Three essays on identifying safe havens for equity investors

Chapter 2 examines conditional mean and volatility spillover between equity and gold to ascertain if gold is a safe haven for investors. This is achieved using a VAR-GARCH model allowing for simultaneous transmission of shocks between series. This also provides the time-varying inputs for portfolio construction to aid investors’ understanding of the interactions between gold and equity. Results reveal that statistically significant return and volatility spillover from equity to gold is nonexistent over a thirty-one year period. On the strength of these results gold is recommended as a safe haven for a well diversified portfolio. Chapter 3 determines how potential safe havens are affected by the arrival of negative shocks in the stock market. A test for mean and variance spillover from equity to potential safe haven assets is achieved using Cheung and Ng’s (1996) two-stage Cross-Correlation Function procedure. Next, information transmission is analysed between equity - gold and equity - 10-year bond based on Volatility Impulse Response Functions developed by Hafner and Herwartz (2006). Results indicate that both assets have the potential to be used as safe havens. However, gold proves slightly more attractive and as such should be chosen over a long-term U.S. Treasury bond. Chapter 4 presents the uniformed Markov-switching framework of Flavin and Panopoulou (2010) for a more in depth analysis of the relationship between the stock market and potential safe havens. The first test for shift-contagion identifies changes in the normal relationship between assets during periods of high-volatility, while the second test for pure-contagion provides insight into how a high-volatility equity idiosyncratic shock affects other assets. Results suggest that investors should proceed cautiously if simultaneously investing in equity and a 1-year bond

Standard Variable Rate (SVR) Pass-Through in the Irish Mortgage Market: An Updated Assessment. ESRI Research Notes 2015/2/3

In this note we re-examine the “pass-through” relationship between the European Central Bank (ECB) policy rate and the standard mortgage variable rate (SVR) charged by Irish credit institutions. The issue, which was examined in some detail by Goggin et al. (2012), has attracted renewed interest in recent times owing to the continued observed difference between the SVR and the rate of interest charged on other variable rate mortgages in the Irish market

The KBC Bank/ESRI Consumer Sentiment Index. ESRI Research Notes 2015/2/2

Since 2002 KBC Bank and the ESRI have published a monthly Consumer Sentiment Index, building on a dataset that dates back to February 1996. Across many countries, consumer sentiment is a commonly used indicator of consumer spending, which is an important element of economic growth. Trends in this component are important for forecasting and planning. In Ireland, the Consumer Sentiment Index has been used as an input into macro-economic modelling and has also been shown to perform well as a leading indicator of economic trends. Recently, the Consumer Sentiment Index has been used in the ’Nowcasting’ model which forms an input to the short-term forecasts of the Quarterly Economic Commentary

Nowcasting and the Need for Timely Estimates of Movements in Irish Output. ESRI Research Notes 2014/3/1

The release of the Quarterly National Accounts (QNA) for Q2 2014 surprised many commentators in terms of the strength of the growth in both GDP and GNP. Preliminary estimates by the CSO indicate that GDP increased by 1.5 per cent in volume terms on a seasonally adjusted basis compared with the first quarter of 2014 while GNP increased by 0.6 per cent over the same period. Year-on-year, this suggests growth in GDP and GNP of 7.7 and 9.0 per cent respectively

Nowcasting and the Need for Timely Estimates of Movements in Irish Output. ESRI Research Notes 2014/3/1

The release of the Quarterly National Accounts (QNA) for Q2 2014 surprised many commentators in terms of the strength of the growth in both GDP and GNP. Preliminary estimates by the CSO indicate that GDP increased by 1.5 per cent in volume terms on a seasonally adjusted basis compared with the first quarter of 2014 while GNP increased by 0.6 per cent over the same period. Year-on-year, this suggests growth in GDP and GNP of 7.7 and 9.0 per cent respectively

Quarterly Economic Commentary, Autumn 2015

The pace of the Irish recovery would appear to be increasing; the latest National Accounts indicate that output in the economy grew by over 5 per cent in 2014 and by almost 2 per cent in Q2 2015 alone. Use of the nowcasting model (summarised in the Appendix) suggests the economy is growing through Q3 by approximately 1.5 per cent per quarter in 2015. Accordingly, we now update our forecast for GDP in 2015 to 6 per cent, with GNP expected to grow marginally less at 5.9 per cent. One significant consequence of this is that Irish income per capita, which fell significantly post-2007, is now back to the peak level prior to the financial crisis

Quarterly Economic Commentary, Winter 2014

The Irish economy has seen significant growth in 2014 with improvements observable across a broad set of key indicators. Output growth (both GNP and GDP) is set to increase by approximately 5 per cent while unemployment will fall to just over 11 per cent. A key feature of economic developments in 2014 has been the particularly strong performance of taxation receipts with all major items reporting significant year-on-year increases. The net consequence of this is a fiscal deficit of approximately 3.5 per cent for this year; this is a full percentage point better than was expected this time last year

Quarterly Economic Commentary, Autumn 2014

The fiscal and economic growth conditions underpinning the 2015 budget have improved quite significantly over the past quarter. In light of the recent trends observed in economic activity, we now revise upwards our growth forecasts for GNP to 4.9 and 5.2 per cent for 2014 and 2015 respectively. This improvement in the forecast is driven by a combination of better than expected performance in the net trade sector, a pick-up in investment levels and strong budgetary receipts. In a research note to the Commentary we highlight how the adoption of the “Nowcasting” methodology enhances our understanding of movements in Irish economic activity between the official release dates of the quarterly national accounts

Quarterly Economic Commentary, Summer 2016

Mainly due to domestic sources of growth, the Irish economy is still set to grow significantly in 2016. By May 2016 overall taxation receipts were up 9 per cent on the same time last year with income tax witnessing a 6 per cent increase over the same period. Between Q1 2015 and Q1 2016 total employment grew by almost 50,000. However, the weakening contribution of net trade to economic growth is underscored by recent high frequency economic data suggesting that the global slowdown in world trade may be impacting negatively on the Irish traded sector. Much of this is inevitably related to the lower economic growth rates being experienced in the US and the UK in 2016 compared with recent years

The Irish Economy – Forecast Overview and Summary. Quarterly Economic Commentary Special Article, Spring 2016

On foot of the substantial growth performance in 2015, the Irish economy looks set to continue to grow robustly in 2016. The economy as measured by GDP grew by 7.8 per cent in 2015; we expect that it will grow by 4.8 per cent in 2016. GNP, which grew by 5.7 per cent in 2015, is expected to increase by 5 per cent in the current year. Growth in 2016 is set to be heavily influenced by domestic factors with investment and consumption continuing to play a more central role in the overall growth performance of the domestic economy