Outperformance portfolio optimization via the equivalence of pure and randomized hypothesis testing

We study the portfolio optimization problem of maximizing the outperformance probability over a random benchmark through dynamic trading with a fixed initial capital. Under a general incomplete market framework, this stochastic control problem can be formulated as a composite pure hypothesis testing problem. We analyze the connection between this pure testing problem and its randomized counterpart, and from the latter we derive a dual representation for the maximal outperformance probability. Moreover, in a complete market setting, we provide a closed-form solution to the problem of beating a leveraged exchange traded fund. For a general benchmark under an incomplete stochastic factor model, we provide the Hamilton–Jacobi–Bellman PDE characterization for the maximal outperformance probability.     

Performance hypothesis testing with the Sharpe ratio: The case of hedge funds

As recent research highlights that the Sharpe ratio has a decision theoretic foundation even in the case of asymmetric or fat-tailed excess returns and thus is adequate even for the evaluation of hedge funds, this note provides the first Sharpe ratio based performance analysis of the hedge fund market. Furthermore, it addresses the important practical question whether the choice of hypothesis test used to statistically compare Sharpe ratios can influence an investor’s hedge fund selection process. Our key findings are as follows: (i) Only a small fraction of hedge funds in our large dataset can significantly outperform passive investments in corresponding hedge fund indices. (ii) Especially in the presence of autocorrelated or skewed excess returns, the traditional test of Jobson and Korkie, 1981, Memmel, 2003 tends to overstate the number of significant outperformers and thus provides potentially misleading information for investors. Decision makers are advised to use the bootstrap test of Ledoit and Wolf (2008) allowing robust and more reliable inference.     

Real effects of anticipated and unanticipated money: Some problems of estimation and hypothesis testing

The paper addresses two issues that arise in estimation and testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restriction is imposed that monetary growth does not depend on unanticipated (or unperceived) output. Second, the existing empirical work of Barro and others does not allow for three known channels through which money can affect real variables. These are (1) past and present anticipations of future monetary growth (the inflation tax channel), (2) expectations of monetary growth in a given period conditioned at various preceding dates (the Fischer-Phelps-Taylor effect) and (3) past and present revisions in forecasts of future monetary growth. The presence of the first of these would mean that alternative open-loop monetary growth rules have real effects. The presence of the other two implies that monetary feedback rules can have real effects. Omission of the first channel can lead to biased estimates of the effects of past anticipated monetary growth. Potentially serious observational equivalence problems are associated with the other two.     

Nonparametric efficiency estimation in stochastic environments: Noise-to-signal estimation,finite sample performance and hypothesis testing

This study considers the issues of noise-to-signal estimation, finite sample performance and hypothesis testing for a new nonparametric and stochastic efficiency estimation technique. We apply the technique for analyzing the efficiency of European banks from various regions and with various specializations. The technique seems well suited for this application area because banking inputs and outputs generally are measured with error, the banking production technology is not well-defined and large banking data sets such as BankScope allow for a nonparametric approach.     

Political influences on the costs of banking crises in emerging market economies: testing the U-shaped veto player hypothesis

While there has been considerable research on the consequences of financial crises, there has been little empirical research on the possible effects of the role of domestic political institutions that influence a government's ability to implement crisis management policies. This paper investigates the impact of domestic institutions, characterized by a U-shaped veto player framework, on the output costs of banking crises. The analysis extends MacIntyre's qualitative study (2001 MacIntyre, Andrew. 2001. Institutions and investors: The politics of the economic crisis in Southeast Asia. International Organization, 55(1): 81–122. [Crossref], [Web of Science ®] , [Google Scholar]) of the relationship between veto players and policy risks in the Asian financial crises. For a large sample of emerging market economies, we find support for McIntyre's hypotheses that both too few and too many veto players are associated with greater costs of banking crises.     

