Testing against changing correlation

A test for time-varying correlation is developed within the framework of a dynamic conditional score (DCS) model for both Gaussian and Student t-distributions. The test may be interpreted as a Lagrange multiplier test and modified to allow for the estimation of models for time-varying volatility in the individual series. Unlike standard moment-based tests, the score-based test statistic includes information on the level of correlation under the null hypothesis and local power arguments indicate the benefits of doing so. A simulation study shows that the performance of the score-based test is strong relative to existing tests across a range of data generating processes. An application to the Hong Kong and South Korean equity markets shows that the new test reveals changes in correlation that are not detected by the standard moment-based test.     

Testing Rationality in the Point Spread Betting Market

This paper presents empirical tests of market rationality using data from the point spread betting market on National Football League games. Data from this market avoid many common pitfalls of tests of rationality in conventional financial markets. The authors test for rationality with two types of tests, statistical and economic. Results of the tests reveal that the statistical tests cannot reject market rationality while the economic tests do reject market rationality.     

Testing Efficiency Across Markets: Evidence from the NCAA Basketball Betting Market

This study utilizes the National Collegiate Athletic Association basketball point spread betting market to investigate whether differences in information availability across markets result in different relative efficiencies of price formation within those markets. Using intra-conference games of various conferences as clearly defined markets, we show that these markets are efficient given the information available in those markets. However, we also show that regression error variances are significantly smaller (greater) for those conferences with greater (lesser) information availability. This evidence supports previous stock market research suggesting that differential fundamental information availability across stock markets results in differential departures from equilibrium values.     

Testing Market Efficiency: Evidence From The NFL Sports Betting Market

This article examines the efficiency of the National Football League (NFL) betting market. The standard ordinary least squares (OLS) regression methodology is replaced by a probit model. This circumvents potential econometric problems, and allows us to implement more sophisticated betting strategies where bets are placed only when there is a relatively high probability of success. In-sample tests indicate that probit-based betting strategies generate statistically significant profits. Whereas the profitability of a number of these betting strategies is confirmed by out-of-sample testing, there is some inconsistency among the remaining out-of-sample predictions. Our results also suggest that widely documented inefficiencies in this market tend to dissipate over time.     

Collateralization of business loans: Testing the prediction of theories

Using confidential data on a large sample of relationship lending, we analyze the determining factors of the collateralization of business loans from banks, distinguishing between firms with observable risk and firms with hidden information. We achieve three main results. First, we provide evidence that observably riskier borrowers are encouraged to give more collateral to banks to obtain a loan, whereas firms with hidden information are less risky borrowers, offering collateral to signal their quality. Second, we show that relationship banking has a direct impact on the use of collateral and produces moderating effects on the other determining factors. Finally, we observe that distant bank branches—i.e., branches that encounter greater difficulties collecting soft information and obtaining site-specific data from headquarters—are more likely to require collateral than local bank branches.     

Betting on the future: the virtues of contingent contracts

It happens all the time. Two parties with common interests fail to reach an agreement--about a sale, a merger, a technology transfer--because they have different expectations about the future. They are both so confident in their prediction, or so suspicious of the other side's motives, that they refuse to compromise. Such impasses are hard to break through. Fortunately, they can often be avoided altogether by using a straightforward but frequently overlooked type of agreement called a contingent contract. The terms of a contingent contract are not finalized until the uncertain event in question--the contingency--takes place. In some areas of business, such as compensation, contingent contracts are common: a CEO's pay is tied to the company's stock price, for instance. But in many business negotiations, contingent contracts are either ignored or rejected out of hand. That's mistake, according to the authors. In an increasingly uncertain world, flexible contingent contracts can actually be more rational and less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits: they enable a difference of opinion to become the basis of an agreement, not an obstacle to it; they cancel out the biases of negotiators; they level the playing field by reducing the impact of asymmetric information; they provide a means of uncovering deceitful dealings; they reduce risk by sharing it among parties; and they motivate parties to fulfill their promises. While contingent contracts are not appropriate in all instances, they are much more broadly applicable than managers may think.     

