Understanding and Modelling Weather Derivatives in Australia for the Purpose of their Accurate Pricing: a Statistical and Econometric Investigation. Australia suffers some of the most adverse and extreme weather globally. Its government and industries, especially agriculture and electricity, stand to benefit from improved understanding of weather derivatives and capability to price them accurately. Tailored to Australian weather scenarios, weather derivatives will be tools to manage local risk f ....Understanding and Modelling Weather Derivatives in Australia for the Purpose of their Accurate Pricing: a Statistical and Econometric Investigation. Australia suffers some of the most adverse and extreme weather globally. Its government and industries, especially agriculture and electricity, stand to benefit from improved understanding of weather derivatives and capability to price them accurately. Tailored to Australian weather scenarios, weather derivatives will be tools to manage local risk factors, and increase global competitiveness by hedging against competitors' good weather-related advantage. The US weather derivative market, capitalised at over US$7.5b, began just 7 years ago; there is no organised Australian market. This project's smart techniques for improving pricing accuracy will support the development and vigorous growth of a local market.Read moreRead less
Change Detection in Causal Relationships and Measurement of Systemic Risk. Empirical measures of interconnectedness between financial institutions based on tests of Granger causality are currently used in detecting systemic risk. However, researchers need to define periods of calm and stress exogenously in order to implement these tests appropriately. This project aims to develop a new procedure to identify changes in causal relationships and the timing of these changes. The new approach has the ....Change Detection in Causal Relationships and Measurement of Systemic Risk. Empirical measures of interconnectedness between financial institutions based on tests of Granger causality are currently used in detecting systemic risk. However, researchers need to define periods of calm and stress exogenously in order to implement these tests appropriately. This project aims to develop a new procedure to identify changes in causal relationships and the timing of these changes. The new approach has the potential to be a significant improvement in the real-time identification of emerging turmoil in financial markets and provide an improved method for the detection of systemic risk. The new test procedure will be implemented using data for financial and non-financial institutions across Europe, the US and Australia.Read moreRead less
Inequality of opportunity in Australia. This project aims to develop econometric approaches for identifying opportunity gaps in Australia and other developed countries. Inequality of opportunity arises when the birth lottery or external factors in later life, rather than personal efforts, determine a person’s chances of economic success. A high level of inequality of opportunity holds people back from realising their potential and from contributing productively to society. The project will focus ....Inequality of opportunity in Australia. This project aims to develop econometric approaches for identifying opportunity gaps in Australia and other developed countries. Inequality of opportunity arises when the birth lottery or external factors in later life, rather than personal efforts, determine a person’s chances of economic success. A high level of inequality of opportunity holds people back from realising their potential and from contributing productively to society. The project will focus on the effect of inequality of opportunity on income, health and education with special emphasis placed on Indigenous and migrant populations. The findings should help formulate cost-efficient policy interventions aimed at levelling the economic playing field.Read moreRead less
Estimation of the continuous piecewise linear model and macroeconomic applications. Relationships between economic variables are often characterised by non-linearities. This project develops a method to analyse a type of non-linearity that is frequently encountered in economics and uses this method to study four specific applications concerning the dynamics of inflation, growth, and the exchange rate.
