Annals of Financial Economics

We show analytically that animal spirit excess profits for uninformed investors fall (increase) when the risk-free rate rises (falls). In the theoretical analysis, we examine the expected returns of risk-averse, short-lived investors. In addition, we find empirically that the local risk-free rates explain 14% of the changes in the animal spirit excess profits in the global stock markets for the last 29 years when the animal spirits is characterized as a product of the trend-chasing rule.

The objective of this paper is to study the arbitrage free pricing of the covariance swap for Barndorff–Nielsen and Shephard (BN–S) type Lévy process driven financial markets. One of the major challenges in arbitrage free pricing of swap is to obtain an accurate pricing expression which can be used with good computational accuracy. In this paper, we obtain analytic expressions for the pricing of the covariance swap. We show that with the analytic expressions obtained from the BN–S model, the error estimation in fitting the delivery price is much less than the existing models with comparable parameters. The models and pricing formulas proposed in this paper are computable in real time and hence can be efficiently used in practical applications.

We consider the oldest financial model to estimate the market risk of investment underlying the world indexes and compare its risk management features with those of a newer model. Our concern is the risk underlying the world indexes in the recent US subprime crisis period. We illustrate how the recent variance gamma (VG) pure jump model is comparable with one of the earliest pure diffusion (Bachelier (BC)) model in estimating investment risk in financial markets using the tail risk measure value-at-risk (VaR) and its coherent version expected shortfall (ES). We observe that for pure jump VG model single quantile VaR is consistently a better performer across indexes; however for tail average risk measure ES, VG is not a consistently better performer; pure diffusion Bachelier model gives ES estimates which are often — not always — better than VG. This provides one more empirical indication that the combination of diffusion and jump is likely to be more effective in turbulent times, e.g., in US subprime crisis period.

With the rise of the importance of air transportation in the 21st century, the role of economics in airport planning and decision-making has become crucial to the urban structure and land values. This paper examines the relationship between an airport and its impact on the distribution of urban land uses and land values by applying the Alonso’s bid-rent model. Using Suvarnabhumi International Airport as a case study, the analysis was made over three different time periods of airport development. The statistical results confirm that: (i) Alonso’s model can be used to explain the impacts of the airport only for the northeast quadrant of the airport; (ii) proximity to the airport shows an inverse relationship with the land value of all six types of land use activities through three periods of time; and (iii) the land value for commercial land use is the most sensitive to the location of the airport compared to other types of land use activities.

It is shown that the stochastic model of transaction and precautionary demand for money developed by Frenkel and Jovanovic can be made general even within the purview of their restricted treatment of the problem of estimation of optimal money holdings. While all the predecessor models on optimal money holdings assume the consumption decision to be an exogenous factor outside the realm of the model, the present treatment endogenizes the consumption decision by including an additional decision-dependent parameter in the very structure of the generalized model. In our model, it has been found that contrary to the Baumol–Tobin and Frenkel–Jovanovic models, the interest elasticity is positive when the consumption decisions are endogenous.