How strategists really think. Tapping the power of analogy

Leaders tend to be so immersed in the specifics of strategy that they rarely stop to think how much of their reasoning is done by analogy. As a result, they miss useful insights that psychologists and other scientists have generated about analogies' pitfalls. Managers who pay attention to their own analogical thinking will make better strategic decisions and fewer mistakes. Charles Lazarus was inspired by the supermarket when he founded Toys R Us; Intel promoted its low-end chips to avoid becoming like U.S. Steel; and Circuit City created CarMax because it saw the used-car market as analogous to the consumer-electronics market. Each example displays the core elements of analogical reasoning: a novel problem or a new opportunity, a specific prior context that managers deem to be similar in its essentials, and a solution that managers can transfer from its original setting to the new one. Analogical reasoning is a powerful tool for sparking breakthrough ideas. But dangers arise when analogies are built on surface similarities (headlong diversification based on loose analogies played a role in Enron's collapse, for instance). Psychologists have discovered that it's all too easy to overlook the superficiality of analogies. The situation is further complicated by people's tendency to hang on to beliefs even after contrary evidence comes along (a phenomenon known as anchoring) and their tendency to seek only the data that confirm their beliefs (an effect known as the confirmation bias). Four straightforward steps can improve a management team's odds of using an analogy well: Recognize the analogy and identify its purpose; thoroughly understand its source; determine whether the resemblance is more than superficial; and decide whether the original strategy, properly translated, will work in the target industry.     

Evaluation of infrastructure planning approaches: An analogy with medicine

This paper discusses the evaluation of new infrastructure planning approaches. These new planning approaches have been put forward in response to the challenges of deep uncertainty about the future. These approaches emphasize the need for flexibility of the system in order to enable the plan to adapt to changing conditions. However, these adaptive approaches up till now have seen little real word applications. One important reason for this lack of application is that the efficacy of these approaches has not been established yet. In turn, this is largely due to the problem that there is no agreed upon method for proving the efficacy of a new planning approach. In this paper, we will draw an analogy to medical research and development in order to outline a methodology for establishing the efficacy of new planning approaches. We discuss how the well-established methodology for evaluation new medical treatments can be adapted to evaluating new planning approaches. We illustrate the resulting evaluation methodology by outlining an evaluation strategy for a specific new planning approach. It is concluded that the well-established methodology from medicine can successfully be used to inform the evaluation of infrastructure planning approaches.     

Reevaluating the modernization hypothesis

We revisit and critically reevaluate the widely accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. Existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. Controlling for these factors either by including country fixed effects in a linear model or by including parameterized random effects in a nonlinear double hazard model removes the correlation between income and the likelihood of transitions to and from democratic regimes. In addition, the estimated fixed effects from the linear model are related to historical factors that affect both the level of income per capita and the likelihood of democracy in a country. This evidence is consistent with the idea that events during critical historical junctures can lead to divergent political-economic development paths, some leading to prosperity and democracy, others to relative poverty and non-democracy.     

Multiple hypothesis evaluation in auditing

In many audit tasks, auditors evaluate multiple hypotheses to diagnose the situation. Research suggests this is a complex task that individuals have difficulty performing. Further, there is little guidance in professional standards or literature dealing with the many complexities present in the audit environment. Using probability theory, this study derives the appropriate revision of likelihoods for multiple hypotheses given different realistic audit conditions. The analysis shows that the relationships among the hypotheses dramatically impact the use of audit evidence and the resulting pattern of probability revisions. We also identify testable hypotheses to guide future research and discuss practice implications regarding ways to improve the effectiveness of analytical procedures.     

Local persistence and the PPP hypothesis

This paper examines the statistical properties of the bilateral real exchange rates of the U.S. vs. France, Germany, and the U.K. during the Post-Bretton-Woods period, and draws implications on the Purchasing Power Parity (PPP) hypothesis. Contrary to traditional studies that consider only unit root and stationary processes to describe the real exchange rate behavior, this paper considers an in-between process, the locally persistent process. The empirical results demonstrate the following two findings: (1) Locally persistent processes describe the real exchange rate movements better than unit root and stationary processes, which implies that PPP reversion occurs and PPP holds in the long-run. (2) The confidence intervals for half-life deviations from PPP under local persistence tend to be narrower than those obtained by assuming the ADF and the local-to-unity models.     

