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Yield Curve Dynamics and Fiscal Policy Shocks
Kučera, A. ; Kočenda, Evžen ; Maršál, Aleš
We show that government spending does play a role in shaping the yield curve which has important consequences for the cost of private and government financing. We combine government spending shock identification strategies from the fiscal macro literature with recent advancements in no-arbitrage affine term structure modeling, where we account for time-varying macroeconomic trends in inflation and the equilibrium real interest rate. We stress in our empirical macro-finance framework the importance of timing in the response of yields to government spending. We find that the yield curve responds positively but mildly to a surprise in government spending shocks where the rise in risk-neutral yields is compensated by a drop in nominal term premia. The news shock in expectations about future expenditures decreases yields across all maturities. Complementarily, we also analyze the effect of fiscal policy uncertainty where higher fiscal uncertainty lowers yields.
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Momentum in Stock Returns: Analysis for European Countries
Drmotová, Kristýna ; Kukačka, Jiří (advisor) ; Maršál, Aleš (referee)
This thesis investigates one of the most pervasive anomalies in the behaviour of stock returns, the momentum. We analyse whether there is momentum in European stock returns that would generate profitable investment strategies. First, we compute the average monthly returns on strategies built in accordance with the existing literature. Next, we compare returns on momentum strate- gies between markets with different levels of capitalization and development. Further, we test whether these returns can be explained as the compensation for risk exposures through the Capital Asset Pricing Model. We find that even though the underlying risk has perceptible predictive power for stock re- turns, there still remains a substantial part of abnormal returns unexplained by this model. Therefore, we extend it with additional explanatory variables that might have a predictive power for stock returns according to the Fama & French (1993) three-factor model and Fama & French (2015) five-factor model. We find that stocks that performed best over the short-term past tend to con- tinue to outperform other stocks and stocks that performed worst tend to have one of the lowest returns in subsequent months. We find that strategies based on buying past winners yield statistically significant positive abnormal returns. Furthermore,...
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Risk model for real estate assets: Analysis and development
Koubková, Klára ; Parrák, Radovan (advisor) ; Maršál, Aleš (referee)
The main aim of this thesis is to design a new and more advanced methodology for valuation of real estate portfolios and incorporate uncertainty into the valuation process. From the comprehensive real estate literature we identified the main value drivers whose treatment is often neglected in the traditional appraisal methodology as they are used as a single point estimates. The identified parameters are the discount rate, inflation, prime rent, occupancy and market capital value changes. In contrast with the traditional approach, we calibrate distributions of these parameters from historical data and allow their variation through the Monte Carlo simulation. This enables us to model their impact on the market value of our real estate portfolio, which comprises of A-class office buildings with detailed property level data including their lease structure. The methodology presented here builds on the widely used DCF approach, which is augmented by the risk parameters and through the thousands of iterations of the Monte Carlo simulation we arrive to a distribution of all potential values of the portfolio. Finally, the knowledge of relevant risk factors and their impact on returns of their property portfolio then provides investors with better and more reliable foundations for their decisions and...
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Rare Disasters and Asset Pricing Puzzles
Kotek, Martin ; Maršál, Aleš (advisor) ; Korbel, Václav (referee)
The impact of rare disasters on equity premium and term premium in a New Keynesian DSGE model is explored in the thesis. Andreasen's (2012) model with Epstein-Zin preferences, bonds and a rare disaster shock in total factor productivity process is extended by a variable capital stock and an equity-type asset. We find that the variable capital significantly changes behavior of the model, capital depreciation must be substantially increased to counter the effect of variable capital and stochastic mean of inflation increases. The model calibrated to the US economy and a high risk aversion generates 10-year term premium of 90 basis points, rare disasters increase the premium only by 3 basis points. The equity premium is 163 basis points and rare disasters increase it also only by 3 basis points. The model with a low coefficient of relative risk aversion of 5.5 generates negative risk premia. Rare disasters increase the risk premia by mere 4 basis points in comparison to a model with i.i.d. shocks. Powered by TCPDF (www.tcpdf.org)
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The Czech National Bank Communication and the Yield Curve
Karas, Pavel ; Horváth, Roman (advisor) ; Maršál, Aleš (referee)
This thesis analyzes the effect of the Czech National Bank's (CNB) communica- tion on the interest rate volatility (PRJBOR reference rate). Starting with the literature survey about the central bank communication in the world, I focus on the literature that concerns the CNB. To model the CNB's communication, I use the GARCH(l,1), EGARCH(l,1) and TARCH(l,1) models. I have created a unique data set containing the dummy variables for the CNB communication. The results are as follows: (a) the CNB's communication tends to decrease the volatility, (b) timing of the communication has a key role as the comments closer to the meeting have bigger calming effect, and that (c) there is no clear effect concerning the comments of the Bank Board members in the media. JEL Classification Keywords E43, E44, E52, E58 Czech National Bank, monetary policy signaling, central bank communication, the term structure of interest rates, GARCH analysis Author's email karasp@email.cz Supervisors's email roman. horvath@gmail.com
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Exchange Rate Pass-Through Effect and Monetary Policy in Mongolia: Small Open Economy DSGE model
Buyandelger, Oyu-Erdene ; Maršál, Aleš (advisor) ; Zelený, Tomáš (referee)
This thesis analyzes the incomplete exchange rate pass-through effect on Mongolian economy and its implication on monetary policy under foreign and domestic shocks. The analysis is carried out in a small open economy New Keynesian DSGE model proposed by Monacelli (2005), where incomplete exchange rate pass-through is introduced via nominal rigidities on import prices. In order to accomplish the goal, we firstly derive the solutions of the model, calibrate the parameters, and finally simulate the impulse responses. Moreover, SVAR estimation is achieved to estimate the pass-through. Four main results are obtained. First, the exchange rate pass-through into import price and inflation is 0.69% and 0.49% respectively in short run, implying incomplete pass-through in Mongolia. Second, the exchange rate acts as a shock absorber for domestic productivity and foreign demand shock, but as a shock amplifier for domestic demand shock. Third, in case of incomplete pass-through the central bank of Mongolia is required to adjust the nominal interest rate more under the productivity shock, but less for the domestic and foreign demand shock. Finally, deviations from the law of one price contributes considerably to the variability of the output gap under the low pass-through. Therefore, considering incomplete pass-through in...
