Time variation in the correlation structure of exchange rates: high‐frequency analyses

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the liquidity of the assets. We employed a time‐stamped high‐frequency data set of exchange rates, namely, the US$–deutsche mark and the US$–yen exchange rates, to calibrate the observed time variation in the correlation structure between their returns. We also documented time variation in the liquidity structure of these rates. We then attempted to link the observed correlations with the liquidity via an application of an illiquid trading model first developed by Scholes and Williams (1976). We show that the observed correlation structure is strongly biased by the liquidity and that it is possible to effect at least a partial rectification of the otherwise downward‐biased observed correlation. The rectified sample correlation is, therefore, more appropriate for input into models used for forecasting, option pricing, and other risk management applications. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:127–144, 2001     

Measuring and forecasting S&P 500 index‐futures volatility using high‐frequency data

In the 24‐hr foreign exchange market, Andersen and Bollerslev measure and forecast volatility using intraday returns rather than daily returns. Trading in equity markets only occurs during part of the day, and volatility during nontrading hours may differ from the volatility during trading hours. This paper compares various measures and forecasts of volatility in equity markets. In the absence of overnight trading it is shown that the daily volatility is best measured by the sum of intraday squared 5‐min returns, excluding the overnight return. In the absence of overnight trading, the best daily forecast of volatility is produced by modeling overnight volatility differently from intraday volatility. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:497–518, 2002     

Nonlinear dynamics in high‐frequency intraday financial data: Evidence for the UK long gilt futures market

Recent research investigating the properties of high‐frequency financial data has suggested that the stochastic nonlinearity widely present in such data may be characterized by heterogeneous components in conditional volatility, and nonlinear dependence of threshold autoregressive form due to market frictions. This article tests for the presence of such effects in intraday long gilt futures returns on the UK LIFFE market. Tests against the null of linearity indicate the significance of smooth transition autoregressive nonlinearities in such returns at the 5‐min frequency, which entails a first‐order autoregressive process with switching intercept. This nonlinear structure is robust to the presence of asymmetric and component structures in conditional variance, and consistent with the existence of heterogeneous traders facing different levels of transaction costs, noise trader risk, or capital constraints. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1037–1057, 2002     

Direct evidence of ending‐digit drop‐off in price information processing

Research has suggested that pricing products at one cent below a whole number (e.g., $4.99 instead of $5.00) can be an effective method for increasing purchases. Although many reasons for this have been suggested, a commonly proposed explanation is that consumers tend to drop off, or pay less attention to, the rightmost two digits. This drop‐off mechanism has garnered much indirect support, but only limited research has been conducted to directly test it. In this study, respondents provided estimates of how many products they could purchase for $73. Analyses indicated that respondents thought they could buy significantly more products priced with 99 endings than products with comparable 00‐ending prices. Follow‐up analyses showed that (a) errors made by respondents showed a pattern consistent with a dropoff mechanism, and (b) motivation to carefully provide quantity estimates moderated the effect. The study therefore provides rare direct evidence that the drop‐off mechanism may contribute to the effectiveness of 9‐ending pricing. © 2005 Wiley Periodicals, Inc.     

Creating a high‐skills society during recession: issues for policy makers

The present study looks at the skill formation policies adopted by policy makers in Greece in order to create a high‐skills society. It examines empirically the demand side of the skill creation process within 300 small enterprises in order to understand how far supply‐side measures have influenced the demand for well‐trained staff within small businesses. The article draws on empirical data from 650 interviews with workers and small firm owners that explored owner demand for higher level skills and training. The study questions the effectiveness of the measures put forward by policy makers in order to encourage an up‐skilling strategy in the country. The analysis reveals that this policy agenda has been supported predominantly by various skills supply‐side initiatives including investments in higher education and subsidized accredited company training. Yet the empirical evidence indicates that such initiatives have not so far influenced owner demand for higher level skills and training, suggesting a new agenda for policy intervention may be necessary. The study provides valuable lessons for policy makers across the advanced capitalist world on the development of a high‐skills society.     

