Mario Gruppe, Tobias Basse, Meik Friedrich and Carsten Lange
This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments…
Abstract
Purpose
This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments in Europe.
Design/methodology/approach
Relevant empirical papers are identified and reviewed focusing on time series analysis techniques.
Findings
The introduction of the euro has caused interest rate convergence among European Monetary Union (EMU) government bond yields. However, now sovereign credit risk and possibly even redenomination risk have caused divergences in European bond markets.
Research limitations/implications
A major limitation is that a relatively new field of the literature is surveyed. However, there are enough papers of relevance. This review paper could therefore be helpful in finding new approaches for additional empirical research examining the EMU bond market.
Originality/value
The results of empirical studies in a relatively new field of the literature are summarized. There meanwhile are some relevant papers. A brief survey of the results of these papers is provided. Important empirical findings with regard to interest rate convergence, sovereign credit risk and redenomination risk in the EMU are discussed and evaluated. The review is especially helpful for researchers and practitioners in the field of managerial finance and risk managers in the financial services industry.
Details
Keywords
Frederik Kunze, Tobias Basse, Miguel Rodriguez Gonzalez and Günter Vornholz
In the current low-interest market environment, more and more asset managers have started to consider to invest in property markets. To implement adequate and forward-looking risk…
Abstract
Purpose
In the current low-interest market environment, more and more asset managers have started to consider to invest in property markets. To implement adequate and forward-looking risk management procedures, this market should be analyzed in more detail. Therefore, this study aims to examine the housing market data from the UK. More specifically, sentiment data and house prices are examined, using techniques of time-series econometrics suggested by Toda and Yamamoto (1995). The monthly data used in this study is the RICS Housing Market Survey and the Nationwide House Price Index – covering the period from January 2000 to December 2018. Furthermore, the authors also analyze the stability of the implemented Granger causality tests. In sum, the authors found clear empirical evidence for unidirectional Granger causality from sentiment indicator to the house prices index. Consequently, the sentiment indicator can help to forecast property prices in the UK.
Design/methodology/approach
By investigating sentiment data for house prices using techniques of time-series econometrics (more specifically the procedure suggested by Toda and Yamamoto, 1995), the research question whether sentiment indicators can be helpful to predict property prices in the UK is analyzed empirically.
Findings
The empirical results show that the RICS Housing Market Survey can help to predict the house prices in the UK.
Practical implications
Given these findings, the information provided by property market sentiment indicators certainly should be used in a forward-looking early warning system for house prices in the UK.
Originality/value
To authors’ knowledge, this is the first paper that uses the procedure suggested by Toda and Yamaoto to search for suitable early warning indicators for investors in UK real estate assets.
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Tobias Basse and Sebastian Reddemann
The purpose of this paper is to analyse the dividend policy of firms from a macroeconomic perspective. In order to do so inflation and real growth are also considered.
Abstract
Purpose
The purpose of this paper is to analyse the dividend policy of firms from a macroeconomic perspective. In order to do so inflation and real growth are also considered.
Design/methodology/approach
The paper examines the relationship between dividends, corporate earnings, real growth and inflation in the USA by applying cointegration techniques. In this framework, impulse response analysis is used to test the two most popular theories of dividend determination.
Findings
The data indicate three cointegration relations among the four‐time series. Impulse response analysis then shows some interesting dynamics. Dividend smoothing seems to be a relevant phenomenon. Furthermore, inflation has a positive effect on dividends.
Research limitations/implications
The most important finding of this paper is the indication of a positive relationship between inflation and dividend payments. This can be interpreted in two different ways: managers may try to follow a dividend policy, which is perceived to be optimal, believing that there is a desirable level of real dividend income to be paid to their investors. On the other hand, inflation may simply increase the nominal value of corporate earnings and therefore the dividends paid. Independently from the interpretation of the results, inflation should definitely be considered analysing dividend policy.
Practical implications
Managers should also examine the inflationary environment formulating an adequate dividend policy for their firm.
Originality/value
The paper provides an as of yet widely ignored link between the micro‐ and macroeconomic sphere examining one of the most important problems of financial economics. Neglecting the effects of inflation on dividends may, among others, be one reason for the mixed empirical findings testing theories of dividend determination.