Uncertainty and the neutrality of government financing policy

Some ideas from the theory of finance are applied to consider whether debt-financed tax cuts affect desired consumption. It is shown that government financing policy is a matter of indifference to infinitely-lived households, if a perfect substitute for public debt exists. The analysis allows for uncertainty about future taxes, and for missing markets in some kinds of assets. Income redistribution risk, and the public insurance aspects of an income tax scheme, qualify this neutrality result, but in general the net effect is ambiguous. The real resource costs of financial transacting, as well as government superiority in the intermediation process, may be one rationale for activist debt-management policy. A better understanding of functioning capital markets is essential to evaluate these arguments.     

The secularization of science and a new deal for science policy

The secularization of science, by analogy with the separation of Church and state, would divest all science funding from the state, except where it bears directly on matters of public policy. I argue for an intensification of this tendency, which is already occurring across the Euro-American world. I then explore the policy implications in some detail, including historical precedents in New Deal attitudes toward the role of science in public policy. I begin by reviewing the secularization of Christendom, which turns out to be intimately tied with the social ascendency of the natural sciences. I then explore more recent conditions that contribute to the secularization of science itself, during which I claim that the Cold War's scaling up of state support for scientific research should be regarded as a historical aberration that we are currently getting over. However, I still reserve a very strong role for the state in the public distribution of already existing knowledge, the primary vehicle for which will remain the university.     

Utopian and dystopian thought in climate change science and policy

Climate change policies are increasingly seen as integral to sustainable development policies. This article examines how visions of future society have been employed in climate science and multilateral negotiations. Using elements of utopian and dystopian thought, we have categorized UNFCCC documents, IPCC assessments, and special reports and peer-reviewed climate policy articles. Our results indicate that utopian thinking surfaces with reference to sustainable development and emissions scenarios. Such visions of future society fall into three categories: projections, dystopian thought, and utopian thought. Dystopian thought is mainly evident in the rhetoric of various actors, and is used to spur action or inaction, to avoid either economic catastrophe by acting too fast or ecological catastrophe by not acting fast enough. Utopian elements in climate change science and policy refer to decoupling greenhouse gases and economic growth, evenly distributing the benefits of economic globalization, and smoothing technological development. The present piecemeal invocation of sustainable development concepts in climate science and policy emphasizes the difficulties of integrating environmental, social, and economic concerns. The article concludes that utopian thinking regarding sustainable development could result in more integrated and holistic visions of future society in climate science and policy.     

The impact of foresight on environmental science and technology policy in the Netherlands

Globalisation, high tech development and environmental issues have made policy makers aware again of the possibilities of future studies for policy making. However, the lack of systematic knowledge about their impact is a major obstruction to a proper use of future studies. Especially since future studies no longer claim to predict the future, but are seen as a strategic tool for improving strategic interaction between key actors and for anticipatory policy making, insight in the dynamics of future studies is indispensable. In this article we review four future studies in the Netherlands with an eye on their methods and related impact on research in sustainable technology. Although in content the four studies were quite similar, they were complementary in linking research strategies and policy objectives.     

Information Uncertainty and Post-Earnings-Announcement-Drift

Abstract:  We examine whether rational investor responses to information uncertainty (IU) explain properties of and returns to the post-earnings-announcement-drift (PEAD) trading anomaly. Consistent with a rational learning explanation, we find that: (1) unexpected earnings (UE) signals that are characterized as having greater IU have more muted initial market reactions; (2) extreme UE portfolios are characterized by securities with higher IU than non-extreme UE portfolios; and (3) within the extreme UE portfolios, high IU securities are more prevalent and earn larger abnormal returns than low IU securities. Further tests show that prior evidence of greater PEAD profitability for higher idiosyncratic volatility securities is explained by the greater information uncertainty associated with these securities.     

