Learning lessons: how to practice nudging around the world

Abstract

The aim of this article is to cover three things: (1) to introduce the context behind why a report prepared by the Organisation for Economic Co-operation and Development (OECD) in 2017 would be of such importance to researchers in various academic disciplines and public policy, (2) to present the details of a simple classification system that was applied to all 111 case studies of behavioural interventions (better known as nudges) referred to in the OECD (2017a OECD. 2017a. Behavioural Insights and Public Policy Lessons from Around the World.1-408 pp. OeCD Publishing. https://read.oecd-ilibrary.org/governance/behavioural-insights-and-public-policy_9789264270480-en. doi:10.1787/9789264270480-en.[Crossref] , [Google Scholar]) report, and (3) to discuss what needs to be done to help advance practitioners’ pursuit of effective behavioural interventions. This article aims to highlight the importance of accurately cataloguing the types of behavioural interventions that have been trialled/implemented across the world. By adopting an agreed classification system, researchers and practitioners can benefit from knowing what can work, and where it can work, as well as what does not work, in order to be better armed when considering the use of behavioural interventions to solve social policy issues.     

Pricing European-type,early-exercise and discrete barrier options using an algorithm for the convolution of Legendre series

This paper applies an algorithm for the convolution of compactly supported Legendre series (the CONLeg method) (cf. Hale and Townsend, An algorithm for the convolution of Legendre series. SIAM J. Sci. Comput., 2014, 36, A1207–A1220), to pricing European-type, early-exercise and discrete-monitored barrier options under a Lévy process. The paper employs Chebfun (cf. Trefethen et al., Chebfun Guide, 2014 (Pafnuty Publications: Oxford), Available online at: http://www.chebfun.org/) in computational finance and provides a quadrature-free approach by applying the Chebyshev series in financial modelling. A significant advantage of using the CONLeg method is to formulate option pricing and option Greek curves rather than individual prices/values. Moreover, the CONLeg method can yield high accuracy in option pricing when the risk-free smooth probability density function (PDF) is smooth/non-smooth. Finally, we show that our method can accurately price options deep in/out of the money and with very long/short maturities. Compared with existing techniques, the CONLeg method performs either favourably or comparably in numerical experiments.     

Algorithmic trading in a microstructural limit order book model

We propose a microstructural modeling framework for studying optimal market-making policies in a FIFO (first in first out) limit order book (order book). In this context, the limit orders, market orders, and cancel orders arrivals in the order book are modeled as point processes with intensities that only depend on the state of the order book. These are high-dimensional models which are realistic from a micro-structure point of view and have been recently developed in the literature. In this context, we consider a market maker who stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price, and identifies the strategies that maximize their P&L penalized by their inventory. An extension of the methodology is proposed to solve market-making problems where the orders arrivals are modeled using Hawkes processes with exponential kernel.

We apply the theory of Markov Decision Processes and dynamic programming method to characterize analytically the solutions to our optimal market-making problem. The second part of the paper deals with the numerical aspect of the high-dimensional trading problem. We use a control randomization method combined with quantization method to compute the optimal strategies. Several computational tests are performed on simulated data to illustrate the efficiency of the computed optimal strategy. In particular, we simulated an order book with constant/ symmetric/ asymmetrical/ state dependent intensities, and compared the computed optimal strategy with naive strategies. Some codes are available on https://github.com/comeh.     

