The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry

This paper analyzes the association between two firm performance measures: stock market returns and relative technical efficiency. Using linear programming techniques (Data Envelopment Analysis and Free Disposal Hull), technical efficiencies are calculated for a panel of eleven US airlines observed quarterly from 1970–1990. A relationship, between efficiency news in a quarter and stock market performance in the following two months, is found. A risky arbitrage portfolio strategy, of buying firms with the most positive efficiency news and short-selling those with the worst news during this time frame, results in zero beta risk yet yields annual returns of 17% and 18% for the two methodologies.     

不确定环境下回收网络选址-库存最优策略研究

基于中国废旧产品回收网络的特点,分析了由制造商、综合回收中心、当地回收点、消费者构成的回收网络,并对其选址-库存策略进行了研究。提出了一个随机规划模型,针对不同的情景进行了分析,并通过敏感性分析,得出回收周期、当地回收点和消费者之间的距离对总的废旧产品回收成本的影响,为回收商制定回收决策提供了一定的理论依据。     

A dynamic model of housing production

This paper derives the optimal development strategy for a housing producer with perfect foresight in a steady-state environment where dwellings deteriorate as they age. Under the assumption of zero demolition costs, the optimal strategy is an infinite sequence of identical buildings. Building abandonment is shown to be possible with positive demolition costs. A solution highlighting the model's spatial properties is computed using Cobb-Douglas functions.     

Robust games: theory and application to a Cournot duopoly model

In this paper, the robust game model proposed by Aghassi and Bertsimas (Math Program Ser B 107:231–273, 2006) for matrix games is extended to games with a broader class of payoff functions. This is a distribution-free model of incomplete information for finite games where players adopt a robust-optimization approach to contend with payoff uncertainty. They are called robust players and seek the maximum guaranteed payoff given the strategy of the others. Consistently with this decision criterion, a set of strategies is an equilibrium, robust-optimization equilibrium, if each player’s strategy is a best response to the other player’s strategies, under the worst-case scenarios. The aim of the paper is twofold. In the first part, we provide robust-optimization equilibrium’s existence result for a quite general class of games and we prove that it exists a suitable value \(\epsilon \) such that robust-optimization equilibria are a subset of \(\epsilon \)-Nash equilibria of the nominal version, i.e., without uncertainty, of the robust game. This provides a theoretical motivation for the robust approach, as it provides new insight and a rational agent motivation for \(\epsilon \)-Nash equilibrium. In the last part, we propose an application of the theory to a classical Cournot duopoly model which shows significant differences between the robust game and its nominal version.     

Unique induced preference representations

Machina [Machina, M.J., 1984. Temporal risk and the nature of induced preferences. Journal of Economic Theory 33, 199–231] considers an individual who has to choose from a set of alternative temporal uncertain prospects, and must take an action before the uncertainty is resolved, seeking to maximize the expected value of an (action determined) von Neumann-Morgenstern utility index. It is natural to ask if the set of underlying von Neumann-Morgenstern utility indices can be uniquely recovered solely on the basis of the thus induced (ordinal) preferences over temporal prospects. Machina’s conclusion is that “ordinal preferences alone will not suffice.” However, we show that it is possible to recover the action–utility set inducing the preferences uniquely if we restrict attention to action–utility sets for which no two actions induce the same preference relation on the space of temporal prospects, no action is redundant, and no action leads to a risk free outcome.     

Long-term wealth growth portfolio allocation under parameter uncertainty: A non-conservative robust approach

The Kelly portfolio, which is documented to have the highest wealth growth rate of any other portfolio in the long run, has highly risky and unstable performance in the short term. This paper offers a hybrid approach to address this problem by integrating the concept of ridge regression and shrinkage estimation into a robustly modified Kelly portfolio. The proposed approach is a two-stage optimization process that not only takes into account the effect of estimation error but also solves the notoriously conservative problem introduced by the robust optimization method. By extending the worst-case scenarios considered by the robust Kelly portfolio, our approach significantly improves its out-of-sample performance without compromising risk reduction. In an extensive out-of-sample analysis with simulated and empirical data sets, we also characterize the impacts of the robustness level and the length of the rolling window on the final result. Moreover, we conduct a comparative study to confirm the validity of the proposed approach, and our model allows the investor to have a better risk-return trade-off than other traditional models.     