Uncertainty and debt covenants

I examine the use of financial covenants when contracting for debt under uncertainty. Uncertainty, in the context of this study, is a lack of information about future economic events and their consequences for the borrower’s creditworthiness. I examine the implications of ex ante uncertainty that is resolved by information received following loan initiation but prior to maturity. I argue that financial covenants, by transferring control rights ex post, provide a trigger for creditor-initiated renegotiation when the borrower is revealed to be of low credit quality. Using a large sample of private loans, I predict and find that financial covenant intensity is associated with greater uncertainty. I also revisit the agency-based explanation for covenant use and find that this uncertainty explanation is robust to various controls for agency conflicts.     

Uncertainty and Fiscal Cliffs

Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. “Fiscal cliff” episodes have several features: an announced possible future change, a skewed set of possible outcomes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. The possibility of fiscal cliffs lowers economic activity even in periods of relative certainty.     

Income Uncertainty and IRAs

In a precautionary savings setting, since Individual Retirement Accounts (IRAs) are poor substitutes for precautionary savings due to early withdrawal penalties, those facing more income uncertainty are expected to prefer more liquid assets. This paper investigates the role of income uncertainty in IRA participation. Confidential tax panel data is used to construct a measure of income uncertainty. Greater income uncertainty is found to have a negative influence on IRA participation for those in the immediate pre-retirement stage of the life-cycle. The results appear to be consistent with buffer-stock models of savings where income uncertainty is predicted to have a large effect on wealth accumulation beginning around age 50.     

Uncertainty and Financing Constraints

Using a panel of Dutch listed firms this paper provides empirical evidence for the hypothesis that more risky firms are confronted with more severe capital market constraints than relatively less risky firms. The paper also contributes to the discussion on the usefulness of cash flow as a measure of financial constraints. We present a stochastic version of the Kaplan-Zingales (1997) model. We show that cash flow sensitivity can be used as a meaningful indicator of financing constraints if firms are classified by the degree of uncertainty they face and if the uncertainty originates from cost uncertainty.     

中国宏观经济亮点与隐忧

政府投资和银行加杠杆,中国经济强劲反弹2008年,面对国际金融危机加剧和国内经济增长下行压力加大的形势,中国政府果断实施了积极的财政政策和适度宽松的货币政策,先后推出了总额4万亿元人民币的经济刺激计划,出台了促进经济增长的十项措施,制定和实施了重点产业振兴计划。为顺应国家宏观调控政策,各银行及时调整策略,取消信贷规模管理,及时跟进国家拉动内需的重点建设项目。预计2009年新增信贷投放创历史记录高达9,5万亿元,增速高达近34%(见图1)。     

Information Uncertainty and Expected Returns

This study examines the role of information uncertainty (IU) in predicting cross-sectional stock returns. We define IU in terms of “value ambiguity,” or the precision with which firm value can be estimated by knowledgeable investors at reasonable cost. Using several different proxies for IU, we show that (1) on average, high-IU firms earn lower future returns (the “mean” effect), and (2) price and earnings momentum effects are much stronger among high-IU firms (the “interaction” effect). These findings are consistent with analytical models in which high IU exacerbates investor overconfidence and limits rational arbitrage.This revised version was published online in August 2005 with a corrected cover date.     

Cost Uncertainty and Taxpayer Compliance

The existence of a private cost borne by audited taxpayers affects the tax enforcement policy. This is so because tax auditors will face now two sources of uncertainty, namely, the typical one associated with taxpayers’ income and that associated with the taxpayers’ idiosyncratic attitude towards tax compliance. Moreover, the inspection policy can be exposed to some randomness from the taxpayers’ viewpoint due to the uncertainty about the audit cost borne by the tax authority. In this paper we provide an unified framework to analyze the effects of all these sources of uncertainty in a model of tax compliance with strategic interaction between auditors and taxpayers. We show that more variance in the distribution of the taxpayers’ private cost of evading raises both tax compliance and the ex-ante welfare of taxpayers. The effects of the uncertainty about the audit cost faced by the tax authority are generally ambiguous. We also discuss the implications of our model for the regressive (or progressive) bias of the effective tax system.     