Capital Management in a Stochastic Earnings Framework. Many large Australian firms have on-going capital management programs. These programs are aimed at ensuring that the firm maintains an optimal capital structure. This is often done according to rules of thumb or benchmarked against a few financial ratios. To the extent that more rigor can be introduced into the analysis of optimal capital structure, there is a clear benefit to Australian firms. Of course, the reason firms engage in capit ....Capital Management in a Stochastic Earnings Framework. Many large Australian firms have on-going capital management programs. These programs are aimed at ensuring that the firm maintains an optimal capital structure. This is often done according to rules of thumb or benchmarked against a few financial ratios. To the extent that more rigor can be introduced into the analysis of optimal capital structure, there is a clear benefit to Australian firms. Of course, the reason firms engage in capital management initiatives in the first place is to lower their cost of capital and to increase value. Any initiative that lowers the cost of capital of Australian firms will result in increased productivity and economic growth.Read moreRead less
Australian Costs of Equity. The goal of this project is to identify the most appropriate framework and estimation methodology for estimating the cost of equity capital for Australian firms. The outcome of the project will be the identification of precise costs of equity of all industries and exchange-listed companies in Australia. Our final product will not only attain high academic value by providing comprehensive examination of all popular asset pricing models, but will also serve as a compreh ....Australian Costs of Equity. The goal of this project is to identify the most appropriate framework and estimation methodology for estimating the cost of equity capital for Australian firms. The outcome of the project will be the identification of precise costs of equity of all industries and exchange-listed companies in Australia. Our final product will not only attain high academic value by providing comprehensive examination of all popular asset pricing models, but will also serve as a comprehensive benchmarking tool for all investment decisions (both corporate and government) in Australia. This will bring about economic efficiency and benefits to the business community via more accurate valuation of assets and more appropriate evaluation of potential new projects.Read moreRead less
Novel econometric techniques for dealing with point processes in high frequency financial data with applications to financial risk management. The recent global financial crisis highlighted the inherent risk involved in investing in financial assets. This project aims to develop novel statistical methods for forecasting the onset of instability in asset prices. The outcomes of this research will lead to improvements in the management of financial risk.
Threshold models in micro-econometrics with applications to empirical models of health. The aim of this project is to develop and apply new statistical approaches to endogenously identify non-linear relationships between explanatory variable(s) and the response variable in non-linear econometric models and to illustrate these with applications important to empirical health economics. Literature proliferates in linear models with non-linear effects, but in health economics non-linear models domin ....Threshold models in micro-econometrics with applications to empirical models of health. The aim of this project is to develop and apply new statistical approaches to endogenously identify non-linear relationships between explanatory variable(s) and the response variable in non-linear econometric models and to illustrate these with applications important to empirical health economics. Literature proliferates in linear models with non-linear effects, but in health economics non-linear models dominate. This project will generalise these techniques to allow for various forms of the threshold variable(s), including categorical and continuous, endogenous and exogenous, and those measured with error.Read moreRead less
New approaches to the statistical modelling of financial risk: combining structural information with flexible, computationally-intensive non-parametric methods. The aims of this project are to provide a range of novel, rigorous, flexible, statistical methods to assess portfolio risk, with due attention to behaviour of its constituent components; to obtain greater understanding of the complexities of risk; and to give students research training in the nexus of statistics and finance. The anticip ....New approaches to the statistical modelling of financial risk: combining structural information with flexible, computationally-intensive non-parametric methods. The aims of this project are to provide a range of novel, rigorous, flexible, statistical methods to assess portfolio risk, with due attention to behaviour of its constituent components; to obtain greater understanding of the complexities of risk; and to give students research training in the nexus of statistics and finance. The anticipated outcomes of this project will be detailed knowledge of extremal behaviour in portfolios, improved methods for calibrating risk, advances in non-parametric methods in finance, a prototype practitioner toolkit for assessing risk, and high-calibre graduates to contribute to Australia's research capacity.Read moreRead less
Quantification issues in corporate valuation, the cost of capital, and optimal capital structure. An estimate of the firm's cost of capital is probably the most important calculation required in corporate finance. It is used as the discount rate in valuation and capital budgeting decisions and forms the basis of pricing structures for many regulated industries. Corporate finance theory has identified the key inputs used to calculate the cost of capital, but the current literature falls short o ....Quantification issues in corporate valuation, the cost of capital, and optimal capital structure. An estimate of the firm's cost of capital is probably the most important calculation required in corporate finance. It is used as the discount rate in valuation and capital budgeting decisions and forms the basis of pricing structures for many regulated industries. Corporate finance theory has identified the key inputs used to calculate the cost of capital, but the current literature falls short of precisely quantifying and measuring many of these inputs. The outcomes from this project will be a framework to quantify three key aspects of the cost of capital - the value of dividend imputation tax credits, the assessment of the optimal capital structure for the firm (in particular, the quantification of bankruptcy and agency costs associated with debt financing), and the estimation of the firm's marginal tax rate.Read moreRead less