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The "Masters Hypothesis" is the claim that unprecedented buying pressure from new financial index investors created a massive bubble in agricultural futures prices at various times in recent years. This paper analyzes the market impact of financial index investment in agricultural futures...
Persistent link: https://www.econbiz.de/10010969324
Stocks with large increases in call implied volatilities over the previous month tend to have high future returns while stocks with large increases in put implied volatilities over the previous month tend to have low future returns. Sorting stocks ranked into decile portfolios by past call...
Persistent link: https://www.econbiz.de/10010951430
Financial markets have become increasingly global in recent decades, yet the pricing of internationally traded assets continues to depend strongly upon local risk factors, leading to several observations that are difficult to explain with standard frameworks. Equity returns depend upon both...
Persistent link: https://www.econbiz.de/10009228888
The favorite-longshot bias describes the longstanding empirical regularity that betting odds provide biased estimates of the probability of a horse winning--longshots are overbet, while favorites are underbet. Neoclassical explanations of this phenomenon focus on rational gamblers who overbet...
Persistent link: https://www.econbiz.de/10008631078
Many observers have argued that credit default swaps contributed significantly to the credit crisis. Of particular concern to these observers are that credit default swaps trade in the largely unregulated over-the-counter market as bilateral contracts involving counterparty risk and that they...
Persistent link: https://www.econbiz.de/10008634652
To understand the extent to which partisan majorities in Congress influence economic policy, we compare financial market responses in recent midterm elections to Presidential elections. We use prediction markets tracking election outcomes as a means of precisely timing and calibrating the...
Persistent link: https://www.econbiz.de/10005828770
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...
Persistent link: https://www.econbiz.de/10005830974
In this paper, we investigate empirically the well-known put-call parity no-arbitrage relation in the presence of short sale restrictions. We use a new and comprehensive sample of options on individual stocks in combination with a measure of the cost and difficulty of short selling, specifically...
Persistent link: https://www.econbiz.de/10005774413
We study price convergence between the two major markets for wholesale electricity in California from their deregulation in April 1998 through November 2000, nearly the end of trading in one market. We would expect profit-maximizing traders to have eliminated persistent price differences between...
Persistent link: https://www.econbiz.de/10005778023
Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner...
Persistent link: https://www.econbiz.de/10005034919