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.

Forecasters’ Disagreement about How the Economy Operates, and the Role of Long-run Relationships

Reference: ICM-2015-09
Authors: Michael P Clements

Macro-variables such as consumption, investment and output are expected to move together in the long run. We consider whether survey forecasts of these quantities suggest beliefs about equilibrium relationships play a prominent role in expectations formation. Evidence is brought to bear from an analysis of multivariate measures of forecaster disagreement, as well as tests of forecast optimality. The analysis of disagreement provides littleContinue reading

The Negative Credit Risk Premium Puzzle: A Limits to Arbitrage Story

Reference: ICM-2015-07
Authors: Chris Godfrey and Chris Brooks

Prior research has documented that, counter-intuitively, high credit risk stocks earn lower – not higher – returns than low credit risk stocks. In this paper we provide evidence against rational expectations explanations, and show that a model incorporating limits-to-arbitrage factors is capable of explaining this apparent anomaly. We demonstrate that the negative pricing of credit stocks is driven by theContinue reading

Red versus Blue: Do Political Dimensions Influence the Investment Preferences of State Pension Funds?

Reference: ICM-2015-06
Authors: Andreas Hoepner and Lisa Schopohl

Studying the equity holdings of 31 U.S. state pension funds, we find evidence that the political leaning of their members and political pressures by state politicians impact funds’ investment decisions. State pension funds from states with Democratic leaning members tend to tilt their portfolios more strongly towards companies that perform well on environmental, social and governance (ESG) issues, as comparedContinue reading

Pension Scheme Redesign and Wealth Redistribution Between the Members and Sponsor: The USS Rule Change in October 2011

Reference: ICM-2015-05
Authors: Emmanouil Platanakis and Charles Sutcliffe

The redesign of defined benefit pension schemes usually results in a substantial redistribution of wealth between age cohorts of members, pensioners, and the sponsor. This is the first study to quantify the redistributive effects of a rule change by a real world scheme (the Universities Superannuation Scheme, USS) where the sponsor underwrites the pension promise. In October 2011 USS closedContinue reading

Does Corporate Financial Risk Management Add Value? Evidence from Cross-Border Mergers and Acquisitions

Reference: ICM-2015-04
Authors: Zhong Chen ICMA Centre, Henley Business School, University of Reading Bo Han Central Washington University Yeqin Zeng ICMA Centre, Henley Business School, University of Reading

We study the effect of financial hedging on firm performance, using a sample of 1369 cross-border mergers and acquisitions (M&As) initiated by S&P 1500 firms between 2000 and 2014. Our results show that derivatives users have higher acquirer cumulative abnormal returns (CARs) around deal announcements than non-users, which translates into a $174.3 million shareholder gain for an average acquirer. TheContinue reading

Creating More Stable and Diversified Socially Responsible Investment Portfolios

Reference: ICM-2015-03
Authors: Ioannis Oikonomou University of Reading - ICMA Centre; Emmanouil Platanakis, University of Reading - ICMA Centre; Charles Sutcliffe, University of Reading - ICMA Centre.

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 theContinue reading

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

Reference: ICM-2015-02
Authors: Michael P. Clements ICMA Centre Henley Business School

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. AContinue reading

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

Reference: ICM-2015-01
Authors: Adrian R. Bell, Chris Brooks and Tony K. Moore

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 andContinue reading