An empirical Bayes rule for testing simple hypothesis against simple alternative

This paper gives a short introduction into the empirical B ayes approach. To illustrate this approach the classical problem of testing a simple hypothesis against a simple alternative is discussed. Some explicit results are given for testing H_o: N(- 1, 1) against H,: N( 1, 1). This paper is a further elaboration of section 3.1 of the author's dissertation W an H ouwelingen (1973)).     

An approach to fuzzy hypothesis testing

In this paper an approach is presented how to test fuzzily formulated hypotheses with crisp data. The quantitiesα andβ, the probabilities of the errors of type I and of type II, are suitably generalized and the concept of a best test is introduced. Within the framework of a one-parameter exponential distribution family the search for a best test is considerably reduced. Furthermore, it is shown under very weak conditions thatα andβ can simultaneously be diminished by increasing the sample size even in the case of testingH ₀ against the omnibus alternativeH ₁: notH ₀, a result completely different from the case of crisp setsH ₀ andH ₁: notH ₀.     

Environmental regulation and productivity: testing the porter hypothesis

Abstract  This paper provides an empirical analysis of the relationship between the stringency of environmental regulation and total factor productivity (TFP) growth in the Quebec manufacturing sector. This allows us to investigate more fully the Porter hypothesis in three directions. First, the dynamic aspect of the hypothesis is captured through the use of lagged regulatory variables. Second, we argue that the hypothesis is more relevant for more polluting sectors. Third, we argue that the hypothesis is more relevant for sectors which are more exposed to international competition. Our empirical results suggest that: (1) the contemporaneous impact of environmental regulation on productivity is negative; (2) the opposite result is observed with lagged regulatory variables, which is consistent with Michel Porter’s conjecture; and (3) this effect is stronger in a subgroup of industries which are more exposed to international competition.

Alternation of parties in power and economic volatility: testing the rational partisan hypothesis and policy learning hypothesis

Right and left parties have distinct macroeconomic preferences that could create different levels of volatility during their executive tenures. But rational partisan theory argues that, because actors in the economy anticipate ruling party behavior, partisan differences only matter when election outcomes are uncertain. We argue that policy risk from ruling parties extends beyond elections, leading to important variation in growth volatility that occurs during a ruling party’s tenure. Building on theories of policy risk and learning, we argue that after elections, economic actors still face uncertainty about the policies of new ruling parties. With time in power, new ruling parties build policy track records, reducing policy risk and, thus, volatility. We estimate a learning curve model of ruling party duration’s effect on the variation in quarterly GDP growth rates. Using data from 44 democracies between 1981 and 2009, we find that learning processes extend beyond the conclusion of uncertain elections.     

The heterogeneous expectations hypothesis: Some evidence from the lab

This paper surveys learning-to-forecast experiments (LtFEs) with human subjects to test theories of expectations and learning. Subjects must repeatedly forecast a market price, whose realization is an aggregation of individual expectations. Emphasis is given to how individual forecasting rules interact at the micro-level and which structure they cocreate at the aggregate, macro-level. In particular, we focus on the question wether the evidence from laboratory experiments is consistent with heterogeneous expectations.     

Optimal switch from a fossil-fueled to an electric vehicle

Decisions in Economics and Finance - In this paper we propose and solve a real options model for the optimal adoption of an electric vehicle. A policymaker promotes the abeyance of fossil-fueled...     

A fractional cointegration analysis of Fisher hypothesis: evidence from Turkey

This paper examines the validity of Fisher hypothesis in Turkey over the period from 1990:01 through 2010:03 by using cointegration and fractional cointegration approaches. The findings from Engle and Granger cointegration test indicate that inflation and nominal interest rate series are cointegrated. Since the conventional cointegration tests do not provide strong evidence on the long run relationship, we also use fractional cointegration definition suggested by Cheung and Lai (J Bus Econ Stat 11:103–112, 1993) which requires only a mean reverting (d < 1) relationship between the series. The results from fractional cointegration tests based on GPH and Robinson methods show that inflation and nominal interest rate series are fractionally cointegrated. These findings support the validity of the Fisher hypothesis in Turkey.     

