Price premiums for organic menus at restaurants: What is an acceptable level?

This study identifies acceptable premium price levels that customers would be willing to pay for organic menu items at restaurants in the United States. Previous literature indicates that health-related and socio-demographic characteristics significantly influence consumers’ intentions to purchase organic food. To advance our understanding of how different consumers respond to changes in organic food prices, this study examines the moderating effects of the level of health consciousness (high versus low), gender (male versus female), and age (young versus old) on the relationship between premium price levels and purchasing intentions. In addition, this study further investigates acceptable premium price levels for different consumer segments at two types of restaurants (casual dining versus fine dining). The results of this study provide guidelines for menu design and strategies for restaurateurs to devise effective price premiums for organic menu options.     

Failure to learn from failure: The 2008 mortgage crisis as a déjà vu of the mortgage meltdown of 1994

This article traces the developments in the market for residential mortgage-backed securities (MBS) during the period 1970–2008. Drawing on an analysis of trade publications, business press, and interviews with practitioners, it shows that an MBS market meltdown in 1994 provided clear signals of problems with MBS. The market participants did not re-evaluate their use of risk management tools or adjust security design in response to the 1994 crisis, suggesting a lack of understanding of the implications of the crisis. The 1994 meltdown showed that MBS were vulnerable to systematic risks and that these risks could precipitate an MBS market crash. Furthermore, the 1994 meltdown demonstrated that large-scale investment in MBS could affect the primary mortgage market, thereby rendering the MBS risks unpredictable. After 1994, MBS investment shifted to MBS backed by mortgages with default risk – a development that led to the crash of 2008. By drawing parallels between the 1994 and 2008 crises, this article shows how the MBS market failed to self-correct. The results suggest that financial market participants do not always incorporate relevant information in their decision-making and that market participants have difficulties in both foreseeing the effect of financial innovations on markets and interpreting these effects.     

Testing commodity futures market efficiency under time-varying risk premiums and heteroscedastic prices

We propose a novel test to measure market efficiency while estimating the time-varying risk premiums of commodity futures, given that the prices are heteroscedastic. The risk premium is estimated using a state-space model with a Kalman filter modified for heteroscedasticity. Using 79 commodity futures traded on 16 exchanges during the period 2000–2014 and a Monte Carlo simulation, we demonstrate that the proposal produces robust results compared with conventional approaches. The global financial crisis has improved the efficiency and affected the trading volumes of commodity futures, but it has had no effect on the average or the volatility of risk premiums.     

Regime switching rough Heston model

This model combines two important stylized features of volatility, the rough behavior consistent with a Hurst parameter less than , and the regime switching property consistent with more long-term economic considerations. It is nevertheless highly tractable in the sense of semianalytic formulae for European options, and permits a partial Monte Carlo method of similar computational speed as the semianalytic formula (at an appropriate number of Monte Carlo simulations). While option prices are relatively insensitive to the choice of Hurst parameter, introducing rough volatility allows for a better fit to the at-the-money skew.     

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

The main purpose of this article is to empirically investigate the interactions between changes in capital buffer and changes in credit risk, using panel data of Islamic and conventional banks located in the Middle East and North Africa (MENA) region over the period 1999–2016. A negative two‐way relationship between the changes in capital buffer and the changes in credit risk is found for the two types of banks, that is, banks tend to decrease their capital buffers in response to an increase in risk exposure and limit their risky activities in response to an increase in their capital buffers. Dividing our period of study into three subperiods to assess the effect of the last financial crisis 2007–08 on the adjustment process, we point out the negative bidirectional relationship between the changes in capital buffer and the changes in credit risk of the two types of banks is present for the three subperiods except the case of conventional banks during the precrisis period. Moreover, we provide evidence that Islamic banks adjust their capital buffer in response to the changes in credit risk regardless of the existence or not of a deposit insurance scheme. In contrast, the negative two‐way relationship between the changes in capital buffer and the changes in credit risk in conventional banks is found only in countries without deposit insurance schemes.     

Hedonic pricing and the role of stud fees in the market for thoroughbred yearlings in Australia

Using data from one of Australia's largest thoroughbred auction houses, we investigate the price determinants of thoroughbred yearlings sold at auction. We include novel key variables to construct hedonic pricing models and examine the relative role of stud fees compared to the wide range of attributes in the pricing of yearlings. We find that the price effect of stud fees is influenced by the value buyers place on both the characteristics of sires and the characteristics of sire side siblings. The findings imply that the quality of dams a sire has been matched within the breeding market has consequential effects on yearling prices through the sire's stud fee and progeny.     

Social aspirations in European banks: peer-influenced risk behaviour

We test a sample of 3,586 banks from 33 European countries to determine whether performances above or below a social aspiration level (median performance of peer banks) influence banks’ aggregate risk levels. Our results are consistent with the behavioural theory of the firm and prospect theory in that we find that bank performance below a bank’s social aspiration level is followed by increased aggregate risk, i.e. risk-taking behaviour in the subsequent year. Although under-performing banks tend to be risk-takers, large banks and banks with high aggregate risk levels tend to limit the increase in their aggregate risk levels.     

In the line of fire: managing expatriates in hostile environments

Abstract

This study explores best practice in the preparation and protection of strategic HRs deployed by Multinational corporations (MNCs) in hostile environments. By building on the literature from the areas of strategic and IHRM, expatriation, as well as risk and crisis management, the limitations and gaps of the extant research are highlighted. This provides a foundation for our investigation through a series of in-depth interviews with corporate executives, and insurers and relocation specialists with professional expertise in protecting and supporting HRs. This represents the first time such a detailed picture of the partnerships between MNCs and the specialists, required to deliver preparation and protection in hostile environments, has been depicted in the IHRM literature. The findings identify the challenges MNCs face when protecting their HRs and highlights the importance of specialist expertise, knowledge, and management. A framework for managing HRs within international hostile environments is subsequently developed offering an opportunity to systematically consider some of the ethical and strategic issues associated with the contemporary challenges of international mobility.     

Computing the Gerber–Shiu function by frame duality projection

Inspired by some works of Kirkby, J. L. [2015. Efficient option pricing by frame duality with the fast Fourier transform. SIAM Journal on Financial Mathematics 6(1), 713–747; 2016. An efficient transform method for Asian option pricing. SIAM Journal on Financial Mathematics 7(1), 845–892], we present a systematic study on effectively computing the Gerber–Shiu function in the Lévy risk model, where the frame duality projection is used for approximation. By introducing an auxiliary function, we provide a smooth extension of the Gerber–Shiu function, which has closed-form Fourier transform and is differentiable over the whole real line under some conditions. The objective function is approximated by its frame duality projection onto a Riesz basis, and the projection coefficients are readily computed by the fast Fourier transform algorithm. Error analysis is made and the effectiveness of our results will be further illustrated in the numerical experiments.     

Optimal granularity for portfolio choice

Many optimization-based portfolio rules fail to beat the simple 1/N rule out-of-sample because of parameter uncertainty. In this paper we suggest a grouping strategy in which we first form groups of equally weighted stocks and then optimize over the resulting groups only. This strategy aims at balancing the trade-off between the benefits from optimization and the losses from estimation risk. We rely on Monte-Carlo simulations to illustrate the performance of the strategy, and we derive the optimal group size for a simplified setup. Furthermore, we show that estimation risk also has an impact via the criterion by which the assets are sorted into groups (like the expected excess returns or betas), but does not negate the grouping approach. We relate our work to linear asset pricing models, and we conduct out of sample back-tests in order to confirm the validity of our grouping strategy empirically.