Yield Spread Selection in Predicting Recession Probabilities: A Machine Learning Approach

The literature on using yield curves to forecast recessions customarily uses 10-year--three-month Treasury yield spread without verification on the pair selection. This study investigates whether the predictive ability of spread can be improved by letting a machine learning algorithm identify the best maturity pair and coefficients. Our comprehensive analysis shows that, despite the likelihood gain, the machine learning approach does not significantly improve prediction, owing to the estimation error. This is robust to the forecasting horizon, control variable, sample period, and oversampling of the recession observations. Our finding supports the use of the 10-year--three-month spread

BitMEX Bitcoin derivatives: price discovery, informational efficiency and hedging effectiveness

BitMEX is the largest unregulated bitcoin derivatives exchange, listing contracts suitable for leverage trading and hedging. Using minute-by-minute data, we examine its price discovery and hedging effectiveness. We find that BitMEX derivatives lead prices on major bitcoin spot exchanges. Bid-ask spreads, inter-exchange spreads and relative trading volumes are important determinants of price discovery. Further analysis shows that BitMEX derivatives have positive net spillover effects, are informationally more efficient than bitcoin spot prices, and serve as effective hedges against spot price volatility. Our evidence suggests that regulators prioritise investigation of the legitimacy of BitMEX and its contracts

Price discovery and microstructure in ether spot and derivative markets

Ethereum is an important blockchain, being the first and most popular public platform for the smart contracts underpinning financial transactions, time-stamping of supply chains, decentralized applications and initial coin offerings. Ethereum's cryptocurrency, ether, is actively traded on centralized exchanges, second only to bitcoin. It has attracted investor's interest primarily because of its intrinsic value – small units of ether called ‘gas’ are used, essentially, as the fuel driving smart contract transactions on the Ethereum blockchain. We ask whether off-chain trading on ether derivatives plays a dominant role in ether spot price discovery, thereby driving ether's utility value for on-chain activity. Using minute-by-minute data we find that the ether perpetual swap on BitMEX, an unregulated cryptocurrency derivative exchange, has dominant trading volume and price discovery over the major spot exchanges. Furthermore, we identify interesting hour-of-day and day-of-week effects in trading volume on the spot exchanges, and these indicate that more informed institutional players are trading ether spot and derivatives

The financial value of the within-government political network: Evidence from Chinese municipal corporate bonds

This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders' working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed

Real Estate Soars and Financial Crises: Recent Stories

This paper studies the contribution of real estate bubble to a financial crisis. First, we document symptoms of a real estate bubble along with a slowdown of the real economy and find indicators of an imminent crash of the stock market, triggering a sense of déjà vu from the 2008 crisis. However, we show that the relationship between real estate and financial markets has changed since the crisis. The empirical analyses provide evidence that the monetary policy has recovered its control over mortgage rates, which had been lost prior to the global financial crisis, and that the real estate market does not have a Granger causality relationship with the stock market any more. Findings suggest that an imminent financial market crash is not likely to be catalyzed by a real estate bubble