, and, it allows for batch normalization to be straightforwardly adopted to CNNs on sequence data. Through batch normalization, we recover the lost peformance from removing the time-pooling, while keeping the benefit of efficient convolutional evaluation. We demonstrate the performance of our models both on larger scale data than before, and after sequence training. Our very deep CNN model sequence trained on the 2000h switchboard dataset obtains 9.4 word error rate on the Hub5 test-set, matching with a single model the performance of the 2015 IBM system combination, which was the previous best published result.Comment: Proc. Interspeech 201

Privately and socially optimal take-overs when acquisition and exclusion strategies are endogenous.

The case for one share, one vote is quite robust to the way the takeover game is played, provide done goes all the way and allows not just toeholds or multiple bids and revisions but also bargaining. But a rule that exclusion should never harm the non-voting shares, or tha tthese shares should be taken over at the pre-bidprice,will do as well, without so severely curtailing a firm's room for security design. Under either rule, all privately beneficial takeovers are socially desirable and vice versa, and the value gains are shared fairly between the current shareholders and the bidder.Research; Impact; Determinants; Firms; Product; Market; Competition; Ownership; Performance; Characteristics; Belgian firms; Control; Companies; Firm performance; International; Portfolio; Variables; Size; Growth; Model; Job; Pricing; Factors; Rules; Data; Benchmarking; Prices; Value; Models; Work; Bias; Variance; Trade; Estimator; Bids; Optimal; Takeovers; Strategy;

Exchange rate volatility and trade: a general equilibrium analysis.

In this paper, we use insights from the literature on financial options to analyze the effect of exchange rate volatility on the volume of trade between countries. In contrast to existing work, this analysis is carried out in a model where the exchange rate is determined endogenously, and the volatility of the exchange rate depends on the volatility of the amounts available for consumption of the traded and non-traded goods. Our main result is to show that, in a one-good world, and contrary to the popular conjecture, an increase in exchange rate volatility is associated with an increase in the volume of trade. If a non-traded good is added, the above remains true when the source of exchange rate volatiliy is the uncertainty in the traded goods sector. However, when the source of exchange rate volatility is the non-traded goods sector then the volume of trade may decline. Thus, our model offers at least a partial explanation for the results of empirical studies that find only a weak relation between exchange rate volatility and trade. A policy implication of the model is that the volatility of the real exchange rate can be reduced, and welfare increased, in two ways: by reducing the volatility of fundamentals and by reducing the barriers to trade. However, while a reduction in trade barriers is associated with an increase in trade, a reduction in the volatility of fundamentals leads to a reduction in trade. Thus, more trade does not always mean a higher welfare.Equilibrium; Trade; Volatility;

The forex forward puzzle: The career risk hypothesis.

Prior work variously ascribes the forward puzzle -the low slope in the Fama (1984) regression of the exchange rate change on the forward premium- to various model misspecications or statistical problems with non-stationary forward premia, but no single theory fully succeeds in explaining the puzzle. In this paper we simultaneously address the model-misspecification problem and the non-stationarity issue. On the basis of competing hypotheses about the risk premium we consider the nonlinear models that specify the Fama beta as approximately quadratic or spline functions of the forward premium. We estimate these relations using overlapping one-month observations for ERM-member exchange and forward rates against the DEM. The standard deviations are calculated under the Monte Carlo Method for overlapping observations. Wald test confirms the presence of such nonlinearities, and the models outperform the Fama in terms of various in the goodness-of-fit measures, but the spline adds little relative to the simple quadratic. To handle the non-stationary forward premium problem, we decompose the forward premium into a long-memory co-movement component and a short-term filtered forward premium. In regressions that link exchange-rate changes to the long-memory co-movement component the forward puzzle worsens, while it is substantially reduced when, instead, the filtered component isused as the regressor, suggesting that the filtered component loads relatively heavily on expectations and the slow-moving trend on the missing variable. Beta appears to be an inverse-U-shaped function of the forward premium. This contradicts the Bansal risk premium and the transaction-cost/limit-to-arbitrage hypotheses, but is consistent with a Fallen-angel effect, where traders or portfolio managers shun long positions in assets with danger signals like forward discounts.Forward puzzle; Peso problem; Risk premium; Tests; Uncovered interest parity;

The optimal number of contracts in cross- or delta-hedges.

