Basel II: Correlation Related Issues

Basel II aims to aggressively improve on Basel I, and is projected to capitalize on the technological advancements that have permeated the financial industry since Basel I. This paper examines the correlation issues that arise, and provides recommendations on implementation as we move forward. We provide the following results: (1) We demonstrate that fixing asset value correlations by regulators without a specification of business unit granularity and aggregation impacts franchise risk. (2) Loss distributions for credit risk are more sensitive to correlation assumptions that those for market risk; arbitrary, inaccurate correlation specifications can cause large errors in capital requirements. (3) Current regulations do not recognize that credit losses depend on four distinct correlations, not just one. (4) Recovery rates may be determined uniformly across banks. (5) Tail risk comes from LGD correlations and non-Gaussian risks. (6) The 1-year VaR horizon causes distortions especially when regimes and pro-cyclicality are involved. (7) We recommend a quantitative measure for implementing market discipline, the third pillar of the Basel II accord. Therefore, this paper highlights many issues that may be addressed using the tools banks already employ for internal risk management.     

eInformation: A Clinical Study of Investor Discussion and Sentiment

We examine the information flow for four stocks over seven months to trace the relationship between on-line discussion, news activity, and stock price movements. On-line discussions support numerous unsubstantiated rumors, substantial on-point exchanges, and quick dissemination of imminent and recently released information. Applying language-processing routines to message board postings and news, we create sentiment and disagreement measures or "eInformation." We analyze the determinants of sentiment and disagreement, and trace links between news, eInformation, and stock returns. This intensive clinical study of on-line discussions suggests mechanisms individual investors and groups can use to analyze and digest company information.     

China and India： An Era of Escalating Economic Interaction

I. Historic Cultural and Economic Relations China and India are both ancient civilizations, with histories stretching over 5000 years. Their mutual relations are also ancient. China and India have long-term intellectual and cultural ties, which historically fell in the domain of religious scholars. These strong ties date back to the first century AD when Buddhism spread from India to China. The history of Buddhism chronicles detailed accounts of religious and cultural bonds between the t…     

Testing a Hazard Model for the Housing Market in New Orleans

A bstract .   The article presents a search-theoretic approach to investigate the relationship between probability of a sale and market duration in the housing market. Using a hazard model to study duration dependence, the article, on the basis of data from New Orleans, provides empirical evidence that houses do exhibit duration dependence.     

Endogenous trading bloc formation in a North-South global economy

Abstract .  The majority of the trading blocs to date are between similar countries, rather than between developed and developing countries. This paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon. It develops a model of an asymmetric world economy in which there are at least four countries. The countries are differentiated with respect to their market size and they choose their trading partners. In the coalition-proof Nash equilibrium, either there is global free trade or free trade areas are formed among similar countries.     

The impact of internet exchanges on business-to-business distribution

The authors review an incumbent business-to-business distributor of electronic components faced with the entry of more than 50 Internet-based competitors and offer an explanation for why the distributor prevailed. Underlying the explanation is an assertion that the appropriate unit of analysis is the buyer-distributor-seller triad, not the buyer-seller dyad. In the case examined, the channel activities were interrelated such that when each party calculated the costs and benefits of the activities that occurred within this three-way relationship, they outweighed the net gains from disintermediation or Internet intermediation. Particular conditions favoring the status quo included existing activities for sharing customer identification information between the distributor and the seller, a high proportion of negotiated distributor-customer contracts, and new entrants’ reliance on open technologies. While no claims are made about the generalizability of this explanation beyond the case studied, the authors believe their assertion and hypotheses may have broader applicability. Das Narayandas is associate professor of business administration at the Harvard Business School. Mary Caravella is a doctoral student in marketing at the Harvard Business School. John Deighton is the Harold M. Brierley Professor of Business Administration at the Harvard Business School.     

Projection pursuit regression and disaggregate productivity effects: the case of the Indian blast furnaces

Productivity of blast furnaces in India is studied by disaggregating the production process and the utilization process. A dimension‐reducing nonparametric approach—projection pursuit regression—is used. We find that productivity can be increased significantly by improving the quality of coal. There is no evidence that executives have a positive marginal product. The production workers have a negative marginal product for the production process and a positive one for the utilization process. But the training of executives has a positive effect whereas that of the production workers has a negative effect on productivity. Copyright © 2004 John Wiley & Sons, Ltd.     

American and Canadian perspectives on the First World War: similarities and differences between neighbours

This paper focuses on how the First World War (WWI) is seen by Canadians (n?=?194) and Americans (n?=?257) today. The primary focus of this paper is on the factors that shape Canadians’ and Americans’ memories of WWI and the influence of these factors on their intentions to visit WWI sites in the future. In addition, it also examines their first thoughts on WWI, how they describe WWI sites and why they think memories of WWI should be kept alive. Results indicate that while there are strong similarities in the way the two neighbouring countries describe WWI sites and why they want to keep the memories of this event alive, the two groups differ in how their memories of WWI are shaped on other variables. Practical implications for organizations involved in promoting tourism to these sites are also discussed.