The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests

This study examines the random walk hypothesis for the Shanghai and Shenzhen stock markets for both A and B shares, using daily data over the period 1992–2007. The hypothesis is tested with new multiple variance ratio tests – Whang-Kim subsampling and Kim's wild bootstrap tests – as well as the conventional multiple Chow-Denning test. We find that Class B shares for Chinese stock exchanges do not follow the random walk hypothesis, and therefore are significantly inefficient. The Class A shares seem more efficient.     

Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets

This study investigates the effects of the recent global crisis on the relative efficiency of six CEE currency markets, using the generalized spectral test of Escanciano and Velasco (2006) in a rolling window approach. The empirical results show that the global crisis adversely affected the efficiency of most CEE currency markets, with the Turkish lira being hit the hardest, followed by the Russian ruble, Czech koruna, Romanian leu, Polish zloty and Hungarian forint. In the first stage of the crisis, covering the second half of 2008 and the first months of 2009, all foreign exchange markets experienced periods of inefficiency. In the second stage of the crisis, the Hungarian, Polish and Romanian foreign markets recovered market efficiency quickly, while Russia, Turkey and the Czech Republic continue to register a low degree of efficiency.     

An empirical test of the Balassa-Samuelson hypothesis: Evidence from eight middle-income countries in Africa

The paper tests the validity of the Balassa-Samuelson hypothesis (BSH) using the within-effects and the dynamic panel generalised methods of moment (GMM) techniques for a panel of eight middle-income African countries over the period 1960–2009. We selected these countries because they exhibited a mixture of relative productivity growth and real exchange rate misalignment that fits the characterization of the BSH well. The results strongly support the BSH for this group of countries. The results are valid even after we controlled for potentially omitted variables and endogeneity. The implication is that as these countries become more productive, their currencies appreciate in real terms.     

Optimal Social Design: Estimating a Social Welfare Function from Questionnaire Data

A social design x evokes a response y from a set of individuals. The value of the design is expressed in terms of a social welfare function which is derived from Arrow’s formulation of social choice. Making certain simplifying assumptions the social welfare function can be expressed in terms of individuals’ ideal designs. A method for estimating the social welfare function from quite limited empirical evidence is developed. The method is applied to an educational case study. There was considerable variation in individuals’ ideal designs. The components of the social welfare were estimated: the welfare ideal, the population sensitivity, the population variation, the deviation from the ideal and the welfare ceiling. Methodological problems are discussed.     

Testing the stabilization hypothesis in the UK short-term interest rates: Evidence from a GARCH-X model

The objective of this paper is to examine the validity of one of the recurring arguments made against futures markets that they give rise to price instability. The paper concentrates on the impact of futures trading on the spot market volatility of short-term interest rates. The analytical framework employed is based on a new statistical approach aiming to reconcile the traditional models of short-term interest rates and the conditional volatility processes. More specifically, this class of models aims to capture the dynamics of short-term interest rate volatility by allowing volatility to depend on both scale effects and information shocks. Using a GARCH-X and asymmetric GARCH-X model four main conclusions emerge from the present study. First, the empirical results suggest that there is an indisputable change in the nature of volatility with evidence of mean reversion after the onset of futures trading. Second, the information flow into the market has improved as a result of futures trading. Third, a stabilization effect has been detected running from the futures market to the cash market by lowering volatility levels and decreasing the risk in the spot market. Finally, trying to capture the leverage effect the findings suggest that positive shocks have a greater impact on volatility than negative shocks.     

A reexamination of the market efficiency hypothesis: Evidence from an electronic intra-day,inter-dealer FX market

Researchers acknowledge that the evidence of autocorrelation (price dependency) in daily/weekly asset returns provides no conclusive evidence against the market efficiency hypothesis since the holding period of actual speculative positions may be less than a day. Using a high frequency (up to one hundredth of a second), transaction-based, electronic foreign exchange (FX) brokerage data set, we show that dealers in this market tend to close their speculative positions in less than a minute. We provide evidence that there is a significant negative autocorrelation in the rate of return on DM/USD exchange rate. However, when we sample data at frequencies shorter than a minute, profits are infeasible for two reasons: (1) the structure of the autocorrelation pattern is not consistent enough; (2) the largest potential speculative profit derived from the autocorrelation pattern is smaller than the regulated tick size. Our results support the market efficiency hypothesis as dealers have evidently engaged potentially profitable speculation based on price dependency.     

