SOUTH-SOUTH TRADE: Theory, Evidence, and Policy

Recently a number of commentators have argued that trade policyin developing countries should be deployed discriminatorilyto encourage the expansion of trade among southern countries.Such a strategy is seen as being central in the framing of anew international economic order. This article evaluates thearguments in favor of a relative expansion of South-South tradeand reviews the experience of developing countries with discriminatoryregional trading arrangements. It contends that the case forspecific policies to promote South-South trade is not convincingand that experience with discriminatory arrangements is notencouraging. The expansion of South-South trade can be expectedto continue in the context of multilateral trade expansion,and the potential gains are likely to be greater if this processis allowed to evolve freely in a multilateral setting.      

Debt Crisis Looming? Yes,Corporate Debt Expanded but Don't Panic Over the Prospect of BBB Downgrades

The popular press often tends towards sensationalism and, unfortunately, the supposedly more sober financial press is not always better. It is true that many American companies have taken the opportunity to borrow large sums during recent years when interest rates were close to their all‐time lows. This has also led some media commenters to predict a large number of marginally investment grade debt issues (e.g. BBB rated on the S&P rating scale) will be downgraded to less‐than‐investment‐grade status–or to “junk”–as such bonds are commonly known. Veteran fixed income analyst Martin Fridson takes stock of the situation in mid‐2018. While emphasizing that a bear market is inevitable someday, he advises investors not to panic now. Despite the more apocalyptic scenarios offered by financial commentators making dubious connections between today's corporate bond market and possible future high‐yield events, the aggregate numbers do not add up to an end‐of‐civilization‐as‐we‐know‐it story. Some of the numbers mentioned in financial commentary are at least slightly misleading. The present market lacks the sort of structural weaknesses likely to trigger a major bear cycle in fixed income securities, such as overleveraged buyouts and early‐stage telecoms. While there are some questionable issuers in the market, these are isolated cases, rather than representatives of a vast segment of today's high‐yield universe.     

Why does junior put all his eggs in one basket? A potential rational explanation for holding concentrated portfolios

Empirical studies of household portfolios show that young households, with little financial wealth, hold underdiversified portfolios that are concentrated in a small number of assets, a fact often attributed to behavioral biases. We present a potential rational alternative: we show that investors with little financial wealth, who receive labor income, rationally limit the number of assets they invest in when faced with financial constraints such as margin requirements and restrictions on borrowing. We provide theoretical and numerical support for our results and identify the ratio of financial wealth to labor income as a useful control variable for household portfolio studies.     

The efficient markets hypothesis: The demise of the demon of chance?

Many commentators have suggested that economists in general and financial economists in particular have some responsibility for the recent global financial crisis. They were blinded by an irrational faith in a discredited Efficient Markets Hypothesis and failed to see the bubble in asset prices and to give due warning of its collapse. There is considerable confusion as to what this hypothesis is and what it says. The irony is that the strong implication of this hypothesis is that nobody, no practitioner, no academic and no regulator had the ability to foresee the collapse of this most recent bubble. While few economists believe it is literally true, this hypothesis is considered a useful benchmark with some important practical implications. Indeed, a case can be made that it was the failure to believe in the essential truth of this idea, which was a leading factor responsible for the global financial crisis .     

Domestic fire risk: a narrative review of social science literature and implications for further research

In this paper, we make the case for more social science research into fire incidents and fire-related risk behaviour. Unlike other vulnerabilities, such as crime, illness or risk-associated activities such as smoking, or accident avoidance, remarkably little research has focused on this area. This is perhaps surprising given the propensity for fire, its emotional, social and economic impacts, and evidence that fires and fire victims are not equally distributed across socio-demographic or geographical domains. In making our case, we outline: recent numbers and trends in incidents in the UK, focusing on domestic incidents and recent policy developments affecting fire and rescue services. Next, we review the social-science based literature on fire incidents, suggesting that while this offers useful insight, much more needs to be done to develop a rigorous evidence base. While we would not want to dismiss or downplay existing social science contributions, our contention is that a considerable number of opportunities exist for further work in this area. Consequently, we propose a number of ways in which popular ideas about risk theory can be applied to a domestic fire context and raise a number of questions that social scientists are well positioned to contribute to an interdisciplinary understanding of domestic fire incidents and associated risks.     

