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1059 result(s)

Classical Decomposition of Markowitz Portfolio Selection

Staff Working Paper 2020-21 Christopher Demone, Olivia Di Matteo, Barbara Collignon
In this study, we enhance Markowitz portfolio selection with graph theory for the analysis of two portfolios composed of either EU or US assets. Using a threshold-based decomposition of their respective covariance matrices, we perturb the level of risk in each portfolio and build the corresponding sets of graphs.
Content Type(s): Staff Research, Staff Working Papers Topic(s): Central bank research JEL Code(s): C, C0, C02

Trading on Long-term Information

Staff Working Paper 2020-20 Corey Garriott, Ryan Riordan
Investors who trade based on good research are said to be the backbone of stock markets: They conduct research to discover the value of stocks and, through their trading, guide financial prices to reflect true value. What can make their job difficult is that high-speed, short-term traders could use machine learning and other technologies to infer when informed investors are trading.

The Term Structures of Loss and Gain Uncertainty

We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into these two components. Loss uncertainty is the uncertainty surrounding negative returns, and gain uncertainty is the uncertainty surrounding any future gain. Investment opportunities can be evaluated by looking at these components.

How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers

Staff Working Paper 2020-18 Katya Kartashova, Xiaoqing Zhou
We study the causal effect of mortgage rate changes on consumer spending, debt repayment, and defaults during an expansionary and a contractionary monetary policy episode in Canada. Our identification takes advantage of the fact that the interest rates of short-term fixed-rate mortgages (the dominant product in Canada’s mortgage market) have to be reset according to the prevailing market interest rates at predetermined time intervals.

Identifying Aggregate Shocks with Micro-level Heterogeneity: Financial Shocks and Investment Fluctuation

Staff Working Paper 2020-17 Xing Guo
This paper identifies the aggregate financial shocks and quantifies their effects on business investment based on an estimated DSGE model with firm-level heterogeneity. On average, financial shocks contribute only 1.1% of the variation in U.S. public firms' aggregate investment.

Endogenous Time Variation in Vector Autoregressions

Staff Working Paper 2020-16 Danilo Leiva-Leon, Luis Uzeda
We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence — contemporaneously and with a lag — the dynamics of the intercept and autoregressive coefficients in these models.

A Simple Method for Extracting the Probability of Default from American Put Option Prices

Staff Working Paper 2020-15 Bo Young Chang, Greg Orosi
A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

Staff Working Paper 2020-14 Guihai Zhao
Given that the stochastic discount factor (SDF) from any equilibrium model has direct implications for yield curves, the historical dynamics of the US Treasury yield curve should tell us what a good SDF should look like from a historical perspective.
Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12

Interest Rate Uncertainty as a Policy Tool

Staff Working Paper 2020-13 Fabio Ghironi, Galip Kemal Ozhan
We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).

Multi-Product Pricing: Theory and Evidence from Large Retailers in Israel

Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms.