An automatic procedure for the estimation of the tail index

Extreme Value Theory is increasingly used in the modelling of financial time series. The non-normality of stock returns leads to the search for alternative distributions that allows skewness and leptokurtic behavior. One of the most used distributions is the Pareto Distribution because it allows non-normal behaviour, which requires the estimation of a tail index. This paper provides a new method for estimating the tail index. We propose an automatic procedure based on the computation of successive normality tests over the whole of the distribution in order to estimate a Gaussian Distribution for the central returns and two Pareto distributions for the tails. We find that the method proposed is an automatic procedure that can be computed without need of an external agent to take the decision, so it is clearly objective.Tail Index; Hill estimator; Normality Test

The eurozone (expected) inflation : an option’s eyes view

En este documento de trabajo estimamos, para la inflación, las funciones de densidad neutrales al riesgo (RND) en la zona del euro diariamente desde 2009. Para ello, utilizamos swaps de inflación y opciones calls/puts, e introducimos un enfoque simple y parsimonioso para estimar conjuntamente las RND en distintos horizontes temporales. De esta manera, es posible obtener las RND implícitas para medidas forward, como la inflación a cinco años en cinco años, que, aunque no se negocian directamente en los mercados financieros, son indicadores de referencia para la política monetaria. Así, una vez obtenidas estas medidas, discutimos varios indicadores derivados de estos RND que pueden ser útiles para la política monetaria y estudiamos su evolución histórica a la luz de las decisiones y las comunicaciones del BCE durante los últimos años. Especialmente interesante es la evolución de los riesgos en las colas (asociadas con las probabilidades de deflación y de alta inflación, respectivamente)el balance de los riesgos de inflaciónmedidas de aversión al riesgo derivadas de la Encuesta a Expertos en Previsión Económica (SPF) del BCE, y la forma en que las tasas de inflación anticipada reaccionan a las políticas monetarias no convencionales del BCE (operaciones de financiación a plazo más largo, LTROPrograma para los Mercados de Valores, SMPPrograma de Compra de Activos, APP, y sus variantes y extensiones)We estimate inflation risk-neutral densities (RNDs) in the Euro area since 2009. We use Euro inflation swaps and caps/floors options, and introduce a simple and parsimonious approach to jointly estimate the RNDs across horizons. This way, we obtain the implicit RND for forward measures, like the five-on-fi ve years inflation rate, which, although it is not directly traded in the market, it is a key rate for monetary policy. Then, we discuss several indicators derived from the information content of the historical RNDs that are useful for monetary policy and compare them in the light of the ECB’s decisions and communication over the last few years. Specically, the evolution of tails risks (associated with defl ation and high inflation)the balance of inflation risksmeasures of risk aversion from the ECB’s Survey of Professional Forecasters (SPF)and how forward inflation rates react to the ECB’s non-conventional monetary policies (Longer Term Renancing Operations, LTRO, Securities Market Programme, SMP, Asset Purchase Programme, APP, and its variants and extensions

Flight-to-liquidity flows in the euro area sovereign debt crisis

En períodos de tensión en los mercados financieros, recomposiciones en las carteras de renta fija pueden generarse por la preocupación no solo por el riesgo de crédito, sino también por el riesgo de liquidez. Usando información de bonos emitidos por Gobiernos y agencias públicas, construimos indicadores de las primas de liquidez en los principales mercados de bonos de la zona del euro, mostrando el debilitamiento de la correlación en la liquidez de los mercados de los países del núcleo y de la periferia durante la crisis de la deuda soberana europea, e identificando varios episodios de significativos flujos de huida a la liquidez (flight-to-liquidity, FTL), además de los flujos de huida a la seguridad (flight-tosafety, FTS), durante el período 2009-2013. El análisis demuestra que los flujos FTL provocaron movimientos significativos en direcciones opuestas en los rendimientos de los bonos soberanos entre los mercados de los países centrales y de la periferia de la zona del euro. Por otra parte, los flujos de FTL produjeron descensos en todos los mercados de valores de la zona del euro y están asociados, a escala macroeconómica, con una menor confianza económica en el conjunto de la zona del euro, lo que pone de relieve la importancia de los episodios FTL tanto para los inversores como para la toma de decisiones de política económicaIn periods of market stress, portfolio reallocations in bond markets reflect both safety and liquidity concerns. Using sovereign and national agency bonds, we construct indicators of liquidity premia in major euro area bond marketswe document the weakening of the correlation between core and periphery market liquidity during the euro area sovereign bond crisisand we identify several episodes of significant flight-to-liquidity (FTL) flows above and beyond flight-to-safety (FTS) spells in the period 2009-13. We show that FTL flows led to significant inverse moves in sovereign bond yields in euro area core and periphery markets. Moreover, FTL flows triggered declines in core and periphery stock markets and are associated with lower macroeconomic confidence in the euro area as a whole, which underscores the importance of FTL episodes for investors and policymakers alik

