Canadian cities as regional engines of growth: agglomeration and amenities

Abstract.  Canadian regional population growth is less understood than that of the United States. In both countries, certain regions have persistent population growth. Yet, unlike U.S. trends of amenity-driven migration away from historic urban centres, Canadian growth is more urban centric. This study assesses whether agglomeration economies in the few major Canadian metropolitan areas lead to population growth in or near these cities rather than the more-dispersed U.S. patterns. The results suggest that disparities such as the concentration of Canadians along its southern border may explain migration patterns, indicating that key differences in initial conditions may produce different outcomes between the two countries.     

Renegotiation in agency contracts, menus vs. simple contracts

The literature on contracts has shown that renegotiation in agency relationships generates efficiency losses when the principal leads the renegotiation. We show that contractual incompleteness may reduce such efficiency loss. This provides an explanation to the widespread use of simple contracts. We further point at the limited liability of the agent as a source of inefficiency when he leads the renegotiation; this latter result tempers the irrelevancy of contractual incompleteness demonstrated earlier in the literature. I thank E. Del Rey and the referees for their helpful comments and suggestions. Financial support from the EU RTN grant HPRN-CT-2000-00064 is gratefully acknowledged.     

Technological Creativity and Cheap Labour? Explaining the Growing International Competitiveness of German Mechanical Engineering before World War I

Abstract. Which factors caused the growing international competitiveness of German mechanical engineering industry in the pre‐World War I period? In this paper, we want to address this question and elucidate whether or not the international market success of machine builders in the German Empire was determined by technological creativity and the availability of a comparatively cheap labour force. Based on an unbalanced panel, we therefore investigate the influence of demand, labour costs and technological creativity on export performance of 32 different machinery types. We find robust evidence that the development of export–import ratios in mechanical engineering was positively influenced by the growth of patent stocks that represent the new knowledge being available for German machine builders. In addition, we present some evidence for the assumption that the growing international competitiveness of German mechanical engineering was also caused by decreasing relative unit labour cost.     

Wealth constraint and contractual arrangements

Abstract .  We examine how a project owner optimally selects a project operator and motivates him to deliver an unobservable effort when potential operators are wealth constrained. We show that, when potential operators' abilities are common knowledge, an operator's share of realized profit can be increasing, invariant, or decreasing in his ability depending on the nature of production technology. However, when potential operators are privately informed about both their abilities and their effort supply, a bunching contract arises in equilibrium for a general class of production technology. In the case of bunching, all potential operators are selected equally often and awarded an equal share of realized profit. The finding provides an explanation for the relative uniformity of contract terms in many practical settings.     

Publishing performance in economics: Spanish rankings (1990–1999)

Abstract. This paper contributes to the growing literature that analyses the Spanish publishing performance in Economics throughout the 1990s. Several bibliometric indicators are used in order to provide Spanish rankings (of both institutions and individual authors) based on Econlit journals. Further, lists of the ten most influential authors and articles over that period, in terms of citations, are reported. We are grateful to many colleagues who made very useful remarks to preliminary versions of this paper, as well as to two anonymous referees. We are particularly indebted to Xavier Sala-i-Martín, without whose invaluable help this work would not have been possible. All errors or omissions are of our exclusive responsibility.     

Dissipative advertising signals quality: Static model with a continuum of types

Advertising and price have been shown to signal product quality. Most works limit the number of types to high and low quality. I characterize the optimal separating marketing strategy when both quality and marginal cost are uncertain and continuous variables.     

IS THE COST OF DEBT CAPITAL HIGHER FOR YOUNGER FIRMS?

Not much is known about the returns to aging (maturing) in the market for small business finance. Using a large panel of closely held micro firms, we document that the cost of debt capital is higher for young firms. The main finding of this paper is that this negative qualitative relation is also obtained when cross‐sectional variation in unobservable creditworthiness of small businesses and within‐firm (i.e., inter‐temporal) variation in their observable creditworthiness are held constant. We control for the former by firm‐specific fixed effects and for the latter by a commercial credit score. We also provide an estimate of the quantitative magnitude of the aging effect, on which both economic theory and earlier empirical research are silent. We find that when a small business ages one year, its cost of debt capital decreases by 1–2 basis points. The effect is neither negligible nor alarmingly large.     