Density forecast comparisons for stock prices,obtained from high‐frequency returns and daily option prices

This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk‐neutral densities implied by the Black–Scholes and Heston models. The third set are historical lognormal densities with dispersion determined by forecasts of realized variances obtained from 5‐min returns. Three further sets are defined by transforming risk‐neutral and historical densities into real‐world densities. The most accurate method applies the risk transformation to the Black–Scholes densities. This method outperforms all others for 87% of the comparisons made using the likelihood criterion.     

Evaluation of a maltodextrin gel as a partial replacement for fat in a high‐ratio white‐layer cake

The performance of maltodextrin gel as a replacement (25%, 50%, 75% and 100%) for shortening along with sucrose and high fructose corn syrup‐90 (HFCS‐90), adjusted for sweetness in each treatment, was evaluated in a high‐ratio white‐layer cake formulation. Two controls were used as a reference to fat‐replaced cakes: control A (100% fat and 100% sucrose) and control B (100% fat with 50% sucrose/50% HFCS‐90), which closely matched the sugar system of the fat‐replaced cakes. Volume of cakes showed that treatment F (100% fat‐substituted) was significantly (P < 0.05) different from the other treatments. Crust and crumb L‐ and b‐values indicated that control B produced a dark crust (P < 0.05) with a light crumb (P < 0.05) whereas treatment E (75% fat substituted) produced a light crust (P < 0.05) and treatment F a darker crumb (P < 0.05) with a significantly (P < 0.05) higher moisture content. Degree of staling significantly (P < 0.05) increased over time for all treatments. Sensory results indicated that treatment F produced a significantly (P < 0.05) moister, less adhesive and cohesive cake. Tenderness and sweetness scores indicated that treatments E and F were significantly (P < 0.05) tougher and less sweet, respectively, when compared with the other treatments. Results from both the physical and sensory analyses indicated that the combination of maltodextrin gel up to a 75% reduction for shortening and sucrose/HFCS‐90 resulted in satisfactory cakes.     

The internationalization journey of a high‐tech cluster

We examine the internationalization processes of a sample of photonics companies, using in‐depth interviews conducted with twenty‐two CEOs. The texts of these interviews were appraised by using content analysis, combined with a grounded theory approach. In this way, the internationalization theory was critiqued and some insights developed into the international strategy process. Some salient findings emerged, such as that cluster externalities had a positive impact on the internationalization of firms within the cluster, and the degree of strategic vulnerability that cluster firms faced from developing‐country competitors. These findings are discussed in relation to their research and managerial implications. © 2005 Wiley Periodicals, Inc.     

Eating fast food: attitudes of high‐school students

Alarmingly consistent recent research shows that industrially produced foods such as fast food contain compounds that add to obesity and high cholesterol among young people. Less physical activity and a higher propensity to eat ready‐made food (in Sweden and internationally) have aggravated the health situation for the young generation. They also have become ‘addicted’ to sugar by the consumption of lemonade and other sweet drinks that are often served in conjunction with fast food. Food consumption patterns are highly cultural, and, once formed in early years, they become difficult to change. The findings of this study, which was based on a small sample of written accounts and transcribed interviews, indicate that high‐school students in Sweden are well aware of the good and bad attributes of fast food, such as: speed, convenience, fat and sugar. Clear differences in attitude were found between male and female students: female students view fast food in a broad food chain context, whereas male students concentrate on fast eating and satiety.     

