Overnight stock returns,intraday returns,and firm-specific investor sentiment

In this study, we propose a new index for measuring firm-specific investor sentiment using overnight and intraday stock returns. We use actual equity data to construct the firm-level investor sentiment index and find that the new index has characteristics expected of a sentiment measure. In addition, we propose a novel sentiment-weighted trading strategy and apply it to momentum and short-term reversal strategies. We find that the sentiment-weighted trading strategy generates better performance in momentum and short-term reversal strategies. The sentiment-weighted trading strategy’s superior performance is evidence that our firm-level investor sentiment index possesses predictive powers with regard to future returns.     

Employer learning and the returns to schooling

Theoretical models of employer learning suggest that an employee's education is an important signal to the employer initially. Over time, however, the returns to schooling should decrease with labor market experience and increase with initially unobserved ability, since the employer gradually obtains better information on the productivity of an employee. Replicating US studies using a large German panel data set (GSOEP), we find no evidence for the employer learning hypothesis. Differentiating blue-collar and white-collar workers and estimating quantile regressions, however, leads to the conclusion that employer learning takes place for blue-collar workers at the lower end of the wage distribution.     

Time-consistent investment and reinsurance strategies for insurers under multi-period mean-variance formulation with generalized correlated returns

The existing literature on investment and reinsurance is limited to the study of continuous-time problems, while discrete-time problems are always ignored by researchers. In this study, we first discuss a multi-period investment and reinsurance optimization problem under the classical mean-variance framework. When the asset returns with a serially correlated structure, the time-consistent investment and reinsurance strategies are acquired via backward induction. In addition, we propose an alternative time-consistent mean-variance optimization model that contrasts with the classical mean-variance model, and the corresponding optimal strategy and value function are also derived. We find that the investment and reinsurance strategies are both independent of the current wealth for the above two optimization problems, which coincides with the conclusion presented in the continuous-time problems. Most importantly, the above investment strategies with serially correlated structures are both conditional mean-based strategies, rather than unconditional ones. Finally, we compare the investment and reinsurance strategies suggested above based on the simulation approach, to shed light on which investment-reinsurance strategies are more suitable for insurers.     

Earnings inequality,returns to education and immigration into Ireland

We examine what has happened to earnings inequality and the returns to education in Ireland between 1987 and 1997. We find that while both increased between 1987 and 1994, the increases slowed dramatically between 1994 and 1997. We look to immigration as being a contributing factor to this pattern because a large group of skilled workers flowed into the Irish labour market between 1994 and 1997. We develop a model of the Irish labour market and use it to simulate the impact of an increase in skilled labour. The simulation suggests that immigration did indeed reduce earnings inequality. This result is an interesting corollary to work from the US that shows the immigration of unskilled workers' increasing earnings inequality.     

investment, not 'aid', is the key to development

How can poor countries get rich? David Osterfeld, of the Heritage Foundation Washington DC, argues that multi-national companies and foreign investment hold the key to economic development and escape from poverty.     

Private returns to R&D in the presence of spillovers,revisited

This is both a replication of Eberhardt et al. (Review of Economics and Statistics, 2013, 95(2), 436–448) using different software, and a critical extension and diagnostic reassessment of the original results. The main findings of the paper are confirmed and sometimes reinforced. We point out some inconsistencies, in particular in the calculation of standard errors for the common correlated effects pooled model; we extend the diagnostic checks; lastly, in the spirit of the original contribution, we show how local cross‐sectional dependence diagnostics can be used to provide a first assessment of the direction of spillovers. We provide complete replication code in open source R.     

On the estimation of returns to scale, technical progress and monopolistic markups

A number of theoretical results on estimating returns to scale, technical progress and monopolistic markups are derived when there are multiple outputs and inputs. The choice of value added versus gross output and problems that arise in aggregation across sectors of an economy are also considered. Using US data on manufacturing, evidence is found of increasing returns to scale across all levels of aggregation. Technical progress is typically found to be insignificant implying that economic growth has been driven by increasing returns to scale rather than technical progress. Such findings have important implications for the macroeconomic modeling of economic fluctuations.     

Buyout candidates and their investment banking relationships: An empirical analysis of returns adjoining buyout offers

Previous studies document a significant positive price reaction at the proposal of a buyout offer. In this study the author examines the influence of investment banking relationships on target firms associated with buyout offers. The results support the hypothesis that knowledge of an impending buyout manifests itself before a buyout’s public announcement. The evidence supports the hypothesis that investment bankers use different strategies before a buyout.     

Tax policy and returns to education

This paper considers how asymmetric tax treatment, where labour market earnings are taxed but household production is untaxed, affects educational choice and labour supply. We show that taxes on labour market earnings can generate a large (non-marginal) switch to home production and the ensuing deadweight losses are large. Using a cross-country panel, we find that gender differences in labour supply responses to tax policy can explain differences in aggregate labour supply and years of education across countries.     

Cross listing,disclosure regimes,and trading volume sensitivity to stock returns

In this paper, we propose that investors of cross-listed firms use trading volume to revise their perception of firms’ value. We further propose that firms that cross list from low-disclosure regimes (usually from emerging economies) have higher trading volume sensitivity to returns than those that cross list from high-disclosure regimes (usually from developed economies), as those from low-disclosure regimes have relatively lax and less stringent disclosure requirements. We use a sample of foreign firms that are cross listed in the U.S. as exchange-listed American Depositary Receipts, adopted the international financial reporting standards (formerly international accounting standards), and filed Form 20-F reconciliation with the U.S. Securities and Exchanges Commission during the period of 1994–2005. Using these firms and a matched-sample of U.S. firms based on exchange, industry and firm size, we document results supporting our hypotheses. Our results have implications for policy makers, regulators and academics.     