Institutional development and stock price synchronicity: Evidence from China

Better developed legal and political institutions result in greater availability of reliable firm-specific information. When stock prices reflect more firm-specific information there will be less stock price synchronicity. This paper traces the experience of China, an economy undergoing dramatic institutional change in the last 20 years with rich variation in experiences across provinces. We show that stock price synchronicity is lower when there is institutional development in terms of property rights protection and rule of law. Furthermore, we investigate the influence of political pluralism on synchronicity. A more pluralistic regime reduces uncertainty and opaqueness regarding government interventions and therefore increases the value of firm-specific information that reduces synchronicity.     

Liquidity-adjusted conditional capital asset pricing model

This paper derives a liquidity-adjusted conditional two-moment capital asset pricing model (CAPM) and a liquidity-adjusted conditional three-moment CAPM respectively based on theory of stochastic discount factor. The liquidity-adjusted conditional two-moment CAPM shows that a security's conditional expected excess return consists of three parts: its conditional expected liquidity cost, the systemic risk premium and the liquidity risk premium. The liquidity-adjusted conditional three-moment CAPM shows that a security's conditional expected excess return depends on its conditional expected liquidity cost, the conditional covariance between its return and the market return, the conditional covariance between its liquidity cost and the market liquidity cost, and the conditional coskewness of its return and the market return.     

Why don’t you trade only four days a year? An empirical study into the abnormal returns of quarters first trading day

In this research I examined a calendar anomaly that occurs at the beginning of each quarter. Through an examination of 34 years of daily and annual returns for the S&P500 and 13 years of returns for popular ETFs, I have demonstrated the existence of the First Day of Quarter (FDQ) effect. By trading only four days a year from the beginning of 2000 until the end of 2013, an investor could have gained 113.1% of the S&P500 returns for that period, while being exposed to stock risk for only 56 days. Moreover, for 11 of those 14 years of trading, the FDQ was responsible for more than 10% of the annual returns. Only for two years since 2000 (2001, 2005) has the FDQ yielded a negative return. The biggest beneficiary of the FDQ is the financial sector, which for the last 13 years of investing has been non-fertile, showing −6.12% total return. Investing only at the beginning of each quarter for a total of 52 days would have yielded a return of 40.17%. The next beneficiary of the FDQ is the technological sector. The 82.5% of total return gained in this sector over the last 13 years could have been gained in only 52 days of trading.     

Return Guarantees with Delayed Payment

Abstract. A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor that is granted with respect to the delayed payments can either be deterministic or equal to the (stochastic) bank account. It turns out that the common choice of a deterministic accumulation factor gives rise to problems concerning the pricing and the risk management of the insurance contract.     

U.S. industry-level returns and oil prices

This paper empirically investigates and provides further support for the oil price effect documented in Driesprong et al. (2008) in the U.S. industry-level returns. We find that oil price predictability is concentrated in a relatively small number of industry-level returns, the relevant measure for a study of the oil effect is percentage change in oil spot prices, and changes in oil futures prices have virtually no prediction power for industry-level returns. With percentage changes in oil spot prices as the predictor, approximately one fifth of industry returns are oil-predictable. We detect a two trading weeks delay in reaction to oil price changes which is consistent with the Hong and Stein (1996) underreaction hypothesis. These results are robust to various alternative specifications, and are shown to be unrelated to time-varying risk premia. Moreover, we demonstrate that trading strategies based on the oil effect generate superior gains in comparison with buy-and-hold strategy in the presence of reasonable trading costs.     

Is the more able manager always safer from takeover?

It's commonly believed that managers with higher ability would be less likely to be taken over. We set out a model, which is built on Zwiebel (1996), to show that there is no monotonic relationship between manager's ability and the probability of being taken over. A manager with relatively high ability would be taken over since this manager cannot commit to renegotiating debt contract with the creditor after taking on a bad project; anticipating this, the raider would take over the firm and remove the high-ability manager in the first place.