Timothy W. Koch

Evolution in dynamic linkages across daily national stock indexes

Abstract This article investigates how dynamic linkages among the daily rates of return of eight national stock indexes have evolved since 1972. A dynamic simultaneous equations model is estimated to describe the contemporaneous and lead/lag relationships across national equity markets over three different years: 1972, 1980, and 1987. Results reveal growing market interdependence within the same geographical region over time. While there are many significant intermarket relationships within the same 24-hour period, there are few significant lagged responses across markets beyond 24 hours. This suggests a high degree of international market efficiency. Furthermore, Japans market influence has been growing to rival that of the USA.

Do macroeconomics news releases affect gold and silver prices

Abstract Using intraday data, we document the responses of gold and silver future prices to monthly macroeconomic news releases. Both metals respond strongly to the release of Capacity Utilization. Gold also responds strongly to the release of the CPI. We also find that the release of the Unemployment Rate affects both gold and silver, whereas the Gross Domestic Product and PPI have significant effects on gold. Weak responses by gold to the release of the Federal Deficit and silver to the release of the CPI, Hourly Wages, Business Inventories, and Construction spending are also noted. Keywords: Macroeconomic news; Metals; Volatility JEL classification: G12; G14

Intraday relationships between volatility in S&P 500 futures prices and volatility in the S&P 500 index☆

Abstract This paper examines the intraday relationships between the volatility of S&P 500 futures prices and the volatility of the S&P 500 index. We calculate variance measures for minute-to-minute price changes on a daily basis and across 30-minute intervals. The empirical results indicate that: (i) futures volatility is greater than index volatility, (ii) volatility increased for both futures prices and the index in absolute terms from 1984 through 1986, (iii) both futures and index volatility increased directly with futures trading volume, and (iv) index volatility was systematically greater during the first 30 minutes of trading each day than at other times. Granger tests, however, reveal no systematic pattern of futures volatility leading index volatility, or index volatility leading futures volatility.

Market Segmentation and the Term Structure of Municipal Yields

AN ISSUE OF CONSIDERABLE CONTROVERSY in recent years is whether segmentation exists in the municipal bond market. The presence of market segmentation suggests that securities can be subdivided into distinct groups according to some characteristic and there exists a lack of substitution between these groups on the part of borrowers and/or investors [ 1, 4, 8] . Hendershott and Kidwell [4], for example, found evidence that market segmentation affected yields between regionally and nationally marketed municipal bond issues. Others contend that the municipal bond market is relatively efficient and no permanent segmentation effects can exist [2, 9]. Most recently, Campbell [2] examined possible segmentation resulting from the large acquisitions of municipal securities by commercial banks and found that bank demand for municipal securities had no significant influence on the yield spreads between municipal bonds which differed in default risk, term to maturity, and tax treatment. This is consistent with the argument that the combination of progressive personal income tax rates and fixed corporate income tax rates induces corporations to issue an amount of debt such that the marginal investor in taxable and tax-exempt securities pays taxes at the full corporate rate [9]. If segmentation does not exist, two peculiar features of the term structure of municipal yields cannot be fully explained. For one, municipal yields have almost always increased monotonically with maturity. This is true both for market averages of similarly rated municipal securities and for reoffering yields on individual serial

Systematic Variation in Yield Spreads for Tax-Exempt General Obligation Bonds

In recent years much research has centered upon whether yield differentials between bonds which differ in default risk vary systematically over the business cycle. Theory suggests that during a cyclical upswing the yield differential (or risk premium) narrows, while during a downswing the differential widens. The cyclical behavior of yield spreads is well documented in the corporate bond market [4, 8, 12, 16]. This effect has only recently been given attention in the tax-exempt bond market [1, 11]. In addition, the municipal bond market may be segmented. If tax-exempt borrowers and investors are unable to substitute between tax-exempt securities of varying default risk, changes in the relative supply of and demand for these classes of securities could produce systematic fluctuations in tax-exempt yield differentials. These effects could be produced by regulatory statutes which require that banks purchase high-grade securities and the fixed nature of bond ratings.

Issue size and term-structure segmentation effects on regional yield differentials in the municipal bond market

Abstract This study extends the debate regarding segmentation influences in the market for municipal securities. In particular, it provides empirical evidence that relative security supplies, differential pledging requirements, and differential state personal income taxes produce systematic differences in municipal borrowing costs across states. These influences vary by issue size and term to maturity.

The effect of market returns, interest rates, and exchange rates on the stock returns of Japanese horizontal keiretsu financial firms

Abstract This research empirically examines the sensitivity of individual and portfolio stock returns for Japanese horizontal keiretsu financial firms to unanticipated changes in market returns, interest rates (government bond returns), exchange rate changes, and nominal interest rate spread changes. Results indicate that the stock returns of keiretsu financial firms often exhibit significant negative responses to interest rate increases. Results also indicate that keiretsu financial firms have higher than average market risk but insignificant exposure to exchange rate changes. There is weak evidence that risk exposures, as measured by betas, are larger when keiretsu financial firm cohesion is greater.

Surviving chapter 11: Why small firms prefer supplier financing

This research examines the value of trade credit relationships for small firms. We initially document the benefits of trade credit relationships and_explain why small firms in financial distress tend to prefer trade credit from suppliers over bank financing. Banks do not agree to debt reduction, additional financing, or deviate from absolute priority. Implicitly, banks’ interests are best served by forcing liquidation through Chapter 7. Secured suppliers with pre-petition debt tend to provide debtor-in-possession financing, while unsecured suppliers are more likely to agree to deviations from absolute priority. Hence, suppliers’ interests are best served by facilitating reorganization through Chapter 11.

The Use of Accruals to Manage Reported Earnings: Theory and Evidence

This paper develops a model in which firm managers maximize their own compensation by using accruals to manage reported earnings. The results of the model suggest that the form of the managerial compensation function and managerial time preferences may have an important influence on the relationship between accruals and latent earnings. Among the possible relationships suggested by the model are strategies we call Smooth Income, Occasional Big Bath, Live for Today, and Maximize Variability, each of which suggests a different reporting strategy pursued by managers. Most empirical tests of accruals are inconsistent with this and other theoretical models because they include a single earnings variable in a linear regression analysis. Instead, we document the reporting of accruals by two firms, Sunbeam and Citicorp, that is consistent with the “Live for Today” and “Occasional Big Bath” strategies.

Seasonal Patterns in Money Market Mutual Funds

This study analyzes seasonal patterns in tax-exempt and taxable money market mutual fund yields. We document a significant increase in tax-exempt and taxable yields during the last three weeks of December, followed by a significant decrease in yields during the first three weeks of January. The yield changes are associated with a corresponding outflow of fund assets at the end of the year and inflow of assets in the beginning of the year. We also find that tax-exempt yields change systematically around the 15th of April, June and September, which are key individual income tax dates. These results are consistent with liquidity effects associated with year-end wages, dividends, and bonus payments and tax-effects. We also find that institution window dressing contributes to the year-end movements in taxable and tax-exempt fund yields. One implication is that municipalities planning to issue short-term notes and investors in these funds can time their actions to take advantage of these systematic yield changes.