Displaying expected values in risk elicitation tasks: the effect of information in experimental risk research

We investigate the influence of providing expected lottery results to experiment participants in two common risk attitude elicitation tasks. In a between-subject design, either the Holt and Laury task or the Eckel and Grossman task is carried out by a sample of 208 students. We find no significant effect of shown expected values on the risk attitude measured by the tasks. This result even holds true if we divide the experiment participants into specific sub-groups, i.e. female and male, or lower numeracy and higher numeracy participants. Furthermore, comprehension and processing time are not significantly influenced by presented expected values. Therefore, we conclude that providing information on expected values does not influence decision-making in tasks involving risk. This result indicates the robustness of elicited risk attitudes to variation in common experimental methods, and demonstrates that more information could be provided without creating bias in the results.     

A characterisation of the methodology of qualitative research on the nature of perceived risk: trends and omissions

The issue of how risk is ‘perceived’ is one of significant research interest and immense practical importance. In spite of this wide interest, however, it is probably fair to say that most emerging ‘risk’ crises – whether related to natural or technological phenomena – come as a surprise to researchers and to society as a whole. Prediction of human responses to novel potential hazards (or novel manifestations of old hazards) is neither reliable nor complete; strategies to ameliorate inappropriate concerns when they arise (or to make realistic inappropriate absences of concern) do not appear totally effective. It therefore seems apt to ask the question: just what have we learned about ‘risk perception’? In this paper we conduct a structured review of qualitative research on perceived risk – to be followed by a subsequent analysis of quantitative research in a later paper – focusing upon methodological issues. Qualitative research often precedes quantitative research, and ideally informs it; it seeks depth and meaning from few subjects rather than identifying patterns within larger samples and populations. Without adequate qualitative research, quantitative research risks misanalysis of the target phenomenon, at the very least by the omission of relevant factors and inclusion of irrelevant ones. Our analysis here – of qualitative studies conducted across a range of disciplines, not all of which will be familiar to the readers of this journal – suggests that this research suffers from an incomplete coverage of the ‘risk perception universe’, typified by a focus on atypical hazards and study samples. We summarise the results of this research, while pointing out its limitations, and draw conclusions about future priorities for research of this type.     

Cultural attributes and risk perception: the moderating role of different types of research and development

Drawing on the grid–group culture theory, this study examines hypotheses to explain how the cultural attributes of an organization influence professionals’ perceptions of risk in the context of research and development (R&D) activities. Specifically, we explore whether two dimensions of cultural attributes – the grid dimension and the group dimension – affect organizational commitment and risk perception. We also investigate whether the impact of the cultural attributes on risk perception is mediated by organizational commitment and whether different types of R&D activities – applied research and developmental research – serve as a moderating variable on the relationships among cultural attributes, organizational commitment, and risk perception. The partial least squares method was used to analyze data collected from full-time senior researchers with over five years of experience at a large technology institute. Our findings indicate that cultural attributes influence the risk perception of R&D professionals through the mediating function of organizational commitment. Further, we found that different types of R&D activities have moderating effects on the relationship between organizational commitment and risk perception.     

When time is not on our side: The costs of regulatory forbearance in the closure of insolvent banks

In this paper, we empirically estimate the costs of delay in the FDIC's closures of 433 commercial banks between 2007 and 2014 based upon a counterfactual closure regime. We find that the costs of delay could have been as high as $18.5 billion, or 37% of the FDIC's estimated costs of closure of $49.8 billion. We think that these findings call for a more aggressive stance by bank regulators with respect to the provisions for loan losses and write-downs of banks’ non-performing assets. More aggressive (and earlier) provisions and write-downs, or adoption of a capital ratio that penalizes nonperforming loans, would allow the concept of “prompt corrective action” (PCA) to play the role that it was meant to play in reducing FDIC losses from insolvent banks.     

Idiosyncratic risk and the cross-section of stock returns: Merton (1987) meets Miller (1977)

Merton [1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483–510] predicts that idiosyncratic risk should be priced when investors hold sub-optimally diversified portfolios, and cross-sectional stock returns should be positively related to their idiosyncratic risk. However, the literature generally finds a negative relationship between returns and idiosyncratic risk, which is more consistent with Miller's [1977. Risk, uncertainty, and divergence of opinion. Journal of Finance 32, 1151–1168] analysis of asset pricing under short-sale constraints. We examine the cross-sectional effects of idiosyncratic risk while explicitly recognizing the confounding effects that dispersion of beliefs and short-sale constraints produce in the Merton framework. We find strong support for Merton's [1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483–510] model among stocks that have low levels of investor recognition and for which short selling is limited. For these stocks, the relation between idiosyncratic risk and expected returns is positive, as predicted by Merton [1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483–510].     