Risk can be good for self-esteem: beyond self-determination theory

Abstract

Despite many decades of research that has highlighted all risk-taking sport activities as a means to satisfy sensation seeking needs (e.g., Zuckerman 1979 Zuckerman, M. 1979. Sensation Seeking: Beyond the Optimal Level of Arousal. Cambridge, UK: Cambridge University Press. [Google Scholar]), recent research has challenged that view and has revealed that some high-risk activities provide opportunities for agentic emotion regulation during participation, and are not driven by sensation-seeking needs (e.g., Barlow, Woodman, and Hardy 2013 Barlow, M., T. Woodman, and L. Hardy. 2013. “Great Expectations: Different High-Risk Activities Satisfy Different Motives.” Journal of Personality & Social Psychology 105: 458–475. doi:10.1037/a0033542.[Crossref], [PubMed], [Web of Science ®] , [Google Scholar]). Participation in high-risk sports is also associated with increased self-esteem (e.g., A?çi, Demirhan, and Dinç 2007 A?çi, F. H., G. Demirhan, and S. C. Dinç. 2007. “Psychological Profile of Turkish Rock Climbers: An Examination of Climbing Experience and Route Difficulty.” Perceptual and Motor Skills 104 (3): 892–900. doi:10.2466/pms.104.3.892-900.[Crossref], [PubMed], [Web of Science ®] , [Google Scholar]). The aim of the present study was to investigate the link between the agentic and emotion regulation benefits of specific high-risk activities and any associated self-esteem benefits. We hypothesized that the emotion regulation and agency experiences in high-risk physical activities would mirror the elevated self-esteem derived from these activities. We examined high-risk activity (n?=?84), low-risk activity (n?=?65), and control (n?=?45) groups and found that the experience of agentic emotion regulation was greater during participation for high-risk sport participants. High-risk sport participants also had less post-activity difficulty with emotion regulation and higher self-esteem. This study provides the first support that activities that require greater agentic emotion regulation during participation also lead to elevated self-esteem. Basic psychological needs satisfaction did not account for the differences between groups, suggesting that people have other needs (e.g., the need to self-regulate) that are not incorporated into self-determination theory.     

Retraction statement: Internal procedures of the risk-oriented lending process in the bank

Ushanov, A. E. (2022). Internal procedures of the risk-oriented lending process in the bank. Risk Management and Insurance Review, 25, 99–114. https://doi.org/10.1111/rmir.12204 The above article published online on May 12, 2022 in Wiley Online Library ( wileyonlinelibrary.com ), has been retracted by agreement between the Editor, Patricia Born, and Wiley Periodicals, LLC. The retraction has been agreed following concerns regarding manipulation of the peer review and publishing process. Concerns were originally raised by a third party. Further investigation by the publisher has found manipulation of the peer review process. As a result, the conclusions reported in the article are not considered reliable.     

Does the major market influence transfer? Alternative effect on Asian stock markets

Based on the time-varying regression model of Chow et al. (J Comp Econ 39(4):577–583, 2011. doi: 10.1016/j.jce.2011.06.001), this paper simultaneously analyzes the ebb and flow of change by China and the U.S. as leading players in relation to their comovement on various Asian stock markets. We include several important controls for worldwide economy performance, the stock market return rates of major importing nations, and linear/non-linear time trend fixed effects to stress the influence of China and U.S. on eight Asian economies. The empirical results indicate the increasing influence of the China stock market during the subprime mortgage crisis. Moreover, the U.S. market remains influential on the Chinese region, but loses/decreases its influence, especially on the Four Asian Tigers, significantly during/after the subprime mortgage crisis.     

New development: Integration of budget and governmental accounting in Mexican states

ABSTRACT

Mexico recently introduced an accounting–budgeting framework compatible with the International Public Sector Accounting Standards (IPSAS). This article discusses the implementation of this framework, including the harmonization of information for the functional, administrative and economic budget categories for all Mexican states and for Mexico City. The author analysed public accounts and budgets prepared under the framework’s information requirements, as well as assessing the harmonization of accounts between the local, state and national levels of government. The results show an increase in both the amount and the harmonization of the public expenditure information being reported. This paper contributes to the literature of harmonization between financial reporting and budgeting processes (Dabbicco, G., & Mattei, G. (2020 Dabbicco, G. , & Mattei, G. (2020). The reconciliation of budgeting with financial reporting: A comparative study of Italy and the UK. Public Money & Management , 1–11. doi: 10.1080/09540962.2019.1708059 [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). The reconciliation of budgeting with financial reporting: A comparative study of Italy and the UK. Public Money & Management, 1–11).     

