Investigating Sources of Unanticipated Exposure in Industry Stock Returns

This paper investigates the degree of both foreign exchange rate and interest rate exposure of industry level portfolios in the G7. Our paper draws on the efficient market hypothesis and examines the extent of unexpected foreign exchange (and interest rate) exposure rather than the standard approach of focusing purely on the change in foreign exchange (and interest rate) exposure. The results from our baseline regressions are consistent with those previously found in the literature that there is little evidence of exchange rate exposure in most markets — this is the exchange rate exposure puzzle. The second critical element of our analysis is that we investigate the sources of the exposure and examine the existence of indirect levels of both foreign exchange and interest rate exposure. The findings of exposure to foreign exchange rates and interest rates are extensive for industry sectors in the G7 economies when we take account of the possible channels of influence. Results indicate key differences between countries in terms of the relative importance of these cash flow and discount rate channels.Foreign exchange, exposure, interest rates, stock returns, international finance

Forex Risk: Measurement and Evaluation using Value-at-Risk

Over the past decade the growth of trading activity in financial markets, numerous instances of financial instability, and a number of widely publicised losses on banks' trading books have resulted in a re-analysis of the risks faced, and how they are measured. The most widely advocated approach to have emerged to measure market risk is that of Value-at-Risk (VaR). This methodology was designed in J.P. Morgan to give their chief executive a single figure that would provide a daily summary of the evolving risk of the Banks investment portfolio. VaR methods estimate the distribution of losses/gains on a portfolio of assets/liabilities over a given horizon. From the estimated distribution one can then find, for the loss on the portfolio, a bound that will only be exceeded rarely. This bound is the VaR. The term “rarely” is often taken to refer to an event that occurs one or five times per hundred periods. In actual applications users are free to define “rarely” to suit their own needs. VaR can be calculated in various ways and its value depends on the assumptions made and models used. This paper looks at six different measures of the VaR of an Irish investor holding an equally weighted portfolio of foreign exchange positions in the currencies of Ireland’s major trading partners. The basic data used are daily exchange rates covering the period 1990 to 1998. Daily VaRs for four different holding periods are calculated, using six alternative approaches to estimating the distribution of the underlying risk. The measured VaRs are compared graphically and statistically with actual losses/gains over the period. Recently developed techniques are used to measure the performance and accuracy of the estimates of the VaR estimates. For the portfolios considered here the method based on Exponentially Weighted Moving Averages is superior to the others. This may of course be due to the statistical properties of the FOREX returns being considered. The article provides a framework for the comparison of different measures of VaR. These can be adapted for the evaluation of alternative VaR models for risk control within an organisation. This framework can also serve as an input to the validation of in-house models proposed for the calculation of capital adequacy under the Capital Adequacy Directive.

Vagueness, Inconsistency and Less Respect for Charter Rights of Accused at the Supreme Court in 2012-2013

This paper suggests that several recent decisions of the Supreme Court show undue vagueness, inconsistency and less resolve to protect the Charter rights of accused. The rhetorical reliance on the language of Charter “values” of “equality, autonomy, liberty, privacy and human dignity” in R. v. Mabior is seen as increasingly unruly and leading to considerable inconsistency. Leaving the test of intervening cause largely untethered in R. v. Mabin is found to be unfortunate. It is suggested that complex and deeply divided rulings in R. v. Prokofiew have left comments on the accused’s silence at trial to the largely unfettered discretion of trial judges, the reby unnecessarily further diminishing the Charter right to silence. The new R. v. Nedelcu definition for section 13 use immunity protection revived the distinction between evidence that incriminates and evidence going to credibility. The author is of the view that Binnie J.’s decision for a unanimous Court in R. v. Henry had persuasively decided that this distinction is in practice too difficult to draw, and that this key determination should not have been overruled. The paper draws attention to the Court’s having avoided rather than considered Charter standards of moral involuntariness for defences declared in R. v. Ruzic and the Court’s previous Charter rulings on voluntariness intoxication in R. v. Daviault. Finally, the author finds rampant inconsistency in the Court’s approach to judicial notice. These concerns go to the legitimacy of the rule of law the Court often proudly invokes

