Naomi E. Boyd

Gains from Active Bond Portfolio Management Strategies

The belief that excess returns can be achieved by correctly timing changes in yields and/or yield spreads motivates active bond portfolio management strategies. Given the rich literature linking yield spread patterns to both the business cycle and changes in short-term interest rates, the authors motivate and demonstrate the efficacy of simple spread-trading strategies tied to both. Using 34 years of fixed income returns, they demonstrate that straightforward rules would have led to superior risk-adjusted performance relative to standard fixed-income benchmarks. Furthermore, the strategies tied to short-maturity interest rates are based on the use of past information only.

Price Discovery in Futures and Options Markets

We evaluate price discovery in the natural gas futures and futures options markets using a transaction based approach. By sampling market maker prices, we allow for a distinction between buy and sell prices, both directly from the futures market, and implied from the options market. Information shares are compared between futures and options markets as well as within the options market. Given the common architecture of the two markets, we find little price information generated in the options market. Within the options market, the highly levered out-of-the-money options offer less price discovery than other options. We attribute this to the higher transactions costs of out-of-the-money options.

Bayesian Fused Lasso Regression for Dynamic Binary Networks

ABSTRACT We propose a multinomial logistic regression model for link prediction in a time series of directed binary networks. To account for the dynamic nature of the data, we employ a dynamic model for the model parameters that is strongly connected with the fused lasso penalty. In addition to promoting sparseness, this prior allows us to explore the presence of change points in the structure of the network. We introduce fast computational algorithms for estimation and prediction using both optimization and Bayesian approaches. The performance of the model is illustrated using simulated data and data from a financial trading network in the NYMEX natural gas futures market. Supplementary material containing the trading network dataset and code to implement the algorithms is available online.

Investigating competition in financial markets: a sparse autologistic model for dynamic network data

ABSTRACT We develop a sparse autologistic model for investigating the impact of diversification and disintermediation strategies in the evolution of financial trading networks. In order to induce sparsity in the model estimates and address substantive questions about the underlying processes the model includes an regularization penalty. This makes implementation feasible for complex dynamic networks in which the number of parameters is considerably greater than the number of observations over time. We use the model to characterize trader behavior in the NYMEX natural gas futures market, where we find that disintermediation and not diversification or momentum tend to drive market microstructure.

The changing landscape of retirement rules of thumb

Purpose - – The purpose of this paper is to evaluate the continued adherence to “standing” rules of thumb for the percentage of pre-retirement income which should be available to retirees. Design/methodology/approach - – An analysis of census data to determine both the cause and magnitude of the debt load which retirees are carrying into their post-working years. Findings - – The “standing” rules of thumb appear to provide less than adequate levels of income for retirees to service their continuing debt load which they have chosen to carry into their retirement years. Research limitations/implications - – Census data are subject to the accuracy of “captured information” provided by the surveyed individuals. In this case, the information captured is consistent with generally reported data on the sufficiency of retirement income. Practical implications - – Financial planners need to “get the word out early” that individuals need to consider earlier/greater funding of their anticipated retirement income. Social implications - – Rising retirees may be “precluded” from retiring as anticipated because of the insufficiency of the replacement income they will have during their retirement years. Originality/value - – Detailed census data have not been reviewed in detail with a focus on “individual debt load” as we have performed in this research study.

Accounting Irregularities and Failure to Deliver: An Examination of the Relationship between Naked Short Sales and Restatements

Purpose - – The purpose of this paper is to examine the relationship between naked short selling and accounting irregularities that cause a firm to issue a restatement. Design/methodology/approach - – Using the level of abnormal fails-to-deliver as a proxy for naked short selling, the paper looks for evidence of increased naked short selling in anticipation of, as well as in response to these announcements. Findings - – Larger firms and firms with a higher percentage of institutional ownership experience greater levels of fails prior to the announcement day, while smaller firms are more likely to be targets of naked short sellers after the announcement. The paper also finds that more transparent announcements are associated with more abnormal fails. Originality/value - – This paper is the first research to study the relation between naked short selling and accounting restatements.

PMI: mortgage backstop from the Alger Report to Dodd-Frank

Purpose - – The purpose of this paper is to provide a historical perspective and going-forward assessment of the importance of private mortgage insurance (PMI) entities in the residential-lending landscape in the USA. Design/methodology/approach - – Financial data from the PMI entities and federal income tax data were analyzed to comment on the importance of the PMI entities in the historical and current mortgage-lending environment. Findings - – PMI entities played a critical role in expanding the population of mortgage candidates for financial institutions. Through the guarantees offered by PMI entities, financial institutions granted loans to individuals who otherwise would not have qualified for mortgages. Originality/value - – No prior research has assessed the overall historical role played by these primary PMI entities.