Michael Mosebach

Does the Net Flow of Funds Help to Predict the S&P 500 Index?

Although there is considerable evidence that stock returns are predictable, both individually and in aggregate, prior investigations as to whether share prices are significantly affected by demand shocks have mixed results. We extend prior research on this issue by testing the forecasting ability of five univariate and two multivariate models with respect to the S&P 500 Index. We hypothesize that the multivariate dynamic regression and state-space models, which incorporate both previous prices and current equity mutual fund flows, will result in more accurate predictions of future stock prices than univariate models. Our results support our hypothesis, both for one-month-ahead and one-quarter-ahead predictions.

Regulation Avoidance in the Banking Industry: The Case of 364 Day Lines of Credit

The purpose of this case is to offer a demonstration of Kanes regulatory dialectic and to discuss a line of credit that is a result of the interaction between the regulators and the regulated. Banks have been affected by new capital requirements. Calculation of these requirements considers not only on-balance sheet activities but off-balance sheet activities. Prior to these requirements, banks issued one year lines of credit for 365 days. These lines of credit have since been replaced with 364 day lines of credit. With maturity less than one year, the percentage of lines of credit considered in the calculations for required capital is reduced from 50% to 20%. Lines of credit are well established financial instruments and there is no reason, other than the changes in regulations, to make banks change the maturity dates by one day.