Coefficient of determination in a simultaneous equation model: A pedagogic note

The simultaneity of the market for securities has been recognized by a number of finance authors. Simkowitz and Jones [10] advocate the use of a simultaneous equation system to capture some of the relationships among the securities in a homogeneous set. Simkowitz and Logue [11], and Jones and Simkowitz [6], have performed studies using a simultaneous equation system in a capital asset pricing framework. Marcis and Smith [9] call for the use of the simultaneous methodology when there is a strong residual correlation between securities. Simultaneous equation systems have been used in other areas of finance by authors such as Barnea [1], Herbst [5], and Logue and Lindvall [8]. This note explores how anomalies concerning the coefficient of determination (R²) mentioned in previous research could have occured. Conditions under which the (R²) does not have its usual properties and an example is given.     

Morphology of asset asymmetry

Although many financial paradigms are predicted on the assumption that security returns are symmetrically distributed, relatively little research has been conducted into the legitimacy of the presumption. This effort is intended to present the results of a thorough investigation of the subject, where two measures of skewness have been computed and compared. Roughly, the major conclusion is that regardless of how skewness is measured, securities have displayed a persistent propensity to positive asymmetry during the last three decades, although the evidence is less unambiguous when evaluated over the last 50 years.     

Beta adjustment methods

This study is an analysis of the forecasting ability of adjusted and unadjusted betas. Based on the Canadian data for 252 stocks, random errors in betas are the most important reason for the poor predictive ability of individual security betas. Most of this random error is eliminated if securities are grouped into portfolios. However, further improvements in forecasting ability are gained by adjusting the security betas for bias and inefficiency. Five methods of adjusting the naive beta estimates have been tried, including two methods not tested before. These two, Vasicek's two-stage method and order-bias adjustment method, gave results generally superior to others.     

Economic determinants of consumer sentiment

A few objective variables explain most fluctuations in the Index of Consumer Sentiment. These relationships reveal sources of consumer satisfaction and can test hypotheses from psychological economics. The study questions the practical value of the Index to forecasters because objective data contain the same basic information. However, the Index reflected Watergate and the Arab oil embargo, and information on consumer response to such extraordinary non-systematic factors might assist forecasters. Granger causality tests support the exogeneity of certain explanatory variables and are consistent with the hypothesis that consumer sentiment affects automobile sales and purchases of consumer durables without feedback.     

Some evidence on the role of money illusion in labor supply behavior

The Keynesian idea that workers are subject to money illusion in their labor supply decisions is tested by estimating a labor supply function that includes the price level as an independent variable. The model is estimated with data drawn from various BLS publications and is aggregated by SMSA. The results indicate a significant negative supply response to price-level changes after controlling for the nominal wage rate, income, and the SMSA's unemployment rate. There is no significant difference between workers' supply response to the price level and the nominal wage rate, which suggests that workers are not subject to money illusion.     

Structural constraints on organizational change: A longitudinal analysis

The results of a longitudinal study assessing the impact of internal constraints upon both organizational responsiveness to the environment and efforts to change structures for symbolic signaling of policy are presented. The causal model used is developed from a theoretical elaboration of Williamson, Thompson, and Meyer. The implications of the analysis for the signaling metaphor of organizational change are emphasized. The data indicate (i) that the varying resistance to change observed within core dimensions of organizational structure may be largely due to durable capital investments, (ii) that within capitalized dimensions of organizational structure, the resulting resistance to change leads to a longitudinal persistence of centralized decision making, and (iii) that failure to incorporate such constraints in analyses of organizational change leads to misleading results.     

Inflation forecasts,the expected real rate and information efficiency

This paper examines the inflation forecast accuracy and rationality of a time series predictor, an expected inflation series constructed from surveys undertaken by the University of Michigan's Institute for Social Research, and the yield on U.S. Treasury bills. A quadratic loss function is assumed, and Theil's inequality ratios are used to decompose the mean squared foreast error (MSE). Although it is the only unbiased forecast, the time series predictor does not appear to be optimal during the recent period of turbulent inflation. As for bias in the other series, the surveys are inconsistent with weak-form rational expectations and the Treasury bill is reflecting variations in more than one factor. In an examination of the latter under the assumption of no liquidity premium, the results suggest that the forecast error is in part attribute to moderate variation in the expected real rate. Given the minimal cost of observing the Treasury bill yield, the findings of this study suggest that the market, although imperfect, has performed reasonably well in forecasting inflation.     

Boundary-spanning activity,role dynamics,and job satisfaction: A longitudinal study

Boundary-spanning activity and its effects on role conflict and ambiguity and job satisfaction were studied in a large manufacturing organization. Longitudinal data were collected 11 months apart from 132 managerial, engineering, and supervisory employees. A corrected cross-lagged correlational analysis suggests no casual relationships between boundary-spanning activity and role conflict and ambiguity. Causal, positive relationships are suggested, however, between boundary-spanning activity and satisfaction with work, promotions, supervision, co-workers, and overall job satisfaction.     

Impact of alternative length estimation and prediction periods on the stability of security and portfolio betas

This study examines how the forecast errors of beta predictions are influenced by the following: 1) the length of the estimation period, 2) the length of the prediction period, 3) the size of the portfolio, and 4) the risk class of the security or portfolio. The mean-square error is utilized as the forecast error measure, and the components of the mean-square error (bias, inefficiency, and random error) are analyzed to determine the source of the forecast error.     

Using simultaneous latent structure models to analyze group differences: Exploratory analysis of buying style items

This article shows how methods for simultaneous latent structure analysis can be used to test for intergroup differences in unobservable characteristics. In many respects these techniques are similar to those for simultaneous factor analysis. To show how these methods can be used, we analyze data obtained from the 1979 Study of Media and Markets collected by the Simmons Market Research Bureau. Five dichotomized items pertaining to buying style attitudes were chosen as “indicators” of a latent variable (or variables): brand loyalty, willingness to experiment, degree of conformity to buying style of others, persuadibility, and style consciousness. The sample was composed of full-time employed, married, white females in the middle social class categories recognized on the survey. Two groups were compared in terms of latent structure model parameters. The first group consisted of those who work “at a career” and the second consisted of those whose work was “just a job.” Using the methods advocated here there is no significant difference between these two groups once the “brand loyalty” item is excluded. The model-search procedure takes account of within-group contributions to lack of fit. Generalizations of this procedure may be useful in exploratory analysis using the simultaneous latent structure model.     

Governmental environment and nongovernmental behavior: Corporate responsiveness to formal integration of the European community

Although it has been argued that the governmental environment has an important influence on corporate activities, limited systematic and empirical research has been undertaken to study this relationship. This is especially true for regional integration efforts where it is widely assumed that enterprises (and particularly transnational ones) quickly take advantage of new regional opportunities created by government policies. This article examines therefore the question of whether or not integration (more specifically, the European community) affects the behavior of corporate elite members in the Federal Republic of Germany and their enterprises-important nongovernmental actors within the integrating area. First, a theoretical framework is introduced that analytically and phenomenally distinguishes formal governmental and behavioral aspects of integration. Subsequent analysis suggests, among other things, that the strategies of enterprises do not necessarily follow (respond to) governmental integration. The impact of governmental integration on the attitudes and behavior of nongovernmental actors appears to be limited, selective, and uneven in character.