Daniel Nadler

Political and Institutional Determinants of Tax-Exempt Bond Yields

Political-institutional factors — such as the political composition of state legislatures, and interstate variations in public sector labor environments, such as union strength, and collective bargaining rights — can explain a significant proportion of interstate variation in bankruptcy risk. We find that, controlling for multiple economic variables, states with weaker unions, weaker collective bargaining rights, and fewer Democratic state legislators pay less in borrowing costs absolutely, and less in borrowing costs at similar levels of unexpected budget deficits, than do states with stronger unions and a higher proportion of Democrats.

Social media and political voices of organized interest groups: a descriptive analysis

This study provides a descriptive look at the use of social media (e.g., Facebook and Twitter) and inequality of political voices in the context of political interest organizations. It seeks to answer the question of whether the Internet and social media allow those who were previously outside the mainstream of power with respect to the broader democratic discourse to raise their voices and be heard. Overall, we find that social media does not diminish the concentration of political voices within the democratic discourse. Rather, the evidence suggests that political voice is more concentrated when the voice is measured by the size of the online network using social media than when measured by traditional variables such as the number of lobbyists. We also report that a very small number of large organizations that have very large-sized online networks as measured by Twitter followers are driving the high concentration of online political voices.

The Impact of Political Institutions on U.S. State Bond Yields During Crises: Evidence from the 2008 Credit Market Seizure

This study examines how political institutions mediate bond market reactions to severe economic crisis, based on U.S. states’ experience of the 2008 credit market seizure. Following severe fiscal shocks, political institutions assume greater importance in assessing risk characteristics of state bonds. The bond market reacts most strongly to two factors: public sector union strength in a state and the proportion of Democrats in the state legislature. We suggest that the identity of political institutions becomes increasingly important, during periods of economic crises, when credit markets might expect that political systems can no longer delay stabilisations and must deliver policy.

Beta Hedging: Performance Measures, Momentum Weighting, and Rebalancing Effects

We discuss various performance measures of beta hedging and offer a new synthetic criterion that accounts for both risk-adjusted return and loss of the trading strategy. We consider two long portfolios hedged by the SPDR SP the second portfolio contains five high-growth technology stocks. For these portfolios, beta hedging always outperforms market-neutral hedging. We find that momentum based weighting of long assets may be preferable for high-growth stocks at short rebalancing periods. In most cases, though, beta hedging with equal weighting of long assets has a better performance.

Portfolio Theory in Terms of Partial Covariance

It is found that partial correlations between 12 major US equity sector ETFs conditioned on the state of economy (mimicked here by the S&P 500 index) are significantly lower than the Pearson’s correlations. The Markowitz mean-variance portfolio theory is modified in terms of partial covariance. The maximum Sharpe portfolios formed by 12 equity sector ETFs in 2007 – 2015 are examined. With the exclusion of the bear market of 2008, the partial correlation based portfolios (PaCP) are much more diversified than the Pearson’s correlation based portfolios (PeCP). Out-of-sample performance of the maximum Sharpe PeCP and PaCP, and the equal-weight portfolio (EWP) are compared. The results are very sensitive to the model parameters (portfolio calibration window and frequency of portfolio rebalancing). While the PeCP weights change significantly from month to month, the PaCP weights outside the bear market effects are almost constant. PaCP outperforms both EWP and PeCP when the 36-month calibration window and one-month rebalancing frequency are used. We conclude that partial covariance is a promising concept for constructing optimal portfolios.

Market Impact of Macroeconomic Announcements: Do Surprises Matter?

Current research of market impact caused by macroeconomic announcements is based on regressing asset returns on macroeconomic surprises, S(t) ~ A(t) – E(t), where A(t) and E(t) are actual and expected (consensus) values of macroeconomic indicators at time t, correspondingly. We found that regressing returns of SPDR ETF SPY on actual change, AC(t) ~ A(t) – A(t-1), and expected change, EC(t) ~ E(t) – A(t-1), yield statistically significant indicators similar to those for S(t). These indicators somewhat vary for the periods 2004-2008 and 2009-2013. The advantage of AC(t) is that it is not based on the subjective nature of consensus. As for EC(t), it does not have a look-ahead bias since E(t) are published a few days prior to A(t). Hence CE(t) can be used for short-term forecasting. We show that with proper fitting, AC-, EC-, and S-based indexes can be used for qualitative modeling the SPY price dynamics. However, the effects of macroeconomic announcements alone do not describe the strength of the bull market in 2009-2014.