Foreign direct investment,labour relations and sector effects: US investment outflows to Europe

This paper analyses the impact of national labour relations on foreign direct investment (FDI), with emphasis on macro-markets and sector properties. Since there are sector-specific differences between industries in transferability, labour-relations effects on FDI probably vary across sectors. The paper finds that labour costs dampen FDI, while the impact of national market potential remains inconclusive. Collective labour institutions have a significantly adverse impact on FDI in manufacturing, and a relatively beneficial one on FDI in services. While investment in manufacturing seeks to minimize labour costs at given skill levels, investment in services maximizes skills at given levels of cost.     

Age-dependent skill formation and returns to education

This study investigates the distribution of returns to investments in cognitive and self-regulatory skills over the life cycle. In our simulation model, the distribution of returns to education results from the interaction of neurobiological and socioeconomic factors in age-dependent skill formation. A novel feature of our extension of the technology of skill formation [Cunha, F., Heckman, J.J., 2007. The technology of skill formation. The American Economic Review 97 (2), 31–47] is a life span model that integrates skill depreciation at older ages and calibrates it to German data. Our evidence quantitatively illustrates the role early childhood plays in the shaping of human capital formation, inequality and economic growth.     

Alternative functional forms for production,cost and returns to scale functions

We consider generalized production functions, introduced in Zellner and Revankar (1969), for output y=g(f) where g is a monotonic function and f is a homogeneous production function. For various choices of the scale elasticity or returns to scale as a function of output, differential equations are solved to determine the associated forms of the monotonic transformation, g(f). Then by choice of the form of f, the elasticity of substitution, constant or variable, is determined. In this way, we have produced and generalized a number of homothetic production functions, some already in the literature. Also, we have derived and studied their associated cost functions to determine how their shapes are affected by various choices of the scale elasticity and substitution elasticity functions. In general, we require that the returns to scale function be a monotonically decreasing function of output and that associated average cost functions be U- or L-shaped with a unique minimum. We also represent production functions in polar coordinates and show how this representation simplifies study of production functions' properties. Using data for the US transportation equipment industry, maximum likelihood and Bayesian methods are employed to estimate many different generalized production functions and their associated average cost functions. In accord with results in the literature, it is found that the scale elasticities decline with output and that average cost curves are U- or L-shaped with unique minima. © 1998 John Wiley & Sons, Ltd.     

Nonparametric bounds on the returns to language skills

This paper applies the theoretical literature on nonparametric bounds on treatment effects to the estimation of how limited English proficiency (LEP) affects wages and employment opportunities for Hispanic workers in the United States. I analyse the identifying power of several weak assumptions on treatment response and selection, and stress the interactions between LEP and education, occupation and immigration status. I show that the combination of two weak but credible assumptions provides informative upper bounds on the returns to language skills for certain subgroups of the population. Adding age at arrival as a monotone instrumental variable also provides informative lower bounds. Copyright © 2005 John Wiley & Sons, Ltd.     

Disclosure quality,price efficiency,and expected returns

Using a composite disclosure quality measure, we examine the effect of disclosure quality on price delay and the effect of price delay determined by disclosure quality on expected returns in the Taiwan stock market. We find that higher disclosure quality can reduce stock price delay through more investor attention and higher stock liquidity after we control for accounting quality variables and consider the endogeneity issue. Furthermore, we show that disclosure quality reduces expected stock returns through the price efficiency channel associated with both investor attention and stock liquidity. Our results indicate that increasing a firm’s standardized information rating by one standard deviation can reduce its expected stock return by 0.63% annually. Taken together, our evidence suggests that regulatory activities enforced to improve public firms’ disclosure quality in the Taiwan stock market can make the stock market more efficient and therefore lower investors’ required return for stocks.     

Measuring total factor productivity,technical change and the rate of returns to research and development

This paper examines the relationship between research and development expenditures and total factor productivity using establishment level (or micro) data. The confidential data are taken from the U.S. Bureau of the Census Annual Survey of Manufacturers and other Census surveys. Several measures of total factor productivity are considered as are several variables that proxy for technical knowledge. The latter include research and development expenditures by the firm, the accumulated research expenditures of the industry, and new equipment purchases. We find that there is a statistically significant relationship among above measures of technical expertise and a broad measure of total factor productivity.The refereeing process of this paper was handled through N.R. Adam.     

Tornado activity,house prices,and stock returns

In this paper we investigate the effects of tornado activity on house prices and stock returns in the US. First, using geo-referenced and metropolitan statistical area (MSA)-level data, we find tornado activity to be responsible for a significant drop in house prices. Spillover tornado effects between adjacent MSAs are also detected. Furthermore, our granular analysis provides evidence of tornadoes having a negative impact on stock returns. However, only two sectors seem to contribute to such a negative effect (i.e., consumer discretionary and telecommunications). In a macro-analysis, which relies on aggregate data for the South, West, Midwest and Northeast US regions, we then show that tornado activity generates a significant drop in house prices only in the South and Midwest. In these regions, tornadoes are also responsible for a drop in income. Tornado activity is finally found to positively (negatively) affect stock returns in the Midwest (South). If different sectors are examined, a more heterogeneous picture emerges.