Research

Current Research:

7. (2008) ‘A non-parametric approach to non-linear behavioural exchange rate models’. View Abstract

   Abstract: To be updated.

6. (2008) ‘Some issues with ESTAR models for regime modelling’. View Abstract

   Abstract: To be updated.

5. (2008) ‘A note on the small sample behaviour of ESTAR models of real exchange rates’. View Abstract

   Abstract: To be updated.

4. (2008) ‘Understanding forecast failure of non-linear real exchange rate models’. View Abstract

   Abstract: To be updated.

3. (2007) ‘The impact of ECB monetary policy decisions and communication on the yield curve’ (with Claus Brand and Jarkko Turunen), Revised Version. Paper (.pdf, 444KB). View Abstract

   Abstract: We use intraday changes in money market rates to construct indicators of news about monetary policy stemming separately from policy decisions and from official communication of the ECB, and study their impact on the yield curve. We show that communication may lead to substantial revisions in expectations of monetary policy and at the same time exerts a significant impact on interest rates at longer maturities. Thereby, the maturity response pattern to communication is hump-shaped, while that of policy decisions is downward sloping.

2. (2007) ‘New characteristic-matching benchmark indices for evaluating the performance of mutual funds’, (with Robert Hill and Jon Eggins). View Abstract

   Abstract: A new method is proposed for constructing characteristic-matched performance benchmarks for mutual funds. Our method matches characteristics at the portfolio level, using style benchmarks that form a continuum in style space. These style benchmarks can often be constructed from linear combinations of off-the-shelf benchmark indices. Our approach ensures an exact style match between portfolios and benchmarks. It also allows us to disentangle the effects of different factors on performance, and to measure the relationship between activity and performance. We show how our benchmarks can be constructed in size, growth and momentum space and then illustrate our methodology using US mutual fund data. At the same time we demonstrate the computational simplicity of the method.

1. (2007) ‘A note on long horizon forecasts of nonlinear models of real exchange rates: Comments on Rapach and Wohar (2006)’. School of Economics Discussion Paper No. 2008/2, UNSW. Paper (.pdf, 577kb); Data (.xls,56KB); David Rapach's webpage. View Abstract

   Abstract: This study shows that long horizon forecasts from the nonlinear models that are considered by Rapach and Wohar (2006) cannot generate any forecast gains over a simple AR(1) specification. This is contrary to the findings reported in Rapach and Wohar (2006). Moreover, it is illustrated graphically that the nonlinearity in the forecasts from the ESTAR model is the strongest when forecasting one step-ahead and that it diminishes as the forecast horizon increases. There exists, therefore, no potential whatsoever for the considered nonlinear models to outperform linear ones when forecasting far ahead. A graphical illustration is employed to hightlight why one stepahead forecasts from the nonlinear ESTAR model fail to yield superior predictions to a simple AR(1).

Refereed Publications:

5. (2008) ‘An estimated New Keynesian Policy Model for Australia’ (with Martin Melecky), The Economic Record, 84 (264), 1-16. Paper (.pdf, 434KB); Model Notes (.pdf, 259KB). View Abstract

   Abstract: An open economy New Keynesian policy model for Australia is estimated in this study. We investigate how important external shocks are as a source of macroeconomic fluctuations when compared to domestic ones. The results of our analysis suggest that the Australian business cycle and domestic inflation are most affected by domestic demand and supply shocks, respectively. However, domestic output also appears to be strongly affected by foreign demand shocks, and domestic inflation by exchange rate shocks. Domestic variables do not seem to be significantly affected by foreign supply and monetary policy shocks.

4. (2006) ‘The impact of ECB monetary policy decisions and communication on the yield curve’ (with Claus Brand and Jarkko Turunen), ECB Working Paper No. 657. Paper (.pdf, 713KB). View Abstract

   Abstract: We analyse high-frequency changes in the euro area money market yield curve on dates when the ECB regularly sets and communicates decisions on policy interest rates to construct different indicators of monetary policy news relating to policy decisions and to central bank communication. The indicators show that ECB communication during the press conference may result in significant changes in market expectations of the path of monetary policy. Furthermore, our results suggest that these changes have a significant and sizeable impact on medium to long-term interest rates.