When hedging in futures markets, the hedge instruments typically fail to match the exposed asset or portfolio by expiration date and/or underlying asset. The theoretical variance-minimizing hedge is given by the slope coefficient of the conditional (forward-looking) regression of the spot-price that one is exposed to on the futures price used as a hedge. We explore the hedging performance of simple rules of thumb and of unconditional regressions on past data, focusing on the effect of the choice of observation frequency, sample period, percentage vs. dollar returns, and lead/lag effects. Our findings are the following : (a) the effects of varying the observation frequency, sample period, etc., are much larger than the effects of using GARCH instead of OLS. (b) Regardless of sample size and estimation technique, the exposure is best estimated using percentage returns rather than (dollar) first differences. © In the case of delta hedges, and also a cross-hedges among closely related currencies, regressions are systematically beaten by naïve rules of thumb. (d) This relatively poor performance of regression-based hedges is not just due to errors in data. (e) The optimal estimation technique depends on the situation. For cross-hedges involving two European currencies, high-frequency OLS estimates is flawed by EMS-induced leads and lags among exchange rate changes, and the best regressions are those using monthly data from longish sample periods. For delta-hedges the dominant source of estimation problems seems to be a time-varying relationship between the regression variables, and the best regressions use daily data from short sample periods.Optimal;

One share, one vote ?.

In the theoretical framework considered in the two seminal contributions, Grossman and Hart (GH, 1988) and Harris and Raviv (HR, 1989), the 'one share, one vote' (1S1V) rule is optimal whether private benefits are enjoyed by the incumbent or the rival. In practice, deviations from 1S1V are frequent. We complete the GH-HR analysis in three ways. First, we give both incumbent and rival management private benefits. Second, we not only examine the behaviour and optimality of feasible rules in a local or ex post sense (i.e. at the moment the rival appears and his characteristics are observed), but we also consider the ex ante problem where the entrepreneur-founder only knows the distribution from which the rival will be drawn. The issue is what set of rules the entrepreneur will put in place, re take-overs, so as to maximise the IPO value of the firm. Lastly, we go beyond the dual-class case, explaining the role and usefulness of multiple-class structures.Characteristics; Corporate control; Takeovers; Management control;

Orthogonalized regressors and spurious precision.

The exposure of a stock's return to exchange-rate changes is conventionally estimated by regression. Often, the market return is included as an additional regressor. By first orthogonalizing the market return on the exchange rate one seems to have the best of both worlds: the market factor cannot subsume part of the exposure present in a stock's return, and these of the estimate beats both the simple -and the multiple- regression SE's. This last effect is illusory: since the simple and the pseudo-multiple regression always produce the same exposure estimate, given the sample, their precision must be identical too. Technically, the source of the problem is that the uncertainty about the market's exposure estimate is left out of the calculated SE. In published work, the calculated error variances should be corrected upward by 20 to 100 percent.Currency; Exchange; Exposure; Market; Market model; Multiple regression; Precision; Regression; Uncertainty; Variance; Work;

Double bids for dual-class shares.

Confusingly, the seminal contributions on the 'one share, one vote '(1S1V) issue - Grossman and Hart (GH,1988) and Harrisand Raviv (HR,1989)- are quoted as evidence by both proponents and opponents of 1S1V. Infact, GH-HR stress the cases where the rule is optimal, but do acknowledge possible deviations from the optimality of 1S1V(without developing these cases). In light of renewed interest in the relation between shareholder protectionand control arrangements, we first thoroughly review the optimality of 1S1V in the original setting, without the complication of structural enhancements except that both incumbent and rival management can have private benefits simultaneously. After this analysis of the perfect-foresight optimal charter we also consider the imperfect-foresight problem where the entrepreneur-founder only knows the distribution from which the rival will be drawn. The issue is what set of rules the entrepreneur wil lput in place, retake-overs, so as to maximize the IPO value of the firm. We find that, from the founder's perspective, 1S1V is never optimal with imperfect foresight, and optimality is surprisingly rare even with perfect foresight. We also explain why governments rarely step in: from simulations we find that the social impact of the charter choice seems to be far smaller than the private impact (on IPO value or post-take-over value). Lastly, we go beyond the dual-class case, explaining the role and usefulness of multiple-class structures.Research; Impact; Determinants; Firms; Product; Market; Competition; Ownership; Performance; Characteristics; Belgian firms; Control; Companies; Firm performance; International; Portfolio; Variables; Size; Growth; Model; Job; Pricing; Factors; Rules; Data; Benchmarking; Prices; Value; Models; Work; Bias; Variance; Trade; Estimator; Bids;

'Extreme support for UIP' revisited : how comes the dogs don't bark ?.

Abstract: Conjecturing that, in testing UIP, transaction costs may have obscured the relation between expected exchange-rate changes and forward premia, Huisman et al. (1998) focus on days with unusually large cross-sectional variances in forward premia (reflecting, assumedly, episodes with pronounced expectations). They find encouragingly high regression coefficients for those special days---'extreme' support, in short.We show that, for extreme forward premia to be primarily due to a clear signal rather than loud noise, the signal needs to be thicker-tailed than the noise. Transaction-cost-induced noise seems to have promising properties: percentage deviations from the perfect-markets equilibrium should be (i) bounded (that is, they have no tails and, therefore, cannot dominate the extreme forward premia), (ii) wide (that is, they may generate betas below 1/2) and (iii) U-shaped in distribution, a feature that turns out to make an 'extreme' sample quite effective. We derive theoretical and numerical results in the direction of what Huisman (et al.) observe.Optimal;