Understanding bottled water consumption in a high‐poverty context: empirical evidence from a small town in Guatemala

This research investigated the determinants of bottled water consumption using household survey data from a small, poor town in Guatemala. Hurdle (two‐part) models were estimated to account for 73.3% of sampled households that did not consume bottled water. Findings indicated that the vast majority of respondents perceived minimal health risks from drinking bottled water. In contrast, few respondents (3.2%) believed that tap water is totally safe to drink. Estimation results indicated that bottled water consumption was positively associated to health risk perceptions, household income, education and market access. Household size had a negative effect on the likelihood of consuming bottled water. However, once the household had decided to consume bottled water, its consumption increased with each additional household member.     

Priming a Cross‐Category Brand Alliance: The Moderating Role of Attribute Knowledge and Need for Cognition

Firms often enter cross‐category advertising brand alliance strategies with the goal to increase their market share by association with popular but noncompeting brand allies. However, firms are often not aware of the effects of these alliances on consumer perceptions of participating brands. This research explores the factors moderating brand attribute inferences following exposure to a cross‐category advertising brand alliance. It is proposed that attributes of a brand ally may serve as anchors that produce assimilation effects and move perceptions of a target brand toward the ally's attribute value, or as standards of comparison that produce contrast. This work provides evidence that attribute judgments in a cross‐category advertising brand alliance are moderated by attribute knowledge and individual differences in information processing motivation as reflected in self‐reported need for cognition (NFC) ratings.     

The synergistic effects of maltodextrin and high‐fructose corn sweetener 90 in a fat‐reduced muffin

Low‐fat muffins were prepared using as fat substitutes a combination of maltodextrin and high‐fructose corn sweetener 90 (HFCS‐90), which replaced sucrose at a rate of 25%, 50%, 75% and 100%. The focus of the investigation was to determine the synergistic effects of these two ingredients on the physical properties in a low‐fat muffin. Results indicated that maltodextrin and HFCS‐90 were effective in maintaining moisture and water activity (a_w) levels similar (P > 0.05) to the full‐fat muffin. Texture profiles indicated that the low‐fat variations were firmer (P < 0.05) than the full‐fat counterpart. Increased levels of HFCS‐90 had a significant effect (P < 0.05) on crust and crumb darkening. Maltodextrin alone significantly (P < 0.05) impeded the staling rate during storage. However, when maltodextrin was combined with increased levels of HFCS‐90, the staling rate accelerated. The two ingredients were found to be effective in maintaining product quality, but HFCS‐90 could only be used up to a 50% replacement before any adverse effects in product quality were observed.     

Financial literacy and high‐cost borrowing: Exploring the mechanism

Recent studies have suggested that financial literacy is an important determinant of informed borrowing decisions. Despite the evidence that financially literate consumers are less likely to use alternative financial services, the mechanism through which financial literacy discourages demand for alternative financial services has yet to be fully understood. The previous studies proposed several explanations, such as the ability to undertake complex financial calculations and understand contract terms, to link financial literacy to savvy credit choices. This study evaluates the validity of this argument by examining whether or not financial knowledge plays a greater role in borrowing decisions where consumers are forced to rely on financial knowledge. It is assumed that consumers in an information‐sparse environment have a greater incentive to utilize financial knowledge to infer the hidden cost of borrowing contracts. To test this argument, this study examines the extent to which information availability moderates the negative impact of financial knowledge on rent‐to‐own transactions. Information content is captured by state‐level disclosure mandates for rental contracts, given that consumer in a loosely regulated state are exposed to less pricing information. The results illustrate that limited information strengthens the negative association between financial knowledge and rent‐to‐own transactions. This confirms the previous arguments that consumers are active thinkers who refer to financial knowledge to estimate the overall cost of borrowing.     

Nowcasting global economic growth: A factor‐augmented mixed‐frequency approach

Assessing accurately global economic conditions is a great challenge for economists. The International Monetary Fund proposes within its periodic World Economic Outlook report a measure of the global GDP annual growth, that is generally considered as the benchmark nowcast by macroeconomists. In this paper, we put forward an alternative approach to provide monthly nowcasts of the annual global growth rate. Our approach builds on a Factor‐Augmented MIxed DAta Sampling (FA‐MIDAS) model that enables: (i) to account for a large monthly database including various countries and sectors of the global economy and (ii) to nowcast a low‐frequency macroeconomic variable using higher frequency information. Pseudo‐real‐time results over the period 2010–16 show that this approach provides reliable and timely nowcasts of the world GDP annual growth on a monthly basis.     

