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THE AIMS OF THE PAPER Studies have not explained fully how financial literacy, decision making skills and the diverse forms of financial literacy overconfidence interact with each other to explain households’ actual and perceived financial well-being at retirement. This study aims to map the interactions among these constructs within the elderly population. METHODOLOGY In the framework of a larger assessment on subjective well-being and its antecedents at retirement, three hundred retired people between the age of 65 and 85 filled out a questionnaire in their home in Hungary in March 2019. MOST IMPORTANT RESULTS Elderly people are overconfident in their financial literacy skills both on absolut and relative levels. Percieved financial literacy is a better predictor of financial situation than actual financial literacy. However, financial literacy overconficence relative to others harms elderly people’s financial situation. Subjective financial well-being is mainly driven by the actual financial situation. Decision making skills play an important role in the calibration of financial literacy skills and have an additional direct effect on the subjective level of financial well-being. Our outcomes reinforce that it is indeed worth promoting programs helping elderly people acquiring domain-specific financial knowledge. These programs may lead to better financial situation and higher self-efficacy. Moreover, our findings imply that it would be worthwhile for programs to concentrate on the calibration of financial knowledge vis-á-vis others. RECOMMENDATIONS To complement the mainstream literature, the study examines the forms of overconfidence and their effects on financial well-being separately and concentrates on the elderly population. Acknowledgements: The project was financed by the European Social Fund: Comprehensive Development for Implementing Smart Specialization Strategies at the University of Pecs (EFOP-3.6.1.- 16-2016-00004). Declarations of interest: none.

The study examines the relationship between investors’ intertemporal preferences and capital demand in European listed firms’ practices. It seeks to find out how investor short-termism influenced European companies’ capital demand in 2004– 2016. The analysis of the link between the cost of equity and businesses’ capital demand reveals the effects of macro-level shocks such as the recession, the change in the interest rate environment and the shifting equity risk premium on capital markets. To answer the question that our research focused on, we estimated the implicit intertemporal discount surplus typical of the companies under review and thus determined the discount rate in excess of the cost of capital that describes investors’ intertemporal preferences. We then explored the relationship between the cost of equity and capital demand using regression models. We found that in the practices of European listed firms, the decrease in capital demand and the resulting restrictions on investment are attributable to growth in the intertemporal discount surplus. If investors prioritise their short-term interests on the capital markets and companies adapt to investors’ intertemporal preferences, long-run shareholder value accumulation is undermined. Additionally, and in connection with the above, growth in the intertemporal discount surplus can also delay the effects of monetary easing.

A hazai szakirodalomban hiánypótló jelen tanulmány célja, hogy az időskori döntéshozatal és a kockázati preferenciák nemzetközi kutatási trendjeit egyrészt különféle módszertani megközelítések mentén rendszerezze - ideértve a kísérleti-, a kérdőíves- és a vagyonportfólión alapuló vizsgálati módokat; másrészt feltárja a kor és a pénzügyi kultúra közötti hatásokat. A külföldi szakirodalom tükrében az időskori kockázati attitűdvizsgálatok eltérő következtetésekre jutottak attól függően, hogy milyen kutatási módszert alkalmaztak. Játékszituációba ágyazott kísérleti környezetben inkább kockázatkeresők, kockázatos választáshoz vezető tanulás esetén azonban kockázatkerülők. A kérdőíves megkérdezések és a portfóliószelekciós módszerek tanulsága alapján a kockázatvállalási hajlandóság csökken idősebb kohorszokban. Az életkorral dinamikusan változó kockázati preferenciák a befektetési döntések újabb dimenziójára mutatnak rá. Az életkor emelkedésével felhalmozódó, kockázati toleranciát emelő befektetési tapasztalat és az életciklus vége felé romló kognitív képességek között feszülő összefüggések kutatása számos ellentmondásra világít rá a nemzetközi szakirodalomban.

The objective of this study fills a gap in the Hungarian academic literature: its goal, on the one hand, is to systematise the research trends of decision-making and risk preferences at older ages according to the various methodological approaches, including researches based on experiment, questionnaire or wealth portfolio holding, and, on the other hand, to identify the impacts between age and financial literacy. The international academic literature shows that the researches on attitude to risk at older ages reached different conclusions depending on the research method used. In an experimental environment embedded in a play situation older people are rather risk-seeking, whereas in case of learning leading to a risky choice they are risk-averse. Based on the conclusion drawn from questionnaire surveys and portfolio selection methods, willingness to take risks decreases in older cohorts. The risk preferences dynamically changing with age highlight a new dimension of investment decisions. The research of the relationships between the investment experience accumulated with increasing age – which raises risk tolerance – and the cognitive abilities deteriorating as the end of the life-cycle approaches highlights several contradictions in the international literature.

