Violeta Diaz, Harikumar Sankaran and Subramanian Rama Iyer
After a seven-year period of being stuck in the zero lower bound (ZLB) range, the target rate was raised by 25 basis points on December 16, 2015. Prior to the rate hike, the…
Abstract
Purpose
After a seven-year period of being stuck in the zero lower bound (ZLB) range, the target rate was raised by 25 basis points on December 16, 2015. Prior to the rate hike, the important issues that the Federal Reserve dealt with were the magnitude, timing, and the information conveyed by a first-time rate hike from the ZLB period. The purpose of this paper is to use the data from the ZLB period and simulate the impact of an increase in the proxies for the federal funds rate: effective federal funds rate and shadow rate, and measure the impact on the resulting changes in credit default swap (CDS) spreads across 11 industries. Increases in both proxies predict a significant decrease in CDS spreads which is indicative of an economic recovery. This prediction is confirmed by the announcement effect of the actual rate increase on December 16, 2015 and the three subsequent rate increases.
Design/methodology/approach
In the absence of target rate changes in the ZLB environment, the authors use a recursive vector autoregressive (VAR) model to simulate the rate increases in proxies for target federal rate and predict the impact on the economy by observing the reaction in CDS spreads and stock returns across 11 industries.
Findings
The impulse response indicates that an increase of one standard deviation in the effective rate (approximately 25 basis points) results in a statistically significant decrease in the spreads of CDS contracts in 8 of the 11 sectors studied in this research. Similar results obtain for an increase in shadow rate thus providing a robustness check. These results suggest a rate increase from the ZLB period and the resulting dynamics captured in the VAR system is indicative of an economic recovery.
Originality/value
Prior studies have used the event study methodology to evaluate the impact of rate changes on credit spreads. The ZLB environment does not contain data on target rate changes and renders the event study methodology as ineffective. This paper is the first to simulate the implications of a first-time rate increase from the ZLB environment in the context of a recursive VAR model. The results are very helpful to the Federal Reserve of countries experiencing a ZLB environment such as Japan and Europe.
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Subramanian Rama Iyer and Joel T. Harper
The purpose of this paper is to test whether investors take flight to safety when sentiment is low. In other words, do safe firms perform better than risky firms following periods…
Abstract
Purpose
The purpose of this paper is to test whether investors take flight to safety when sentiment is low. In other words, do safe firms perform better than risky firms following periods of low sentiment.
Design/methodology/approach
Using cash flow volatility and the percent of bullish investors as proxies for risk and investor sentiment the paper tests the relationship between sentiment and returns conditional on risk this performance. Second, a cross-sectional analysis is conducted based on individual firm characteristics and sentiment to explain annual returns.
Findings
The paper finds that there is a negative relationship between investor sentiment and the return of risky companies, which is contrary to prior studies. All told, risky companies perform worse following periods of high investor sentiment.
Originality/value
This paper presents evidence contrary to extant literature and that there is no concerted flight to safety. Investor sentiment has little influence on safe stocks.
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Shonima Venugopal, Uma Iyer and Richa Sanghvi
Glycemic index (GI) is a physiological basis for ranking carbohydrate foods based on the blood glucose responses they produce after ingestion. Emblica officinalis (E. officinalis…
Abstract
Purpose
Glycemic index (GI) is a physiological basis for ranking carbohydrate foods based on the blood glucose responses they produce after ingestion. Emblica officinalis (E. officinalis) is a medicinal plant that purportedly has hypoglycaemic and hypolipidemic properties. This study aims to determine the glycemic and lipemic responses of freeze-dried E. officinalis powder-incorporated recipes.
Design/methodology/approach
Two sets of four equicarbohydrate (50 g) recipes (vegetable cutlet, handvo, muthiya and methi thepla) were developed, one without E. officinalis powder incorporation (standard) and one with E. officinalis powder incorporation at the 2 g level (test). After overnight fasting, 50 g glucose, standard and test recipes were administered to healthy adult volunteers at different instances (each 3–4 days apart) and blood glucose levels were measured using capillary sampling every 15 min for 2 h. The glycemic response and GI values were then calculated.
Findings
Among the standard recipes, lowest glycemic response was obtained by methi thepla (60.90 ± 15.54) and highest glycemic response by handvo (90.57 ± 33.88). Incorporation of E. officinalis powder brought about a non-significant reduction in the GI of methi thepla (p = 0.94), vegetable cutlet (p = 0.54), muthiya (p = 0.69) and handvo (p = 0.09). Maximum per cent reduction was for handvo, which shifted from the high to medium GI category. The lipemic response was lowest with muthiya, showing a fall in triacylglycerol (TG) levels (3.9%). E. officinalis powder incorporation in muthiya led to a further fall (7.8%) in TG levels.
Originality/value
Incorporation of freeze-dried E. officinalis powder in Indian recipes can bring about a reduction in the postprandial glycemic and lipemic responses.