3. (2006) ‘Bootstrap causality tests of the relationship between the equity markets of the U.S. and other developed countries: Pre- and post-September 11’ (with Eduardo Roca and Abdulnasser Hatemi-J), Journal of Applied Business Research, 22 (3), 65-74. View Abstract

   Abstract: We analyse the causal relationship between the equity markets of the US and those of the UK, Japan, Germany, France, Canada and Australia based on leveraged bootstrap approach developed by Hacker and Hatemi-J (2005). This method overcomes problems of non-normalities and ARCH effects in the data. Using weekly MSCI price indices, we focus our investigation on the period 1998 to 2005 which we divided into two sub-periods to take into account the potential structural break arising from September 11. Our results show that before September 11, there was bi-directional causality between the US and Japan and between the US and Germany. In addition, there was also a uni-directional causality from the US to Canada and from the US to France. After September 11, the only causality was a unidirectional one from the US to Japan and from the UK to the US. Thus, after September 11, the US Granger-caused a fewer number of markets. This could imply that after September 11, the other markets became more efficient in responding to information transmitted from the US market.

2. (2005) ‘The extent and stability of long-run relationship between stock prices: Evidence from the U.S., the U.K. and Australia’ (with Eduardo Roca), Investment Management and Financial Innovations, 2 (4), 80-94. View Abstract

   Abstract: We examine whether a significant long-run relationship between the US, UK and Australian stock market prices exists and whether this relationship is temporally stable, based on the use of cointegration methodology as applied to the period of 1984 to 2001. We. find a stationary long-run relationship between the UK and US, but not between the Australian and US, and Australian and UK, markets. Our results further reveal that the UK-US relationship was impacted by two structural shocks - the October 1987 stock market crash and the 1993-1994 US bond market crash. This relationship was stable during the period before the October 1987 crash and remained to be so after this period until it was disrupted by the 1993-1994 US bond market crash. During the period starting after 1994 up to 2001, this relationship between the UK and US markets, however, ceased to exist. Thus, for investors with UK and US stocks in their portfolios, there was no need for re-balancing of their portfolio during the periods of 1984 to 1993 but this had to be done after 1994.

1. (2002) ‘Equity market price interdependence between Australia and the Asian Tigers’ (with Eduardo Roca), International Journal of Business Studies, 10 (2), 61-74. View Abstract

   Abstract: The study investigates the extent and structure of long-term and short-term price interaction between the equity markets of Australia and the Asian Tigers - Hong Kong, Korea, Singapore and Taiwan, taking into account the Asian financial crisis. It applies cointegration and generalised variance decomposition and impulse response analyses using MSCI price index data. No significant long-term relationship between Australia and the Asian Tigers is found both before and after the Asian crisis. No significant short-term relationship is also found during the period before the crisis. However, after the crisis, the study finds Australia to be significantly interdependent with Hong Kong and Singapore.

Unpublished Articles:

1. (2003) ‘On the stability of equity price relations: Evidence from Australia, the U.S. and the European Union countries’ (with Eduardo Roca), Paper presented at the Econometric Society Meeting in Australasia (2003), Sydney, Australia. Paper (.pdf, 506KB). View Abstract

   Abstract: An empirical analysis of stock price linkages between the equity markets of the Australia, the UK, Germany, France and the US is presented, using a cointegrating VAR framework. The existence of one cointegrating vector is ascertained. Restrictions on the cointegrating vector suggest that all markets enter the equilibrium relation significantly and that the equity markets of the US, Germany and France appear to be fully integrated. Results from restrictions imposed on the loadings vector suggest that the US and German equity markets are weakly exogenous, thus not affected by the equilibrium relation. An examination of the time plots of the parameter estimates of the recursively computed restricted model based on Hansen and Johansen (1992) reveal substantial instabilities during two periods: the first at the end of 1990, enduring for approximately two months and the second at the end of 1995 lasting until the end of 1995.