201825 "Term structure of interest rates: modelling the risk premium using a two horizons framework"
Georges Prat, Remzi Uctum
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 Abstract
 This paper proposes a hybrid twohorizon risk premium model with one and twoperiod maturity debts, among which the risky asset and the riskless one depend on agents’ investment horizon. A representative investor compares at each horizon the exante premium offered by the market with the value they require to take a risky position, with the aim of choosing between a riskless and a risky strategy. Due to market frictions, the premium offered adjusts gradually to its required value determined by the portfolio choice theory. The required market risk premium is defined as a timevarying weighted average of the required 1 and 2period horizon premia, where the weights represent the degree of preference of the market for each of the horizons. Our framework is more general than the standard model of the term structure of interest rates where it is assumed that the 1period rate is the riskless rate at any time and for all agents. Setting one period equal to three months, we use 3month ahead expected values of the US 3month Treasury Bill rate provided by Consensus Economics surveys to estimate our 3 and 6month horizon risk premium model using the Kalman filter methodology. We find that both 3 and 6month maturity rates represent the riskless and the risky rates with a timevarying market preference for the former rate of about twothirds. This result strongly rejects the standard model and shows the importance of taking into account the market preference for alternative horizons when describing risky strategies in interest rate term structure modelling.
 ClassificationJEL
 C51, D84, E43, G11, G14
 Mot(s) clé(s)
 interest rates, risk premium, survey data
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201738 "The Eurozone Convergence through Crises and Structural Changes"
Merih Uctum, Remzi Uctum, ChuPing C. Vijverberg
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 Abstract
 In light of several economic and financial crises and institutional changes experienced by the Eurozone countries, we examine whether the adoption of the euro led to business cycle synchronization or fostered convergence of growth rates. Controlling for reverse causality, we conduct multiple endogenous break tests and find that while output growth was synchronized for some countries, convergence occurred in a nonlinear way for others: (i) convergence was not triggered by adoption of the euro but by international or idiosyncratic shocks; (ii) in several countries convergence started long before the introduction of the euro, accelerated during the 1990s and continued since then, reflecting persistent influence of the core countries; (iii) convergence has been prevalent among the nonEurozone economies in our sample.
 ClassificationJEL
 E3 F4 F6
 Mot(s) clé(s)
 Convergence; business cycle synchronization; euro; crises; structural breaks.
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201619 "Do markets learn to rationally expect US interest rates? Evidence from survey data"
Georges Prat, Remzi Uctum
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 Using Consensus Economics survey data on the US 3month bill rate and the 10 years Treasury bonds expectations for the 3 and 12month horizons over the period November 1989 – May 2015, this article aims at testing whether a group of rational forecasters coexists with or emerges over time beside a group of forecasters employing the traditional limited informationbased rules that are the extrapolative, the adaptive, the regressive and the forwardmarket premium rules. We estimate the timevarying weights associated with the two groups using the Kalman filter methodology and find that the aggregate expectations fail to exhibit a learning process towards rationality both for short term and long term interest rates. While long term interest rate expectations appear to be explained only by limited information rules at any time, in the case of the short term interest rate a group of rational agents seems to have operated in the market over the whole period with a small but almost constant weight simultaneously with limited informationbased forecasters. Overall, for both short and long term interest rates, our results strongly suggest that experts’ forecasts are essentially based on a combination of the four traditional processes. This is consistent with the economically rational expectations theory which suggests that information costs and agents’ aversion to misestimating future interest rates determine the optimal amounts of information on which they base their expectations.
 ClassificationJEL
 D84, F31, G14
 Mot(s) clé(s)
 expectation formation, interest rates, dynamic heterogeneity, survey data.
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201514 "Jumps in Equilibrium Prices and Asymmetric News in Foreign Exchange Markets"
Imane El Ouadghiri, Remzi Uctum
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 Abstract
 In this paper we examine the intraday effects of surprises from scheduled and
unscheduled announcements on six major exchange rate returns (jumps) using an
extension of the standard Tobit model with heteroskedastic and asymmetric errors.
Since observed volatility at high frequency often contains microstructure noise, we use
a recently proposed non parametric test to filter out noise and extract jumps from
noisefree FX returns (Lee and Mykland (2012)). We found that the most influential
scheduled macroeconomic news are globally related to job markets, output growth
indicators and public debt. These surprises impact FX jumps rather in the form of
good news, as a result of pessimistic forecasts from traders during the crisis period
analyzed. We reconfirmed for most of the currencies the hypothesis that negative
volatility shocks have a greater impact on volatility than positive shocks of the same
magnitude, reflecting markets' concern about the cost of stabilization policies.
 ClassificationJEL
 G14, G12, E44, C22.
 Mot(s) clé(s)
 Forex market, announcements, jump detection test, high frequency data,
microstructure noise, asymmetric GARCH.
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201417 "Expectation formation in the foreign exchange market: a timevarying heterogeneity approach using survey data"
Georges Prat, Remzi Uctum
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 Using Consensus Economics survey data on JPY/USD and GBP/USD exchange rate expectations for the 3 and 12month horizons over the period November 1989 – December 2012 we first show that expectations fail to unbiasedness tests and do not exhibit a learning process towards rationality. Our approach is consistent with the economically rational expectations theory (Feige and Pearce, 1976), which states that information costs and agents’ aversion of misestimating future exchange rates determine the optimal amounts of information on which they base their expectations. The timevariability of the cost/aversion ratios justifies at the aggregate level a representation of expectations as a linear combination of the traditional extrapolative, adaptive and regressive processes augmented by a forward market component, whose parameters are allowed to change over time. This mixed expectation model with unstable heterogeneity is validated by our Kalman Filter estimation results for the two currencies and the two horizons considered. Although the chartist behavior, gathering the extrapolative and adaptive components, appears to dominate the fundamentalist behavior, described by the regressive and forward market components, the relative importance of the fundamentalists (chartists) is found to increase (decrease) with the timehorizon.
