Return Predictability under Equilibrium Constraints on the Equity Premium

This paper proposes a new approach for incorporating theoretical constraints on return forecasting models such as non-negativity of the conditional equity premium and sign restrictions on the coefficients linking state variables to the equity premium. Our approach makes use of Bayesian methods that update the estimated parameters at each point in time in a way that optimally exploits information in these constraints. Using a variety of predictor variables from the literature on predictability of stock returns, we find that theoretical constraints have an important effect on the coefficient estimates and can significantly reduce biases and estimation errors in these. In out-of-sample forecasting experiments we find that models that exploit the theoretical restrictions produce better forecasts than unconstrained models.Return Predictability, Constraints, Out-of-Sample Forecasts

Sensitivity of the Atlantic meridional overturning circulation to South Atlantic freshwater anomalies

The sensitivity of the Atlantic Meridional Overturning Circulation (AMOC) to changes in basin integrated net evaporation is highly dependent on the zonal salinity contrast at the southern border of the Atlantic. Biases in the freshwater budget strongly affect the stability of the AMOC in numerical models. The impact of these biases is investigated, by adding local anomaly patterns in the South Atlantic to the freshwater fluxes at the surface. These anomalies impact the freshwater and salt transport by the different components of the ocean circulation, in particular the basin-scale salt-advection feedback, completely changing the response of the AMOC to arbitrary perturbations. It is found that an appropriate dipole anomaly pattern at the southern border of the Atlantic Ocean can collapse the AMOC entirely even without a further hosing. The results suggest a new view on the stability of the AMOC, controlled by processes in the South Atlantic. <br/

New procedures for testing whether stock price processes are martingales

We propose procedures for testing whether stock price processes are martingales based on limit order type betting strategies. We first show that the null hypothesis of martingale property of a stock price process can be tested based on the capital process of a betting strategy. In particular with high frequency Markov type strategies we find that martingale null hypotheses are rejected for many stock price processes

Network Centrality and Delegated Investment Performance

We document a positive relation between network centrality and risk-adjusted performance in a delegated investment management setting. More connected managers take more portfolio risk and receive higher investor flows, consistent with these managers improving their ability to exploit investment opportunities through their network connections. Greater network connections are shown to be particularly important in reducing the diseconomies-of-scale for large managers who are well-connected. We also use the exogenous merger of two investment consultants, which creates a sudden change in the network connections of the managers they oversee, to provide evidence that a greater number of connections translates into better portfolio performance

Rotationally Warm Molecular Hydrogen in the Orion Bar

The Orion Bar is one of the nearest and best-studied photodissociation or photon-dominated regions (PDRs). Observations reveal the presence of H2 lines from vibrationally or rotationally excited upper levels that suggest warm gas temperatures (400 to 700 K). However, standard models of PDRs are unable to reproduce such warm rotational temperatures. In this paper we attempt to explain these observations with new comprehensive models which extend from the H+ region through the Bar and include the magnetic field in the equation of state. We adopt the model parameters from our previous paper which successfully reproduced a wide variety of spectral observations across the Bar. In this model the local cosmic-ray density is enhanced above the galactic background, as is the magnetic field, and which increases the cosmic-ray heating elevating the temperature in the molecular region. The pressure is further enhanced above the gas pressure in the H+ region by the momentum transferred from the absorbed starlight. Here we investigate whether the observed H2 lines can be reproduced with standard assumptions concerning the grain photoelectric emission. We also explore the effects due to the inclusion of recently computed H2 + H2, H2 + H and H2 + He collisional rate coefficients.Comment: Accepted for publication in ApJ (34 pages, including 16 figures

Infrared Studies of Molecular Shocks in the Supernova Remnant HB21: I. Thermal Admixture of Shocked H_2 Gas in the North

We present near- and mid-infrared observations on the shock-cloud interaction region in the northern part of the supernova remnant HB21, performed with the InfraRed Camera (IRC) aboard AKARI satellite and the Wide InfraRed Camera (WIRC) at the Palomar 5 m telescope. The IRC 7 um (S7), 11 um (S11), and 15 um (L15) band images and the WIRC H2 v = 1 -> 0 S(1) 2.12 um image show similar shock-cloud interaction features. We chose three representative regions, and analyzed their IRC emissions through comparison with H2 line emissions of several shock models. The IRC colors are well explained by the thermal admixture model of H2 gas--whose infinitesimal H2 column density has a power-law relation with the temperature T, dN ~ T^-b dT--with n(H2) ~ 10^3 cm^-3, b ~ 3, and N(H2 ;T > 100K) ~ 3x10^20 cm^-2. The derived b value may be understood by a bow shock picture, whose shape is cycloidal (cuspy) rather than paraboloidal. However, this picture raises another issue that the bow shocks must reside within ~0.01 pc size-scale, smaller than the theoretically expected. Instead, we conjectured a shocked clumpy interstellar medium picture, which may avoid the sizescale issue while explaining the similar model parameters. The observed H2 v = 1 -> 0 S(1) intensities are a factor of ~17 - 33 greater than the prediction from the power-law admixture model. This excess may be attributed to either an extra component of hot H2 gas or to the effects of collisions with hydrogen atoms, omitted in our power-law admixture model, both of which would increase the population in the v = 1 level of H2.Comment: 14 pages, 9 figures, ApJ accepted, higher resolution @ http://astro.snu.ac.kr/~jhshinn/ms.pd

Tropospheric ozone and El Niño–Southern Oscillation: Influence of atmospheric dynamics, biomass burning emissions, and future climate change

We investigate how El Niño Southern Oscillation (ENSO) influences tropospheric ozone and its precursors in a coupled climate-chemistry model. As shown in similar studies, tropospheric column ozone (TCO) decreases in the central and east Pacific and increases in the west Pacific/Indonesia in response to circulation and convective changes during El Niño conditions. Simulated changes in TCO for “peak” El Niño events in the central and east Pacific are in good agreement but are underestimated in the west Pacific compared to previous observational and modeling studies for October 1997. Tropospheric column-average NOx decreases over Indonesia and generally over South America as a result of suppressed convection and lightning over these land regions. NOx and HOx changes during El Niño modify ozone chemical production and destruction. When we include annually varying biomass burning emissions in our model simulations we find that these emissions peak over Indonesia 1–2 months in advance of the peak elevated sea-surface temperatures (SSTs) and hence the “meteorological” El Niño. We underestimate the strength of the TCO increase due to El Niño–related dry conditions over Indonesia in October 1997 compared to observations. We also examine how future mean and variability changes in ENSO, as simulated in the HadCM3 climate model, impacts tropospheric ozone. A mean future El Niño–like state is simulated in the tropical Pacific in HadCM3, but this has no discernable impact on the future TCO trend in this region. However, we do simulate increased variability in precipitation and TCO related to ENSO in the future