Parameter estimation for the drift of a time inhomogeneous jump diffusion process

This work deals with parameter estimation for the drift of jump diffusion processes which are driven by a Lévy process and whose drift term is linear in the parameter. In contrast to the commonly used maximum likelihood estimator, our proposed estimator has the practical advantage that its calculation does not require the evaluation of the continuous part of the sample path. In the important case of an Ornstein‐Uhlenbeck‐type jump diffusion, which is a widely used model, we prove consistency and asymptotic normality.     

Private Debt and Timely Loss Recognition

Abstract

In this study, we investigate whether private debt contracting provides incentives for borrowers to recognize economic losses earlier in accounting earnings. Focusing on the window around firms' issuances of private loans, we document that timely loss recognition significantly increases following an issuance. This effect is significantly stronger for debt contracts that include performance covenants acting as trip-wires when firm performance deteriorates. We also find that timely loss recognition is particularly used when writing debt contracts is hampered by uncertainty about a firm's future development. These findings are consistent with timely loss recognition being used to increase contract efficiency by facilitating state-contingent control allocation based on a borrower's performance over the loan term.     

Finding Commercially Attractive User Innovations: A Test of Lead‐User Theory*

Firms and governments are increasingly interested in learning to exploit the value of lead‐user innovations for commercial advantage. Improvements to lead‐user theory are needed to inform and to guide these efforts. The present study empirically tests and confirms the basic tenets of lead‐user theory. It also uncovers some new refinements and related practical applications. Using a sample of users and user–innovators drawn from the extreme sport of kite surfing, an analysis was made of the relationship between the commercial attractiveness of innovations developed by users and the intensity of the lead‐user characteristics those users display. A first empirical analysis is provided of the independent effects of its two key component variables. In the empirical study of user modifications to kite‐surfing equipment, it was found that both components independently contribute to identifying commercially attractive user innovations. Component 1, the high expected‐benefits dimension, predicts innovation likelihood, and component 2, the ahead of the trend dimension, predicts both the commercial attractiveness of a given set of user‐developed innovations and innovation likelihood due to a newly proposed innovation supply side effect. It was concluded that the component variables in the lead‐user definition are indeed independent dimensions, so neither can be dropped without loss of information—an important matter for lead‐user theory. It also was found that adding measures of users' local resources can improve the ability of the lead‐user construct to identify commercially attractive innovations under some conditions. The findings reported here have practical as well as theoretical import. Product modification and development has been found to be a relatively common user behavior in many fields. Thus, from 10 to nearly 40 percent of users report having modified or developed a product for in‐house use in the case of industrial products or for personal use in the case of consumer products in fields sampled to date. As a practical matter, therefore, it is important to find ways to selectively identify the user innovations that manufacturers will find to be the basis for commercially attractive products in the collectivity of user‐developed innovations. The implications of these findings for theory as well as for practical applications of the lead‐user construct are discussed—that is, how variables used in lead‐user studies can profitably be adapted to fit specific study contexts and purposes.     

What comes next after recession? – Airline industry scenarios and potential end games

While airline managers learned lessons from the 2001/2003 “double dip” economic crisis, the post 2008 downturn has been more extreme. Airlines reacted quickly in 2008 and adjusted capacities and cost levels but recovery in profits has been slow for many airlines. The dynamics of the downturn has enlarged the gap between successful and less successful business models, and fostered shakeouts of the latter. Furthermore, the occurrence of new business models has accelerated. In 2001, it was the European continental low cost model; this time, we may see new attempts to change the rules of the game in international long-haul traffic. Long-term non-cyclical trends such as deregulation or consolidation will also shape potential end game scenarios, We briefly examine the differences between the last (2001/03) and the recent (2008/09) aviation crises, and evaluate the impact on different types of carriers.     

A note on implicit inventory behavior in cyclical macroeconomic models with excess demand

The paper is concerned with dynamic models that allow for non-zero excess demand on goods markets but abstain from considering possible feedback effects of stock-piling. That is, inventories are only implicitly determined. Consistency requires that they do not fall below zero and, relative to output, do not grow beyond all bounds. With respect to periodic motions, conditions for consistency as well as for inconsistency are derived. It is indicated that a priori, in particular in the presence of long-run growth, inconsistency may not be an exception.     

Product uniqueness as a driver of customer utility in mass customization

Mass customization (MC) constitutes a promising strategy for companies which aim to provide products which are better adapted to individual customers’ aesthetic and functional preferences. Drawing on commodity theory, we argue that the perceived uniqueness of a self-designed product is a second driver of utility in MC. We find that in addition to the significant effect of aesthetic and functional fit, the perceived uniqueness of a self-designed product (1) contributes independently to the utility a customer experiences, and (2) that this effect is moderated by the consumer’s need for uniqueness. In product categories which can serve this counterconformity motive for consumers, this suggests that MC toolkits should be constructed with the objective of facilitating the creation of unique products as well as providing affirmative feedback that this uniqueness has been achieved.     

Proportional structural effects of formative indicators

Formative constructs must influence two or more distinct outcome variables for meaningful tests of the formative conceptualization. Because the construct mediates the effects of its indicators, the indicators must have effects on the outcomes that are proportional to their effects on the formative construct itself. This constraint has important implications for developing and testing formative models. This study demonstrates the existence of the constraint, shows that researchers must consider proportionality as a criterion for evaluating the formative conceptualization, provides examples of indicators having different effects and interpretations depending on the outcome variables used, discusses the selection of outcomes to provide rigorous rather than trivial tests of the formative conceptualization, and contends that the formative nature of constructs cannot be justified in isolation from the consideration of outcome variables. In addition, the study demonstrates the importance of considering how the scaling of the formative construct influences the significance of the effects in the model.     

Information diffusion in electronic and floor trading

The attractiveness of floor trading versus anonymous electronic trading systems for traders is analysed. We hypothesize that in times of low information intensity, the insight into the order book of the electronic trading system provides more valuable information than floor trading, but in times of high information intensity, this is not true. Thus, the electronic system's market share in trading volume should decline when information intensity increases. This hypothesis is tested by DTB and LIFFE data on Bund-Future trading in the period 1991 to 1995. In the first years of trading, the DTB's market share is inversely related to price volatility and trading volume as proxies for information intensity. In recent years, this relation fades away; this can be explained by the high frequency of transactions which implies a steady flow of information on transactions.