Stability of Risk Premia in the Italian Stock Market

In this work, we estimate the arbitrage pricing theory (APT) on the Italian Stock Market using the reduced-rank regression technique recently propossed by Bekker et al. (1996). Due to its computational simplicity, this technique allows extensive empirical analysis of the properties of the estimator employed. In this work, we carry out an initial exploration of the cross-sectional stability of the risk premia estimates in relation to the stocks' sample composition. We show that, by choosing an appropriately diversified sample, some acceptable degree of stability may be obtained. We also investigate, using the bootstrap method, the small sample properties of the estimator. (J.E.L.: G11, G12).     

The International Financial Crisis Viewed by Experts

The occurrence of the international financial crisis and the spread out of its effects on the global economy prompted experts around the world to think about how to manage the crisis and which measures to implement in order to restore normal economic and financial conditions. In this paper, we present and discuss the results of an international expert survey. We use these experts' perceptions to pursue a twofold target to understand their perceptions about the causes of the crisis, and of the policies to solve it. Interestingly, experts seem to broadly concur on what caused the crisis but their perceptions diverge regarding the policies. Furthermore, substantial differences in perceptions emerge between the Euro Area and the United States. We also find that the Federal Reserve and the European Central Bank monetary policies during the crisis are judged barely adequate. Finally, different views distinguish academicians from other experts .     

The Impact of Liberalisation and Globalisation on Within-country Income Inequality

The paper reviews changes in within-country income inequalityover the last forty years, with particular attention to theyears of 1980–2000, against the background of the inequalityshifts intervened during the globalisation of 1870–1914.Withincountry inequality appears to have risen to differentextents in two thirds of the 73 countries analysed, overturningin several cases prior trends towards lower inequality. Forthe majority of the countries analysed, the paper rejects thehypotheses that such rise is due to a worsening of the traditionalcauses of inequality, such as high land concentration and inequalityin education, or to technological changes. Most of the recentsurge in income polarisation would appear to be related to thepolicy drive towards domestic deregulation and external liberalisation,though the specific impact of each policy instrument appearto vary considerably. (JEL D31, F02)     

The strategic role of quality in small size firms

It is often claimed that, especially in mature industries, European firms can compete against low-cost NICs firms only if they are able to implement quality based strategies. The emphasis on the strategic role of quality, however, often leads to underestimate the extent of organizational and economic efforts, needed to turn quality from a potential opportunity into a real advantage. The lack of a thorough comprehension of the requirements of a quality based strategy can question the effectiveness of the investments some firms plan to improve their quality level. These firms can in fact remain stuck in the middle, if they do not have enough resources to turn quality into a source of sustainable competitive advantage.This paper is aimed at a better comprehension of both benefits and costs of a quality based strategy, with regard to a specific class of firms, Small Size Firms (SSFs), where a strategic use of quality is more difficult. The paper is articulated into two parts. Part one discusses the main obstacles facing the adoption of a quality based strategy by SSFs. A dynamic model for the adoption of this strategy over time, aimed at minimizing the risks for SSFs, is also presented.Part two describes the results of an empirical research, aimed at verifying the viability of quality based strategies in an industry composed only by SSFs, the shoe-machinery industry. The empirical research supports the viability of the model presented in the first part of the paper.     

Is a Conservative Central Banker a (Perfect) Substitute for Wage Coordination?

In a monetary union, macroeconomic policies are strongly associated with externalities that imply the need for coordination. However, if coordination is not complete, it might be unable to cope with the externalities. This paper investigates different solutions for internalizing policy externalities. In particular, we compare wage coordination to the conservative central banker solution, which the recent literature has found able to impose wage moderation on labor unions. We also discuss some issues related to labor flexibility reforms as a solution for the unemployment problem.     

Regulating Public Transit Networks: How do Urban‐Intercity Diversification and Speed‐up Measures Affect Firms’ Cost Performance?

Abstract Empirical studies on the cost structure of Public Transit Networks are mainly based on specialized firms providing urban or intercity services. In this study we estimate a translogarithmic variable cost function to assess the behaviour of returns to scale and the impact of network characteristics. The analysis is based on a sample of 45 Italian municipal companies observed from 1996 to 1998 and including both specialized and mixed transit operators. Results confirm previous evidence on the existence of natural monopoly in the industry and support a regulation introducing competitive tenders to access to the market. In addition, we provide insights about the advantages associated with urban‐intercity diversification and with the improvement of network commercial speed. Cost benefits can then be achieved by promoting mergers between neighbouring firms, so as to create new companies operating on integrated local networks and supplying in combination urban and intercity public transport. Implications of such a strategy for the design of tender mechanisms are also underlined, together with the need for a regulatory policy which takes more care of speed‐up measures.     

Expected Future Budget Deficits,the Real Exchange Rate and Current Account Dynamics in a Finite Horizon Model

This paper uses an optimizing open economy general-equilibrium model to investigate the macroeconomic effects of current and expected future budget deficits. It is shown that current and expected future budget deficits are positively correlated with the current account deficit, the capital stock and the real exchange rate, but negatively correlated with the domestic real interest rate and consumption, along the stable path approaching the steady state. The paper also demonstrates that the world real interest rate is positively correlated with consumption, foreign assets and the domestic real interest rate, but negatively correlated with the capital stock and the real exchange rate. Received April 11, 2001; revised version received October 25, 2001     

Author Index Volume 38 (2004)

Author Index

Author Index Volume 38 (2004)     

Are Euro Area Small Cap Stocks an Asset Class? Evidence from Mean‐Variance Spanning Tests

In this paper we perform regression‐based tests for mean‐variance spanning in order to detect the effect of investing in euro area small capitalisation stocks on the minimum variance frontier, and apply different measures to assess the extent of diversification gains. Empirical analysis shows that euro area small and mid cap stocks, as classified by size quartile and quintile rankings, arise as truly autonomous asset classes. This result is robust to different methodologies used to form size‐based portfolios, and holds relative to both euro area large cap stocks and other international asset classes, US small capitalisation stocks included.