Rational speculative bubbles in the gold futures market: An application of dynamic factor analysis

The existence of speculative bubbles in financial markets has been a longstanding issue under debate. Many financial economists believe that, given the assumption of rational expectations and rational behavior of economic agents, an asset should be priced according to its “market fundamentals.” Others argue that self‐fulfilling rumors of market participants can influence asset prices as well. These self‐fulfilling rumors are initiated by events extraneous to markets and are often called bubbles. The rationality of both expectations and behavior often does not imply that the price of an asset be equal to its fundamental value. In other words, there can be rational deviations of the price from this value—rational bubbles. A rational bubble can arise when the actual market price depends positively on its own expected rate of change, as normally occurs in asset markets. Since agents forming rational expectations do not make systematic prediction errors, the positive relationship between price and its expected rate of change implies a similar relationship between price and its actual rate of change. Under such conditions, the arbitrary, self‐fulfilling expectation of price changes may drive actual price changes independently of market fundamentals; we refer to such a situation as a rational price bubble.¹ © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:79–108, 2001     

Potential of woody biomass production for motivating widespread natural resource management under climate change

In this study we assessed the potential of woody biomass (short-rotation Mallee Eucalypts) for renewable energy generation as an economically viable way of motivating widespread natural resource management under climate change in the 11.9 million ha Lower Murray agricultural region in southern Australia. The spatial distribution of productivity of agricultural crops and pasture, and biomass was modelled. Average annual economic returns were calculated under historical mean (baseline) climate and three climate change scenarios. Economically viable areas of biomass production were identified where the profitability of biomass is greater than the profitability of agriculture under each scenario for three factory gate biomass prices. The benefits of biomass production for dryland salinisation, wind erosion, and carbon emissions reduction through biomass-based renewable energy production were also modelled. Depending on climate scenario, at the median price assessed ($40/tonne) biomass production can generate $51.4–$88 M in annual net economic returns, address 41,226–165,577 ha at high risk of dryland salinisation and 228,000–1.4 million ha at high risk of wind erosion, and mitigate 10.4–12 million tonnes of carbon (CO₂^−e) emissions annually. Economically viable areas for biomass production expanded under climatic warming and drying especially in more marginal agricultural land. Under the baseline, the area at high risk of dryland salinisation was more than double that at high risk of wind erosion. However, under climatic warming and drying the relative importance of these two natural resource management objectives switched with the area at high risk of wind erosion becoming much larger. As biomass production can achieve multiple natural resource management objectives, it may provide a land use policy option that is adaptable to changing priorities and economically resilient given climatic uncertainties. For such a significant and enduring land use change policy it is prudent to assess both the economic and environmental potential under climate change.     

SAC 4: A Source Of Accounting Change

Despite its long gestation, the latest release in the Australian Accounting Research Foundation's conceptual framework, Statement of Accounting Concepts 4 Definition and Recognition of the Elements of Financial Statements (SAC 4), is poorly understood by many accountants. The statement specifies definitions for the elements which form the basis of the information in financial reports and sets out the criteria to be used in deciding when these elements should be recognised (reported) in the reports. Statements of accounting concepts do not attract the same direct legal force as AASB accounting standards. Nevertheless, this statement promises significant reforms to financial reporting. Because of its potential to create far-reaching changes, it is essential that accounting professionals are familiar with its contents and application. This paper describes the structure of SAC 4, comments upon some of its important components and illustrates its operation and key features in the context of one element, “assets”.     

The Short-Term Inflation-Hedging Characteristics of U.K. Real Estate

This study investigates the short-term inflation-hedging characteristics of U.K. real estate compared to other U.K. investments. It considers not only total returns but also changes in income and changes in capital values. The analyses are undertaken using annual and quarterly data. Stocks, bonds, appraisal-based real estate (including the three property types, separately), and real estate stocks are considered. Real estate series, constructed from the original appraisal series to take account of autocorrelation, also are used. The methodology is based on that devised by Fama and Schwert (1977) and tests are undertaken for stationarity and structural breaks. Hypotheses are established about the coefficients on expected and unexpected inflation in the model, and these are tested. It is concluded that real estate has poorer short-term hedging characteristics for total return, change in capital value, and change in income than stocks but better characteristics than bonds. However, there is evidence to suggest that the relationships change under different economic environments.     