Testing for contagion: a conditional correlation analysis

In this paper, we test for contagion within the East Asian region, contagion being defined as a significant increase in the degree of comovement between stock returns in different countries. For this purpose, we use a parameter stability test, and, following [Rigobon, R., 2003a. On the measurement of the international propagation of shocks: is the transmission stable?, Journal of International Economics], we control for three types of bias, resulting from heteroscedasticity, endogeneity and omitted variable, respectively. The null of interdependence against the alternative of contagion is then tested as an overidentifying restriction. Unlike other studies, our approach is based on full-sample estimation, and hence avoids the power problems arising from the typical situation of a large “noncrisis” and a small “crisis” sample. We also select endogenously the breakpoints corresponding to the beginning of the contagion period, and finally we impose more plausible restrictions to identify the system. Our findings suggest the existence of contagion within the East Asian region, consistent with crisis-contingent theories of asset market linkages.     

Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market

This paper examines the efficiency of the legal gambling market for major league baseball. Weak-form tests of market efficiency within and across odds lines are performed. Surprisingly, the consistently observed favorite-longshot bias in racetrack betting is shown to exist in reverse for baseball bettors. However, these and other deviations from efficiency are shown to be insufficient to allow for profitable betting strategies when commissions are considered.     

Corporate investment myopia: a horserace of the theories

This paper tests two theories of corporate investment myopia which predict a distortion in investment policy with respect to the standard net present value rule. The theories are confronted with the empirical evidence, allowing the theories to compete to explain investment behavior. Research and development expense is used to proxy for long-term investment in a pooled, cross-sectional time-series regression. I find that research and development expense is decreasing in the age of the Chief Executive Officer. Results are consistent with the hypothesis that agency costs are lower when the firm invests myopically, rather than follow a standard net present value rule.     

Cross-country technology adoption: making the theories face the facts

We examine the diffusion of more than 20 technologies across 23 of the world's leading industrial economies. Our evidence covers major technology classes such as textile production, steel manufacture, communications, information technology, transportation, and electricity for the period 1788-2001. We document the common patterns observed in the diffusion of this broad range of technologies. Our results suggest a pattern of trickle-down diffusion that is remarkably robust across technologies. Most of the technologies that we consider originate in advanced economies and are adopted there first. Subsequently, they trickle down to countries that lag economically. Our panel data analysis indicates that the most important determinants of the speed at which a country adopts technologies are the country's human capital endowment, type of government, degree of openness to trade, and adoption of predecessor technologies. We also find that the overall rate of diffusion has increased markedly since World War II because of the convergence in these variables across countries.     

Testing for financial contagion based on a nonparametric measure of the cross‐market correlation

When contagion is defined as a significant increase in market comovement after a shock to one country, we propose a test for financial contagion based on a nonparametric measure of the cross-market correlation. Monte Carlo simulation studies show that our test has reasonable size and good power to detect financial contagion, and that Forbes and Rigobon's test (2002) is relatively conservative, indicating that their test tends not to find evidence of contagion when it does exist. Applying our test to investigate contagion from the 1997 East Asian crisis and the 2007 Subprime crisis, we find that there existed international financial contagion from the two financial crises.     

政府支出与实际利率正相关:基于美国数据对拉姆齐模型的检验

在经典的拉姆齐模型中,政府支出的暂时性增加会提高实际利率。利用1959～2002年美国的军费开支和10年期固定债券利率的数据对政府支出和实际利率的正相关性进行的实证分析表明：政府支出的暂时性增加的确会引起实际利率的上升。     

Keynesian and monetarist theories of the monetary transmission process: Doctrinal aspects

This paper investigates the doctrinal link underlying differences between Keynesian and monetarist approaches regarding the transmission mechanism of monetary policy. Consideration of the post-General Theory literature reveals that a key aspect of that link concerns the velocity of circulation of money. The Keynesian emphasis on compartmentalizing the demand for money into active and idle components resulted in a mechanical interpretation of velocity and the associated view that money does not matter. The monetarist tradition illustrates the behavioral perspective adduced to velocity via adaptive price expectations by earlier quantity theorists leading to a capital-theoretic reformulation of the quantity theory in terms of a stable demand function for money.     

Testing the effect of portfolio holdings disclosure in an environment absent of mandatory disclosure

This study examines a number of portfolio disclosure regimes with respect to accuracy and susceptibility to copycat behaviour in an environment absent of mandatory disclosure. We find that periodic portfolio disclosure tends to underestimate true excess performance as well as idiosyncratic risk in top‐quartile fund managers, with longer inter‐reporting intervals tending to result in greater differences. ‘Copycat funds’ following the disclosed holdings of top‐tier managers significantly underperform the underlying fund, while copycats following bottom‐tier managers significantly outperform the underlying fund. Our findings suggest that periodic reporting at monthly intervals or longer would not affect fund alpha generation.     

