Modeling Time-Varying Conditional Betas. A Comparison of Methods with Application for REITsBook chapterMarcel Aloy, Floris Laly, Sébastien Laurent et Christelle Lecourt, In: Recent Econometric Techniques for Macroeconomic and Financial Data, Gilles Dufrénot et Takashi Matsuki (Eds.), 2021-01, pp. 229-264, Springer International Publishing, 2021

Beta coefficients are the cornerstone of asset pricing theory in the CAPM and multiple factor models. This chapter proposes a review of different time series models used to estimate static and time-varying betas, and a comparison on real data. The analysis is performed on the USA and developed Europe REIT markets over the period 2009–2019 via a two-factor model. We evaluate the performance of the different techniques in terms of in-sample estimates as well as through an out-of-sample tracking exercise. Results show that dynamic models clearly outperform static models and that both the state space and autoregressive conditional beta models outperform the other methods.

Jumps et modèles de type GARCH (Chapitre 3)Book chapterSébastien Laurent et Christelle Lecourt, In: Méthodes de prévisions en finance, A. Charles, O. Darné et L. Ferrara (Eds.), 2020-09, pp. 53-68, 2020
Country Factors and Investment Decision-Making Process of Sovereign Wealth FundsJournal articleJeanne Amar, Bertrand Candelon, Christelle Lecourt et Zhou Xun, Economic Modelling, Volume 80, pp. 34-48, 2019

We examine in this paper the complex decision-making processes that lead to investment location choice of Sovereign Wealth Funds (SWFs). Using a two-tiered dynamic Tobit panel model, we find that country-level factors do not have the same impact on the investment decision and the amount to invest and that SWFs tend to invest more frequently and with higher amounts in countries in which they already have invested. More specifically, we find that SWFs prefer to invest in countries with higher political stability, whereas they are more prone to investing for large amounts in countries that are less democratic and more financially opened. Our results also lend support to the idea that SWFs are prudent in the choice of target country concerning their investment decision but behave as more opportunistic investors concerning the amounts to be invested.

Is the emergence of new sovereign wealth funds a fashion phenomenon?Journal articleJeanne Amar, Christelle Lecourt et Valerie Kinon, Review of World Economics, Volume 154, Issue 4, pp. 835-873, 2018

The paper deals with the important financial policy issue of the decision for a country to establish a sovereign wealth fund (SWF). Using a large-scale database, we analyze the economic, political and institutional factors that should be considered in such a decision. In particular, we test if the emergence of SWFs and more specifically of a specific type of SWFs can be explained by the following factors: the excess foreign exchange reserves due to natural resources rents or persistent current account surpluses; the volatility of commodity prices; the appreciation of the real exchange rate leading to the “Dutch Disease” effect and the governance of the country. The results suggest that countries with excess foreign exchange reserves, which are dependent on a commodity and which suffer from an appreciation of the real exchange rate are more likely to create a fund. We also find that commodity-based funds tend to be established in low democratic countries. Finally, our results suggest that the factors driving SWFs creation are different depending on the origin of the funding (commodity or non-commodity) and the macroeconomic objective(s) assigned to the fund. Our results may be of interest for policymakers debating whether or not it can be optimal for the country to establish a SWF.

Understanding the decision-making process of sovereign wealth funds: The case of TemasekJournal articleJ. Y. Gnabo, Malik Kerkour, Christelle Lecourt et Helen Raymond, International Economics, Volume 152, pp. 91-106, 2017

Sovereign wealth funds (SWFs) have been increasingly active over the past decade, with governments raising concern regarding their actual motives and the potential for cross-border interest in national strategic sectors. The aim of this paper is to contribute to the existing literature by improving our understanding of the decisions being taken by this new class of investors. The decision-making process informing such investments is complex in the sense that it involves several levels of decision that may potentially interact. In this study, we investigate the determinants of SWFs' foreign investments, while considering in a single model the sequence of choices involved in their decisions, specifically (i) the decision to invest abroad or not, (ii) the decision to invest in a listed versus unlisted firm, and (iii) the decision to take large versus small stakes. Using a nested logit approach on one of the largest SWFs, the Singaporean fund Temasek, over the period 1990–2010, we provide clear evidence of dependence in the three levels of decision making considered. In addition, we show that the probability of Temasek's cross-border investment increases with the excess of foreign exchange (FX) reserves, that the SWF tends to target unlisted firms when asymmetry of information is low between the target company and its home country, and that its involvement in large stakes depends on a firm's financial characteristics.