Deoxynivalenol (DON) in wheat: an example of weighing the pros and cons of food stuffs

A Committee of the Health Council of the Netherlands advised on deoxynivalenol (DON), a mycotoxin occurring in cereals. TDIs of 1.0 and 0.5?µg.kg_{body weight} ^?1.day^?1 have been based on mice and pig studies in which DON reduced growth. In 1999, the 50^th and 95^th percentiles of DON intake by 1‐4‐year‐old children were, respectively, 1.3 and 2.4?µg.kg_{body weight} ^?1.day^?1. The Committee considered: (i) TDI contains safety factors, (ii) a slightly reduced weight gain is not necessarily harmful, (iii) when growth rate is highest, children consume little or no wheat, and (iv) in real life, exposure varies, causing the effect to be smaller. The Committee concluded that an exposure that only incidentally exceeds—up to about five times—0.5?µg.kg_{body weight} ^?1.day^?1 very unlikely inhibits weight gain. More severe effects on immunity, fertility and the foetus may occur at intakes higher than 2.5µg.kg_{body weight} ^?1.day^?1. Nonetheless, toxin exposure should be kept as low as possible. The Committee advised to agriculturally reduce DON content; second one may exclude wheat with high DON content for human consumption. Limits of 500 and 100?µg/kg_wheat prevent exposure exceeding 1.5 and 0.5?µg.kg_{body weight} ^?1.day^?1, respectively. As wheat products are good sources of nutrients, the Committee advised against discouraging their consumption.     

Smile and default: the role of stochastic volatility and interest rates in counterparty credit risk

In this research, we investigate the impact of stochastic volatility and interest rates on counterparty credit risk (CCR) for FX derivatives. To achieve this we analyse two real-life cases in which the market conditions are different, namely during the 2008 credit crisis where risks are high and a period after the crisis in 2014, where volatility levels are low. The Heston model is extended by adding two Hull–White components which are calibrated to fit the EURUSD volatility surfaces. We then present future exposure profiles and credit value adjustments (CVAs) for plain vanilla cross-currency swaps (CCYS), barrier and American options and compare the different results when Heston-Hull–White-Hull–White or Black–Scholes dynamics are assumed. It is observed that the stochastic volatility has a significant impact on all the derivatives. For CCYS, some of the impact can be reduced by allowing for time-dependent variance. We further confirmed that Barrier options exposure and CVA is highly sensitive to volatility dynamics and that American options’ risk dynamics are significantly affected by the uncertainty in the interest rates.     

The siting of a research centre on clean coal combustion and CO2 capture in Spain: Some notes on the relationship between trust and lack of public information

This paper aims to gain a better understanding of the role played by trust in the context of scarcity of public information, vis‐à‐vis the installation of a Centre for Investigation in Advanced Technologies (Centro de Investigación de Tecnologías Avanzadas, CITA) to be located in a coal‐rich region of Spain. Data from semi‐structured interviews (n = 15), a questionnaire survey (n = 400) and focus group sessions (2) are drawn together to reveal how the local community perceives the proposed CITA scheme, and how this relates to the level of trust placed in the project promoters. Results illustrate how a lay community gives meaning to an unknown technological project, trying to place it within its appropriate economic, social and political context, and relating it to prior knowledge and experiences. Results also show that, in contrast to certain risk communication theories, the public is able to place trust in a technological activity and their promoters despite a general lack of knowledge on either.     

Articulation,Profit or Loss and OCI in the IASB Conceptual Framework: Different Shades of Clean (or Dirty) Surplus

Abstract

The 2015 International Accounting Standards Board (IASB) Conceptual Framework Exposure Draft (2015 IASB CF ED) proposes a mixed valuation and transactions approach to income determination. Nevertheless, it does not clearly choose between single or dual concepts of profit, which renders the 2015 IASB CF ED’s financial accounting model somewhat incoherent. The 2015 IASB CF ED proposes a rebuttable presumption that profit or loss should be all-inclusive. Only the IASB can rebut this presumption, but the 2015 IASB CF ED provides no clear conceptual basis on which to rebut this presumption. In spite of considering dual measurement, the IASB believes that it is neither possible, nor necessary, to distinguish between profit or loss and other comprehensive income (OCI) on a conceptual basis. This paper suggests that the 2015 IASB CF ED’s approach to measurement can be improved by introducing a deprival value measurement rule in cases where fair value and historical cost are not appropriate. Furthermore, it argues that under dual measurement it is both necessary and possible to make a conceptual distinction between the realised items of income and expense in profit or loss and those recognised by accretion in OCI.     

The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization

In the period from 1880 to 1913, time-varying German and British stock market returns are related to business cycle variables such as the deviation of industrial production from trend. Common British and German business cycle dynamics Granger cause stock returns and explain more than 20% of time variation in one-year ahead stock market returns. The link between business cycle variables and stock returns is less pronounced in the modern era of financial globalization. A potential explanation for this finding is the fact that during the first globalization period stock indices were dominated by industrial companies and stock prices varied in line with dividends. In the modern era of globalization stock price dynamics predominantly reflect time-varying risk premia.     

信息不对称对中小企业融资决策的影响研究——以东莞市中小企业为例

本文以信息不对称理论所强调的代理成本和资本市场层次理论所强调的信息披露成本为理论出发点,以东莞中小企业为案例,研究表明,我国创业板市场建立的意义不在于它能够彻底地解决中小企业融资过程中的代理成本问题,而在于它使中小企业能够通过融资渠道的选择,降低其融资过程中的代理成本,并且通过衡量不同资本市场层级的融资收益与信息披露成本之间的差额,实现企业价值最大化。