INTERNATIONAL COMPARISONS OF AUSTRALIAN GDP IN THE 19TH CENTURY

This paper summarises the results of a new comparison of the level of Australian and U.K. real product in the 1890s, obtained by the direct deflation of money values of GDP by relative prices. The object of the study was to provide a check on the existing comparisons, obtained by extrapolation of time series of real GDP, as shown, for example, in Maddison (1982). Existing estimates imply that in the 1890s Australian GDP per capita was about 50 percent higher in the U.K. and U.S.A. and more than twice that for the average of 12 other western countries. The present study suggests these results probably overstate Australia's real GDP, and that Australian real GDP per capita was 36 percent higher than the U.K. in 1891 and 3 percent higher in 1900. Personal consumption per capita was 15 percent higher in Australia than in the U.K. in 1891, but about the same level in 1900.
Although this study compares prices and GDP in the colony of New South Wales with those in the U.K., the colony may be taken as representative of Australia as a whole.¹     

Reliability and the design of ethical organizations: A rational systems approach

This paper argues that the concept of reliability provides a useful framework for analyzing defects in organizational design and for prescribing changes that will facilitate ethical decision making. Reliability becomes an ethical concern when the individual or organizational interest diverges from the collective interest. Redundancy and requisite variety provide two design tools which can enable organizations to act reliably in the collective interest. The paper then discusses potential disadvantages to the use of a reliability framework as well as possible problems of implementation. It concludes by examining avenues for future research.Bryan W. Husted is an assistant professor in the Management Department of the Instituto Tecnologico y de Estudios Superiores de Monterrey in Mexico.     

INFORMATION AND THE FARMER IN SOUTHERN SASKATCHEWAN1

Today's successful farmer needs up-to-date, accurate information on countless subjects. Finding more effective ways to get information from agricultural researchers to farmers is more important now than it ever has been. This study determined where farmers in two southern Saskatchewan municipalities got information about new grain varieties, new chemicals and other innovations. Because the study is based on a sample area typical of farm communities across southern Saskatchewan, the findings are relevant to this entire grain growing region. Results are that while information sources such as the Agricultural Representative and extension services were useful, they did not have nearly enough contact with farmers. On the other hand, information sources such as the elevator agent, registered seed grower, farm press and radio had a great deal of contact with farmers, but did not distribute nearly as much information as they could. These findings indicate an immediate need for a more cooperative farm information program in Western Canada. L'INFORMATION ET LES FERMIERS DU SUD DE LA SASKATCHEWAN– Aujourd'hui le fermier progressif a besoin d'une information a la page et objective sur nombreux sujets. Chercher des moyens plus efficaces de faire parvenir ['information des chercheurs aux fermicrs est plus important que jamais. Cette étude indique I'endroit où les fermiers de deux municipalités du Sud de la Saskatchewan ont obtenu I'information concernant de nouvelles variétés de grain, de nouveaux produits chimiques et d'autres innovations. Du fail que l'étude est basée sur un endroit représentatif de communautés rurales du Sud de la Saskatchewan, les résultats sont valables pour toute cette région de production de grain. Les conclusions indiquent que, en dépit du fait que les sources d'information comme I'agronome de comté et le service de vulgarisation sont utiles, ces dernières ne retiennent cependant pas beaucoup I'attention des fermiers. Elks soulignent également le fait que les sources d'information telles que I'agent de compagnie de grain, le producteur de semence, la presse et la radio agricole tout en maintenant un lien etroit avec les fermiers ne distribuent pas toute I'information qu'ils pourraient fournir. Ces résultats soulignent le besoin immediat d'un plan d'information mieux coordonné pour les fermiers de I'Ouest du Canada.     

Mises’ democracy–dictatorship equivalence theorem: A critique

Ludwig von Mises argues that public opinion, not the form of government, is the ultimate determinant of policy. The implication is that, holding public opinion constant, democracies and dictatorships will have the same policies—a result I call Mises’ Democracy–Dictatorship Equivalence Theorem. According to Mises, dictators have to comply with public opinion or else they will be overthrown. I argue that he seriously overestimates the power of revolution to discipline dictators. Mises was perceptive to note that, in practice, “dictatorially imposed” policies are often democratically sustainable, but he neglected several mechanisms—all more plausible than the threat of revolution—capable of explaining this fact.