THE AIMS OF THE PAPER In this study, we investigate the impact of the low interest rate environment on the investment decisions. By formulating our research question, we wanted to know what kind of decision rule could describe the intertemporal preferences of decision makers in the low interest rate environment, if the traditional present value rule cannot explain the outcome of the decisions. METHODOLOGY To answer this research question we made a literature review and used numeric examples to introduce the rationally expected reaction of the decision makers. We also compared the intertemporal choices of decision makers who apply the traditional present value rule with those who have short-term preferences. During the research, we investigated the reactions of the decision makers mainly from a methodological point of view and we concentrated on the intertemporal preferences using the assumption that the reactions of the decision makers are motivated by the present value rule. We investigated the last decade after the crisis, because it is a distinct period, which enabled us to introduce the changes induced by the low interest rate environment. MOST IMPORTANT RESULTS By applying the traditional present value rule, we showed that the decrease of the discount rate stretches the time horizon of the investments and the increasing volatility of the present value provide space for speculation and for chase of returns. As the most important result of our research, we argue that in the cases when the traditional present value rule cannot explain the intertemporal preferences of decision makers we can apply quasi-hyperbolic discount functions, which can explain the decrease of investments and the increase of capital transfers. In the case of decision makers with short-term preferences the excess discounting leads to lower present values compared to the traditional present value rule, thus these decision makers can forgo valuable investment. RECOMMENDATIONS To answer our research question, we can draw the conclusion, that hyperbolic discounting and quasi-hyperbolic discount functions emerge as an alternative decision making framework of the intertemporal capital allocation decisions in contrast of the traditional present value rule in the low interest rate environment.

Tanulmanyunkban egy előretekintő, időben valtozo parameterű Taylor-szabaly becsleset vegezzuk el magyar adatok felhasznalasaval. Celunk a hazai monetaris politika jellemzese az inflacios celkovetes rendszerenek bevezetese ota eltelt időszakban. Kutatasi kerdeseink a kovetkezők. Melyek voltak a monetaris politikai donteshozatal szempontjabol meghatarozo fundamentalis tenyezők, illetve hogyan valtozott e tenyezők szerepe az elmult tizenot ev soran? Az időben valtozo Taylor-egyutthatok becslesehez egy linearis allapottermodellt irunk fel, amelyet Kalman-filterrel becsulunk. Az alkalmazott becslesi modszer ertekes hozadeka – szemben a kulonboző reszmintas es rezsimvalto regressziokkal –, hogy maguk a becslesi eredmenyek jelolik ki az esetleges strukturalis toresek helyet, illetve idejet. Ezaltal tovabbi kulső informaciok nelkul, előfelteves-mentesen azonosithatjuk a hazai monetaris politika preferenciainak időbeli valtozasat. Eredmenyeink a hazai monetaris politika celjainak atrendeződeset mutatjak a valsagot kovető időszakban, emellett kiemelik a kulső mozgaster valtozasainak meghatarozo szerepet. A becsles relevanciajat noveli, hogy a felhasznalt adatok szinte teljes egeszeben a Magyar Nemzeti Bank altal publikalt, valos idejű kiadvanyokbol szarmaznak.* Journal of Economic Literature (JEL) kod: E43, E52, E58.

A lakossagi devizahitel-valsag kezelese az elmult hat-het ev meghatarozo tarsadalmi problemaja, gazdasagpolitikai kihivasa. A szokasos szakmai es politikai narrativa a valsag elmelyulesenek egyik fő okat – a forint jelentős gyengulese mellett – abban latja, hogy a frankhitelek atarazasa soran a bankok mertek nelkul haritottak at novekvő koltsegeiket a teherviselesuk hataran levő adosokra. Empirikus elemzesunkkel e nezőpontot kivanjuk arnyalni. A hitelezesi koltsegek negy alapvető komponensenek – a referenciakamatnak, az orszagkockazati felarnak, a koltsegvetesi terheknek es az elszamolt hitelezesi vesztesegnek – a frankhitelkamatokra gyakorolt hatasat vizsgaljuk. A grafikus megjelenites megszokott modszeretől kiindulva lepesről lepesre jutunk el a komplex, egyensulyi arazasi visszacsatolasokat is integraltan kezelő vektor-hibakorrekcios modellig (VECM). Ez utobbira epulő becslesek szerint a bankok a felmerulő koltsegeiket aranyosan vagy inkabb tompitva ervenyesitettek a jelzaloghitelek arazasakor. Ha volt tere a gyakran emlegetett „tisztessegtelen banki magatartasnak”, akkor az inkabb a vizsgalt koltsegektől fuggetlen tenyezők ervenyesiteseben, egyfajta erőfolenyes indulo arazasban kereshető, amelyet elsődlegesen a szignifikans es jelentős mertekű konstans tagok tukroznek.* Journal of Economic Literature (JEL) kod: D14, G21.

