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Papers by Neil Kellard

The forward rate unbiasedness hypothesis has received little empirical support in most extant stu... more The forward rate unbiasedness hypothesis has received little empirical support in most extant studies that have predominantly used short horizon data. This paper examines the puzzle using short, medium and long horizon data for five US dollar currency pairs 1980-2005. It develops a behavioral finance model that predicts the bias will abate as the horizon is extended. A heteroskedastic and autocorrelation consistent bootstrap approach is employed to deal with the data-overlap problem at medium and long horizons. The results from using this procedure replicate the puzzle at short horizons but indicate that it disappears at medium horizons and beyond.

SSRN Electronic Journal, 2000

Review of Economics and Statistics, 2010

We employ a unique data set and new time-series techniques to reexamine the existence of trends i... more We employ a unique data set and new time-series techniques to reexamine the existence of trends in relative primary commodity prices. The data set comprises 25 commodities and provides a new historical perspective, spanning the seventeenth to the twenty-first centuries. New tests for the trend function, robust to the order of integration of the series, are applied to the data. Results show that eleven price series present a significant and downward trend over all or some fraction of the sample period. In the very long run, a secular, deteriorating trend is a relevant phenomenon for a significant proportion of primary commodities.

The Manchester School, 2008

In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data... more In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data set of black market real exchange rates for 36 emerging market economies and (exact and approximate) median unbiased univariate and panel estimation methods. We construct bootstrap confidence intervals for the half-lives, as well as exact quantiles of the median function for different significance levels using Monte Carlo simulation. Even after accounting for a number of econometric issues, the PPP persistence puzzle is still a striking characteristic of the majority of emerging market countries. However, in a minority of exchange rates, the PPP puzzle is removed.

Journal of International Economics, 2002

Rogoff (1996) describes the "remarkable consensus" of 3-5 year half-lives of purchasing power par... more Rogoff (1996) describes the "remarkable consensus" of 3-5 year half-lives of purchasing power parity deviations among studies using long-horizon data. These studies, however, focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence. Our half-life estimates explicitly account for serial correlation, sampling uncertainty and, most importantly, small sample bias. Calculating confidence intervals as well as point estimates for long-horizon and post-1973 data, we find that, even though most of the point estimates lie within the 3-5 year range, univariate methods provide virtually no information regarding the size of the half-lives.

Journal of Futures Markets, 1999

Abstract The ability of futures markets to predict subsequent spot prices has been a controversia... more Abstract The ability of futures markets to predict subsequent spot prices has been a controversial topic for a number of years. Empirical evidence to date is mixed; for any given market, some studies find evidence of efficiency, others of inefficiency. In part, these ...

Journal of Futures Markets, 2011

We are grateful to an anonymous reviewer whose suggestions have helped us to make our results mor... more We are grateful to an anonymous reviewer whose suggestions have helped us to make our results more robust, to sharpen the exposition and substantially to improve the overall quality of the study. An earlier version of this study was presented at the 12th International Conference on Computing in Economics and Finance in Cyprus and the 1st International Workshop on Computational and Financial Econometrics in Switzerland. We are grateful to participants for constructive comments. Dollery gratefully acknowledges the financial support provided by an ESRC studentship.

Journal of Empirical Finance, 2008

The persistence of the forward premium has been cited both as evidence of the failure of the unbi... more The persistence of the forward premium has been cited both as evidence of the failure of the unbiasedness hypothesis and as rationale for the forward premium anomaly. This paper examines the recent proposition that forward premium persistence can be explained solely by the conditional variance of the spot rate. We provide theoretical and empirical evidence to challenge this proposition. Our

Journal of Empirical Finance, 2010

This paper evaluates the ability of dividend ratios to predict the equity premium. We conduct an ... more This paper evaluates the ability of dividend ratios to predict the equity premium. We conduct an in and out-of-sample comparative study and apply the Goyal and Welch (2003) graphical method to equity premia derived from the UK FTSE All-Share and the S&amp;amp;amp;amp;amp;P 500 indices. Preliminary in-sample univariate regressions reveal that in both markets the equity premium contains an element of

Journal of Development Economics, 2006

This paper applies new time series procedures to examine the Prebisch-Singer hypothesis of a secu... more This paper applies new time series procedures to examine the Prebisch-Singer hypothesis of a secular deterioration in relative primary commodity prices. Specifically, we allow for (up to) two structural breaks in 24 price series, covering the 1900-98 period. For the majority of commodities, it is shown that the trend is not well represented by a single downward slope, but instead by a shifting trend that often changes sign over the sample period. Unlike some recent work that has also allowed for structural breaks, these results provide much less support for the Prebisch-Singer hypothesis.

Journal of Banking & Finance, 2013

ABSTRACT This study models and forecasts the evolution of intraday implied volatility on an under... more ABSTRACT This study models and forecasts the evolution of intraday implied volatility on an underlying EUR–USD exchange rate for a number of maturities. To our knowledge we are the first to employ high frequency data in this context. This allows the construction of forecasting models that can attempt to exploit intraday seasonalities such as overnight effects. Results show that implied volatility is predictable at shorter horizons, within a given day and across the term structure. Moreover, at the conventional daily frequency, intraday seasonality effects can be used to augment the forecasting power of models. The type of inefficiency revealed suggests potentially profitable trading models.