Nonlinear dynamics in economics and finance and unit root testing

The recent financial crisis exposed the inability of traditional theoretical and empirical models to parsimoniously capture the rich dynamics of the economic environment. This has stimulated the interest of both academics and practitioners in the development and application of more sophisticated models. By allowing for the presence of nonlinearities, complex dynamics, multiple equilibria, structural breaks and spurious trends, these latter models resemble more closely the properties of economic and financial time series. In this article, we illustrate the flexibility of a family of econometric models, namely the exponential smooth transition autoregressive (ESTAR), to encompass several of the above characteristics. We then re-assess the power of the ESTAR unit root test developed by Kapetanios, Shin and Snell ((2003) Kapetanios, G., Shin, Y. and Snell, A. 2003. Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics, 112(2): 359–79. (doi:10.1016/S0304-4076(02)00202-6)[Crossref], [Web of Science ®] , [Google Scholar]) in the presence of nuisance parameters typically encountered in the literature and compare its performance with that of the augmented Dickey-Fuller and the Enders and Granger ((1998) Enders, W. and Granger, C. W.J. 1998. Unit-root tests and asymmetric adjustment with an example using the term structure of interest rates. Journal of Business & Economic Statistics, 16(3): 304–11. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) tests. Our results show the lack of dominance of any particular test and that the power is not independent to priors about the nuisance parameters. Finally, we examine several asset price deviations from fundamentals and one hyper-inflation series and find contradictory results between the nonlinear fitted models and unit root tests. The findings highlight that new testing procedures with higher power are desirable in order to shed light on the behavior of financial and economic series.     

Dynamic principal component regression for forecasting functional time series in a group structure

ABSTRACT

When generating social policies and pricing annuity at national and subnational levels, it is essential both to forecast mortality accurately and ensure that forecasts at the subnational level add up to the forecasts at the national level. This has motivated recent developments in forecasting functional time series in a group structure, where static principal component analysis is used. In the presence of moderate to strong temporal dependence, static principal component analysis designed for independent and identically distributed functional data may be inadequate. Thus, through using the dynamic functional principal component analysis, we consider a functional time series forecasting method with static and dynamic principal component regression to forecast each series in a group structure. Through using the regional age-specific mortality rates in Japan obtained from the Japanese Mortality Database [(2019). National Institute of Population and Social Security Research. Available at http://www.ipss.go.jp/p-toukei/JMD/index-en.asp (data downloaded on 14 August 2018)], we investigate the point and interval forecast accuracies of our proposed extension, and subsequently make recommendations.     

Infrastructure endowment,financial constraints and willingness to engage in PPPs: The case of Poland

Public-private partnership (PPP) is widely considered to be a solution to overcoming a public infrastructure gap while providing value for money. A growing body of empirical research papers suggests that value for money is not the only reason for a government setting up PPPs. This paper presents a detailed analysis of why local municipalities in Poland have chosen the PPP route to develop public infrastructure.

IMPACT

Government’s investment opportunities are often restricted by debt limits. That is why a PPP can be an attractive solution. Municipalities in Poland seem to opt for PPPs to keep their debt figures low. There is a risk that they are choosing the PPP route for the wrong reasons. Therefore we suggest that legislation is needed that requires greater financial transparency of PPP projects. This could help verify whether PPPs are being compiled according to EUROSTAT rules and to assess if PPP really is the best available option in terms of value for money.     

Industry cost of equity capital: European evidence for multifactor models

We estimate the costs of equity capital for 117 industries from 16 European countries employing the CAPM and 8 multifactor asset pricing models as well as a variety of different econometric techniques. In doing so, we extend previous research on cost of equity estimation in mainly two ways. First, our study involves European instead of US or UK industries, which are investigated in previous research, and we find that cost of equity estimates obtained from the CAPM or multifactor asset pricing models are as imprecise for European industries as for US and UK industries. Second, in addition to the CAPM, the Fama and French [1993 Fama, Eugene F., and Kenneth R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56. doi: 10.1016/0304-405X(93)90023-5[Crossref], [Web of Science ®] , [Google Scholar]. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] three-factor model, and the Carhart [1997 Carhart, Mark M. 1997. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82. doi: 10.1111/j.1540-6261.1997.tb03808.x[Crossref], [Web of Science ®] , [Google Scholar]. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82] four-factor model, which are usually employed, our study includes six multifactor models that have not yet been examined on their ability to provide precise estimates of the costs of equity: the five-factor model of Fama and French [1993 Fama, Eugene F., and Kenneth R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56. doi: 10.1016/0304-405X(93)90023-5[Crossref], [Web of Science ®] , [Google Scholar]. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] as well as the multifactor models of Pástor and Stambaugh [2003 Pástor, Lubos, and Robert F. Stambaugh. 2003. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111 (3): 642–685. doi: 10.1086/374184[Crossref], [Web of Science ®] , [Google Scholar]. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111 (3): 642–685]; Campbell and Vuolteenaho [2004 Campbell, John Y., and Tuomo Vuolteenaho. 2004. “Bad Beta, Good Beta.” American Economic Review 94 (5): 1249–1275. doi: 10.1257/0002828043052240[Crossref], [Web of Science ®] , [Google Scholar]. “Bad Beta, Good Beta.” American Economic Review 94 (5): 1249–1275]; Hahn and Lee [2006 Hahn, Jaehoon, and Hangyong Lee. 2006. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.” Journal of Financial &; Quantitative Analysis 41 (2): 245–269. doi: 10.1017/S0022109000002052[Crossref], [Web of Science ®] , [Google Scholar]. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.” Journal of Financial &; Quantitative Analysis 41 (2): 245–269]; Petkova [2006 Petkova, Ralitsa. 2006. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?” The Journal of Finance 61 (2): 581–612. doi: 10.1111/j.1540-6261.2006.00849.x[Crossref], [Web of Science ®] , [Google Scholar]. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?” The Journal of Finance 61 (2): 581–612]; and Koijen, Lustig, and van Nieuwerburgh [2010 Koijen, Ralph S., Hanno N. Lustig, and Stijn G. van Nieuwerburgh. 2010. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University. [Google Scholar]. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University]. Our results suggest that these models provide even more imprecise cost of equity estimates. One main reason for these inaccurate estimates is the large temporal variation of the risk loadings on the non-traded factors in these models.     