Objective measures as a predictor of late payments by high‐risk borrowers

Manufactured homes (also known outside the US as prefabricated homes) are a viable housing option for low‐income buyers, but traditional mortgages are not available for purchase of manufactured homes because of a perception of higher risk of default among purchasers of manufactured homes. Research suggests that creditscoring models which incorporate objective data such as income, debt‐to‐income ratio and credit history result in an accurate and objective predictive tool to estimate likelihood of late payments and default among traditional home buyers. This study showed that these same models can be applied similarly to purchasers of manufactured homes. A Tobit model was developed to evaluate which factors most accurately predict default and late payment behaviour among borrowers who purchased a manufactured home. The model showed that when decomposed into the probability of making a late payment and number of late payments, credit score and income are both significant predictors in both sets of borrowers of both the probability of making a late payment and the number of late payments. The higher the credit score, the less likely the borrower is to make a late payment.     

Consumer preference among fluid milks: low‐fat vs. high‐fat milk consumption in the United States

The present study uses data from the Continuing Survey of Food Intakes by Individuals 1994–1996, 1998 in order to analyse milk consumption by type, specifically high‐fat milk vs. low‐fat milk. Whereas trend analysis displays an overall increase in low‐fat milk consumption over the last few decades in the United States, a number of individuals still consume high‐fat milk varieties, and overall dietary intakes have yet to achieve recommended levels. In light of recent research regarding fat intakes, it is important to understand what factors might cause consumers to purchase high‐fat options given the number of low‐fat options available in the market. Through the use of Logistic regression, key socio‐economic and demographic variables are analysed in order to determine their impacts on the probability of consuming low‐fat milk vs. high‐fat milk. The results indicate that a number of factors do influence probability of low‐fat milk consumption as compared with high‐fat milk consumption. Most notably, probability of low‐fat milk consumption appears to be positively related to age, education level, and income level. African Americans and other minorities had a lower probability of consuming low‐fat milk when compared with White people in the sample population. Also, those respondents designated as low income or living in the South were less likely to consume low‐fat milk.     

Predicting financial volatility: High‐frequency time‐series forecasts vis‐à‐vis implied volatility

Recent evidence suggests option implied volatilities provide better forecasts of financial volatility than time‐series models based on historical daily returns. In this study both the measurement and the forecasting of financial volatility is improved using high‐frequency data and long memory modeling, the latest proposed method to model volatility. This is the first study to extract results for three separate asset classes, equity, foreign exchange, and commodities. The results for the S&P 500, YEN/USD, and Light, Sweet Crude Oil provide a robust indication that volatility forecasts based on historical intraday returns do provide good volatility forecasts that can compete with and even outperform implied volatility. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1005–1028, 2004     

Means–end analysis: Does the affective state influence information processing style?

Means–end theory aims at explaining how consumers evaluate products by linking relevant attributes to perceived consequences to desired ends in a hierarchical way, based on core assumptions of cognitive psychology about human information processing. This study investigates the influence of affective states on information processing styles in a means–end measurement situation, thus taking into account an important antecedent and correlate of human decision making and behavior that has received scarce attention so far in the methodological literature on means–end chains. The results reveal that a person's affective state indeed influences the style of information processing. Respondents in a positive mood used more general knowledge structures and processed the laddering questionnaire faster than respondents in a negative or neutral mood. The laddering technique, which measures means–end chains, thus seems to be sensitive to situational effects, and this finding indicates that affective states then also might have an influence on product knowledge and the decision‐making process in a purchase situation. © 2004 Wiley Periodicals, Inc.