The Charter Balance against Unscrupulous Law and Order Politics

Part I of this paper documents the unscrupulous politics of the majority Harper Government in enacting Bill C-10, the Safe Streets and Communities Act, in the name of victims’ rights. The Government ignored the legion of advice from opposition members and from lawyers, correctional officials, criminologists and judges within and outside Canada that resort to greater use of imprisonment, and minimum penalties in particular, will be costly and will not make Canadians safer. Opponents also predicted that there would be a disproportionate impact on vulnerable communities. In Part II it is argued that entrenched Charter standards as asserted by our courts have often produced a better balance between the rights of accused and the need to protect the public. Four examples are considered. It is suggested that our judiciary has put in place salutary principles of fundamental justice established under section 7, the powerful stay remedy for trials with unreasonable delay under section 11(b), carefully limited standards for policing and the now robust remedy of exclusion of evidence obtained in violation of Charter rights under section 24(2). Part III concludes with five suggestions for change to better protect the rights of accused: (1) section 24(2) approaches to discoverability and good faith; (2) care should be taken not to create enforceable Charter rights for victims, with special reference to current imbalances in sexual assault trials; (3) rights to counsel should not be dependent on whether they are asserted; (4) rights of accused allowing for coercive interrogations should be reconsidered and strengthened; and (5) the cruel and unusual protection under section 12 should be revitalized to strike down disproportionate minimum penalties

Charter Standards for Investigative Powers: Have the Courts Got the Balance Right?

This paper argues that judicial assertion of entrenched Charter standards since 1982 has constituted the only real check against the lure of law-and-order politics by politicians of all stripes and the consequent unremittingly legislative trend to toughen the criminal law. The paper undertakes the daunting task of stating the basic minimum Charter standards under sections 7, 8, 9 and 10 for police powers to stop, detain and question, and the n considering whether the courts have arrived at the proper balance between affording police effective enforcement powers while protecting the civil rights of all Canadians. The paper concludes that the courts have done a reasonably good job in setting out Charter standards for the police which try to balance civil liberties and the need for effective police powers. They have in general achieved a reasonable balance comparatively free of the law-and-order politics that dominates Parliament. However, the paper acknowledges that the Charter as interpreted by our courts is certainly no panacea and that sometimes the standards have been set too low, and suggests that the Supreme Court reconsider its approaches in a number of areas such as the triggering devices of “reasonable expectation of privacy” for section 8 and “detention” for sections 9 and 10. The Court should revisit the issue of section 10(b) and right to silence protections, particularly in the context of custodial interrogation. Perhaps most importantly, the Court should announce a revised set of criteria for the exclusion of evidence under section 24(2) to make it clear that the seriousness of the violation is determinative and not the reliability of the evidence or the seriousness of the offence. In these times of law and order and public security hype, it is hoped that the courts will maintain their independent role as guardians of the Charter so that our criminal justice system will remain one which balances and respects minority rights of all Canadians, including those of the accused

European Monetary Policy Surprises: The Aggregate and Sectoral Stock Market Response

In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in UK and German/euro area policy rates on UK and German aggregate and sectoral stock returns in an event study. The decomposition of the (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level stock returns in both the UK and Germany. The influence of German/Euro area monetary policy shocks appears insignificant for both countries.

Correlation dynamics between Asia-Pacific, EU and US stock returns

This paper investigates the correlation dynamics in the equity markets of 13 Asia-Pacific countries, Europe and the US using the asymmetric dynamic conditional correlation GARCH model (AG-DCC-GARCH) introduced by Cappiello, Engle and Sheppard (2006). We find significant variation in correlation between markets through time. Stocks exhibit asymmetries in conditional correlations in addition to conditional volatility. Yet asymmetry is less apparent in less integrated markets. The Asian crisis acts as a structural break, with correlations increasing markedly between crisis countries during this period though the bear market in the early 2000s is a more significant event for correlations with developed markets. Our findings also provide further evidence consistent with increasing global market integration. The documented asymmetries and correlation dynamics have important implications for international portfolio diversification and asset allocation.dynamic conditional correlation; asymmetry; international portfolio diversification

BALTA Newsletter - Winter 2012

This is the newsletter of the BC-Alberta Social Economy Research Alliance (BALTA). It contains news about BALTA and social economy developments in Alberta and British Columbia, Canada.BC-Alberta Social Economy Research Alliance (BALTA) ; Social Sciences and Humanities Research Council of Canada (SSHRC