Performance Persistence of Dutch Pension Funds

This paper studies the investment performance of pension funds with a focus on their ability in implementing their intended investment strategy. We use a sample of Dutch industry-wide pension funds, which are obliged by law to report their investment performance according to the so-called z-score. The z-score is a risk-adjusted performance measure with benchmark settings predefined by Dutch law. We find that pension funds as a group cannot beat their self-selected benchmarks consistently. Applying a cross-sectional portfolio approach we find evidence that the largest pension funds outperform the smallest funds

Revisiting Uncovered Interest Rate Parity: Switching Between UIP and the Random Walk

In this paper, we examine in which periods uncovered interest rate parity was likely to hold. Empirical research has shown mixed evidence on UIP. The main finding is that it doesn’t hold, although some researchers were not able to reject UIP in periods with large interest differentials or high volatility. In this paper, we introduce a switching regime framework in which we assume that the exchange rate can switch between a UIP regime and a random walk regime. Our empirical results provide evidence that exchange rate movements were consistent with UIP over some periods, but not all. Consistent with the existing literature we also show that in periods with large interest differentials or increased exchange rate volatility, the exchange rate is more likely to follow UIP.Exchange rate dynamics;Uncovered interest rate parity;Markov regime switching

Regime Jumps in Electricity Prices

Electricity prices are known to be very volatile and subject to frequent jumps due to system breakdown, demand shocks, and inelastic supply. As many international electricity markets are in some state of deregulation, more and more participants in these markets are exposed to these stylised facts. Appropriate pricing, portfolio, and risk management models should incorporate these facts. Authors have introduced stochastic jump processes to deal with the jumps, but we argue and show that this specification might lead to problems with identifying the true mean-reversion within the process. Instead, we propose using a regime jump model that disentangles mean-reversion from jump behaviour. This model resembles more closely the true price path of electricity prices.stochastic models;electricity prices;international energy markets;jumps;mean reversion

Annuity Equivalent Wealth and the decision to subscribe private individual annuities

We model the demand for private annuities following Yaari (1965). In the line of Brown (1999) we define an Annuity Equivalent Wealth (AEW) that reflects the fact that an annuity provides a greater utility to a risk adverse individual than an actuarially equivalent lump sum. This indicator depends on the mortality risk, the level of risk aversion and the level of SS benefits. We develop Brown's approach to account for the valuation of bequests and for adverse selection on the market for annuities. We simulate this indicator on a sample of singles aged between 45 and 59 from the Patrimoine Survey (1998). Under the assumption that insurers will not propose actuarially fair premia (which may be explained by legal constraints in France), we find a strong correlation between the Annuity Equivalent Wealth and the decision to subscribe private individual annuities.annuities, self selection, dynamic programming

Hedging Exposure to Electricity Price Risk in a Value at Risk Framework

This paper deals with the question how an electricity end-consumer or distribution company should structure its portfolio with energy forward contracts. This paper introduces a one period framework to determine optimal positions in peak and off-peak contracts in order to purchase future consumption volume. In this framework, the end-consumer or distribution company is assumed to minimize expected costs of purchasing respecting an ex-ante risk limit defined in terms of Value at Risk. Based on prices from the German EEX market, it is shown that a risk-loving agent is able to obtain lower expected costs than for a risk-averse agent.Electricity prices;Forward risk premium;Hedge ratios;Mean variance

Do Exchange Rates Move in Line With Uncovered Interest Parity?

According to uncovered interest rate Parity (UIP), the expected relative change in an exchange rate is equal to the difference between interest rates between the two currencies. Empirically, UIP is frequently rejected. In this paper, we examine whether exchange rates have at least any tendency to move in the direction predicted by UIP and whether exchange rates tend to move more in line with UIP in periods with large interest rate differentials.Exchange rates;Uncovered interest rate parity;Logit models