Investor attention,aggregate limit-hits,and stock returns

We develop a simple measure of investor attention by aggregating the number of days that a stock hits the upper or lower limit on a monthly basis. This attention proxy describes investor trading behavior and contains information of future stock returns. Using data from the Chinese equity market from 2002 to 2017, we provide extensive evidence that the investor attention captured by our measure negatively predicts cross-sectional stock returns, and the long–short trading strategy based on this attention measure produces significant economic value. We argue that the attention-motivated trading is the main cause behind the return predictability of aggregate limit-hits.     

The real leadership lessons of Steve Jobs

The author, whose biography of Steve Jobs was an instant best seller after the Apple CEO's death in October 2011, sets out here to correct what he perceives as an undue fixation by many commentators on the rough edges of Jobs's personality. That personality was integral to his way of doing business, Isaacson writes, but the real lessons from Steve Jobs come from what he actually accomplished. He built the world's most valuable company, and along the way he helped to transform a number of industries: personal computing, animated movies, music, phones, tablet computing, retail stores, and digital publishing. In this essay Isaacson describes the 14 imperatives behind Jobs's approach: focus; simplify; take responsibility end to end; when behind, leapfrog; put products before profits; don't be a slave to focus groups; bend reality; impute; push for perfection; know both the big picture and the details; tolerate only "A" players; engage face-to-face; combine the humanities with the sciences; and "stay hungry, stay foolish."     

List price signaling and buyer behavior in the housing market

To determine whether list price contains useful information for anticipating trends in eventual transactions prices, we develop a model of buyer behavior from a search-theoretic perspective. Using data from the Baton Rouge, Louisiana, housing market between 1985 and 1992, we estimate separate price indexes with list price and selling price as the respective dependent variables in the hedonic regressions. Consistent with our theory, we find that the list price may lead the market when functioning as a signal of seller intent, but list price will probably lag a market driven by buyer willingness to purchase. Granger causality tests conducted on quarterly data for the eight-year study support listing price as a leading indicator of selling price. However, an examination of the indexes around the period of market reversal suggest otherwise. Indeed, listing prices appear to contain the least useful information at the times when information would be most valuable: at the peaks and troughs of the market cycle.     

Can Vehicle Maintenance Records Predict Automobile Accidents?

This article proposes that vehicle maintenance records can provide useful information for predicting the probability that an owner will have an automobile accident. To test the hypothesis, we use a unique data set that is merged from an insurance company and a vehicle manufacturer in Taiwan. We find weak evidence to support our hypothesis. Among all the proxies for proper maintenance, we indicate that proper maintenance defined by the recommended kilometers is significantly negatively correlated with the loss probability in compulsory automobile liability insurance. The average loss probability decreases by 0.23 percent when the insured vehicle is properly maintained according to the recommended number of kilometers in the previous years, whereas the average loss probability for the overall sample is 0.49 percent. We further find that proper maintenance is insignificantly correlated with loss severity.     

Perturbative Expansion Technique for Non-linear FBSDEs with Interacting Particle Method

In this paper, we propose an efficient Monte Carlo implementation of a non-linear FBSDE as a system of interacting particles inspired by the idea of the branching diffusion method of McKean. It will be particularly useful to investigate large and complex systems, and hence it is a good complement of our previous work presenting an analytical perturbation procedure for generic non-linear FBSDEs. There appear multiple species of particles, where the first one follows the diffusion of the original underlying state, and the others the Malliavin derivatives with a grading structure. The number of branching points are capped by the order of perturbation, which is expected to make the scheme less numerically intensive. The proposed method can be applied to semi-linear problems, such as American options, credit and funding value adjustments, and even fully non-linear issues, such as the optimal portfolio problems in incomplete and/or constrained markets.     

MARX AND ACCOUNTING

Does Marx's political economy provide a theoretical foundation for understanding accounting in modern capitalism? The commentators dispute my Marxism, and contest whether my accounting is more objective than the FASB's. I show they have misunderstood Marx and the purpose of my accounting. Underlying their views is a failure to take seriously Marx's social relations of production and traditional accountability. I conclude the commentators have not challenged my claim that Marx's analysis of the circuits of industrial capital could provide a general theory of accounting.     

Liquidity, analysts, and institutional ownership

In this paper, we investigate the empirical relationship between institutional ownership, number of analysts following and stock market liquidity. We find that firms with larger number of financial analysts following have wider spreads, lower market quality index, and larger price impact of trades. However, we find that firms with higher institutional ownership have narrower spreads, higher market quality index, and smaller price impact of trades. In addition, we show that changes in our liquidity measures are significantly related to changes in institutional ownership over time. These results suggest that firms may alleviate information asymmetry and improve stock market liquidity by increasing institutional ownership. Our results are remarkably robust to different measures of liquidity and measures of information asymmetry.     

