In this paper, two largely familiar stock market anomalies -the yield curve and the momentum effects -are re-examined for the S&P 500 index by using nonparametric regression. The results essentially confirm the existence of both of these phenomena, but also indicate that the stochastic linkages between the explanatory variables and future index returns are nonlinear and mutually dependent. It hence turns out that the greater flexibility offered by nonparametric regression enables the detection and characterisation of some features of the underlying relationship that would have been gone unnoticed under the linearity and additivity assumptions underlying simpler regression approaches.
This study examines the interrelationship of asset swap spreads on government and mortgage covered bonds in Germany, France, Italy, and Spain between 2007 and mid-2014. Using a local least squares estimator with time varying parameters, we find that in all of the four countries under investigation, the pattern of spread movements for these two bond classes underwent significant changes over time. In Germany, where the confidence of market participants in the solidity of public finances appears to be largely unshaken, spreads were driven apart due to "flight to safety" effects in times of turmoil, and drew closer again when the situation steadied. Yet in France, Italy, and Spain, the (partial) erosion of confidence in the sustainability of government debts led to a protracted weakening of the linkage between the spread movements of government and mortgage covered bonds.
By applying a linear regression model to monthly time series data from the German equity and money markets, this paper challenges the conventional viewpoint that historical data do not possess any explanatory power for future stock market returns.
At a time in which global challenges such as anthropogenic climate change would actually require cross-border coordinated policy action, the selfish pursuit of national interest frequently gains the upper hand in the practice of international economic policy. At the same time, the economic basis of the geopolitical hegemony of the global West is at risk of being undermined due to soaring rates of inflation and an increasing debt burden. If those responsible in business and politics fail to demonstrate, in a credible manner, that they are aware of the existence and scope of the resulting dilemmas, they could expose the internal stability of western democracies to a substantial threat.
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