Portfolio Optimization under Lower Partial Risk Measures

Portfolio management using lower partial risk (downside risk) measures is attracting more attention of practitioners in recent years. The purpose of this paper is to review important characteristics of these riskmeasures and conduct simulation using four alternative measures, lower semi-variance, lower semi-absolute deviation, first order below targetrisk and conditional value-at-risk.We will show that these risk measures are useful to control downside risk whenthe distribution of assets is non-symmetric. Further, we will propose a computational scheme to resolve the difficultyassociated with solving a large dense linear programming problems resulting from these models. We will demonstrate that this method can in fact solve problems consisting of10⁴ assets and 10⁵ scenarios within a practical amount of CPU time.     

The effect of corruption on the manufacturing sector in India

This article investigates the effects of corruption on the performance of the manufacturing sector at the state level in India. We employ conviction rates of corruption-related cases as an instrument for the extent of corruption, address the underreporting problem, and examine the impact of corruption on the gross value added per worker, total factor productivity, and capital-labor ratio of three-digit manufacturing industries in each state. Our estimation results show that corruption reduces gross value added per worker and total factor productivity. Furthermore, we show that the adverse effects of corruption are more salient in industries with smaller average firm size.     

Information in generalized method of moments estimation and entropy-based moment selection

In this paper, we make five contributions to the literature on information and entropy in generalized method of moments (GMM) estimation. First, we introduce the concept of the long run canonical correlations (LRCCs) between the true score vector and the moment function f(_vt,_θ0)$f(v_t,{\theta }_0)$ and show that they provide a metric for the information contained in the population moment condition E[f(_vt,_θ0)]=0$\mathrm{E}[f(v_t,{\theta }_0)]=0$. Second, we show that the entropy of the limiting distribution of the GMM estimator can be written in terms of these LRCCs. Third, motivated by the above results, we introduce an information criterion based on this entropy that can be used as a basis for moment selection. Fourth, we introduce the concept of nearly redundant moment conditions and use it to explore the connection between redundancy and weak identification. Fifth, we analyse the behaviour of the aforementioned entropy-based moment selection method in two scenarios of interest; these scenarios are: (i) nonlinear dynamic models where the parameter vector is identified by all the combinations of moment conditions considered; (ii) linear static models where the parameter vector may be weakly identified for some of the combinations considered. The first of these contributions rests on a generalized information equality that is proved in the paper, and may be of interest in its own right.     

Who has benefited from the health services system for the elderly in Japan?

This paper examines the demand and supply of medical services for the elderly in the health services system characterized by per-month fixed copayment and selective capitation fee scheme for outpatients with chronic diseases. The results indicate that the beneficiary, in particular the household dependent, visits a physician more frequently because the actual copayment decreases for the household dependent, but is nearly the same for the head of the household. Physicians, however, provide more services to the beneficiary partly because of the lowered copayment and partly because of the capitation fee scheme, which they will select instead of the fee-for-service scheme only when capitation is more profitable than Fee-for-Service. As a result, physicians as well as the insured benefit from the health services system.     

Equally-distributed equivalent utility,ex post egalitarianism and utilitarianism

We provide an axiomatization of expected equally-distributed equivalent-utility social welfare functions in the context of Harsanyi?s impartial observer theorem. For this family of social welfare functions, we show what additional axiom is necessary and sufficient for the observer to exhibit aversion to ex post inequality. We also relate this axiomatization to our axiomatization in a companion paper of generalized utilitarian social welfare functions. Given certain richness assumptions, the only social welfare functions that belong to both families are the utilitarian.     

Market competition,differences in technology,and productivity improvement: An empirical analysis based on Japanese manufacturing firm data

In this paper we examine empirically the effect of market competition on firm productivity improvements using data drawn from the Japanese manufacturing sector. We find that a non-linear relationship between competition and productivity growth induced by R&D activity as suggested by Aghion et al. (2005) holds for Japanese manufacturing firms. We also show that greater market competition widens technology differences across firms, and firms facing more intense competition are more productive than other firms. Our empirical results imply that productivity improvement through R&D activity depends on not only a competitive environment but also technological differences between firms.     

Arthur L. Norberg. Computers and Commerce: A Study of Technology and Management at Eckert-Mauchly Computer Company, Engineering Research Associates, and Remington Rand, 1946-1957. Cambridge, Mass.: MIT Press, 2005. x + 347 pp. ISBN 0-262-14090-X, $40.00 (cloth).

Arthur Norberg’s Computers and Commerce is a much-neededstudy of the technical and business history of the Eckert-MauchlyComputer Corporation (EMCC) and Engineering Research Associates(ERA). Although there have been many historical studies aboutIBM, there have been relatively few accounts describing thefirm’s primary competitors or of the early formation ofthe industry. Norberg’s study offers valuable insightsinto the latter by providing a detailed history of the technicaldecisions and financial strategies of the two entrepreneurialfirms that     

Multidimensionality and Renegotiation: Evidence from Transport-Sector Public-Private-Partnership Transactions in Latin America

Multidimensional auctions are a natural, practical solution when governments pursue more than one objective in their public-private-partnership transactions. However, multi-criteria auctions seem difficult to implement and vulnerable to corruption and opportunistic behavior of both parties involved. Using data from road and railway concessions in Latin America, the paper examines the probability of renegotiation in connection with the selected award criteria. It shows that auctioneers tend to adopt the multidimensional format when the need for social considerations, such as alleviation of unemployment, is high. But more renegotiations would likely happen when the multidimensional format is used. Good governance, particularly regulatory quality and anti-corruption policies, can mitigate the renegotiation problem.     

On the selection of forecasting models

It is standard in applied work to select forecasting models by ranking candidate models by their prediction mean squared error (PMSE) in simulated out-of-sample (SOOS) forecasts. Alternatively, forecast models may be selected using information criteria (IC). We compare the asymptotic and finite-sample properties of these methods in terms of their ability to mimimize the true out-of-sample PMSE, allowing for possible misspecification of the forecast models under consideration. We show that under suitable conditions the IC method will be consistent for the best approximating model among the candidate models. In contrast, under standard assumptions the SOOS method, whether based on recursive or rolling regressions, will select overparameterized models with positive probability, resulting in excessive finite-sample PMSEs.