Showing papers by "Mardi Dungey published in 2013"
TL;DR: In this article, the authors test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period using a latent factor model, and they provide strong evidence of contagion effects in both advanced and emergent equity markets.
Abstract: The global financial crisis (2007-2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of contagion effects in both advanced and emerging equity markets. In the aggregate equity market indices, contagion from the US explains a large portion of the variance in stock returns in both advanced and emerging markets. However, in the financial sector indices we find less evidence of contagion than in the aggregate indices, and this is particularly the case for the advanced markets. The results suggest that contagion effects are not strongly related to high levels of global integration.
103 citations
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TL;DR: This article examined the influence of the two largest developed economies, namely the US and the Euro area, on Australia as an exemplar of a small open economy and showed the role of foreign demand shocks, the differential effects of US or European sourced inflation and interest rate shocks on the Australian economy, and the relative importance of these foreign shocks to variations in the value of the Australian currency.
Abstract: This paper examines the influences of the two largest developed economies, namely the US and the Euro area, on Australia as an exemplar of a small open economy. To do so, we specify and estimate a structural VAR with bilateral linkages between the two large economies, and allow shocks originating there to affect the Australian economy. More specifically, we show the role of foreign demand shocks, the differential effects of US or European sourced inflation and interest rate shocks on the Australian economy, and the relative unimportance of these foreign shocks to variations in the value of the Australian currency
24 citations
TL;DR: In this paper, the authors investigated the evolution of factors affecting CDO based on subprime mortgages and showed the increasing importance of a common factor on more senior tranches during the crisis.
Abstract: The misevaluation of risk in securitized financial products is central to understanding the Financial Crisis of 2007–2008. This paper characterizes the evolution of factors affecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the effects of the financial crisis on the common factor.
18 citations
TL;DR: In this paper, the impact of short selling bans on the cross-market dynamics of stock indices across a wide range of countries was investigated and the results showed that the transmission of shocks between countries which did impose short sale bans was reduced and transmissions from countries with bans to countries without bans were also generally lower.
7 citations
TL;DR: In this paper, the authors modeled the trading intensity of the US Treasury bond market and found that trade duration exhibits significant clustering and that the time taken to expand the tradable volume, known as "workup", significantly decreases the time between the initiation of consecutive trades.
Abstract: This paper models the trading intensity of the US Treasury bond market, which has a unique expandable limit order book that distinguishes it from other asset markets. The results indicate that trade duration exhibits significant clustering and that the time taken to expand the tradable volume, known as ‘workup’, significantly decreases the time between the initiation of consecutive trades. Finally, we find that trade duration falls in the presence of scheduled news releases, but the size of the surprise in that news release is not found to be important.
6 citations
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TL;DR: In this article, the authors show that when spot and future prices for the same asset do not jump simultaneously inferior hedging outcomes can be observed and that optimal hedging ratios are not improved with intradaily data in this market.
Abstract: The use of intradaily data to produce daily variance measures has resulted in increased forecast accuracy and better hedging for many markets. However, this paper shows that improved hedging ratios can depend on the behavior of price disruptions in the assets. When spot and future prices for the same asset do not jump simultaneously inferior hedging outcomes can be observed. This problem dominates potential bias from thin trading. Using US Treasury data we demonstrate how the extent of non-synchronized jumping leads to the �nding that optimal hedging ratios are not improved with intradaily data in this market.
5 citations
TL;DR: In this paper, a structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resources exports sector.
Abstract: This paper provides empirical evidence on the effects of Chinese resource demand on the resource rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resources exports sector. The key findings of the paper are that shocks to Chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resources sector. However, these shocks eventually lead to lower real domestic output with factors of production moving out of the non-resources sectors and into the resources sector, resulting in a fall in nonresource sector output which is not fully offset by the rise in resources sector output. The results also indicate some market power by the natural resource supplier.
3 citations
01 Jan 2013
TL;DR: In this article, the authors examined the behavior of industry-level betas and its implications for industry-based portfolio diversification and found that the continuous and jump betas are usually much smaller than the jump ones, indicating a certain degree of clustering of firms in the same sector.
Abstract: This paper examines the behavior of industry-level betas and its implications for industry-based portfolio diversification. With the recent advances in disentangling continuous and jump price movements using high frequency data, we are able to estimate the time-varying betas towards both the continuous and jump systematic risk for firms from different industries. Our results show that both beta estimates vary considerably over the sample period of 2003 to 2011. There is strong evidence of structural change in the continuous betas for most sectors during the global financial crisis. In general the continuous betas are usually much smaller than the jump betas. Distinct behaviors in both the continuous and jump betas between sectors suggest a certain degree of clustering of firms in the same sector. These findings provide new insights in cross-industry risk diversification.
2 citations
TL;DR: In this paper, the authors discuss economic interpretations and implications of the Beveridge-Nelson trend-cycle decomposition using US real GDP data and show how this may be consistent with a structural model where trend shocks enter the cycle, or cyclic shocks into the trend and that identification restrictions are necessary to make this structural distinction.
Abstract: A well-documented property of the Beveridge-Nelson trend-cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where trend shocks enter the cycle, or cyclic shocks enter the trend and that identification restrictions are necessary to make this structural distinction. A reduced-form unrestricted version such as that of Morley, Nelson and Zivot (2003) is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using US real GDP data.
2 citations
TL;DR: In this paper, the authors place the data revision model of Jacobs and van Norden (2011) within a class of trend-cycle decompositions relating directly to the Beveridge-Nelson decomposition.
Abstract: This paper places the data revision model of Jacobs and van Norden (2011) within a class of trend-cycle decompositions relating directly to the Beveridge-Nelson decomposition. In both these approaches identifying restrictions on the covariance matrix under simple and realistic conditions may produce a smoothed estimate of the underlying series which is more volatile than the observed series.
1 citations