Quarterly beta forecasting: An evaluation

Ever since the inception of betas as a measure of systematic risk, the forecast error in relation to this parameter has been a major concern to both academics and practitioners in finance. In order to reduce forecast error, this paper compares a series of competing models to forecast beta. Realized measures of asset return covariance and variance are computed and applied to forecast beta, following the advances in methodology of Andersen, Bollerslev, Diebold and Wu [Andersen, T. G., Bollerslev, T., Diebold, F. X., & Wu, J. (2005). A framework for exploring the macroeconomic determinants of systematic risk. American Economic Review, 95, 398–404; and Andersen, T. G., Bollerslev, T., Diebold, F. X., & Wu, J. (2006). Realized beta: Persistence and Predictability. In T. Fomby & D. Terrell (Eds.), Advances in Econometrics, vol 20B: Econometric Analysis of Economic and Financial Times Series., JAI Press, 1–40.]. This approach is compared with the constant beta model (the industry standard) and a variant, the random walk model. It is shown that an autoregressive model with two lags produces the lowest or close to the lowest error for quarterly stock beta forecasts. In general, the AR(2) model has a mean absolute forecast error half that of the constant beta model. This reduction in forecast error is a dramatic improvement over the benchmark constant model.     

Robust tracking error portfolio selection with worst-case downside risk measures

This paper proposes downside risk measure models in portfolio selection that captures uncertainties both in distribution and in parameters. The worst-case distribution with given information on the mean value and the covariance matrix is used, together with ellipsoidal and polytopic uncertainty sets, to build-up this type of downside risk model. As an application of the models, the tracking error portfolio selection problem is considered. By lifting the vector variables to positive semidefinite matrix variables, we obtain semidefinite programming formulations of the robust tracking portfolio models. Numerical results are presented in tracking SSE50 of the Shanghai Stock Exchange. Compared with the tracking error variance portfolio model and the equally weighted strategy, the proposed models are more stable, have better accumulated wealth and have much better Sharpe ratio in the investment period for the majority of observed instances.     

按订单生产企业的最优退货策略研究

运用Mukhopadhyay—Setoputro模型分析了由单个按订单生产企业和众多消费者构成的按订单生产系统的最优退货策略问题，主要研究了企业的最优退款数额和最优模块化设计水平。为此首先分析了该模型的不足和错误之处，并提出了改正这些错误和不足的具体措施，并在此基础之上提出了更符合实际情况的修正模型，并最终得到了该修正模型下的最优退款数额和最优模块化设计水平。     

生产商回购合同与需求不确定

生产商回购合同已经被广泛看成一种渠道间成员共担风险的一种方式。在生产商回购合同中,生产商决定最优的批发价格ω和回购价格s。在给定ω,s的条件下,零售商决定向生产商最优的订货量Q,本文通过对生产商回购合同的分析,从而得出零售商的最优订货量以及生产商所采取的最优策略。同时给出了生产商使用回购合同的的条件以及分析了市场需求不确定对生产商和零售商的影响。     