Uncertainty and international debt maturity

This paper shows that high macroeconomic volatility, lax rule of law, and inefficient bureaucracy in foreign countries contributes to a tilt toward short-term maturity of international debt. The results are important as short-term debt has been linked to several financial crises in recent years. The paper explores factors that contribute to short-term lending. The results are obtained using data on international lending by three groups of U.S. banks: large, medium-sized, and small. The effect of uncertainty on debt maturity is particularly strong in emerging economies and for smaller banks.     

Information Uncertainty and Stock Returns

There is substantial evidence of short‐term stock price continuation, which the prior literature often attributes to investor behavioral biases such as underreaction to new information. This paper investigates the role of information uncertainty in price continuation anomalies and cross‐sectional variations in stock returns. If short‐term price continuation is due to investor behavioral biases, we should observe greater price drift when there is greater information uncertainty. As a result, greater information uncertainty should produce relatively higher expected returns following good news and relatively lower expected returns following bad news. My evidence supports this hypothesis.     

Inflation Uncertainty, Real-Interest-Rate Uncertainty, and the Liquidity Premium on Government Bonds

This paper shows that the components of uncertainty about nominal interest rates, real-rate uncertainty and inflation uncertainty, have different effects on the liquidity premium. An increase in inflation uncertainty should increase the equilibrium liquidity premium because investors reduce the effect of inflation uncertainty on the riskiness of their portfolios by holding more short-term bonds. In contrast, an investor can reduce the effects of uncertainty about future ex-ante real rates on portfolio return by matching more closely the maturity dates of the bonds held with the date on which the portfolio is to be liquidated for consumption purposes. Thus, the effect of an increase in real-rate uncertainty on the equilibrium liquidity premium is ambiguous, depending on the relative magnitudes of long-term and short-term saving and the proportions of short-term and long-term bonds issued by the government.     

Resolving Macroeconomic Uncertainty in Stock and Bond Markets

We establish an empirical link between the ex-ante uncertaintyabout macroeconomic fundamentals and the ex-post resolutionof this uncertainty in financial markets. We measure macroeconomicuncertainty using prices of economic derivatives and relatethis measure to changes in implied volatilities of stock andbond options when the economic data is released. Higher macroeconomicuncertainty is associated with greater reduction in impliedvolatilities following the news release. It is also associatedwith increased volume and decreased open interest in optionmarkets after the release, consistent with market participantsusing financial options to hedge or speculate on macroeconomicnews.     

Religion and science

Employing data from a massive, international web-based survey, and from a variety of other sources, this essay explores three different models of the future: religion without science, religion with science, and science without religion. In so doing, it presents eight different scenarios for the future of religion that citizens of the world currently imagine: revival of conventional faith, proliferation of religious movements, the new age, fanaticism, religious conflict, the millennium, scientism, and secularization. Such social issues as population explosion or collapse and inter-denominational conflict render the future relationship between religion and science crucially important for the world.     

Speculations in hard and soft science

Speculations in this article range from methods improving democratic concensus, society's attitude to crime, and a way of making cheap telescopes in space. It is hoped that these tentative ideas, many only half serious, may spark off thoughts along similar lines. Again, the author invites readers to send him their own speculations.     

不确定性、会计稳健性与分析师盈余预测

文章在考察企业不确定因素对分析师盈余预测产生影响的基础上,重点分析和检验企业会计稳健性对这一关系的调节效应。研究显示,一方面,不确定因素的增多会导致分析师盈余预测误差和预测分歧度的增大;另一方面,公司在预测年份里的会计稳健性总体上有助于降低不确定因素对分析师盈余预测的不利影响。文章将预测年份里的会计稳健性进一步区分为"持续稳健"和"非持续稳健"之后发现,并非所有在预测年份里表现稳健的公司,其稳健性就能遏制不确定性对分析师预测的不利影响,而是只有"持续稳健"能够有效抑制不确定性加剧分析师预测误差和预测分歧度的趋势,"非持续稳健"则没能发挥上述作用。