Over the last decade, foreign currency indebtedness in Hungary has become a systemic financial problem, and its crippling impact on the real economy has been aggravated by its significant constraints on economic policy. In international comparative terms, however, there are certain specific features relating to Hungary which make this issue particularly problematic, and during the financial crisis both exchange rates and interest rates were important factors in increasing the burden on individual households. We present here a case study whereby our research focuses on the causes and determining factors of the pricing of Swiss franc-denominated mortgage loans. Our empirical exercise examines four potential price shocks which might have affected the pricing decisions of credit institutions: foreign currency interest rates, the country risk premiums (measured by Credit Default Swap (CDS) spread), the deteriorating quality of the loan portfolio and the taxes levied on banks. The questions which arise concern the relationship of these costs to the changes in interest rates and the extent to which these cost shocks were passed on by banks to their clients. Empirical evidence based on Vector Error Correction Model (VECM) shows a significant long-run relationship between cost factors and CHF denominated mortgage loans interest rates — with a reasonable sign and magnitude of parameters, but also with moderate forecasting power. Finding a tractable solution to the foreign currency debt trap is only possible if a fair distribution of burdens is achieved, and this should be supported by empirical facts. At the end of the day, all three affected parties (debtors, banks, and the Hungarian State) had made their contribution, but how fair and reasonable the distribution was remains an open issue for further research.

Tanulmányunk elsõ felében a hazai szakmai és közéleti vitákban korábban nem látott, strukturált áttekintést nyújtunk a hazai lakossági deviza-eladósodás mozgatórugóiról, kitérve a nemzetközi összevetésben is egyedülálló hazai folyamatok azonosító jegyeire, a szektor-specifikus sajátosságokra, a deviza-eladósodás mikro-szintû racionális motívumaira. Emellett részletesen elemezzük a racionalitás korlátait, a kockázatészlelés mikro-szintû nehézségeit, valamint az azt nehezítõ specifikus makrokörülményeket. A tanulmány elsõ részének zárásaként nem mulasztjuk el a felelõsségi dimenziók korábbi érvelésen alapuló – hangsúlyozottan szubjektív – áttekintését sem. A tanulmány második, empirikus része svájci frank alapú hitelek árazása mögött meghúzódó okokat és tényezõket kutatja. A bankokat érõ költségsokkok közé alapvetõen a devizakamatok és a kockázati felárak változását, a hitelportfólió romlását, valamint a banki különadókat soroljuk. Felmerül a kérdés, hogy ezek a költségek milyen összefüggésben állnak a deviza alapú hitelek kamatainak alakulásával, illetve milyen mértékben háríthatták tovább a bankok az õket érõ sokkokat ügyfeleikre. Az empirikus vizsgálatok eredményei alapján mind a lakáscélú, illetve szabad felhasználású jelzáloghitelek kamatait, mind pedig a költségsokkokat képviselõ változókat elsõrendû integrált folyamatoknak tekintjük. A tesztek továbbá egyértelmûen alátámasztják a kointegrációs kapcsolatok létezését, és leginkább azt valószínûsítik, hogy egyetlen kointegráló vektor létezik mindkét jelzálogkamat esetében. A kointegráló vektorok elemeinek mindegyike szignifikáns és pozitív, vagyis a banki költségsokkok feltehetõen valóban tovagyûrûztek a hazai bankok által érvényesített kamatokba. Végül a vektor-hibakorrekciós modellek magyarázó ereje lényegesen felülmúlta a benchmark autoregresszív modellekét.

This paper presents unprecedented exchange rate forecasting results based upon a new model which approximates the gap between the fundamental equilibrium exchange rate and the actual exchange rate with the long-maturity forward exchange rate. The theoretical derivation of our forecasting equation is consistent with the monetary model of exchange rates. Our model outperforms the random walk in out-of-sample forecasting of twelve major currency pairs in both short and long horizons forecasts for the 1990-2020 period. The results are robust for all sub-periods with the exception of years around the collapse of Lehman Brothers in September 2008. Our results are robust to alternative model specifications, single equation and panel estimation, recursive and rolling estimation, and alternate data construction methods. The model performs better when the long-maturity forward exchange rate is assumed to be stationary as opposed to assuming non-stationarity. The improvement in forecast accuracy of our model is economically and statistically significant for almost all exchange rate series. The model is simple, linear, easy to replicate, and the data we use are available in real time and not subject to revisions.

Using eight unit root tests and a stationarity test and three decades of monthly data for the currencies between the US, Germany, UK and Switzerland, we find that, while spot exchange rates are non-stationary, long maturity forward rates are stationary.

Results and models of this paper are based on a strikingly new empirical observation: long maturity forward rates between bilateral currency pairs of the US, Germany, UK, and Switzerland are stationary. Based on this result, we suggest a new explanation for the UIP-puzzle maintaining rational expectations and risk neutrality. The model builds on the interaction of foreign exchange and fixed income markets. Ex ante short run and long run UIP and the EHTS is assumed. We show that ex post shocks to the term structure could explain the behavior of the nominal exchange rate including its volatility and the failure of ex post short UIP regressions. We present evidence on ex post validity of long run UIP and strikingly new evidence on the stationarity of the long forward exchange rates of major currencies. We set up, calibrate and simulate a stylized model that well captures the observed properties of spot exchange rates and UIP regressions of major currencies. We define the notion of yield parity and test its empirical performance for monthly series of major currencies with favorable results.