Option hedging theory under transaction costs

The problem of option hedging in the presence of proportional transaction costs can be formulated as a singular stochastic control problem. Hodges and Neuberger [1989. Optimal replication of contingent claims under transactions costs. Review of Futures Markets 8, 222–239] introduced an approach that is based on maximization of the expected utility of terminal wealth. We develop a new algorithm to solve the corresponding singular stochastic control problem and introduce a new approach to option hedging which is closer in spirit to the pathwise replication of Black and Scholes [1973. The pricing of options and corporate liabilities. Journal of Political Economy 81, 637–654]. This new approach is based on minimization of a Black–Scholes-type measure of pathwise risk, defined in terms of a market delta, subject to an upper bound on the hedging cost. We provide an efficient backward induction algorithm for the problem of cost-constrained risk minimization, whose associated singular stochastic control problem is shown to be equivalent to an optimal stopping problem. This algorithm is then modified to solve the singular stochastic control problem associated with utility maximization, which cannot be reduced to an optimal stopping problem. We propose to choose an optimal parameter (risk-aversion coefficient or Lagrange multiplier) in either approach by minimizing the mean squared hedging error and demonstrate that with this “best” choice of the parameter, both approaches have similar performance. We also discuss the different notions of risk in both approaches and propose a volatility adjustment for the risk-minimization approach, which is analogous to that introduced by Zakamouline [2006. European option pricing and hedging with both fixed and proportional transaction costs. Journal of Economic Dynamics and Control 30, 1–25] for the utility maximization approach, thereby providing a unified treatment of both approaches.     

Forecasting economic and financial variables with global VARs

This paper considers the problem of forecasting economic and financial variables across a large number of countries in the global economy. To this end a global vector autoregressive (GVAR) model, previously estimated by Dees, di Mauro, Pesaran, and Smith (2007) and Dees, Holly, Pesaran, and Smith (2007) over the period 1979Q1–2003Q4, is used to generate out-of-sample forecasts one and four quarters ahead for real output, inflation, real equity prices, exchange rates and interest rates over the period 2004Q1–2005Q4. Forecasts are obtained for 134 variables from 26 regions, which are made up of 33 countries and cover about 90% of the world output. The forecasts are compared to typical benchmarks: univariate autoregressive and random walk models. Building on the forecast combination literature, the effects of model and estimation uncertainty on forecast outcomes are examined by pooling forecasts obtained from different GVAR models estimated over alternative sample periods. Given the size of the modelling problem, and the heterogeneity of the economies considered–industrialised, emerging, and less developed countries–as well as the very real likelihood of possibly multiple structural breaks, averaging forecasts across both models and windows makes a significant difference. Indeed, the double-averaged GVAR forecasts perform better than the benchmark competitors, especially for output, inflation and real equity prices.     

The Alpha Risk of Taguchi Method for LTB Type Quality Characteristic with L<Subscript>8</Subscript>

In Taguchi’s parameter design, the significant parameter levels are found by maximising the signal-to-noise ratio of the quality characteristic. In the analysis of variance (ANOVA) of signal-to-noise ratio, the combination of column effects to better estimate error variance is referred to as pooling. Taguchi has suggested the strategy of pooling up. When using the pooling-up strategy, there will be a tendency to make the alpha mistake more often. In this paper, it is assumed that (1) the quality chartacteristic is normally distributed and (2) the mean and standard deviation of each factor level combination are equal, then the null hypothesis should be no significant factor. Thus, the alpha risk is that some factors are misidentified as significant factors. The purpose of this paper is to investigate the alpha risk of the Taguchi method for the-larger-the-better (LTB) type problem with orthogonal array, L₈, by simulation. The results show that the alpha risk is very high.     

Optimal investment of variance-swaps in jump-diffusion market with regime-switching

We consider a general jump-diffusion market with regime-switching where the jump risk is modeled as a Markov-modulated Poisson random measure. In this incomplete market, we price the variance-swaps using a combination of the Esscher transform and change of measure on time-inhomogeneous Markov chains. We study the dynamic optimal investment problem of the variance-swaps and characterize the optimal feedback strategy. Moreover, a closed-form solution to the HJB PDE associated with the stochastic control problem is established and the verification theorem is proved. The numerical analysis based on a two-state Markov chain uncovers some robust features of the optimal investment strategy.     

