Reevaluating the prudence of economic forecasts in the EU: The role of instrument persistence

Christodoulakis and Mamatzakis (2009, Journal of Applied Econometrics 24, pp. 583–606) estimate the EU Commission loss preferences for selected economic forecasts of 12 EU Member States. They employ the generalized method of moments (GMM) estimation procedure proposed by Elliott et al. (2005, Review of Economic Studies 72, pp. 1107–1125) and find the forecasts to be somewhat optimistic on average. However, this note shows the GMM estimator to possess nonstandard limiting distributions when some of the instruments are highly persistent, which is the case with one of the instruments employed by Christodoulakis and Mamatzakis. Standard distributions are recovered in some interesting particular cases which are relevant in practice. A reexamination of the EU Commission loss preferences using methods robust to persistence and a dataset extended to 2017 reveals that, while the conclusions of the original study are, by and large, still justified, the EU Commission loss preferences have become more symmetric over the whole studied period.     

A market-consistent framework for the fair evaluation of insurance contracts under Solvency II

Decisions in Economics and Finance - The entry into force of the Solvency II regulatory regime is pushing insurance companies in engaging into market consistence evaluation of their balance sheet,...     

EFFECT OF FED POLICY ACTIONS ON THE DEFAULT LIKELIHOOD OF COMMERCIAL BANKS

Using a measure of default likelihood based on an option pricing method, we provide evidence that Fed policy actions affect the financial distress of commercial banks. When the Fed increases (decreases) interest rates, the measure of default likelihood increases (decreases). We show that when the Fed uses a tight money policy, the increase in default likelihood is more pronounced for banks that have less capital, have greater financial leverage, are smaller, have fewer growth opportunities, and have lower asset quality. Additionally, the effects on bank default likelihood are more pronounced when the Fed's policy signals less concern about economic growth, as indicated by its bias toward further tightening, and when there is a market expectation of higher short‐term market rates in the future.     

Socially Responsible Investing and Climate Change: Contradictions and Challenges

This article explores the contradiction between the articulated investment policies, screening criteria or ethical charters of socially responsible investment funds and their actions demonstrated by their portfolio selection practice. The paper provides a background to socially responsible investment and Australia's contribution to greenhouse gas emissions. A discussion of renewable energy options lays the foundation for our main assertion: that this set of possible alternatives provides some new and more environmentally robust options that will better complement the underlying philosophy of funds in the socially responsible investment sector.     

Airbus versus Boeing revisited: international competition in the aircraft market

This paper examines international competition in the commercial aircraft industry. We estimate a discrete choice, differentiated products demand system for wide-body aircraft and examine the Airbus-Boeing rivalry under various assumptions on firm conduct. We then use this structure to evaluate two trade disputes between the United States and European Union. Our results suggest that aircraft prices increased by about 3.7% after the 1992 US-EU agreement on trade in civil aircraft that limits subsidies. This price hike is consistent with a 5% increase in firms' marginal costs after the subsidy cuts. We also simulate the impact of the future entry of the Airbus A-380 super-jumbo aircraft on the demand for other wide-bodied aircraft, notably the Boeing 747. We find that the A-380 could reduce the market share of the 747 by up to 14.8 percentage points in the long-range wide-body market segment (depending upon the discounts offered on the A-380), but would reduce the market for Airbus's existing wide-bodies by an even greater margin.     

Hybrid approach with an expert system and a genetic algorithm to production management in the supply net

A new approach to solving production management problems in the supply net is proposed. An expert system designed to help companies in medium-term and short-term production planning is discussed. The proposed expert system considers alternative process plans for a job and outsourcing, when a bottleneck exists in the machine. The proposed hybrid system uses the output of the expert system as the input of the genetic algorithm. The output of the genetic algorithm is a near optimal schedule. The proposed method does not require any unrealistic assumptions. It can be used to solve highly complicated and non-linear functions of a realistic problem. Copyright © 2007 John Wiley & Sons, Ltd.     

The impact of regulation on market risk

While it is crucial to understand the impact of regulatory changes on market risk, the literature does not show how risk responds to expected regulatory changes that are specifically designed to change risk. Our paper fills this gap by providing a detailed study of one such case. Using both a sample of privatized U.K. companies, and U.K. and U.S. control portfolios, between 1993 and 2000, we show (both for the single-factor market model and the three-factor Fama-French model) that the observed changes in market risk are significant and consistent with theory.