Documentos de Trabajo del CEA

Testing excess returns from passive Options investment strategies

Documento de Trabajo. Enero de 2017.

When analyzing options returns, most papers tend to focus on the expected and realized return from strategies where the investors are long on those financial instruments. We conduct a test searching for excess returns on passive options investment strategies resorting to a four factor model, evaluating the case of an investor who launches options and evaluates returns to the light of capital invested in the form of margins requirement. The main point of our research work is to continue the line of research where we evaluate options returns using the metrics with respect to margin requirements. We find that there are excess returns not explained by the four factor model, which in turn may indicate the strategy generates extra returns, or that the investor going short on options provides insurance to events not captured by the traditional models.

Party alignment, political budget cycles and vote within a federal country

Documento de Trabajo. Octubre de 2016.

To understand how intergovernmental relations affect political budget cycles (PBCs) within federal countries, we model the credibility problems of discretionary fiscal policy in combination with a national incumbent that favors aligned districts. Analyzing Argentina’s provinces during the 1985–2001 period, unsurprisingly, provincial budget balances worsen in electoral years, and aligned provinces (where the governor belongs to the president’s party) receive larger federal transfers and have larger public expenditures during the governor’s entire term. The main interaction effect in electoral years is that provincial budget balances only deteriorate in unaligned provinces, which receive less federal transfers. Furthermore, average federal transfers boost the vote for aligned governors. Two broad implications are that studies of subnational PBCs are biased by an omitted factor (discretional federal transfers), and that governors unaffiliated with the president suffer a “Cinderella” effect at the polls which helps the president dominate national politics.