The analysis of risk perception with fuzzy means-end approach

Visitors’ risk perceptions have been found to influence the on-site behavior of tourists and their intention to return to a destination or to recommend it to others. This study discusses how the uses of a means-end approach with fuzzy conceptualization in eliciting the perception of tourism risks in a better understanding of the visitors’ perceptual orientation toward the tourism values. We provide a hierarchy value map that fuses the attribute–consequence–value (A–C–V) and fuzzy linguistics to effectively and efficiently understand vacation risks and risk characteristics. Fuzzy logic is also adopted to deal with the ill-defined nature of the tourist linguistic judgments required in the proposed means-end chain. This research findings suggest that additionally to managing the most likely risks, tourist resorts should be prepared to cope with worst case scenarios such as “Thunderstorm”, “Bus accident”, “Food poisoning” and “Cable car accident”. From an overall risk perceptive, tourists are most concerned with dominant perceptual orientation of risk delivers being “Bus accident” → “Decrease of trust in the safety management as a result of the event of damage” → “Anger”.     

To pool or not to pool: What is a good strategy for parameter estimation and forecasting in panel regressions?

This paper considers estimating the slope parameters and forecasting in potentially heterogeneous panel data regressions with a long time dimension. We propose a novel optimal pooling averaging estimator that makes an explicit trade‐off between efficiency gains from pooling and bias due to heterogeneity. By theoretically and numerically comparing various estimators, we find that a uniformly best estimator does not exist and that our new estimator is superior in nonextreme cases and robust in extreme cases. Our results provide practical guidance for the best estimator and forecast depending on features of data and models. We apply our method to examine the determinants of sovereign credit default swap spreads and forecast future spreads.     

Income growth in the 21st century: Forecasts with an overlapping generations model

We forecast income growth over the period 2000–2050 in the US, Canada, and France. To ground the forecasts on relationships that are as robust as possible to changes in the environment, we use a quantitative theoretical approach which involves calibrating and simulating a general equilibrium model. Compared to existing studies, we allow for life uncertainty and migrations, use generational accounting studies to link taxes and public expenditures to demographic changes, and take into account the interaction between education and work experience. Forecasts show that growth will be weaker over the period 2010–2040. The gap between the US and the two other countries is increasing over time. France will catch-up and overtake Canada in 2020. Investigating alternative policy scenarios, we show that increasing the effective retirement age to 63 would be most profitable for France, reducing the gap between it and the US by one third. A decrease in social security benefits would slightly stimulate growth but would have no real impact on the gap between the countries.     

Solution of macromodels with Hansen–Sargent robust policies: some extensions

We summarize some methods useful in formulating and solving Hansen–Sargent robust control problems, and suggest extensions to discretion and simple rules. Matlab, Octave, and Gauss software is provided. We illustrate these extensions with applications to the term structure of interest rates, the time inconsistency of optimal monetary policy, the effects of expectations on the variances of inflation and output, and on whether central banks should make their forecasts public.     

Strategic business risk evaluation for sustainable energy investment and stakeholder engagement: A proposal for energy policy development in the Middle East through Khalifa funding and land subsidies

This article projects business risk through deferent industrial scenarios in concentrated solar investments in the United Arab Emirates (UAE). Nationwide, the government seeks a sustainable solution through energy policy development and engagement of the stakeholders for clean energy generation at wider level in the long run. Support has been extended through various support schemes. In the current study, Monte Carlo simulations and net present value (NPV) risk are used to analyse the return on investment. A 5 MW concave solar panel project is evaluated. We have assessed the impact of local factors on profits through NPV. The study proposes that a higher NPV is expected if the concave solar panel project is financed 50% by Khalifa funding. The study also proposes a robust policy and highlights the opportunity of business profitability if the government subsidises land leasing with respect to each scenario. Additionally, the study also proposes a policy to maintain the interests of investors in the UAE.