The Euro as a reserve currency for global investors

In this article, we explore the demand for the euro for risk management purposes, and the evidence of stock market integration in the euro area. We define a reserve currency as one that investors demand either because it helps them hedge real interest risk and inflation risk, or because it helps them reduce the volatility of their portfolio of stocks and bonds because its return is negatively correlated with the returns on those assets. This article re-examines the role of the euro as a reserve currency in the sense of Campbell, Viceira and White (2003), updating their evidence, and reviews the evidence of Campbell, Serfaty-de Medeiros and Viceira (2010) in detail. Consistent with the intuition that an integrated capital market is one in which there is a common discount factor pricing securities, we also investigate whether stocks in the euro area have moved from a regime in which national stock markets were priced with discount rates that were predominantly country specific, to a regime in which national stock markets are predominantly priced by a euro area-wide common discount rate. We adopt the beta decomposition approach of Campbell and Vuolteenaho (2004) and Campbell, Polk and Vuolteenaho (2010) to test for capital market integration, and find robust evidence of increased capital market integration in the euro zone, and consequently improved risk sharing among euro zone economie

Inflation expectation indicators based on financial instrument prices

Artículo de revistaThis article shows how indicators of agents’ inflation expectations can be derived from the prices of various financial instruments and presents the estimates obtained for the euro area and the United States. The results show that these metrics have reacted to economic and monetary decisions made in recent years, and that, on average, expected inflation is lower and less volatile in the euro area than in the United States. Moreover, since end-2016 there has been a marked rise in the probability of observing longterm inflation rates above 2% in the United States, coinciding with the likely change in the country’s economic policy stance. Changes in the indicators for the euro area have been less pronounced over this period, although a marked drop in the probability of low or negative inflation rates has been observe

The evolution of inflation expectations in euro area markets

Este trabajo explora el comportamiento de las expectativas de inflación en países que comparten su política monetaria, en particular los de la UEM. Se investigan las posibles características comunes a varios horizontes, así como los diferenciales entre países. Se propone un modelo multipaís de factores dinámicos basado en Diebold et al. (2008), aumentado con un componente de riesgo de liquidez. El modelo se estima con datos diarios de swaps de inflación para España, Italia, Francia, Alemania y el área del euro en su conjunto, y para un amplio rango de horizontes. Con él se calcula la proporción de los componentes comunes y específicos de cada país que explican la estructura temporal de las expectativas de inflación. Diferencias notables entre las expectativas de inflación de los países del euro aparecen solamente en los plazos cortos, mientras que en general domina el componente común a lo largo de los años, y especialmente a horizontes largos. El componente común estimado para el nivel de inflación esperado a muy largo plazo ha caído desde finales de 2014, mientras que desde 2012 se estima un aumento en la persistencia de la baja inflación esperada, que se propaga a plazos cada vez más largos. Ninguna de estas dos características ha revertido tras el anuncio y la implementación de las medidas de política monetaria no convencional del BCEThis paper explores the behaviour of inflation expectations across countries that share their monetary policy, in particular those of the European Monetary Union. We investigate the possible common features at the various horizons, as well as differentials across euro area countries. A multi-country dynamic factor model based on Diebold et al. (2008), where we also add a liquidity risk component, is proposed and estimated using daily data from inflation swaps for Spain, Italy, France, Germany and the euro area as a whole, and for a wide range of horizons. It allows us to calculate the proportion of common vs country-specific components in the term structure of inflation expectations. We find sizable differences in inflation expectations across the main euro area countries only at short maturities, while in general a common component predominates throughout the years, especially at long horizons. The common long-run level of inflation expectations is estimated to have fallen since late 2014, while an increased persistence of lower expected inflation and for longer horizons is estimated from 2012. There has been no reversal in either of these characteristics following the announcement and implementation of the ECB’s unconventional monetary policy measure

