Cash-Flow Valuation and Value at Risk

The cash-flow valuation method (CFVM) has been developed in Canada for the valuation of insurance company annuity products. Its range of application is expected to be extended shortly to the valuation of most other life insurance company products. The CFVM is based on the use of “best-guess” assumptions, supplemented by specific provisions for adverse deviations. In this paper, special attention is paid to the calculation of the provision for adverse deviations with respect to the interest rate risk. We show that the determination of this provision is the analog for life insurance and annuity policy liabilities of the calculation by banks of Value at Risk (VaR) with respect to portfolios of securities held for trading.     

An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns

This paper considers a variety of econometric models for the joint distribution of US stock and bond returns in the presence of regime switching dynamics. While simple two‐ or three‐state models capture the univariate dynamics in bond and stock returns, a more complicated four‐state model with regimes characterized as crash, slow growth, bull and recovery states is required to capture their joint distribution. The transition probability matrix of this model has a very particular form. Exits from the crash state are almost always to the recovery state and occur with close to 50% chance, suggesting a bounce‐back effect from the crash to the recovery state. Copyright © 2006 John Wiley & Sons, Ltd.     

How U.S. Farm Programs and Crop Revenue Insurance Affect Returns to Farm Land

A simulation model incorporating price and yield variability is used to examine the impact of government farm program and crop revenue coverage (CRC) insurance payments on the probability distribution of returns to land. Results indicate that Marketing Loan Program payments have the greatest impact on both the mean and standard deviation of returns. Agricultural Market Transition Act payments shift the distribution of returns without changing the variability, creating a reduction in relative risk. Market loss assistance payments increase the mean, reduce variability, and increase skewness. When combined, farm programs substantially increase the value that risk-averse producers place on the residual returns to land and substantially reduce the certainty equivalent value of CRC.     

China's agriculture,smallholders and trade: driven by the livestock revolution?*

China's sustained rapid economic growth and development has contributed to the surge in consumption and production of livestock in that country  termed the livestock revolution. Consumption trends are first reviewed, and changes in food consumption patterns include a marked shift away from grains and towards meats and dairy products. A question is to what extent this rapid increase in demand for livestock products is reflected in China's agri‐food trade statistics? While her agri‐food imports have dramatically increased since China's accession to the WTO, livestock products have not made a noticeable contribution, although the import of certain animal feedstuffs has. This implies China's continuing self‐sufficiency in most livestock products. The paper next considers developments in China's livestock farming sector and policies that have been contributing to these supply‐side developments. The paper concludes with an examination of issues that may be important to the future development of China's, and the world's, livestock situation;  this includes future demand developments, and the question of whether future demand growth in China might be met with local production, imports of final product, and/or imports of feedstuffs.     

Information trading by corporate insiders based on accounting accruals: forecasting economic performance

In this paper, we test whether directors’ (corporate insiders) trading in Australia, based on accounting accruals, provides incremental information in forecasting a firm's economic performance. We determine that directors’ trading on negative accruals in larger firms has greater forecasting content and is associated with 1‐year‐ahead bull market phases. Moreover, arbitrage portfolios set up to mimic insider trading can earn 1‐year‐ahead excess size‐adjusted arbitrage returns of up to 12.2 per cent. Results are consistent with directors hiding their trades in liquid well‐traded firms and in providing incremental information above that supplied by a continuous information regime.     

Determinants of Co-operative Patronage in Alberta

Co-operative managers face an increasingly heterogeneous pool of potential members. Because these members bring a variety of economic and noneconomic demands to their co-operative, managers must know how different member characteristics and performance perceptions influence their decision to patronize a co-operative. This study applies three models of co-operative patronage to survey data from rural Alberta. A Poisson regression is used to determine the factors that explain the number of co-operatives used, while an index of co-operative patronage measures the relative intensity of co-operative versus proprietary firm usage. A third model contucts a Tobit analysis of the amount of business conducted with each of several different types of co-operatives. The results show that older farmers tend to partonize more co-operatives, and larger farms do a greater share of their business with co-operatives than do smaller fiarms. Farmers who believe co-operatives offer innovative products and services are more likely to patronize them, while a belief that co-operatives should play an active role in noneconomic matters is not important.     

An Investigation of the Impact of Interest Rates and Interest Rate Volatility on Australian Financial Sector Stock Return Distributions

Abstract:   This paper extends the existing literature by analysing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multivariate GARCH‐M model is used to analyse the impact of deregulation on the financial institutions sector. It was found that there is a consistent inter‐temporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks – effectively increasing the required rate of return and explaining the continued rationalisation of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre‐deregulation period to negative in the post‐deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.     

Nostalgia versus Pragmatism? How attitudes and interests shape the term sustainable agriculture in Switzerland and New Zealand

National public debates on sustainable agriculture are often framed by the respective attitudes and interests of the dominant stakeholders involved.