$Research paper thumbnail of Foreign exchange, fractional cointegration and the implied–realized volatility relation$

Journal of Banking & Finance, 2010

Almost all relevant literature has characterized implied volatility as a biased predictor of real... more Almost all relevant literature has characterized implied volatility as a biased predictor of realized volatility. This paper provides new time series techniques to assess the validity of this finding within a foreign exchange market context. We begin with the empirical observation that the fractional order of volatility is often found to have confidence intervals that span the stationary/non-stationary boundary. However, no existing fractional cointegration test has been shown to be robust to both regions. Therefore, a new test for fractional cointegration is developed and shown to be robust to the relevant orders of integration. Secondly, employing a dataset that includes the relatively new Euro markets, it is shown that implied and realized volatility are fractionally cointegrated with a slope coefficient of unity. Moreover, the non-standard asymptotic distribution of estimators when using fractionally integrated data is overcome by employing a bootstrap procedure in the frequency domain. Strikingly, tests then show that implied volatility is an unbiased predictor of realized volatility!

Journal of Agricultural Economics, 2008

rends in real paces for food commodities are both important and controversial. Paying particular ... more rends in real paces for food commodities are both important and controversial. Paying particular attention to issues of methodology, this paper assesses the evidence for a downward drift in the real paces of wheat and maize. It is found that the apparent strength of that evidence depends substantially on whether the time series generating models are taken to be trend-stationary or difference-stationary, and on whether allowance is made, through incmporation of dummy variables in the models, for events in one or two extreme years. Once dummy variables are incarporated, we find little evidence against difference-stationanty. The analysis then proceeds, through tests for cointegration, to the construction of error-correction models linking the two pices and to the estimation of persistence of shocks in this bivanate framework. The paper presents modest evidence for downward drift in real grain F'ces of about 1 to 1.5 per cent per annum, shows that wheat and maize p'ces cointegrate and estimates that direct and cross$ersistence measures take values of less than unity. ' Note also, by contrast with the results of Table 2, that the estimated moving average parameters in the model for W2 are not on the boundary of the invertibility region. It appears that this finding in Table 2 can be attributed to a large price increase in 1973, followed by a large fall in 1974. * A possible explanation is that maize prices are more volatile. For example, when manufacturing unit value is used as the deflator, the residual standard error of the maize price model in Table 5 is about 18 per cent higher than that of the wheat price model.

Journal of Agricultural Economics, 2002

This paper investigates the claim that the finding of cointegration between commodity spot and la... more This paper investigates the claim that the finding of cointegration between commodity spot and lagged futures rates reflects the existence of commodity arbitrage and not, as is generally accepted, long-run market efficiency. The methodology of Kellard et al. (1999) is employed to match spot and lagged futures rates correctly for the UK wheat futures contract traded at LIFFE. Bi-variate analysis shows that spot and lagged futures rates are cointegrated with the vector (1,-1), a necessary condition for market efficiency. However, at variance with asymptotic theory, in a tri-variate VECM estimation, the spot rate, lagged futures rate and lagged domestic interest rate are shown to be cointegrated with the vector (1,-1,1). The "cointegration" paradox is explained by investigating the relative magnitudes of the forecast error and the domestic interest rate. The small sample results demonstrate that it is impossible to distinguish between the influence of commodity arbitrage and the existence of market efficiency using cointegration-based tests. In summary, this work implies that such tests are not wholly appropriate for evaluating commodity market efficiency.

International Review of Financial Analysis, 1998

Finance Research Letters, 2006

The finding that spot and lagged forward exchange rates are cointegrated with the vector (1, −1) ... more The finding that spot and lagged forward exchange rates are cointegrated with the vector (1, −1) is often given as evidence for long-run market efficiency. This paper examines the conjecture that a small unit root or fractionally integrated component in the relationship is dominated in finite samples by a large stationary component. Monte Carlo techniques demonstrate that with typical sample sizes and variable magnitudes, the Engle-Granger test overwhelmingly finds spurious cointegration. Conversely, under certain conditions, Johansen tests are shown to be relatively robust to differences in variable magnitudes. Although developed from recent empirical work in the forward currency market this result clearly has relevance for the use of predictive regressions in any asset market.

Economics Letters, 2005

We implement panel unit root PPP tests that allow for cross-sectional dependence between 15 OECD ... more We implement panel unit root PPP tests that allow for cross-sectional dependence between 15 OECD economies 1973:03–1998:12. The main variation in the results stems from using the CPI or PPI indexes rather than from ignoring or allowing for cross-sectional dependence.

Computational Statistics & Data Analysis, 2008

... do this. We use the hedger's utility function to evaluate the economic benefits ofhedgin... more ... do this. We use the hedger's utility function to evaluate the economic benefits ofhedging and this shows that the FIEC-BEKK approach is superior to the OLS approach for hedging the Gold and $/Pound contracts. Finally, a wild ...

Royal Economic Society Annual Conference, 2003

This paper applies new time-series procedures to examine the Prebisch-Singer hypothesis of a secu... more This paper applies new time-series procedures to examine the Prebisch-Singer hypothesis of a secular deterioration in relative primary commodity prices and the nature of their persistence. Employing a dataset of 24 relative commodity prices for the 1900-98 period, the pervasiveness of the Prebisch-Singer hypothesis is shown to be a function of a priori selected decision criteria, providing an explanation of conflicting findings in the recent literature. Moreover, much less persistence is found in the relative commodity prices than previously reported, since 23 out of the 24 commodities can be classified as trend-stationary. This implies there may well be more room for stabilization and price support mechanisms than previously advocated.