Determinants of default ratios in the segment of loans to households in Spain

In this paper we present the estimation results of a dynamic panel data model that explains the dynamic behaviour of default ratios in Spain for loans extended to the household sector. We estimate the models for two alternative definitions of default and for two different loan categories. The dataset consists of a panel of 50 provinces and covers the period 1984-2009. The results of the models show that the dynamic behaviour of the default ratios of loans extended to Spanish households can be reasonably well characterised with the lagged LHS variable, and the contemporaneous and the lagged values of credit growth, the unemployment rate and the interest debt burden. We find that the increase in the unemployment rate was the main driver of the sharp rise in default ratios between 2007 and 2009 in Spain and that the fall in interest rates since the end of 2008 contributed to moderating the upward path of default ratios in 2009. We also find that there is strong evidence of asymmetrical effects of unemployment ratios on default ratios, and differences between banks and savings banks in their sensitivity to the cycleEn este artículo se presentan los resultados de estimar modelos dinámicos de datos de panel, que explican la evolución dinámica de los ratios de morosidad de los créditos a los hogares en España. Estimamos modelos separados para dos definiciones distintas de morosidad y para dos segmentos de créditos diferentes. La muestra está constituida por un panel de las 50 provincias a lo largo del período 1984-2009. Los resultados de estos modelos muestran que el comportamiento dinámico de los ratios de morosidad se puede describir a partir de esa misma variable desfasada, y los valores contemporáneos y retardados del crecimiento del crédito, de la tasa de paro y de la carga financiera por intereses. Encontramos que los incrementos del desempleo han sido los principales responsables del fuerte aumento de las ratios de morosidad entre 2007 y 2009 en España y que la caída de los tipos de interés desde finales de 2008 ha contribuido a moderar en 2009 esa tendencia creciente. También encontramos fuerte evidencia de los efectos asimétricos de la tasa de paro sobre la morosidad, así como diferencias en la sensibilidad al ciclo entre los créditos concedidos por bancos y cajas de ahorro

The interaction between house prices and loans for house purchase : the Spanish case

Incluye bibliografía y anexosThe aim of this paper is to analyse, using a vector error-correction model (VECM), the dynamic interaction between house prices and loans for house purchase in Spain. The results show that both variables are interdependent in the long run: loans for house purchase depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long-run determinants. In contrast, disequilibria in house prices are corrected only through changes in this variable. As for short-run dynamics, the results show that the two variables have a positive contemporaneous impact on each other, indicating the existence of mutally reinforcing cycles in both variables. [resumen de autor

Detección de inercia sectorial en salidas a bolsa mediante modelos arima y redes neuronales

En este trabajo se explora la posibilidad de existencia de mercados segmentados en las salidas a bolsa que pudiesen reflejarse en inercia a corto plazo. Se propone que el rendimiento inicial de las acciones pertenecientes a los sectores tecnológico, de telecomunicaciones y medios de comunicación por un lado y el del resto, por otro, podría estar relacionado con la rentabilidad inicial de otras acciones pertenecientes al mismo sector. Para contrastar ésto, se analizan una serie de índices diarios que son objeto de predicción mediante modelos ARIMA y redes neuronales artificiales. Los resultados aportan indicios de presencia de inercia y de que esta afecta de forma distinta en función del área de actividad.In this work, we explore the possible existence of segmented short-term serial dependence in IPOs. We propose that average first-day underpricing of TMT companies might be affected by the average initial return of the companies taken public in the same sector over the previous days. In order to analyse this, we create a set of indexes to be predicted using artificial neural networks and ARIMA models. Their forecasting ability suggests that both the existence of inertia and a segmented market cannot be ruled out.Publicad

Historical deadly typhoons in the Philippines

© Royal Meteorological Society, 2008. We wish to thank the Archivo General de Indias (Seville) for their kind permission for the publication of two of the images included in this paper.Depto. de Física de la Tierra y AstrofísicaFac. de Ciencias FísicasTRUEpu