Lean against the wind: The effect of policy uncertainty on a firm's corporate social responsibility strategy

We examine the effect of policy uncertainty on firms' strategy of corporate social responsibility (CSR). During uncertain times, firms strategically increase their commitment to CSR causes. Policy uncertainty is positively associated with CSR performance regardless of the estimation method. CSR strategy can substitute for lobbying when firms attempt to manage policy uncertainty. Improved CSR performance can reduce firms' exposure to policy uncertainty which indicates that CSR commitment can deliver insurance-like benefits. The findings highlight the value of CSR commitments during uncertain times.     

Accounting relativism: the unstable relationship between income measurement and theories of the firm

The knowledge structures underlying accounting representations are rarely investigated and usually tend to be taken for granted. As a case of the problematic knowledge foundations of accounting, we concentrate on one of the most relevant conceptual underpinnings informing the construction of the accounts—the relationship between theories of the firm, accounting theories, and income measurement. In particular we analyse and compare the ways in which this relationship has been conceived and developed in two theoretical contexts, the Italian tradition of Economia Aziendale and the US entity vs proprietary debate. Various and contradictory approaches to the concept of the firm and income calculation in these two theoretical traditions emerge. Such a conceptual variety is what we refer to as ‘accounting relativism’. This is defined here as the co-existence of different accounting representations and measurements, both of which are not objectively rankable in any conceptual hierarchy, because of the incommensurability of their basic assumptions, i.e. of their knowledge bases. This intrinsically ‘unstable’ character of accounting at a conceptual level is likely to have relevant implications, representing a major source of theoretical variety, as well as a premise for making sense of power uses of accounting within organisational settings. ©     

Panglossian accounting theories: The science of apologising in style

Dr. Pangloss's comment about, “the best of all possible worlds”, is widely remembered, but what we tend to forget is how unpleasant his world really is. Candide's life is marred by pillage, murder, rape, war, torture and natural disasters. The only relief Voltaire provides Candide after each disaster is a bizzare re-iteration of Pangloss's absurd refrain that, “this must be the best of all possible worlds”. Voltaire's Candide warns us about scholarly self-deception and wishful thinking. This warning extends to theorizing about large organizations and corporate accountability: that monopolistic and oligopolistic elements may be underplayed: that the disciplining effect of market competition may be overrated; that managerial self-aggrandizement may be idealized as entrepreneurial heroics, and that research may be trivialized in the quest for objective results and tractable theories. This paper uses Agency Theory and Transaction Cost Theory to spell out the dangers of Panglossian theorizing. It rejects the notion that theories are dispassionate reflections of reality; instead, it views them as materialistically grounded in social conflict — as intellectual terrains on which social interests struggle to re-present and control their realities. In focussing on Agency and Transactional Cost Theory, three types of re-presentational distortion are considered here: those emanating from failing to acknowledge the constituitive potential of theorizing (stressing instead its natural and law-like character); those arising from overstating the empirical validity of theories, and those emerging from neglecting the interests that benefit from research. The implications of the paper are analogous to lessons that Voltaire teaches us through Dr. Pangloss: we may pay a high price if we listen to “simplifying assumptions” and “analytic approaches” of the Pangloss's of accounting thought. Their intellectual pollyannaism frequently promotes social causes that, after some reflection, we might prefer to dissociate ourselves from. Only by explicating the social underpinnings of accounting practices — contemporaneously and historically — and by investigating the social allegiances of different forms of theorizing, do we give ourselves the opportunity of such social self-awareness.     

美国保险理论研究综述:历史与现状

美国作为当前世界上最为发达的保险市场之一,在实务领域引领世界保险业发展的同时,也为各种保险理论思想的研究探索提供了一个交流的舞台,很多创新性的研究方法和研究模式均来自美国保险理论研究。本文从理论研究的观点整合和代表人物分析出发,将美国保险理论研究的发展过程概括为三个主要阶段进行叙述,然后从五个部分对美国保险理论研究的内容进行介绍,最后得出的主要结论是我国当前的保险理论研究要重视跨学科的定量研究,在重视对基础性理论进行长期持续研究的同时强调研究范式的转变。     

Traditional and emergent theories of budgeting: An empirical analysis

This paper examines the usefulness of both traditional and emergent budgeting theories to understanding budget-related behavior in a state geriatic system. The authors used an action-research methodology to acquire evidence. They conclude that the traditional and emergent theories offer differing insights into budgetary behavior and suffer from different shortcomings. Implications for researchers and practitioners are explored.