High unemployment and tourism participation*

This paper analyses individual tourism participation decisions during a worldwide economic downturn. Given the nature of tourism services, a reduction in habitual consumption is highly probable during an economic crisis. Since the unemployment rate is strongly correlated with the economic cycle, the hypothesis that is discussed concerns whether residents’ decision to participate in tourism is affected by their region's level of unemployment. More specifically, it is suggested that unemployment not only affects the tourism participation decision of those who are out-of-work, but that aggregate unemployment (measured as the region's unemployment rate) also has a bearing on such decisions made by individuals in general. The results that were obtained for a set of EU countries show that the unemployment level has a positive effect on the probability of not going on holidays. This effect emerges when there is an unemployment rate of over 10%.     

Are the gains from international portfolio diversification exaggerated? The influence of downside risk in bear markets

The fundamental rationale for international portfolio diversification is that it expands the opportunities for gains from portfolio diversification beyond those that are available through domestic securities. However, if international stock market correlations are higher than normal in bear markets, then international diversification will fail to yield the promised gains just when they are needed most. We evaluate the extent to which observed correlations to monthly returns in bear, calm and bull markets are captured by three popular bivariate distributions: (1) the normal, (2) the restricted GARCH(1,1) of J. P. Morgan’s RiskMetrics, and (3) the Student-t with four degrees of freedom. Observed correlations during calm and bull markets are unexceptional compared to these models. In contrast, observed correlations during bear markets are significantly higher than predicted. Higher-than-normal correlations during extreme market downturns result in monthly returns to equal-weighted portfolios of domestic and international stocks that are, on average, more than two percent lower than those predicted by the normal distribution. If the extent of non-normality during bear markets persists over time, then a US investor allocating assets into foreign markets might want to allocate more assets into foreign markets with near-normal correlation profiles and avoid markets with higher-than-normal bear market co-movements.     

Measuring innovation in long product development cycle industries: an insight in biotechnology

This paper examines and measures innovation in the context of biotechnology firms by analysing the link between R&D, innovation performance and organisational growth. We conceptualise innovation performance as a latent construct with two dimensions: innovation efficacy and innovation efficiency. We use structural equations modelling to test the hypotheses on a data set from the biotechnology industry. Results support our innovation performance conceptualisation which is found to be especially useful to measure innovation in industries with long product development cycles. Findings also underline the importance of R&D knowledge creation for biotechnology firms.     

Investment in Design and Firm Performance: The Mediating Role of Design Management*

Design management is an increasingly important concept, research into which is remarkably scarce. Although the literature suggests that design management has an effect on design effectiveness, there is no empirical support for the impact of design management on firm performance. Furthermore, few studies have quantified the contribution that design makes to company performance. The aim of this paper is to analyze the effect of design investment on company performance and how this relationship is mediated by design management skills. Structural equation modeling was used to test the research hypotheses on a data set from the Italian and Spanish ceramic tile industry. Results suggest, first, that design management enhances firm performance. Second, this research also provides empirical evidence that investing in design is positively related to design management. Third, design management plays a significant role in determining the effects of design investment on firm performance. Companies that manage design effectively and efficiently attain better performance than those that do not. Therefore, good design does not emerge by chance or by simply investing in design but rather as the result of a managed process. Additionally, a methodological contribution of the present study lies in the empirical validation of a scale to assess design management skills. Finally, some suggestions are put forward for future lines of research that would complement this study and would go beyond some of its limitations.     

Value at risk: Is a theoretically consistent axiomatic formulation possible?

This note identifies three properties of a risk measure, the acceptance of all of which implies the acceptance of the VaR risk measure; and the rejection of any one of which implies the rejection of the VaR risk measure. First, a risk measure should reflect weak aversion to losses. Second, only sufficiently likely threats matter. Finally, the risk measurement should be unaffected by how promising the upside may look like. These properties, by themselves, constitute a consistent set of axioms that are necessary and sufficient for the acceptance of the VaR risk measure on a given probability space. The axiomatization highlights a peculiar characteristic of VaR: it ignores the upside, while at the same time neglecting the worse of the downside.     

Loss Modeling Using Spreadsheet-Based Simulation

With the dramatic increase in the speed of personal computers and steep decline in the cost of computing, simulation has become one of the standard tools in the risk manager's toolbox and should now become one of the standard tools in the risk management and insurance student's toolbox. This teaching note aims to facilitate this process by showing how to create and run a simulation in a spreadsheet environment, and interpret simulation results to gain insight and understanding about a real-world problem. Specifically, this teaching note provides step-by-step instruction for simulating the present value of payments for losses occurring within a 1-year policy period. Losses are covered by an aggregate excess of loss treaty. The uncertainty lies in the frequency and severity of losses as well as in claim processing time, and also in the discount rate for calculating the present value of loss payments.     

An analysis of households' appraisal of their budget constraints for potential participation in tourism

This paper examines the importance of households' budget constraints as a barrier to participation in tourism. For this purpose, a sample of Spanish households drawn from the European Community Household Panel was analysed. This survey gathers data on the economic and socio-demographic situation of all adult household members. More specifically, it includes a question on each household's capacity to afford a week's yearly holiday. The aim of this question is to assess whether households have sufficient financial resources to participate in tourism. The results of the analysis demonstrate that budget constraints on tourist travel are binding for a significant percentage of Spanish households. The results also show that this type of constraint is not only conditioned by the level of income, but by a more complex appraisal that also includes other financial variables, such as households' saving capacity or the unemployment status of its members. Furthermore, non-financial variables, such as the level of education, age, and barriers associated with poor health status, all help to determine the degree of importance with which households perceive their budget constraints.     

The Industrial Impact of Monetary Shocks During the Inflation‐Targeting Era in Australia

In this article, we analyse the industrial impacts of monetary shocks since the introduction of inflation targeting in Australia in 1990. These impacts are quantified by constructing a structural vector autoregressive model for a small open economy. Our results show that construction and manufacturing industries exhibit a significant reduction in gross value added after an unanticipated rise in the official cash rate. However, the finance and insurance industry, and the mining industry, seem to be unaffected by these shocks.     

The length of stay in the demand for tourism

One of the main characteristics of current tourism is the reduction in the length of stay at a destination. Nevertheless, this variable has received little attention in literature. This paper examines the microeconomic determinants of the length of stay at one of the Mediterranean's leading sun-and-sand destinations. The estimation of a conditional demand function model highlights the explanatory power of the tourist's sociodemographic profile and of holiday characteristics, as well as the sensitivity of the length of stay to price changes.