Command-and-control: Alternative futures of geoengineering in an age of global weirding

In July 2012, Russ George, the founder of Planktos Inc., organized efforts to dump 100 tons of iron sulfate off the coast of Canada to engineer a plankton bloom that would, ostensibly, absorb carbon dioxide and store it in the depths of the Pacific Ocean. As George's geoengineering experiment is one of the largest and first of its kind, many were quick to denounce his rogue action while others were delighted to see that he succeeded as a large algae bloom was reported to have emerged. Using the George event as a point of entry for exploring alternative futures of geoengineering in an age of global weirding, this project fuses the 2 × 2 scenario modeling technique with the “Mānoa School” four-futures method by situating command and control, along X (control) and Y (command) axes as two critical uncertainties and key drivers of change that will impact the design, development, and diffusion of climate mitigation engineering initiatives, which some see as holding the only solution to avert global catastrophe and others condemn as a postnormal remedy.     

Towards an orientation of higher education in the post Rio + 20 process: How is the game changing?

The purpose of this paper is to identify and assess the implications of sustainable development for the future orientation of higher education, especially after the 2012 United Nations Conference on Sustainable Development (Rio + 20). A qualitative trend analysis is being used for this purpose, in the context of which three macro trends are combined: (1) higher education that has been developed via five periods; (2) sustainable development that has evolved through three stages; and (3) the nexus between sustainable development and higher education which has strengthened through three phases. The simultaneous analysis of the macro trends regarding their possible interactive effects (through an expert panel discussion) demonstrates that higher education and universities under the influence of sustainable development elements are entering into a new era in which the function of “higher education for sustainable development” could be interpreted as the seeds of a newly emerging mission for universities. In this regard, it is expected that the concept of “sustainable university” is likely to become more common to meet the emerging mission. Consistent with the Rio + 20 outcomes, the authors analyzed the concept of “sustainable university” and identified the fact that it is practically divided into three interrelated and complementary categories, namely social-, environmental-, and economic-oriented university in pursuit of actualizing sustainable development.     

Predictive regression with order-p autoregressive predictors

Studies of predictive regressions analyze the case where y_t is predicted by x_t ? 1 with x_t being first-order autoregressive, AR(1). Under some conditions, the OLS-estimated predictive coefficient is known to be biased. We analyze a predictive model where y_t is predicted by x_t ? 1, x_t ? 2,… x_t ? p with x_t being autoregressive of order p, AR(p) with p > 1. We develop a generalized augmented regression method that produces a reduced-bias point estimate of the predictive coefficients and derive an appropriate hypothesis testing procedure. We apply our method to the prediction of quarterly stock returns by dividend yield, which is apparently AR(2). Using our method results in the AR(2) predictor series having insignificant effect, although under OLS, or the commonly assumed AR(1) structure, the predictive model is significant. We also generalize our method to the case of multiple AR(p) predictors.     

The scapegoat theory of exchange rates: the first tests

The scapegoat theory of exchange rates (Bacchetta and van Wincoop, 2004, Bacchetta and van Wincoop, 2013) suggests that market participants may attach excessive weight to individual economic fundamentals, which are picked as “scapegoats” to rationalize observed currency fluctuations at times when exchange rates are driven by unobservable shocks. Using novel survey data that directly measure foreign exchange scapegoats for 12 exchange rates, we find empirical evidence that supports the scapegoat theory. The resulting models explain a large fraction of the variation and directional changes in exchange rates in sample, although their out-of-sample forecasting performance is mixed.     

The home bias is here to stay

Over the last 15 years, dramatically decreasing foreign investment costs have not reduced the home bias. We show that the home bias induced by a given cost is proportional to the factor ρ/(1 − ρ), where ρ is the average correlation between markets. This factor is very sensitive to the correlation, especially when the correlation is high. Empirically, correlations have been steadily increasing from 0.4 in the 90’s to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation.     