Public service motivation and performance: The role of organizational identification

Although the association between public service motivation (PSM) and job performance has received increased attention, there is limited knowledge of the mechanisms underlying its effects. Utilizing data from Chinese civil servants and their supervisors, the authors found that PSM results in higher levels of organizational identification and leads to higher levels of job performance because civil servants perceive the organization’s fate and results as their own.

IMPACT

Our study demonstrates that organizational identification is a key mechanism that explains how public service motivation (PSM) leads to higher levels of performance. To improve performance, public agencies should create an environment that helps employees identify with the organization, for example by highlighting the distinct services that the organization provides for the public and by establishing socialization practices for newcomers.     

Time-frequency dynamics of exchange rates in East Asia

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Glocalization of accounting standards: Observations on neo-institutionalism of IPSAS

This paper defines and then observes processes of glocalization surrounding the adoption of International Public Sector Accounting Standards (IPSAS) for public sector financial reporting. Glocalization can be best understood using sociological institutionalism, because this theory focuses on the retention of identity, and processes of legitimacy, during adaptation (diffusion) of standards. The paper discusses the history of standard-setting for the public sector in New Zealand to explain why this theory has value.

IMPACT

This paper defines and describes the utility of the concept of glocalization in analysing the implementation of IPSAS, with a New Zealand focus. The value of the paper is in its combination of a jurisdiction-specific experience with an understanding of the broader issues of ‘global versus local’ and processes of sociological institutionalism. Such studies of IPSAS adoption can offer distinctive perspectives on global processes of isomorphism within neo-institutional theory. This paper explains the advantages of flexible strategies to standard-setters.     

Meeting Bougainville’s co-produced reporting expectations

Using the theory of indigenous alternatives, this paper considers whether the Autonomous Bougainville Government (ABG) complies with Bougainville’s co-produced financial reporting expectations. Textual analysis of the indigenous-led state audit reports from 2008 to 2013 shows that the ABG’s financial statements were disclaimed. The study considers how the deployment of indigenous alternative mechanisms may help improve reporting outcomes of the ABG.

IMPACT

Co-produced policies arranged in the aftermath of jurisdictions that have just endured civil wars may be well-intentioned but their impact may count for little if pedestrian processes, such as financial reporting and the rendering of accountability by an autonomous government, do not meet co-produced reporting expectations. This paper highlights how financial statements of the Autonomous Bougainville Government (ABG) from 2008 to 2013 did not meet those reporting expectations. The inability of the ABG to provide an account of its activities appears to undermine calls for Bougainville’s independence.     

Superkurtosis

Very little is known on how traditional risk metrics behave under intraday trading. We fill this void by examining the finiteness of the returns' moments and assessing the impact of their infinity in a risk management framework. We show that when intraday trading is considered, assuming finite higher order moments, potential losses are materially larger than what the theory predicts, and they increase exponentially as the trading frequency increases—a phenomenon we call $superkurtosis$. Hence, the use of the current risk management techniques under intraday trading imposes threats to the stability of financial markets, as capital ratios are severely underestimated.