Richard Paul Gregory

Leveraged ETF option strategies

Purpose - – Leveraged exchange traded funds (ETFs) have become increasingly popular since their introduction in 2006. In recent years, options on leveraged ETFs have been promoted as a means of enhancing returns and reducing risk. The purpose of this paper is to examine the interchangeability of S & - P 500 ETF options with leveraged S & - P 500 ETF options and to what extent these options allow investors to manage their risk exposure. Design/methodology/approach - – With increasing liquidity for these fund’s options, simple option strategies such as covered calls and protective puts can be implemented. This study derives call-call and put-put parity between options on the underlying index and the associated leveraged ETFs. The paper examines comparative measures of return and risk on the underlying indices, along with covered call and protective put positions. Findings - – Using the formulations derived, this study shows options on non-leveraged ETFs or on the underlying index can be substituted for leveraged ETF options. Empirical results suggest substituting options on leveraged ETFs with options on the underlying index or index ETF give comparable results, but can differ as the realized leverage ratio over time differs from projected values. Originality/value - – This study is the first to the authors’ knowledge that investigates option strategies on leveraged and inverse ETFs of equity indices. It is also the first to derive call-call and put-put parity relations between options on ETFs and related leveraged and inverse ETFs. The results contribute to securities issuance, investment strategies, and option parity relations.

Climate Generated Disasters and Cataclysm in an Economy

I model the effects of climate change on a real business cycle model economy subjected to climate moderated disasters and the possibility of a worldwide cataclysm that destroys the economy. I find that the rise of greenhouse gas production in the economy leads to more frequent and more destructive disasters that affect the real economy, at the same time leading to lower risk-free rates and higher risk premiums.

Does Socially Responsible Corporate Reporting Lead to Less Stock Speculation

I compare speculative bubble formation between a group of corporations in the S&P 500 that score high on corporate social responsibility versus the S&P 500 as a whole. I find that high CSR firms are less likely to exhibit speculative bubbles.

Financial Openness and Total Factor Productivity Growth

[enter Abstract Body]Using a panel data set of 89 countries from 1995 through 2014, the effects of financial openness, both in general and by direction of foreign capital flows, on changes in total factor productivity growth in the economy are estimated. An overall positive relationship is found between financial openness and total factor productivity growth. The positive effect of financial openness is driven by relaxation of capital controls on foreign inflows. and on the level of domestic capital market development, with the majority of the benefits falling to countries whose credit markets are less developed. For countries with developed capital markets, we document that at a certain level of development that financial controls on capital inflows and outflows can have positive effects on total factor productivity growth at differing stages of development.

Sustainability and Measuring its Effect on Firm Value

The current interest in sustainable resources by business begs the questions: does sustainability affect the value of the firm, and if so, would its effect be detectable on the firm value? I propose a model where a possibly polluting input is part of the firms production function. I find that in a neo-classical model where the firm is a price taker in both the input and output markets, that use of the polluting resource does affect firm value, but whether it would be detectable is dependent upon if the polluting input is taxed.

Investor Protection and Capital Expenditures Under Endogenous Time Inconsistency

Underinvestment in value-enhancing projects is considered a major problem in corporate management. It is usually blamed on information asymmetry and agency costs. In this paper, a model is proposed that shows that even without information asymmetry and agency costs, there is a pronounced tendency for managers to underinvest due to a positive probability of their being replaced. It is also shown that investor protection legislation, if it does not eliminate the possibility of being replaced, does not lower the likelihood of underinvestment.

Asymmetric Volatility in Swiss Franc Cross-Rate Futures

I test for the presence of asymmetric volatility in the Swiss Franc cross-rate futures markets. My investigation is based on a variant of the heterogeneous autoregressive volatility model, using daily realized variance and return series from 2004 through 2009. I find that a decline in futures returns, while apparently leading to lower volatility asymmetry, is in fact due to the lack of inclusion of longer-term absolute return effects and jumps in the return series.

The Asymmetric Volatility of Platinum and Palladium Futures

I test for the presence of asymmetric volatility in the Platinum and Palladium futures markets. My investigation is based on a variant of the heterogeneous autoregressive volatility model, using daily realized variance and return series from 2004 through 2009. I find that a decline in oil futures leads to significantly lower volatility for Palladium futures.. Relative to volatility on days following a positive one-standard-deviation return, volatility on days following a negative one-standard-deviation return is lower by 20% for Palladium futures. These results are robust to the removal of the jump component from realized volatility. The asymmetry in Palladium crude futures appears to be embedded in the continuous component of realized volatility. Platinum futures volatility exhibits no asymmetry.

The Asymmetric Volatility of Euro Cross Futures

I test for the presence of asymmetric volatility in the Euro cross-rate futures markets. My investigation is based on a variant of the heterogeneous autoregressive volatility model, using daily realized variance and return series from 2004 through 2009. I find that appreciation against the Euro leads to less volatility for the EUR/GBP contract and significantly greater volatility for the EUR/JPY contract. Relative to volatility on days following a positive one-standard-deviation, volatility on days following a negative one-standard-deviation return is -0.10% less for the CHF/EUR future, 12.42% lower for the EUR/GBP future and 5.81% greater for the EUR/JPY future. The results are robust to the removal of the jump component from realized volatility.

Asymmetric Volatility in Oil Futures

I test for the presence of asymmetric volatility in the Brent and Light crude oil futures markets. My investigation is based on a variant of the heterogeneous autoregressive volatility model, using daily realized variance and return series from 2004 through 2009. I find that a decline in oil futures leads to significantly higher volatility in Brent and Light crude futures. Relative to volatility on days following a positive one-standard-deviation return, volatility on days following a negative one-standard-deviation return are higher by 22% for Brent futures and 35% for Light futures. These results are robust to the removal of the jump component from realized volatility. The asymmetry in Light crude futures appears to be embedded in the continuous component of realized volatility, while the jump component of the realized volatility does seem to play a role in determining the level of volatility, but not its asymmetry.