 ClassificationJEL
 D84, F31, G14
 Mot(s) clé(s)
 expectation formation, exchange rates, dynamic heterogeneity, survey data.
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201336 "Persistence of announcement effects on the intraday volatility of stock returns: evidence from individual data"
Sylvie LecarpentierMoyal, Georges Prat, Patricia RenouMaissant, Remzi Uctum
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 Abstract
 We analyze the empirical relationship between announcement effects and return volatilities of four CAC40 companies using intraday financial and event data from SBFEuronext and Bloomberg, respectively. We estimate the daily component of the intraday volatility using a FIGARCH model and the intraday seasonality by the Fourier Flexible Form. We find that individual return volatilities are affected by a systematic market effect, day effects and announcements related to macroeconomic environment, strategic and financial dealings and commercial outcome, the two latter events being specific to the firm or to its competitors. The volatility responses have delayed and progressive patterns with persistence horizons ranging from one to three hours, suggesting that agents access to complete information gradually.
 ClassificationJEL
 G14, C22, C58
 Mot(s) clé(s)
 Intraday volatility, long memory, persistence of announcement effects
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201229 "Modeling the horizondependent risk premium in the forex market: evidence from survey data"
Georges Prat, Remzi Uctum
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 Using Consensus Economics survey data on experts' expectations, we aim to model the 3 and 12month ahead exante risk premia on the Yen/USD and the British Pound/USD exchange markets. For each market and at a given horizon, we show that the risk premium is well determined by the conditional expected variance of the change in the real exchange rate, agents' real net market position in assets and a constant composite risk aversion coefficient, as suggested by a twocountry portfolio asset pricing model. The expected variance depends on the past values of the observed variance and the unobservable real net market position is estimated as a state variable using the Kalman filter methodology. We found that the trends of our estimated horizonspecific net market positions are consistent with the ones of the observed short term aggregate net market positions calculated using the U.S. Treasury International Capital System dataset. Moreover, we show that the expost premia tend to adjust towards the exante values, suggesting that experts' beliefs provide a relevant information to the market. These results bring new responses to the difficulties reported by the widespread expost risk premium literature and enhances the usefulness of survey data in modelling the risk premium.
 ClassificationJEL
 D84, F31, G14
 Mot(s) clé(s)
 risk premium; foreign exchange market; international asset pricing model; survey data
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200928 "Modelling oil price expectations: evidence from survey data"
Georges Prat, Remzi Uctum
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 Abstract
 Using Consensus Forecast survey data on WTI oil price expectations for three and twelve month horizons over the period November 1989 – December 2008, we find that the rational expectation hypothesis is rejected and that none of the traditional extrapolative, regressive and adaptive processes fits the data. We suggest a mixed expectation model defined as a linear combination of these traditional processes, which we interpret as the aggregation of individual mixing behavior and of heterogenous groups of agents using simple processes. This approach is consistent with the economically rational expectations theory. We show that the target price included in the regressive component of this model depends on macroeconomic fundamentals whose effects are subject to structural changes. The estimation results led to validate the mixed expectational model for the two horizons.
 ClassificationJEL
 D84, G14, Q43
 Mot(s) clé(s)
 Expectations formation, oil price
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20082 "The dynamics of exante risk premia in the foreign exchange market:Evidence from the yen/usd exchange rate Using survey data"
Georges Prat, Remzi Uctum
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 Abstract
 Using financial experts' Yen/USD exchange rate expectations provided by
Consensus Forecasts surveys (London), this paper aims to model the 3 and 12month ahead
exante risk premia measured as the difference between the expected and forward exchange
rates. According to a twocountry portfolio asset pricing model, the risk premium is modeled
as the product of three factors: a constant risk aversion coefficient, the expected variance of
the rate of change in the real exchange rate, and the spread between domestic agent's market
position in foreign assets and foreign agent's market position in domestic assets (net market
position). When the returns are partially predictable, the expected variance is horizondependent
and this is a sufficient condition for agents not to require at any time a unique risk
premium for all maturities but a set of premia scaled by the time horizon of the investment.
For each horizon the expected variance is assumed to depend on the historical values of the
variance and on the unobservable maturitydependent net market positions which have been
estimated through a state space model using the Kalman filter methodology. We find that the
model explains satisfactorily both the common and the nonrandom specific timepatterns of
the 3 and 12month exante premia.
 ClassificationJEL
 D84, E44, G14
 Mot(s) clé(s)
 risk premium – foreign exchange market – international asset pricing model
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200611 "Anticipations, prime de risque et structure par terme des taux d'intérêt : une analyse des comportements d'experts"
Georges Prat, Remzi Uctum
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 Using Consensus Forecasts monthly surveys, we show that experts' interest rate expectations in the Eurofranc market do not verify the rational expectations hypothesis. Instead, these expectations are found to be generated by a mixed process combining the traditional adaptive, regressive and extrapolative processes augmented by macroeconomic effects (price, income, money). This mixed expectational process is shown to verify the term structure relation of interest rates based on the portfolio choice model, where a statespace representation is introduced to account for the unobservable part of the long term asset in the portfolio: (i) the risk premium depends on the variance of the short term asset and on the covariance between the latter and inflation, and (ii) the estimated values of the term structure parameter and of the risk aversion coefficient are in accordance with their theoretical values. Nevertheless, due to transaction costs, the adjustment of the market rates on the portfolio equilibrium relation occurs gradually.
 ClassificationJEL
 D84, E44, G14
 Mot(s) clé(s)
 term structure of interest rates, expectations, risk premium
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