The chronospace: A proposed methodology for futures studies

In a recent article in Futures, ¹ eclectics was presented as the first part of a methodology of futures studies. In this second article, time is introduced as a variable and expressed in a diagram entitled the chronospace. Time is treated both as a subjective perception and as a vehicle for causality. The passage of time is perceived as a “scenario”, the content of which must vary with the scenario writer and the medium used. The perceived symmetry between historical and futures studies leads the author to propose the construction of a new science of time—chronosophy —to use with eclectics as an operational methodology for futures studies.     

Exact inference and optimal invariant estimation for the stability parameter of symmetric α-stable distributions

Hill estimation (Hill, 1975), the most widespread method for estimating tail thickness of heavy-tailed financial data, suffers from two drawbacks. One is that the optimal number of tail observations to use in the estimation is a function of the unknown tail index being estimated, which diminishes the empirical relevance of the Hill estimation. The other is that the hypothesis test of the underlying data lying in the domain of attraction of an α-stable law (α < 2) or of a normal law (α ≥ 2) for finite samples, is performed on the basis of the asymptotic distribution, which can be different from those for finite samples. In this paper, using the Monte Carlo technique, we propose an exact test method for the stability parameter of α-stable distributions which is based on the Hill estimator, yet is able to provide exact confidence intervals for finite samples. Our exact test method automatically includes an estimation procedure which does not need the assumption of a known number of observations on the distributional tail. Empirical applications demonstrate the advantages of our new method in comparison with the Hill estimation.     

Globally scanning for “Megatrends of the Mind”: Potential futures of futures thinking

This paper focuses on emergent signs of evolutionary change in human thinking that run parallel with many of the exponential changes manifesting in the external world. Weak signals are identified from the early 20th century indicating the emergence of new knowledge patterns. These signals have strengthened in the last 40 years. The paper first identifies new ways of thinking within several disciplines such as science, philosophy, religion and education. New knowledge patterns are then identified in discourses that traverse disciplinary boundaries through transdisciplinary approaches such as futures studies and planetary/global studies. The paper then discusses evolution of consciousness, identifying research that theorises new ways of thinking as being related to individual psychological development and/or socio-cultural evolution. Finally, evolutionary concepts are discussed that attempt to meta-cohere the new knowledge patterns via the terms postformal, integral and planetary. Notably, academic research on “futures of thinking,” “evolution of consciousness” and/or “global mindset change” has been, until now, largely ignored by mainstream academic discourse on evolution, consciousness and futures studies.     

Time to equilibrium in exchange rates: G-10 and Eastern European economies

This paper reports different times-to-equilibrium for G-10 developed economies and the Eastern European emerging economies. By applying a novel method of value-weighted index to highly-trade-linked economies, we test the purchasing power parity to the full length of time-to-equilibrium. The times-to-equilibrium obtained are: 6 years for developed and 2 years for emerging economies. These results are consistent with the sticky price hypothesis: economies trading in highly aggregated capital goods take longer time to reach price equilibrium in the face of overshooting exchange rates: the opposite is true for primary exporters. This finding is new for these two groups, and could be compared usefully with the earlier reports of long half-life for developed countries. Also, our method of measurement establishes the actual time of the theory prediction on price-to-currency relationship. It is possible to apply this methodology to study more groups of countries.     

Market microstructure: A survey

Market microstructure studies the process by which investors’ latent demands are ultimately translated into prices and volumes. This paper reviews the theoretical, empirical and experimental literature on market microstructure relating to: (1) price formation, including the dynamic process by which prices come to impound information, (2) market structure and design, including the relation between price formation and trading protocols, (3) Transparency, the ability of market participants to observe information about the trading process, and (4) Applications to other areas of finance including asset pricing, international finance, and corporate finance.     

Predicting firms' corporate governance choices: Evidence from Korea

This paper contributes to a new literature on the factors that affect firms' corporate governance practices. We find that regulatory factors are highly important, largely because Korean rules impose special governance requirements on large firms (assets > 2 trillion won). Industry factors, firm size, and firm risk are also important. Other firm-specific factors only modestly affect governance even when they are statistically significant. This suggests that many Korean firms do not choose their governance to maximize share price. Among firm-specific factors, the most significant are size (larger firms are better governed) and firm risk (riskier firms are better governed). Long-term averages of profitability and equity finance need are significant, where short-term averages are not. This is consistent with “sticky governance”, in which firms alter their governance slowly in response to economic factors.     

Gaining a competitive edge through acquisitions: Evidence from the telecommunications industry

I study the announcement effects of all acquisitions in the recent telecom wave on both the acquirers and their industry competitors. I find evidence of negative rival returns (? 0.55%, t-stat = 2.47) by focusing on non-horizontal acquisitions where rivals are less susceptible to experience positive returns due to increased market power or expectation that some will become future targets themselves. I find that this effect is worse for closer rivals defined as having similar size and being in the same primary service area as the acquirer. Competitor returns are positively correlated with those of the acquirers suggesting that the negative impact experienced by competitors is driven by acquisitions in which the acquirer itself is earning negative abnormal returns. Results are broadly consistent with the Competitive Advantage Hypothesis that posits acquisitions are a means of corporate restructuring in a changing environment, awarding the acquirer a competitive edge and thereby making these acquisitions costly for their non-merging competitors.     

Risk management implications of time-inconsistency: Model updating and recalibration of no-arbitrage models

A widespread approach in the implementation of asset pricing models is based on the periodic recalibration of its parameters and initial conditions to eliminate any conflict between model-implied and market prices. Modern no-arbitrage market models facilitate this procedure since their solution can usually be written in terms of the entire initial yield curve. As a result, the model fits (by construction) the interest rate term structure. This procedure is, however, generally time inconsistent since the model at time t = 0 completely specifies the set of possible term structures for any t > 0. In this paper, we analyze the pros and cons of this widespread approach in pricing and hedging, both theoretically and empirically. The theoretical section of the paper shows (a) under which conditions recalibration improves the hedging errors by limiting the propagation of an initial error, (b) that recalibration introduces time-inconsistent errors that violate the self-financing argument of the standard replication strategy. The empirical section of the paper quantifies the trade-off between (a) and (b) under several scenarios. First, we compare this trade-off for two economies with and without model specification error. Then, we discuss the trade-off when the underlying economy is not Markovian.     

How costly is the Sarbanes Oxley Act? Evidence on the effects of the Act on corporate profitability

The Sarbanes-Oxley Act (SOX) was intended to protect investors by improving the accuracy and reliability of corporate disclosures. However, critics have argued that the costs of SOX far outweigh its intended benefits. Prior studies based on stock-price reactions to SOX-related events document mixed evidence on the expected impact of SOX. In contrast, we provide evidence on the net realized costs of SOX by examining its impact on operating profitability. We find that average cash flows decline by 1.3% of total assets after SOX. These costs are more significant for smaller firms, for more complex firms, and for firms with lower-growth opportunities. Annually, these costs range from $6 million for smaller firms to $39 million for larger firms. Further, we document that net SOX-related costs are not limited to one-time expenses associated with internal-control design and implementation. In aggregate, for the 1428 firms in our sample, these costs amount to about $19 billion per year. Profitability is lower for up to four years post-SOX. To our knowledge, ours are the first estimates of the realized net costs imposed by SOX.     

IPO market timing. The evidence of the disposition effect among corporate managers

Until now, IPO market timing has been mostly associated with a varying number of IPOs in certain periods of “hot” and “cold” issue markets. We would like to offer a different perspective. We focus on a speed of the IPO process, after the decision to go public was actually made. Our hypothesis is that in “hot market” managers will tend to minimize the time necessary to go public in order to take advantage of high valuations as quickly as possible. On the contrary, if the firm is not ready with the IPO on time and in the meantime the market falls during the going-public process, managers will tend to delay the IPO hoping that the good market conditions will come back soon. We argue that such a behavior might be attributed to the disposition effect among firms' managers.We find a statistically significant negative correlation between the market return and the speed of the IPO process. The absolute correlation coefficient is higher when the market return is calculated 90 days prior to the Approval Date of the prospectus than when it is calculated 90 days after the Approval Date. Hence, a vast part of the market influence on the speed of the offering process has its origin at the time when offering is formally not possible yet. External factors occurring after the Approval Date seem to be less important than the managerial decision influenced by observation of the market situation prior to the Approval Date.We also find that for firms débuting faster than the median of our sample, the average market return in the period between the IPO date and the median is positive. On the other hand, in the group of slower firms, the average market return in the period between the median and the IPO date is negative. There is an analogy between firms – débuting too fast in bullish market and too slow in bearish market, and investors – selling winning stocks too quickly and keeping falling stocks for too long in their portfolios. Both managers and investors seem to be biased by the S-shape utility function, as predicted by the prospect theory of Kahnemann and Tversky (1979).     

Narratives of the future: Suspending disbelief in forest-sector scenarios

Scenario analysis considers highly uncertain future conditions. The method involves developing and analyzing plausible narratives of the future and evaluating them for a range of implications. The power of scenarios lies in creating and considering compelling stories about the future. Thus, narrative, defined as an account of a series of events, is central to the process and plays a pivotal role in engaging participants in a scenario analysis exercise. While a good scenario story can engage individuals and influence their suspension of disbelief, we know little about how participants actually respond to the scenarios so they can, and will, suspend disbelief in scenario outcomes.We explored the role of narrative in suspension of disbelief in a scenario-based study of the long-term future of Canada's forests and forest sector. We discovered that specific aspects of the scenario narratives themselves influenced participants’ suspension of disbelief. While interacting with the scenario narratives, participants actively worked to suspend disbelief by creating new narratives or accessing other existing ones, and by projecting themselves into the scenarios as characters in the stories. Our results may help scenario writers, practitioners, and researchers understand what, in one project, cued people's abilities to suspend disbelief and engage productively in discussions about possible futures.     

Do FOMC minutes matter to markets? An intraday analysis of FOMC minutes releases on individual equity volatility and returns

This paper examines the 2006 to 2007 time period to determine the extent to which the release of the Federal Reserve minutes affects equity volatility and returns for 2832 individual firms. Using intraday data, we find that equity returns are essentially unaffected by FOMC minutes releases. We do find evidence of volatility effects, in that conditional volatility is lower prior to the minutes release and higher after the minutes release on release days, relative to a “control” day one week prior to the release date. These differences manifest at the 2:00–2:05 pm interval, and generally dissipate within 15 min. Consistent with previous literature, we also find evidence of both industry-specific and firm size effects in our data. Finally, we see that volatility is higher (lower) when the minutes are released after the Federal Reserve engages in restrictive (expansionary) monetary policy. Our results are robust to a variety of different definitions of the “control” dates, as well as differing industry definitions.     

How corporate governance affect firm value? Evidence on a self-dealing channel from a natural experiment in Korea

Prior work in emerging markets provides evidence that better corporate governance predicts higher market value, but very little evidence on the specific channels through which governance can increase value. We provide evidence, from a natural experiment in Korea, that reduced tunneling is an important channel. Korean legal reform in 1999 changed the board structure of “large” firms (assets > 2 trillion won) relative to smaller firms. In event studies of the reform events, we show that large firms whose controllers have incentive to tunnel earn strong positive returns, relative to mid-sized firms. In panel regressions over 1998–2004, we also show that better governance moderates the negative effect of related-party transactions on value and increases the sensitivity of firm profitability to industry profitability (consistent with less tunneling).     

The nexus between financial integration and real economy: Solow-growth model concept

This paper aims to investigate the nexus between financial integration and the real economy in ASEAN + 3 economies based on the concept of Solow-Growth Model. The equity indices as a proxy for financial markets are collected from each ASEAN + 3 members and are segmented between two periods; before and after the financial cooperation agreement period. The finding presents several outcomes; 1) no cointegration nexus is found in the system during the pre-agreement periods; 2) the markets are found cointegrated during the post-agreement period, 3) financial integration is found to influence the real sectors of ASEAN + 3 economies. Finally, this study offers policy implications to improve financial integration for stabilizing the real economy.