Pareto optimality and competitive equilibrium in infinite horizon economies

The paper presents a general model of a decentralized economy evolving over an infinite time horizon. Alternative notions of price systems, competitive equilibria, efficiency and optimality are introduced. The main results characterize conditions under which the two fundamental theorems of welfare economics are valid in such a general framework.     

Random dynamical systems: a review

Summary. This paper provides a review of some results on the stability of random dynamical systems and indicates a number of applications to stochastic growth models, linear and non-linear time series models, statistical estimation of invariant distributions, and random iterations of quadratic maps.Received: 16 August 2002, Revised: 9 January, 2003, JEL Classification Numbers: C1, C6, D8, D9. Correspondence to: Mukul MajumdarThanks are due to A. Goswami and B.V. Rao for their detailed comments on an earlier version.     

Public Pension Programs in Southeast Asia: An Assessment

This paper assesses public pension programs in select Southeast Asian economies (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – henceforth referred to as the SEA6) and the key issues facing them. The criteria used in assessing pension systems are the philosophy of pension design, the extent of coverage, investment policies and performance, and administrative and compliance costs. The paper argues that three broad reform directions to strengthen public pensions merit consideration. The first direction is to enhance the professionalism of the existing provident and pension fund organizations, including their governance practices. The second direction is to strengthen the role of noncontributory budget‐financed pensions (e.g. social pensions). The third is to adopt a systemic perspective to pension reform that includes reforms in complementary areas (labor markets, public financial management practices, and the civil service); developing a financing‐mix of pensions; and lastly, improving effective coverage by exploring complementarities between health care and pension programs.     

Network formation and social coordination

This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by unilaterally investing in costly pairwise links. In this context, individual efforts to balance the costs and benefits of links are shown to lead to a unique equilibrium interaction architecture. The dynamics of network formation, however, has powerful effects on individual behavior: if costs of forming links are below a certain threshold then players coordinate on the risk-dominant action, while if costs are above this threshold then they coordinate on the efficient action. These findings are robust to modifications in the link formation process, different specifications of link formation costs, alternative models of mutations as well as the possibility of interaction among indirectly connected players.     

Cross-section of option returns and volatility

We study the cross-section of stock option returns by sorting stocks on the difference between historical realized volatility and at-the-money implied volatility. We find that a zero-cost trading strategy that is long (short) in the portfolio with a large positive (negative) difference between these two volatility measures produces an economically and statistically significant average monthly return. The results are robust to different market conditions, to stock risks-characteristics, to various industry groupings, to option liquidity characteristics, and are not explained by usual risk factor models.     

Integration and diversity

Experimental Economics - We study a setting where individuals prefer to coordinate with others but they differ on their preferred action. Our interest is in understanding the role of link formation...     

Investor Myopia and CEO Turnover

We find that Chief Executive Officer (CEO) turnover is significantly higher and considerably less sensitive to performance in firms with short investor horizons. Decisions to dismiss a CEO lead to worse operating performance, which is even poorer when investors have short horizons. Furthermore, new managers respond to investor short‐termism by increasing industry‐adjusted capital expenditures while maintaining R&D and patenting activity. In addition, in firms with short‐horizon investors, total risk increases around forced CEO turnovers, largely because of an increase in idiosyncratic risk. The evidence is consistent with short‐term investors distorting corporate policies of firms through their influence on top management turnover.     

Financial literacy: A systematic review and bibliometric analysis

Given the paucity of comprehensive summaries in the extant literature, this systematic review, coupled with bibliometric analysis, endeavours to take a meticulous approach intended at presenting quantitative and qualitative knowledge on the ever‐emerging subject of financial literacy. The study comprises a review of 502 articles ‐ published in peer‐reviewed journals from 2000 to 2019. Citation network, page‐rank analysis, co‐citation analysis, content analysis and publication trends have been employed to identify influential work, delineate the intellectual structure of the field and identify gaps. The most prominent journals, authors, countries, articles and themes have been identified using bibliometric analysis, followed by a comprehensive analysis of the content of 107 papers in the identified clusters. The three major themes enumerated are—levels of financial literacy amongst distinct cohorts, the influence that financial literacy exerts on financial planning and behaviour, and the impact of financial education. Additionally, content analysis of 175 papers has been conducted for the last four years’ articles that were not covered in the co‐citation analysis. Emerging themes identified include financial capability, financial inclusion, gender gap, tax & insurance literacy, and digital financial education. A conceptual framework has been modelled portraying the complete picture, following which potential areas of research have been suggested. This study will help policy‐makers, regulators and academic researchers know the nuts and bolts of financial literacy, and identify the relevant areas that need investigation.