Discussion Papers

The ICMA Centre is dedicated to high quality academic research in all financial markets, broadly defined. Well over 100 discussion papers are available to download (see menu on left). 

2015 Series

All discussion papers are downloadable on the SSRN website.

Creating More Stable and Diversified Socially Responsible Investment Portfolios

This study is the first to apply a robust estimation technique when constructing Socially Responsible Investing (SRI) portfolios and to highlight that the selection of the optimisation process in this industry matters. We go beyond the mean-variance Markowitz framework in order to bypass issues surrounding the significant estimation risk that causes unstable, poorly diversified and suboptimal portfolios. Using data from MSCI KLD on the social responsibility of US firms, we construct SRI portfolios which exhibit higher risk-adjusted performance, lower total risk, greater stability and diversification compared to conventional and SRI equity indexes, as well as more naïve forms of optimization. Our main conclusions are robust to a series of tests, including the use of different estimation windows, stricter screening criteria, and alternative ways of evaluating portfolio performance.

Assessing Macro Uncertainty In Real-Time When Data Are Subject To Revision

Model-based estimates of future uncertainty are generally based on the in-sample fit of the model, as when Box-Jenkins prediction intervals are calculated. However, this approach will generate biased uncertainty estimates in real time when there are data revisions. A simple remedy is suggested, and used to generate more accurate prediction intervals for 25 macroeconomic variables, in line with the theory. A simulation study based on an empirically-estimated model of data revisions for US output growth is used to investigate small-sample properties.

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The ‘Buying and Selling of Money for Time’: Foreign Exchange and Interest Rates in Medieval Europe

This paper argues that the relatively voluminous surviving records about foreign exchange (FX) rates in the Middle Ages can help to illuminate the much murkier question of medieval interest rates. We first explain how the medieval FX market operated and its links to the money market. Next, we set out the sources of our data on medieval exchange rates and the methodology for calculating implicit interest rates from the spreads between these exchange rates as quoted at seven different financial centres. Our results demonstrate that the FX rates did include an element of interest and that FX transactions could have been used to circumvent the usury prohibition. Further, these implicit interest rates are comparable to those charged on government debt and consumer credit. We also show that there were distinctive seasonal patterns in these interest rates at different financial centres related to their particular economic and trading patterns. Finally, our results provide further evidence of a long-term reduction in the risk-free rate of interest after c.1350.