Presenting Discounted Future Cash Receipts and Payments in Financial Statements

This article is about the commonly asserted view that present value, the discounted amount of future cash receipts and payments, is an attribute of assets and that it ideally should replace acquisition cost as the attribute of assets to present in financial statements. The view is based on faulty extrapolation from economics and the study of finance. Use of present value in connection with the preparation of financial statements does not contribute to performing their basic function, which is to report relevant real world conditions as they exist and existed and relevant financial effects of relevant real world events as they occurred. The view turns discounting into a magical process, it reverses the chronological order of cause and effect, and it unjustifiably substitutes the financial effects of supposed future events for the financial effects of historical events as the raw material of financial statements. The future does not yet exist and such financial events have not yet occurred; the present condition therefore can in no way depend on them. The discounted amount of future cash receipts and payments is not an attribute of assets and it should therefore not replace acquisition cost as the attribute of assets to present in financial statements.     

Sticky-price models and the natural rate hypothesis

A major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state. In this paper we estimate a dynamic optimizing business cycle model whose price-setting behavior satisfies the natural rate hypothesis. The price-adjustment specifications we consider are the sticky-information specification of Mankiw and Reis (Sticky information versus sticky prices: a proposal to replace the new Keynesian Phillips curve. Quarterly Journal of Economics 117, 1295-1328) and the indexed contracts of Christiano et al. (Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113, 1-45). Our empirical estimates of the real side of the economy are similar whichever price adjustment specification is chosen. Consequently, the alternative model specifications deliver similar estimates of the U.S. output gap series, but the empirical behavior of the gap series differs substantially from standard gap estimates.     

The wage-push hypothesis: The Italian case

In this paper an attempt has been made to find out the extent to which all the strike variables that I know of are correlated with the rate of wage inflation. The general conclusion is that the standard wage-push hypothesis performs very poorly.     

Some evidence on Ross' resolution irrelevancy hypothesis

This research attempts to discriminate empirically between the predictable events and resolution irrelevancy hypotheses as both pertain to abnormal stock price performance around regular and special proxy statement mailing dates and the related shareholder meeting dates. We find no evidence that these events result in the positive wealth effects suggested by the predictable events hypothesis. We do find evidence of increased idiosyncratic stock price volatility or information flow around special meeting proxy statement mailing dates and special meeting dates. Thus, our evidence supports the resolution irrelevancy hypothesis.     

物流金融：出现动因、发展模式与风险防范

物流金融是金融机构为减低交易成本和风险,利用物流企业提供的物流信息和物流监管,依据物流供应链而进行的金融活动。物流金融可分为物流结算金融模式、物流仓单金融模式、物流授信金融模式和综合运作模式几种。作为一种新型业务,物流金融也带来了与以往不同的风险,认识并控制这些风险是物流金融开展好坏的关键。因而,从物流金融的概念入手,分析了物流金融的主要模式,汇总了国内外学者的研究成果,并对不同的物流金融发展模式潜在的风险及应对之策进行了分析。     

ATM自动化测试与手工测试的合理结合

近年来,银行ATM种类和数量在不断增加,给银行软件开发人员带来很大的工作量。由于大部分ATM的硬件模块都为少数厂商所开发,具有一定的代表性,可对其进行自动化测试。当然,需要人为干预的不在考虑的范围,如拔插钞箱、卡回收慢和打印纸状态的变化等案例。ATM自动化测试需要对测试案例做调整,整理出一套自动化测试案例,需要人为干预的归类到异常测试里,以使测试能正常顺利地进行。利用自动测试可避免大量人力和时间的投入,节省人力成本,降低人为因素导致的错误,弥补手工测试的不足。     

The cultural affinity hypothesis and mortgage lending decisions

This paper conducts an empirical analysis of the cultural affinity hypothesis put forth by Calomiris, et al. (1994) in the mortgage lending market. This hypothesis implies that white loan officers, because of a lack of familiarity with minority applicants, will rely more heavily on characteristics that can be observed at low cost (e.g., objective loan application measures) in evaluating the creditworthiness of minority applicants relative to white applicants. Using a cleansed sample of 1,991 loan applications drawn from data collected by the Federal Reserve Bank of Boston, the results of the analysis were consistent with the cultural affinity hypothesis. In particular, we found that marginal black and Hispanic applicants appeared to be held to higher quantitative standards on such objective factors as credit history and debt obligation ratios than were similarly situated marginal white applicants.