AUSTRALIA'S EQUITY HOME BIAS

This paper constructs the float adjusted measure of home bias and explores the determinants of Australia's equity home bias by employing the International Monetary Fund's high quality dataset (2001 to 2005) on cross border equity investment. On the empirical front, the paper conducts robustness tests by employing instrumental variables that are standard in the financial economics literature. The paper finds that the share of the number of firms listed in the domestic market and the share of internet users in the total population of the host country has a significant impact on equity home bias. Trade linkages are found to have a mixed impact on equity home bias. The paper also finds that the country's market share of the world market capitalisation and transaction costs do not impact Australia's equity home bias. Investors are found to exhibit low diversification motives.     

IS THE BALANCING ITEM FOR AUSTRALIA SUSTAINABLE? EVIDENCE FROM A THRESHOLD AUTOREGRESSIVE MODEL WITH AN AUTOREGRESSIVE UNIT ROOT

This article applies an unrestricted two-regime threshold autoregressive (TAR) model with an autoregressive unit root to examine the sustainability of the balancing item of the balance of payments for Australia from the first quarter 1960 to the second quarter 2006. The main finding is that the balancing item of the balance of payments in Australia is characterised by a non-linear, but stationary, series meaning that the balancing item is sustainable. This result implies that short-run volatility in the balancing item has no effect on the reliability of reporting of the balancing item in the long-run.     

ARE LABOUR FORCE PARTICIPATION RATES NON‐STATIONARY? EVIDENCE FROM 130 YEARS FOR G7 COUNTRIES*

This paper applies a unit root test with a non‐linear threshold to examine whether labour force participation rates are mean reverting for G7 countries using annual data over a 130 year period. We find some evidence of mean reversion for just over half the sample; however, this result is sensitive to regime shifts. We also examine whether the labour force participation rate is trend reverting through employing a lagrange multiplier (LM) unit root test with one and two structural breaks in the intercept and slope. The LM unit root test provides no additional evidence in support of stationarity. On the basis of the unit root tests for mean reversion we conclude that there is at best mixed evidence that long‐term changes in unemployment rates translate into long‐term changes in employment rates and that the unemployment rate is a useful indicator of joblessness.     

How Do Central Bank Governors Matter? Regulation and the Financial Sector

Do past employment characteristics of central bank governors affect financial regulation? To answer this question, we construct a new data set based on curriculum vitae of all central bank governors around the world in 1970–2011. We interpret work experiences as indicators of preferences toward deregulation. Over the average duration in office (5.6 years), a governor with financial sector experience is associated with three times more deregulation than a governor without experience in finance. Similar results hold for past experience at the IMF; in contrast, past experience at the BIS and the UN are associated with less deregulation.     

Institutional Diversity and Capitalist Transition: The Political Economy of Agrarian Change in Arunachal Pradesh, India

This paper contributes a preliminary analysis of the process of agrarian capitalist transition in Arunachal Pradesh, one of the least studied regions of India. Primarily based on information collected through a field survey in eleven villages, the paper seeks to explain the nature and implications of institutional unevenness in the development of capitalism. Institutional diversity is not simply mapped across space, it is also manifested in the simultaneous existence of market and non-market institutions across the means of production within the same village or spatial context. In addition, there is a continuous and complex interaction among these institutions which both shapes and is shaped by this capitalist transition. Primitive accumulation emerges as a continuing characteristic of the on-going agrarian and non-agrarian capitalist transition. Institutional adaptation, continuity and hybridity are as integral to the emergence of the market economy as are the processes of creation of new institutions and demise of others. There is no necessary correspondence between the emerging commercialization of the different productive dimensions of the agrarian economy. These uneven processes are deeply influenced by existing and emerging power relations and by the state. Framed by the Bernstein–Byres debate about the contemporary (ir)relevance of the agrarian question, evidence is presented to justify the conclusion that although the processes at work are far from the classical models of the transition to capitalism, all aspects of the agrarian question remain relevant.     

Does Inequality Foster Corruption?

In this paper, we investigate how inequality affects corruption in the presence of an imperfect credit market. We favor an explanation based on a multimarket framework where corruption in one market (or sector) arises because of imperfections exacerbated by inequality in related markets. We demonstrate that even when an individual's ability to pay bribes and benefit from engaging in corruption are not affected by wealth level, greater (wealth) inequality will lead to an increase in corruption.     

PRICES,INEQUALITY, AND POVERTY: METHODOLOGY AND INDIAN EVIDENCE

This paper uses a methodology for evaluating the distributional implications of price movement for inequality and poverty measurement. The methodology is based on a distinction between inequalities in nominal and real expenditure. The conversion of nominal to real expenditure takes into account the varying household preferences. The empirical application to the Indian budget datasets from NSS rounds 50, 55, and 61 shows the usefulness of the proposed procedures. The relative price changes in India have tended to be inequality and poverty reducing as confirmed by formal statistical tests. The result is robust to expenditure dependent equivalence scales. The progressivity of the relative price changes weakened in the second half of our time period as Fuel and Light overtook the composite group called “Miscellaneous” in recording the largest price increase. While the poverty rates registered a decline, which was marginal in the urban areas, there was a sharp increase in inequality.     

Information Content of Insider Trading Around Corporate Announcements: The Case of Capital Expenditures

There is gathering evidence of insider trading around corporate announcements of dividends, capital expenditures, equity issues and repurchases, and other capital structure changes. Although signaling models have been used to explain the price reaction of these announcements, a usual assumption made in these models is that insiders cannot trade to gain from such announcements. An innovative feature of this paper is to model trading by corporate insiders (subject to disclosure regulation) as one of the signals. Detailed testable predictions are described for the interaction of corporate announcements and concurrent insider trading. In particular, such interaction is shown to depend crucially on whether the firm is a growth firm, a mature firm, or a declining firm. Empirical proxies for firm technology are developed based on measures of growth and Tobin's q ratio. In the underlying “efficient” signaling equilibrium, investment announcements and net insider trading convey private information of insiders to the market at least cost. The paper also addresses issues of deriving intertemporal announcement effects from the equilibrium (cross-sectional) pricing functional. Other announcement effects relate the intensity of the market response to insider trading, variance of firm cash flows, risk aversion of the insiders, and characteristics of firm technology (growth, mature, or declining).