Gains in efficiency from joint estimation of systems of autoregressive-moving average processes

The paper examines gains in efficiency from joint estimation of systems of ARMA processes where cross-correlation is due to contemporaneous correlation among disturbances. The asymptotic variance of joint estimates is derived and it involves only variances and covariances among purely AR processes corresponding to the AR and MA parts of the constituent processes. Small sample gains are evaluated by Monte Carlo methods. Application of joint estimation to two short-term interest rates is shown to result in more accurate post-sample predictions relative to both univariate models and the FMP econometric model.     

The effect of the Senior Citizens' Freedom to Work Act of 2000 on employer-provided pension and medical plans

On April 7, 2000 President Clinton signed the Senior Citizens' Freedom to Work Act. The act reduces the Social Security retirement benefit penalties previously imposed on 65- through 69-year-old workers who earned more than nominal incomes after enrolling in the program. This article analyzes the impact that the act will have on retirement decisions of the affected cohorts of older workers and closes with an analysis of how the act may affect employer-provided pension, medical and paid leave plans.     

Devaluation with contract redenomination in Argentina

This study offers the first empirical microeconomic analysis of the effectiveness of dollar debt and contract redenomination policies to mitigate adverse financial and relative price consequences from a large devaluation. An analysis of Argentina’s policy of devaluation with redenomination in 2002, in contrast to Mexico’s policy of devaluation without debt redenomination in 1994–1995, shows that devaluation benefited tradables firms, and that dollar debt redenomination in Argentina benefited high-dollar debtors, as shown in these firms’ investment behavior, especially non-tradables firms whose revenues in dollar terms were adversely affected by devaluation. That investment behavior contrasts with the experience of Mexican firms in the aftermath of Mexico’s large devaluation, in which non-tradables producers with high dollar debt displayed significant relative reductions in investment. Stock return reactions to Argentine debt redenomination indicate large, positive, unanticipated effects on high-dollar debtors from debt redenomination. Energy concession contract redenomination likewise increased investment by high energy users in Argentina, and that benefit was apparent also in positive stock returns of those firms.      

Towards a measure of financial fragility

The paper proposes a measure of financial fragility that is based on economic welfare in a general equilibrium model calibrated against UK data. The model comprises a household sector, three active heterogeneous banks, a central bank/regulator, incomplete markets, and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model, i.e. banks’ probabilities of default and banks’ profits – to a proxy of welfare.      

Daily mutual fund flows and redemption policies

We examine how redemption policies affect daily fund flows in open-end mutual funds. Since short-term trading of fund shares, as manifested in daily fund flows, can have an adverse impact on returns to the fund’s shareholders, mutual funds might find it desirable to discourage short-term trading through the use of redemption fees. However, if daily fund flows are due to fund shareholders’ legitimate liquidity demands, the redemption fee would have little effect on daily fund flows and possibly adversely affect fund shareholders by imposing a liquidity cost on them. We find that the likelihood of a fund charging a redemption fee is largely a function of its overall fee structure. We also use a sample of funds that imposed redemption fees to examine whether the distribution of daily fund flows changes after the initiation of the redemption fee. We find that the redemption fee is an effective tool in controlling the volatility of fund flows.     

An empirical comparison of bankruptcy models

Four types of bankruptcy prediction models based on financial statement ratios, cash flows, stock returns, and return standard deviations are compared. Based on a sample of bankruptcies from 1980 to 1991, results indicate that no existing model of bankruptcy adequately captures the data. During the last fiscal year preceding bankruptcy, none of the individual models may be excluded without a loss in explanatory power. If considered in isolation, the cash flow model discriminates most consistently two to three years before bankruptcy. By comparison, the ratio model is the best single model during the year immediately preceding bankruptcy. Quasi-jack-knifing procedures suggest that none of the models can reliably predict bankruptcy more than two years in advance.     

International Trade and Accounting Policy Choice: Theory and Canadian Evidence

The accounting policy choice literature has identified many factors which have been shown to be useful in explaining cross-sectional variation in the accounting methods used by public companies. One relationship which has been relatively unexplored in this literature is the potential effect of international trade on accounting choice. This study proposes that international trading activities may create incentives for firms to choose income increasing accounting policies. This proposition was tested by examining the depreciation choices of a sample of Canadian firms. Results suggest that importers were more likely to choose income increasing accounting methods than non-importers, while exporting was not found to be related to this accounting choice. These diverging results may be caused by the declining value of the Canadian dollar (relative to the US dollar), which tends to benefit exporters, but is of detriment to importers.     

Legacy and credit scores in South Africa

This paper assesses the impact of legacy and credit scores on access to bank credit in South Africa. Typically, credit data focuses on socio-economic information. However legacy variables, factors beyond the control of individuals, have not been well considered. We find that although credit scores clearly influence access to credit, legacy has a statistically significant impact on credit scores and on the amount of credit granted. While these results can be interpreted as bias against those with negative legacy, they can also be explained in terms of information asymmetry and the relative ability to enforce contracts with clients who have positive legacy.