Fatemeh Salimi Namin, Valerio Serse
Océane Piétri: oceane.pietri[at]univ-amu.fr
Morgan Raux: morgan.raux[at]univ-amu.fr
Laura Sénécal: laura.senecal[at]univ-amu.fr
Fatemeh Salimi Namin
Equity carry trades, when and how?
This paper investigates the underlying relationship between stock markets and exchange rates by focusing on the Japanese yen-US dollar exchange rate returns and the returns on their respective stock indices, the Nikkei 225 and the S&P 500, from 1971 to 2018. Recent theoretical models of uncovered equity parity (UEP) (Hau and Rey (2006)) suggest that following an outperformance of a foreign stock market over a home market, investors repatriate their assets to hedge their exposure to exchange rate risk and this behavior induces capital flow into the home country and causes the home currency to appreciate. Using a Markov-switching VAR model, we show that exchange rate movements are explained (partially) by stock market returns differentials, consistent with UEP, and that this linkage can be attributed to equity carry trades but not to exchange rate risk hedging.
The heterogeneous impact of sugar taxes on cola demand across different household types
Sugar taxes are often considered as a possible tool to tackle excessive sugar consumption. Accounting for heterogeneity in preferences can be fundamental in order to assess whether these policies will be effective among the targeted population. This work estimates a multinomial Logit model of cola demand on a large set of consumer scanner data in order to test for both taste heterogeneity and state dependence in product choice. The model estimates allow evaluating the effectiveness of taxation in reducing demand for sugary colas. The results indicate that households have very heterogeneous preferences for sugary colas, have different price sensitivity and exhibit inertia in cola choice. In particular, heavy sugar consumers tend to prefer sugary to diet colas but are less sensitive to prices. This suggests that although taxing sugary colas can be justified on public health grounds, this policy will not have a larger impact among the targeted population. Tax policy simulations show that excise taxes targeting sugar content should be preferred to ad-valorem taxes, as the latter would entail a larger substitution towards cheaper sugary colas. Lastly, because of state dependence in cola choice, these taxes are more effective in reducing cola demand in the long-run.