FORECASTING FDI EQUITY INCOME FOR THE DANISH BALANCE OF PAYMENTS

Late and significant revisions are often observed in FDI equity income in many countries, hampering the quality of preliminary balance of payments statistics. We test a range of models on Danish data and find that forecasts for FDI equity income based on a combination of past profitability and consensus data for changes in expected private consumption growth outperform forecasts solely based on historical profitability. When the refined models are applied to the Danish balance of payments, the largest improvements are observed for outward and inward FDI separately. Revisions of net FDI equity income only decrease marginally because the significant revisions in gross terms resulting from the historical models have a tendency to (partly) cancel out each other on a net basis.     

The Impact of Retirement on Household Leisure Expenditures

Household leisure expenditures for retired and near‐retired households were examined in order to better understand the dynamics associated with the move to retirement status. Data from the 1995 Consumer Expenditure Survey indicated that retirement, total expenditures, and education had positive impacts on leisure expenditures. For retired households, greater total expenditures and education increased expenditures, while age and the presence of earned income decreased expenditures. For near‐retired households, greater total expenditures, education, and the presence of asset income significantly increased leisure expenditures.     

When Do Analysts Adjust for Biases in Management Guidance? Effects of Guidance Track Record and Analysts’ Incentives

Prior research indicates that analysts do not fully adjust for the general downward bias in earnings guidance issued by management. We report the results of two experiments designed to investigate how guidance track record and analysts’ incentives jointly explain the extent to which analysts adjust for guidance bias. Our results suggest that analysts with accuracy incentives adjust for management’s track record of downwardly biased guidance when the bias is relatively small (one cent), but those with relationship incentives do not. Furthermore, the difference in adjustment is larger when the bias track record is inconsistent than when it is consistent. Also, when guidance bias is larger (two cents) relative to smaller (one cent), analysts with relationship incentives partially adjust, as they appear to strike a balance between accuracy and their desire to please management. These findings hold implications for investors, regulators, and the interpretation of prior research.     

Marketing Performance and Business Risk in Acutecare Health Trusts - A New Comparative Approach

The introduction of an internal market to the NHS in April 1991 has created a vastly different structure for the delivery of healthcare throughout the UK. This paper investigates the relationship between the changing income structure of acute care Trusts and their use of marketing as a tool to manage an increasingly complex operating environment. Primary data from a postal questionnaire to Trust Chief Executives (or their representatives) has been used to classify the 51 responding Trusts according to their performance within an acute care market that accounts for some £3.57 billion of the annual NHS spend.This is the first time that this type of marketing risk analysis as been attempted within the UK Health Service.

An innovativepositional matrix has been developed, categorising all the acute healthcare Trusts into four categories according to theirMarketing Index (MI) and Perceived Future Income Instability (INS) scores. The study suggests that about 24 per cent of all the Trusts are excessively exposed to future business risk as evident by their rather high income instability scores and low useof marketing tools and therefore more attention to marketing has to be given by these Trusts. Closer analysis of the results ofthe data indicates that those Trusts with a high marketing index (i.e. those more likely to be able to handle income instability),place market analysis, marketing strategy, demand forecasting and personal contact with purchasers, as top priorities. ThoseTrusts with low marketing indexes give priority to pricing analysis and personal contact with purchasers only.     

PER UNIT COST ALLOCATION OF INVESTED CAPITAL WITH ANTICIPATED NON-LEVEL PRODUCTION: THE CASE OF EXTRACTIVE INDUSTRIES

The concept of equivalent annual annuity (EAA) has long been used as a method of costing recovery of invested capital and the required return on invested capital over the productive life of a capital project. Academic texts almost universally use EAA methodology with level payment streams (annuities) to allocate capital costs. We develop a methodology for allocating capital costs evenly over each unit of production for projects with anticipated non-level production. This methodology uses a modified EAA approach that allows non-level annuity payment streams. Capital cost allocation is an important component in computing the value of extracted minerals for severance tax purposes; however, many firms and state and federal agencies use ad hocdepreciation schedules to allocate these costs. Ad hocdepreciation methods such as modified accelerated cost recovery system (MACRS) may be appropriate for income tax purposes but are inconsistent with commonly found requirements that severance taxes “shall be assessed on the wellhead or mine mouth fair market value.” The modified EAA approach provides a straightforward alternative that is based on sound financial methodology.     

Accounting for the Causes and Consequences of Industrial Employment Shift

This paper analyzes the 1981-87 employment shifts away from high-wage industries, using a shift-share framework, coupled with a two-sector general equilibrium model. I find that (1) the shift-share drag on average pay growth was unprecedented in the postwar period, on the order of 1/4-1/3 percent per year, for hourly compensation; and (2) output shifts, including the trade deficit, were a more important cause of the employment shifts than were rapid productivity growth in manufacturing and other contracting industries. As a result, the shift-share drag on average pay growth should be interpreted primarily as coming out of aggregate productivity growth, rather than as a redistributional phenomenon.     

The Effect of Bond Rating Agency Announcements on Bond and Stock Prices

This paper examines daily excess bond returns associated with announcements of additions to Standard and Poor's Credit Watch List, and to rating changes by Moody's and Standard and Poor's. Reliably nonzero average excess bond returns are observed for additions to Standard and Poor's Credit Watch List when an expectations model is used to classify additions as either expected or unexpected. Bond price effects are also observed for actual downgrade and upgrade announcements by rating agencies. Excluding announcements with concurrent disclosures weakens the results for downgrades, but not upgrades. The stock price effects of rating agency announcements are also examined and contrasted with the bond price effects.     

Limit Order Trading

We analyze the rationale for limit order trading. Use of limit orders involves two risks: 1) an adverse information event can trigger an undesirable execution, and 2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short-term price fluctuations that compensate a limit order trader. Our empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable.