A flexible approach to estimate the equity premium

In this article, we estimate the risk aversion for households accounting for their lifetime consumption risk. Households take into account the overall lifetime uninsured consumption risk when optimizing their resources, which based on micro data varies across households. Thus, representing households’ consumption by merging cross-sectional micro data into the single Euler equation (the common approach for estimating risk aversion based on consumption-based asset pricing theory) may be too rough an approximation, leading to biased results with respect to risk aversion. Our results suggest that consumption-based asset pricing models that were rejected in several studies do in fact fit the data when we account for households’ lifetime consumption risk. This finding also has implications for long-run aggregate consumption-based asset pricing models.     

A currency preferential approach to international equity investment

We propose a Timex strategy for reducing the foreign exchange risk associated with international equity investment, pertaining to countries with currencies correctly or undervalued by the standard of PPP. The performance of Timex is examined from the perspectives of eight developed nations with long histories of free-floating currencies. Based on the data from 1986:Q1 to 2014:Q4, we find unambiguous evidence for the superior performance of Timex in the foreign exchange market. Compared with the passive diversification strategy and the Morgan Stanley Capital International (MSCI) World index, Timex offers higher total returns and risk-adjusted total returns when rebalanced every 6 or 12 months for investors based in all eight countries under study. When rebalanced at a 3-year interval, Timex outperforms the passive diversification and the MSCI World index for five and all eight countries, respectively.     

Economic evaluations in migraine: systematic literature review and a novel approach

Abstract

Background: For novel migraine therapies, economic evaluations will be required to understand the trade-offs between additional health benefit and additional cost. The purpose of this study was to conduct a systematic literature review (SLR) to identify previous economic evaluations in migraine from the United Kingdom or Irish perspective to critically appraise these evaluations and to propose, if necessary, a novel modelling approach that can be used for future economic evaluations of migraine therapies.

Methods: An SLR was conducted to identify previous economic evaluations of preventive migraine treatments. Key opinion leaders were consulted to determine the criteria for a robust migraine economic evaluation. Economic evaluations identified in the SLR were appraised against these criteria, and a novel cost-effectiveness model structure was then proposed.

Results: Eight records reporting on published economic evaluations were identified and critically appraised for general quality. Expert consultation provided 6 recommendations on the ideal model structure for migraine that is both clinically and economically meaningful. A decision-tree plus Markov structure was then developed as a cost-effectiveness model for migraine therapies where each health state is associated with a patient distribution across monthly migraine day (MMD) frequencies.

Conclusions: Future migraine economic evaluations should allow for assessments across the full spectrum of migraine, a response-based stopping rule, and the estimation of benefits and resource costs based on MMD frequency. The approach proposed in this paper captures all of the desired elements for an economic evaluation of migraine therapy and is suitable to assess new migraine therapies.     

解析公司治理模式:跨文化视角

霍夫斯泰德的民族文化维度理论可以帮助我们解释英美、日德、东南亚三种公司治理模式形成的深层次原因。中国的民族文化特征决定了适应中国国情的公司治理模式应是家长式治理模式。由于公司治理背后存在着文化差异,中国企业在跨国并购中应注意文化兼容性问题。     

The cost of equity capital: A simplification

Modigliani-Miller's theorem, which asserts that corporate financing policy is of no consequence, has been shown to hold true under a set of assumptions which is less restrictive than the original set used by MM. Preceding proofs were based on the theory of general equilibrium. Basically, this paper examines MM's second proposition—the linearity of the cost of equity capital with respect to financial leverage—when dropping a few of their basic assumptions but retaining their assumption about incomplete markets. In particular, this paper relaxes the assumptions that (a) the inflows are perpetual and that (b) the firm's future returns belong to the same risk class. The results of the analysis indicate that the linearity will be sustained. The nature of the financial risk premium (the slope), however, has to be modified.     

跨文化分析的人类发展理论

本文阐述社会经济发展、个人解放取向的文化变迁、民主化三个过程所构成的社会进步的一种连聚合性的症候群。这样一种症候群,其共同焦点是不能由经典现代化理论所恰当地说明的。我们把这一症候群解释为"人类发展",意在表明,它的三个构成要素拥有一个共同焦点,即在于拓宽人类的选择。社会经济发展通过增加个人的资源,赋予人类以选择的客观手段;不断增长的解放取向的价值观强化了人们对于选择的主观定向而民主化则通过制度化的自由权利提供了选择的合法化保证。对"世界价值观调查"数据的分析表明,个体资源、解放取向的价值观、自由权利之间的联系在跨国家、跨地区和跨文化区域之间是普遍存在的;这种人类发展的症候群是被一种个体资源和对于自由权利的解放取向的价值观的因果效应所塑造的;而这种效应是通过它对于精英的品质的影响力而起作用的,因为这种因素使自由权利变得更有效。     

A new approach to modeling co-movement of international equity markets: evidence of unconditional copula-based simulation of tail dependence

Analyzing equity market co-movements is important for risk diversification of an international portfolio. Copulas have several advantages compared to the linear correlation measure in modeling co-movement. This paper introduces a copula ARMA-GARCH model for analyzing the co-movement of international equity markets. The model is implemented with an ARMA-GARCH model for the marginal distributions and a copula for the joint distribution. After goodness of fit testing, we find that the Student’s t copula ARMA(1,1)-GARCH(1,1) model with fractional Gaussian noise is superior to alternative models investigated in our study where we model the simultaneous co-movement of nine international equity market indexes. This model is also suitable for capturing the long-range dependence and tail dependence observed in international equity markets. Rachev’s research was supported by grants from Division of Mathematical, Life and Physical Science, College of Letters and Science, University of California, Santa Barbara, and the Deutschen Forschungsgemeinschaft (DFG). Sun’s research was supported by grants from the Deutschen Forschungsgemeinschaft (DFG) and Chinese Government Award for Outstanding Ph.D Students Abroad 2006, No. 2006-180. Kalev’s research was supported with a NCG grant from the Faculty of Business and Economics, Monash University. Data are supplied by Securities Industry Research Center of Asia-Pacific (SIRCA) on behalf of Reuters. The constructive comments of two anonymous referees, the Associate Editor, A.S. Wirjanto, and the Editor-in-charge, Baldev Raj, are gratefully acknowledged. The reviewers and editors are not responsible for any residual errors and omissions.     

Altruism, equity, and reciprocity in a gift-exchange experiment: an encompassing approach

Considerable experimental evidence suggests that non-pecuniary motives must be addressed when modeling behavior in economic contexts. Recent theories of non-pecuniary motives can be classified as altruism-, equity-, or reciprocity-based. We outline the qualitative differences in prediction these alternative explanations yield in a gift-exchange game. We estimate and compare leading approaches in these categories, using experimental data. We then offer a flexible approach that nests the above three approaches, thereby allowing for nested hypothesis testing and for determining the relative strength of each of the competing theories. In addition, the encompassing approach provides a functional form for utility in different settings without the restrictive nature of the approaches nested within it. Using this flexible form for nested tests, we find that intentional reciprocity, distributive concerns, and altruistic considerations all play a significant role in players' decisions.     

The Relationship between Behavioral and Attitudinal Trust: A Cross-cultural Study

We study the relationship between trust in an experiment and trust measured by means of popular survey items in different countries. Students from Chile, Colombia, India, Mexico and Sweden participate in a public goods game experiment and answer a set of standard attitudinal survey questions about trust. We find that behavioral trust and attitudinal trust significantly differ among countries. Behavioral trust is highest in Sweden, followed by Latin America, and lowest in India. Attitudinal trust is highest in Chile and Sweden, followed by India and Mexico, and lowest in Colombia. Further, the predictive power of survey items also differs among countries. Trust measured by survey items is significantly related to behavioral trust in some but not in all societies. No single survey item predicts actual trust across all countries. Plausible explanations of the inconsistent relationship between behavioral and attitudinal trust across countries are discussed.     

A revised concept of distributional equity

Recent studies have shown that in a private goods economy with production, allocations which are considered to be distributionally fair may not exist. As a solution for such cases, just allocations are introduced and examined in some detail. Such allocations are shown, by rigorous proof, to exist in general.     

New approach to estimating the cost of common equity capital for public utilities

The regulatory process for setting public utilities’ allowed rate of return on common equity has generally used the Gordon DCF, CAPM and Risk Premium specifications to estimate the cost of common equity. Despite the widely known problems with these models, there has been little movement to adopt more recently developed asset pricing models to provide additional evidence for estimating the cost of capital. This paper presents, validates empirically and applies a general yet simple consumption-based asset pricing specification to model the risk-return relationship for stocks and estimate the cost of common equity for public utilities. The model is not necessarily superior to other models in its practical results, yet these results do indicate that it should be used to provide additional estimates of the cost of common equity. Additionally, the model raises doubts as to whether assets such as utility stocks are a consumption (business cycle) hedge.     

Viewpoint: Estimating the equity premium

Abstract.  Finance theory restricts the time-series behaviour of valuation ratios and links the cross-section of stock prices to the level of the equity premium. This can be used to strengthen the evidence for predictability in stock returns. Steady-state valuation models are useful predictors of stock returns, given the persistence in valuation ratios. A steady-state approach suggests that the world geometric average equity premium fell considerably in the late twentieth century, rose modestly in the early years of the twenty-first century, and was almost 4% at the end of March 2007.     

Life with habit and expectation: A new explanation of equity premium puzzle

Previous writers have attempted to resolve the equity premium puzzle by employing a utility function that depends on current consumption minus (or relative to) past habit consumption. This paper points out that an individual's current utility may also depend upon how well off in the recent past he or she had expected to be today. Hence we add the concept “expectation formation” to the utility modification term in a model with a habit‐formation utility function. We apply the model to the equity premium puzzle and find that it is able to fit the data with a relatively low coefficient of relative risk aversion. Furthermore, we introduce an updated data sample and apply different values of discounting factors, and find that in all circumstances, the model is able to generate coefficients of risk aversion that are consistent with theory. Hence we conclude that the model is able to resolve the equity premium puzzle.     

组织公正:从理论到应用

在过去的二、三十年,越来越多的证据显示组织公正(organizational justice)是影响组织内员工的态度和行为的重要维度: 公正感会导致对组织的承诺(commitment)和信赖(trust)(Cobb & Frey,1991);处于“公正”的组织气氛中的员工会表现出组织公民行为(organizational citizenship behavior,一种在组织和领导不知情的情况下员工自觉从事的有利于组织的行为)(Organ,1988),并且能更好地解决冲突、积极应对组织的变革(Folger & Skarlicki,1999).     

Peacekeeping: A strategic approach

This paper presents a theoretical model of conflict between two players, with intervention by a peacekeeping force. Peacekeepers are treated as a military contingent, capable of taking sides, acting as a third (independent) side in the war or remaining inactive, depending on circumstances. This departs from previous models, in which peacekeeping was no more than a parameter affecting players' fighting costs. The main result is an optimal deployment strategy by peacekeepers, detailing the nature and level of intervention required under different circumstances; this strategy results in the lowest possible level of warfare between the two antagonists. The credible threat of force (rather than mere intervention) is the strategy's key component.     

A first look at Brexit and global equity markets

Global equity markets fell by nearly 5% overall on 24 June 2016 following news of the Brexit referendum result. Although nearly all EU stock market indices experienced additional significantly negative abnormal returns, especially poor performance was registered by the debt-ridden PIIGS group (Portugal, Ireland, Italy, Greece and Spain). In this article, we identify a systematic tendency for more severe stock market responses to be concentrated amongst countries with higher debt to GDP ratios. This effect endures even after controlling for the degree of openness, EU membership and for being part of the PIIGS group.     

Time-varying dependence in European equity markets: A contagion and investor sentiment driven analysis

In the light of the global financial crisis and sovereign debt crisis, this paper investigates the dependence patterns in 24 European equity markets from January 5, 2004 to July 1, 2016. We further examine whether these stressful events trigger contagion. Given that investors tend to behave irrationally in turmoil periods, we add to the literature by studying the effect of investor sentiment on markets correlations. Our results reveal heterogeneity in the time-varying dependence and across markets. Contagion is confirmed in turbulent times, a spillover effect from periphery euro area being detected. We find that similar sentiments increase correlations, especially in crises, suggesting that investors’ perceptions are an important channel of moving markets in the same direction. Furthermore, negative sentiments, such as fear or pessimism, amplify the linkages between markets. Our results offer useful insights to policy makers for reacting timely to financial shocks and for designing a more integrated market.     

Nursing compensation: the realities of seeking equity

The importance of equitable salary compensation has been identified as a key factor in recruitment and retention. Costing out nursing care can identify revenues, improve budget negotiation leverage, and perhaps supply data needed to readjust hospital reimbursement rates.     

Equality,equity and incentives: An experiment

We study a fundamental conflict in economic decision-making, the trade-off between equality, equity and incentives, in a new experimental game that nests a voluntary contributions mechanism in a broader spectrum of incentive schemes. In a 2×2 design, we let subjects either vote on or exogenously encounter incentive settings while assigned unequal endowments are either task-determined or random. We find that earned endowments lead to less support for redistribution and less cooperation. Subjects' voting is influenced by egalitarian and equity concerns, in addition to self-interest. Cooperation rates respond rather continuously to incentives.