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Asset prices and macroeconomics: towards a unified macro-finance framework
Maršál, Aleš ; Horváth, Roman (advisor) ; Holub, Tomáš (referee) ; Kónya, István (referee) ; Pástor, Luboš (referee)
Asset prices and macroeconomics: towards a unified macro-finance framework Aleš Maršál March 30, 2020 Abstract The dissertation consists of three papers focused on fiscal policy and explaining what determines the dynamics of cross-sectional distribution of bond prices. The connecting factor of the thesis is however not just its main theme but also the used methodology. The valuation of bonds and effects of studied policies are endogenous outcome of the full-fledged macro-finance dynamic stochastic general equilibrium model. The first chapter provides broader context and non-technical summary of the three papers in following chapters. The first paper studies the role of trend inflation in bond pricing. Motivated by recent empirical findings that emphasize low-frequency movements in inflation as a key determinant of term structure, we introduce trend inflation into the workhorse macro-finance model. We show that this compromises the earlier model success and delivers implausible busi- ness cycle and bond price dynamics. We document that this result applies more generally to non-linearly solved models with Calvo pricing and trend inflation and is driven by the behavior of price dispersion, which is i) counterfactually high and ii) highly inaccurately approximated. We highlight the channels be- hind the undesired performance...
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Monte Carlo Simulation of Swiss Franc LIBOR Using The Vasicek Model
Kozmík, Karel ; Teplý, Petr (advisor) ; Maršál, Aleš (referee)
We analyzed Swiss Franc LIBOR using R software and the Vasicek model. We utilized OLS, ML, bootstrap or simulations to test our hypotheses. The random walk hypothesis was not rejected, when we considered all the historical data. To get reasonable estimators, we used only data from the last adjustment of interest rates by the central bank and rejected the random walk hypothesis for all maturities but 12M. The difference in the results for OLS and ML estimates was negligible, so we did not reject the hypothesis that both methods give almost the same results. Performing a simulation study, we did not find any significant difference in the estimates for the Euler approximation for small values of the parameter a, but for larger values of a, the approximation led to biased results. All the hypotheses testing led the construction of confidence intervals for the estimated parameters, which are omitted in many papers and only point estimates are provided. We created confidence intervals for parameters of the Vasicek model for all the maturities but 12M. Extensive numerical simulations were run to explore the attributes of bootstrap estimates. We used an innovative approach of utilizing the logarithmic transformation to achieve a distribution closer to normal (which was necessary, because the intervals contained...
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Pairs trading at CEE markets
Šedivý, Jakub ; Maršál, Aleš (advisor) ; Kraicová, Lucie (referee)
We investigate the use of investment strategy called pairs trading on small-sized equity markets located in Central Eastern Europe. Pairs trading is self-financing trading strategy that identifies two stocks based on their historical relationship, and makes profit on their short-term relative mispricing, since the strategy relies on their convergence into the long- term equilibrium. The objective of this thesis is to compare two different methods of pairs trading, distance method based on minimizing the sum of squared deviations between nor- malized historical prices and cointegration method using daily data from June 2008 to March 2017. We examine whether any of those method is profitable on Prague Stock Exchange, Bucharest Stock Exchange and Budapest Stock Exchange and can be used on such markets with high industry diversity. Our findings were not stastically different from zero in all but one case and majority of average returns was negative. In comparison to US and Finnish equity markets the strategy falls behind. Even though we identified some cointegrated pairs, their profitability was more than questionable and further investiga- tion showed that small equity markets such as the ones we have studied are not a good fit for pairs trading strategy.
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McCallum´s rule in the Czech Republic
Wolf, Vojtěch ; Potužák, Pavel (advisor) ; Maršál, Aleš (referee)
This thesis examines whether the McCallum´s rule, which targets nominal GDP using the monetary base as its instrument, would be more successful in achieving the goal of smoother path of nominal GDP with inflation staying on target, had it been in place of the actual historical monetary policy in the Czech Republic. To assess the performance of McCallum´s rule, I calculate simulated paths for nominal GDP and money base, using counterfactual simulation method. The results suggest that, compared to the historical monetary policy, the rule would not be able to secure a smoother path of nominal GDP and would bring only a slight improvement in the central bank´s ability to keep average inflation on its target. These results are not convincing enough to support a decision in favor of replacing the current regime of inflation targeting with nominal GDP targeting regime based on McCallum´s rule. Even so, it would be possible to use the rule under the current regime as a benchmark or a monitoring tool for assessing the stance of monetary policy.
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