James E. Pesando

Bio: James E. Pesando is an academic researcher from University of Toronto. The author has contributed to research in topics: Interest rate & Pension. The author has an hindex of 22, co-authored 67 publications receiving 1662 citations. Previous affiliations of James E. Pesando include National Bureau of Economic Research.

Art as an investment: The market for modern prints

Abstract: Repeat sales of modern prints at auction are used to estimate a semiannual index of prices for the period 1977-92. As in other studies of art as an investment, prints do not compare favorably to traditional financial assets. There is substantial noise in auction prices but little or no support for the proposition that some artists command higher prices in certain countries or that masterpieces outperform the market. One puzzle is the continuing tendency for prices realized at certain auction houses to exceed those realized at others: notably, at Sotheby's relative to Christie's in New York. Copyright 1993 by American Economic Association.

A Note on the Rationality of the Livingston Price Expectations

Abstract: The use of distributed lag proxies for inflationary expectations continues to dominate most of the rapidly expanding empirical literature on the role of price expectations in models of money wage and nominal interestrate determination. The empirical results so obtained represent joint tests of (1) the role of price expectations and (2) the validity of the distributed lag proxies. Recently, several researchers (see Gibson 1972; Pyle 1972; and Turnovsky and Wachter 1972) have employed the price expectations data compiled by Joseph A. Livingston of the Philadelphia Bulletin' to conduct tests of the role of price expectations which are not dependent on the use of distributed lag proxies for inflationary expectations. The use of these directly observed expectations data thus represents a major extension of empirical research in these important policy areas. The use of the Livingston data, however, raises its own problems. In particular, their use in empirical studies assumes that these recorded expectations may be viewed as representative of those of market participants generally. This assumption may prove suspect on a priori grounds since there is no concrete evidence that these recorded expectations do influence the behavior of economic agents and hence that they may be viewed as "market" forecasts in this important sense. The purpose of this note is to provide some perspective on this issue by examining the

On the Random Walk Characteristics of Short- and Long-Term Interest Rates In an Efficient Market

Abstract: As IS NOW WELL KNOWN, tests of market efficiency that asset prices rapidly and fully reflect all relevant information are inevitably tests of joint hypotheses. In each test, a particular model of market equilibrium is examined simultaneously with the question of market efficiency. Early studies of the behavior of stock prices, however, often failed to make explicit the underlying model of market equilibrium. In particular, those who studied the random walk hypothesis typically failed to make explicit their assumption that equilibrium returns are constant over time. Only under this assumption does evidence on the autocorrelation of successive one-period returns bear directly on the question of market efficiency. Recently, Phillips and Pippenger [9] have called attention to a body of evidence that suggests that interest rates may follow a random walk. They then note that this evidence "is consistent with the hypothesis that capital markets are efficient" [9, p. 1 1] . By implication, they suggest that if interest rates do not follow a random walk, then the bond market is not efficient. Poole [11, p. 476], too, suggests that random walk behavior of interest rates is to be expected in an efficient market. The premise of this paper is that, if the shortcomings of the early work on stock prices are to be avoided, researchers must exercise great caution in linking random

The Returns to Picasso's Prints and to Traditional Financial Assets, 1977 to 1996

Abstract: This paper updates prior work by Pesando (1993) regarding art as an investment. Using world-wide auction prices for Picasso prints for the period 1977 to 1996, this paper establishes that (1) a recovery in the art market did occur in the mid-1990s, but (2) the real rate of return on this segment of the art market remains low relative to its risk. Indeed, the real rate of return is beneath that provided by U.S. Treasury Bills.

Estimation of Time Varying Risk Premia in the Term Structure: the ARCH-M Model

Abstract: The expectati on of the excess holding yield on a long bond is postulated to depend upon its conditional variance. Engle's ARCH model is extended to allow the conditional variance to be a determinant of the mean and is called ARCH-M. Estimation and infer ence procedures are proposed, and the model is applied to three interest rate data sets. In most cases the ARCH process and the time varying risk premium are highly significant. A collection of LM diagnostic tests reveals the robustness of the model to various specification changes such as alternative volatility or ARCH measures, regime changes, and interest rate formulations. The model explains and interprets the recent econometric failures of the expectations hypothesis of the term structure. Copyright 1987 by The Econometric Society.

Why You Should Never Use the Hodrick-Prescott Filter

Abstract: Here's why. (1) HP introduces spurious dynamic relations that have no basis in the underlying data-generating process. (2) Filtered values at the end of the sample are very different from those in the middle, and are also characterized by spurious dynamics. (3) A statistical formalization of the problem typically produces values for the smoothing parameter vastly at odds with common practice. (4) There's a better alternative. A regression of the variable at date t on the four most recent values as of date t—h achieves all the objectives sought by users of the HP filter with none of its drawbacks. JEL codes: C22, E32, E47

The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure

Abstract: Models which represent long-term interest rates as long averages of expected short-term interest rates imply, because of the smoothing implicit in the averaging, that long rates should not be too volatile. The volatility of actual long-term interest rates, as measured by the variance of short-term holding yields on long-term bonds, appears to exceed limits imposed by the models. Such excess volatility implies a kind of forecastability for long rates. Long rates show a slight tendency to fall when they are high relative to short rates rather than rise as predicted by expectations models.

The Informational Content of Implied Volatility

Abstract: Implied volatility is widely believed to be informationally superior to historical volatility, because it is the "markets" forecast of future volatility. But for S&P 100 index options, the most actively traded contract in the United States, we find implied volatility. In aggregate and across subsamples separated by maturity and strike price, implied volatility has virtually no correlation with future volatility, and it does not incorporate the information contained in recent observed volatility. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.