A quantitative reassessment of the purchasing power parity hypothesis: Evidence from Norway and the United Kingdom

Annual data from Norway and the United Kingdom from 1874 to 1971 are used to reassess the empirical performance of the purchasing power parity (PPP) doctrine. The simple version of the PPP relationship is supported by the data only if different short-run dynamics during a floating-rate period 1914–1928 is allowed for. Two sets of factors were found to be important in amending the simple PPP model. These were short-run cyclical variables affecting the adjustment towards the PPP equilibrium relationship and long-run structural factors such as productivity and terms of trade. Within this expanded model the proportionality between the exchange rate and relative price levels could not be rejected.     

Optimal geographic diversification and firm performance: evidence from the U.K.

This paper examines the relationship between multinationality and firm performance. The analysis is based on a sample of over 400 UK multinationals, and encompasses both service sector and manufacturing sector multinationals. This paper confirms the non-linear relationship between performance and multinationality that is reported elsewhere in the literature, but offers further analysis of this relationship. Specifically, by correcting for endogeneity in the investment decision, and for shocks in productivity across countries, the paper demonstrates that the returns to multinationality are greater than those that have been reported elsewhere, and persist to higher degrees of international diversification.

Estimation of a model containing unobservable variables using grouped observations: An application to the permanent income hypothesis

The method of estimating relationships in a model containing unobservable variables is combined with the technique of estimation from a sample of grouped observations to analyse the permanent income hypothesis. From a sample of group means the paper measures the relative importance of such factors as wealth, occupation, age and family-size as determinants of permanent income in the United Kingdom, and also considers the mechanism by which transitory receipts influence total consumption expenditure.     

Optimal portfolio choice in the presence of domestic systemic risk: empirical evidence from stock markets

In this paper, we empirically investigate the consequences of domestic systemic risk for stock market investors. To tackle this issue, we consider two different investment strategies. One strategy is to be “crisis-conscious”, i.e., taking the possibility of systemic events into account, and the other one is to be “crisis-ignorant” and thus disregarding systemic risk. We compare the optimal portfolio choices and investment results of these strategies in an historical simulation, using almost three decades of historical stock price data. Our main findings are as follows: the crisis-conscious investor tends to choose less extreme portfolio weights for individual stocks than the ignorant investor. The overall risky investment is, however, of similar size for both. By ignoring the possibility of systemic events, the crisis-ignorant strategy performs significantly worse from the viewpoint of expected return as well as expected utility.     

Latent variable models for time series: A frequency domain approach with an application to the permanent income hypothesis

The theory of estimation and inference in a very general class of latent variable models for time series is developed by showing that the distribution theory for the finite Fourier transform of the observable variables in latent variable models for time series is isomorphic to that for the observable variables themselves in classical latent variable models. This implies that analytic work on classical latent variable models can be adapted to latent variable models for time series, an implication which is illustrated here in the context of a general canonical form. To provide an empirical example a latent variable model for permanent income is developed, its parameters are shown to be identified, and a variety of restrictions on these parameters implied by the permanent income hypothesis are tested.     

Identifying factors affecting the status of superhost: evidence from Sardinia and Sicily

Quality & Quantity - Airbnb is currently one of the most developed new forms of hospitality. It is essentially an online platform that connects the owners of apartments or rooms with potential...     

Mitterrand: from Socialism to Realism

The French elected a government of nationalist Bourbons who thought they could plan the economy in a world of international trade. They soon discovered their error but are reluctant to act upon the lessons. Dr Green reveals that the main results have been economic stagnation and a division in the Government between pragmatists and ideologues.