Testing for jumps in conditionally Gaussian ARMA-GARCH models, a robust approachJournal articleSébastien Laurent, Christelle Lecourt et Franz C. Palm, Computational Statistics & Data Analysis, Volume 100, Issue C, pp. 383-400, 2016

Financial asset prices occasionally exhibit large changes. To deal with their occurrence, observed return series are assumed to consist of a conditionally Gaussian ARMA-GARCH type model contaminated by an additive jump component. In this framework, a new test for additive jumps is proposed. The test is based on standardized returns, where the first two conditional moments of the non-contaminated observations are estimated in a robust way. Simulation results indicate that the test has very good finite sample properties, i.e. correct size and high proportion of correct jump detection. The test is applied to daily returns and detects less than 1% of jumps for three exchange rates and between 1% and 3% of jumps for about 50 large capitalization stock returns from the NYSE. Once jumps have been filtered out, all series are found to be conditionally Gaussian. It is also found that simple GARCH-type models estimated using filtered returns deliver more accurate out-of sample forecasts of the conditional variance than GARCH and Generalized Autoregressive Score (GAS) models estimated from raw data.

The Intra-Day Impact of Communication on Euro-Dollar Volatility and JumpsJournal articleHans Dewachter, Deniz Erdemlioglu, Jean-Yves Gnabo et Christelle Lecourt, Journal of International Money and Finance, Volume 43, pp. 131-154, 2014

In this paper, we examine the intra-day effects of verbal statements and comments on the FX market uncertainty using two measures: continuous volatility and discontinuous jumps . Focusing on the euro-dollar exchange rate, we provide empirical evidence of how these two sources of uncertainty matter in measuring the short-term reaction of exchange rates to communication events. Talks significantly trigger large jumps or extreme events for approximately an hour after the news release. Continuous volatility starts reacting prior to the news, intensifies around the release time and stays at high levels for several hours. Our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe, and higher than normal. Disentangling the US and Euro area statements, we also find that abnormal levels of volatility are mostly driven by the communication of the Euro area officials rather than US authorities.

Do jumps mislead the FX market?Journal articleSébastien Laurent, Jean-Yves Gnabo, Jérôme Lahaye et Christelle Lecourt, Quantitative Finance, Volume 12, Issue 10, pp. 1521-1532, 2012

This paper investigates the link between jumps in the exchange rate process and rumours of central bank interventions. Using the case of Japan, we analyse specifically whether jumps trigger false reports of intervention (i.e. an intervention is reported when it did not occur). Intraday jumps are extracted using a non-parametric technique recently proposed by Lee and Mykland in 2008 and by Andersen et al . in 2007, and later modified by Boudt et al . in 2011. Rumours are identified by using a unique database of Reuters and Dow Jones newswires. Our results suggest that a significant number of jumps on the YEN/USD have been falsely interpreted by the market as being the result of a central bank intervention. The paper has policy implications in terms of central bank interventions. We show that in times where the central bank is known to intervene, some investors may attach a lot of weight to central bank interventions as a source of exchange rate movement, leading to a false ‘intervention explanation’ for observed jumps.

Does transparency in central bank intervention policy bring noise to the FX market?: The case of the Bank of JapanJournal articleSébastien Laurent, Jean-Yves Gnabo et Christelle Lecourt, Journal of International Financial Markets, Institutions and Money, Volume 19, Issue 1, pp. 94-111, 2009

This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on rumors that can emerge. Using the case of Japan, we estimate a dynamic-probit model that explains the main determinants of false reports (i.e. falsely reported interventions) and anticipative rumors (i.e. rumors about future interventions) with reference to the intervention strategy adopted by the central bank for actual and oral interventions, and the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors critically depends on the type of speeches made by officials.

Foreign exchange intervention policy: With or without transparency? The case of JapanJournal articleJean-Yves Gnabo et Christelle Lecourt, Economie internationale, Issue 113, pp. 5-34, 2008

Cet article analyse différents aspects de la transparence des politiques de change. Il se concentre plus précisément sur l’évolution du degré de transparence de la politique de change japonaise au cours de ces dernières années et sur son impact sur la perception des agents. Pour conduire l’analyse, une base de données caractérisant la nature de la politique d’intervention et la perception du marché sur la période 1991 to 2004 a été créée. Les résultats montrent que différentes stratégies furent adoptées au cours du temps. Ces stratégies ont un impact contrasté sur la perception du marché. Il apparaît en particulier que les discours dévoilant les préférences des autorités en terme de taux de change (interventions orales) introduisent de la confusion dans le marché. À l’inverse, les discours visant à confirmer une intervention réelle (i.e. transaction sur le marché des changes) sont accompagnés de moins d’incertitude. Ces résultats suggèrent que les interventions sont un instrument utile pour les banques centrales, à condition que les autorités interviennent et parlent au marché de manière appropriée.Classification JEL : E58 ; F31 ; G15.