Prague Economic Papers, 2011 (vol. 20), issue 2

Empirical Test of the Efficiency of Currency Investments

Svend Reuse, Martin Svoboda

Prague Economic Papers 2011, 20(2):99-119 | DOI: 10.18267/j.pep.391  

The portfolio theory and the basic ideas of Markowitz can be applied to currency investments as well as to classical asset classes as shares or bonds. The question whether currency investments can be treated as efficient asset classes is not finally answered in theory and practice. This article applies a modified historical simulation approach to shares, bonds and currencies. The questions according to the efficiency of currency investments are answered empirically from a euro-investor's point of view. The empirical analysis leads to the result that currency investments are not efficient in general. Some specific cases exist. The used data lead to...

Inflation Perceptions and Anticipations in the Old Eurozone Member States

Svatopluk Kapounek, Lubor Lacina

Prague Economic Papers 2011, 20(2):120-139 | DOI: 10.18267/j.pep.392  

There is empirical evidence that the introduction of the euro led to a significant increase of perceived inflation in most countries. Such an increase and persistence in the perceived inflation might then have an impact on inflation expectations and other macroeconomic variables. The authors have used expectational errors to describe the difference between inflation expectations/anticipations and its observed values, subsequently to identify the causality between these variables.

Yield Curve Dynamics: Regional Common Factor Model

Boril Šopov, Jakub Seidler

Prague Economic Papers 2011, 20(2):140-156 | DOI: 10.18267/j.pep.393  

In this paper, we focus on thorough yield curve modelling. We build on extended classical NelsonSiegel model, which we further develop to accommodate unobserved regional common factors. We centre our discussion on Central European currencies' yield curves: CZK, HUF, PLN and SKK. We propose a model to capture regional dynamics purely based on state space formulation. The contribution of this paper is twofold: we examine regional yield curve dynamics and we quantify regional interdependencies amongst considered currencies' yield curves. We conclude that the CZK yield curve possesses its own dynamics corresponding to country specific features, whereas...

The JT Index as an Indicator of Financial Stability of Corporate Sector

Petr Jakubík, Petr Teplý

Prague Economic Papers 2011, 20(2):157-176 | DOI: 10.18267/j.pep.394  

This paper presents the construction of a new indicator (named the JT index) evaluating the economy's financial stability, which is based on a financial scoring model estimated on Czech corporate accounting data. Seven financial indicators capable of explaining business failure at a 1-year prediction horizon are identified. Using the model estimated in this way, an aggregate indicator of the creditworthiness of the Czech corporate sector (the JT index) is then constructed and its evolution over time is shown. This indicator aids the estimation of the risks of this sector going forward and broadens the existing analytical set-up used by the Czech National...

Fractional Cointegration Relationship between Oil Prices and Stock Markets: An Empirical Analysis from G7 Countries

Burcu Kiran

Prague Economic Papers 2011, 20(2):177-189 | DOI: 10.18267/j.pep.395  

This paper examines the long-run relationship between oil prices and stock market prices of G7 countries by using Robinson (1994a) tests for fractional integration and cointegration instead of the classical approaches. Having found that the unit root null hypothesis cannot be rejected for any individual series, it is examined whether oil prices and stock market prices have a fractional cointegration relationship. Test results on the residuals from the cointegrating regressions indicate that there is evidence of fractional cointegration between oil prices and DAX 30, Dow Jones, FTSE 100 and SP-TSX indices while there is no evidence of fractional cointegration...

Mathematical Framework for Finance and Insurance

Jiří Trešl

Prague Economic Papers 2011, 20(2):190-192 | DOI: 10.18267/j.pep.390