Stable Shareholdings,the Decision Horizon Problem and Earnings Smoothing

Prior studies argue that stable shareholders do not encourage firm managers to manage their earnings to achieve short‐term earnings goals. They also state that firm managers with stable shareholders have an incentive to report smooth earnings to maintain long‐term relationships with such shareholders. We focus on cross‐shareholdings and stable shareholdings owned by financial institutions as stable shareholdings in Japan, and investigate the effect of these ownership structures on earnings management patterns. Specifically, we hypothesize that stable shareholdings are positively associated with the informational components of earnings smoothing. Consistent with our hypothesis, we first find that as stable shareholdings increase, managers are more likely to conduct earnings smoothing that provides useful information to stable shareholders. Further, our additional analysis shows that stable shareholdings reduce incentives for managers to cut discretionary expenditures to meet short‐term earnings benchmarks, implying that stable shareholdings could reduce the possibility of a myopic problem. These results suggest that managers with stable shareholdings tend to report smoother and less volatile earnings, and do not tend to pursue earnings management to attain short‐term earnings targets.     

Dollar Cost Averaging

Dollar Cost Averaging is a strategy for purchasing equity securities that is widely recommended by professional investment advisors and commentators, but which has been virtually ignored by academic theorists and textbook writers. In this paper we explore whether the strategy is but another instance of irrational behavior by individual investors, or whether it is an investment heuristic that has survival value in an environment in which security prices exhibit mean reversion behavior that has only belatedly been recognized by academic theorists. Our evidence supports the view that the uninformed individual investors who follow this strategy in purchasing individual stocks to add to an existing portfolio are better off than if they followed the rational strategies traditionally recommended by academics.     

Race,Ethnicity, and Credit Card Marketing

There is a vast literature on discrepancies in consumer credit related to race and ethnicity. I explore a pattern that was first identified in aggregate data by Han, Keys, and Li ( 2011 ) in their study of credit access: Blacks were approximately 27% less likely to receive offers from credit card lenders during the sample period, even after controlling for variables such as credit history, household income, and local economic conditions. Hispanics were 17% less likely to receive an offer, after including controls. The discrepancy is robust to lender‐specific regressions and the inclusion of a large number of explanatory variables. My findings imply that marketing is an important area for analysis of discrimination in consumer credit. Due to the likely need for confidential information in further analysis, investigation by an appropriate regulatory agency such as the Consumer Financial Protection Bureau would be useful.     

SME Reporting in Australia: Where to Now for Decision‐usefulness?

This paper develops recommendations for simplified decision‐useful SME financial reporting in Australia – a country that has traditionally allowed a wide range of reporting standards to be used by these entities. Drawing on interviews and comment letters from a number of stakeholders, and data from a survey of users of financial statements of non‐publicly accountable unlisted entities, we analyse stakeholder arguments for and against SMEs providing less detailed reports, and identify the line items that might be most useful to users for decision making.     

Interest parity,cointegration, and the term structure: Testing in an integrated framework

In this paper, we develop a methodology for testing jointly the validity of the expectations hypothesis of the term structure (EHTS) and the uncovered interest rate parity (UIRP) within the framework provided by cointegration theory. For this purpose, we use data on interest rates from the U.S. dollar-Libor, GBP-Libor, and Euro-Libor markets with maturities ranging from 7 days to 12 months. The main findings of our analysis are as follows: (i) we fail to find the correct rank of the cointegration space suggested by our methodology; (ii) with the application of tests for parameter stability in cointegrated models, we show that our cointegration results are sample independent and that the estimated coefficients do not suffer from instabilities in recursive estimations; (iii) from the moving average representation of the model, we estimate the common stochastic trends whose components establish, in the USD/Euro case, the interdependence of interest rates in the formation of the driving forces of the system; (iv) we manage to identify with the two theories a sub-space of the estimated cointegration space.     

Journal Rankings,Collaborative Research and Publication Strategies: Evidence from China

Abstract

The primary focus of our paper is on the potential for in-house journal ranking lists to create friction between international collaborating researchers due to differences in how particular journals are rated on different lists. Using a questionnaire distributed to Chinese accounting researchers, we identify a number of potential friction points between Chinese and UK researchers. We find that almost all of our Chinese respondents use their own school's in-house ranking list as the primary or exclusive reference point for assessing journal quality, and 73% of respondents acknowledge that this has caused problems when working with scholars from other universities because of differences in how their institutions rank journals.