Metal Investments: Distrust Killer or Inflation Hedging?

This study investigates long run metals properties using the extended version of Mccown and Zimmerman (2006) multifactor CAPM-model. By adding extra explanatory variables we improve the explanation power of the existing model in terms of R-squared. Taking German invertors\u27 perspective and using prices of gold, silver and platinum over the period 1985-2010, our findings show that metals are true zero market beta assets. We further show that the determinants of metal prices are dependent on market conditions reflected by different betas for stable and crisis periods. The inclusion of a new variable, economic sentiment index in the models shows explanation power for gold. Its significant negative effect reveals gold position as a safe haven in times of distrust. Our results show that gold is the only metal co-integrated with the consumer price index (CPI) of Germany, thus the only metal providing inflation hedging to the German investor in the long run. Our results are consistent with the theories that metals provide long term hedge against unemployment

Herd Behaviour and Trading Among Dutch Pension Funds

In this paper we provide evidence that repudiates the popular belief that Dutch pension funds are long-term passive institutional traders; rather like active traders they trade about eight and half percent of their portfolio on monthly basis. Using a unique data sample, our results affirm significant feedback trading strategies, both momentum and contrarian, and robust herding behaviour in investments of Dutch PFs. Our findings contradict with some previous evidence and advance the suggestions that both the institutional lagged demand for a stock and performance triggers contrarian investments in Dutch PFs; and their trading behaviour substantially varies across asset classes. Furthermore, the recent financial turmoil has a positive impact on both turnover and herding while it negatively affects the feedback trading

Scandinavian exchange rate expectations

This paper extends the analyses of Frankel and Froot (1987b), Cavaglia et al. (1993a), and others, to a new data set of exchange rate expectations on Scandinavian exchange rates. It corroborates the earlier finding that exchange rate forecasts are not rational, and that agents do not use all available information in an efficient manner. The evidence suggests that Scandinavian exchange rate expectations were stabilizing and that an unexpected depreciation was typically followed by an expected appreciation of smaller magnitude.

Time Variation in Term Premia: International Evidence

This paper examines the validity of the expectations hypothesis of the term structure of interest rates by means of a previously unexploited dataset of market expectations that covers a broad range of EMS versus non-EMS foreign currency deposits. Although we find strong evidence in favour of rejecting the ‘pure’ version of the expectations hypothesis, we still cannot reject the hypothesis that the forward rate is a biased estimate of future interest rate levels. Nevertheless, we find some evidence that the behaviour of market participants, when making predictions about the future level of interest rates, is not entirely in line with what rational behaviour would suggest. We also find that there is strong evidence of time-variation in the term structure of interest rates. Furthermore, while this variation in term premia can be very well explained by low-order variations of the ARMA class models, there is sufficient evidence that the conditional heteroskedasticity of term premia plays an important role in explaining the time-variation. Finally, no significant difference is found between the behaviour of EMS interest rate deposits and non-EMS deposits.EMS; expectations hypothesis; interest rate expectations; rationality; survey data; term structure; time-varying term premia