Benchmark-based evaluation of portfolio performance: a characterization

Benchmarking is a universal practice in portfolio management and is well-studied in the optimal portfolio selection literature. This paper derives axiomatic foundations of the relative return, which underlies a benchmark-based evaluation of portfolio performance. We show that the existence of a benchmark naturally arises from a few basic axioms and is tightly linked to the economic theory. Our method relies on the use of both axiomatic and economic approaches to index number theory. We also analyze the problem of optimal portfolio selection under complete uncertainty about a future price system, where the objective function is the relative return.     

Exchange market pressure and primary commodity – exporting emerging markets

This paper studies short-term sensitivity between exchange market pressure and various domestic and external factors in primary commodity-exporting emerging markets. The paper focuses on the top country-commodity groups in sugar, cereal, fuels, ores and coffee during the pre-peak and post-peak commodity price periods across floating and pegged exchange rate regimes, using the price of crude oil as a general benchmark. Employing a panel model and panel VAR analysis, the paper finds the heterogeneity of response patterns unique to country-commodity groups and exchange rate regimes. According to the results, in flexible regimes, volatility occurs via the foreign exchange market, interest rates, and domestic credit cycles, feeding into the social costs for structurally weaker economies. Hard exchange-rate pegs often result in a drain on international reserves as the terms of trade deteriorate following post-price peaks, leading to unpopular depreciation. These results accentuate concerns over uneven international trade patterns, an open economy’s short-term foreign exchange policy, and speculative capital flows. Such sensitivity has broad implications for macroeconomic balance and the sustainability of implied exchange rate targets in the presence of a foreign exchange constraint across emerging markets.     

Assessing Recent Determinants of Borrowing Costs in Sub‐Saharan Africa

This study explores macroeconomic implications of the sovereign bond rush that has been taking place in sub‐Saharan Africa since 2006. The focus is on the sub‐Saharan sovereign bond yields as proxies for the region's ability to raise new funds on international markets. Despite the subcontinent's tour‐de‐force entrance to the international bond market, this paper reveals that recent (since early 2000s) borrowing in foreign currency is not without macroeconomic risk. Empirically this paper finds that sovereign bond yields are significantly influenced by global volatility, commodity prices and global liquidity—all factors that are out of the control of the sub‐Saharan economies in question. These findings suggest that portfolio repositioning by institutional investors prompted by improved growth prospects and implicit monetary policy tightening in the advanced economies or heightened risk perceptions, are likely to result in increased borrowing costs for the sub‐Saharan bond issuers and affect their ability to raise funds in international markets. Furthermore, a change in borrowing costs might lead to higher debt‐service costs and policy uncertainty, which in turn could lead to suboptimal investment levels and, ultimately, hinder economic development.     

Economic impacts of highway infrastructure improvements part 2. The operational model and its application to Ontario communities

The environmental assessment process in Ontario requires an assessment of the economic impacts of highway infrastructure improvements. This paper describes an operational model that is based on the analytical framework introduced in Kanaroglou et al (1997). The model makes use of widely available data and can be used as a planning tool for fast and efficient assessment of short term direct and indirect local economic impacts in terms of a community's sectoral employment levels. The accuracy of the assessment can be improved by modifying the model parameters using information collected locally. The model can presently be applied to communities in Ontario.     

Consumer search with asymmetric price sampling

We explore asymmetries in the way consumers sample prices in a simple sequential search framework. In equilibrium, the price distribution of a firm catering to more local consumers first-order stochastically dominates that of its rival. Prices rise in the degree of asymmetry.     

Vertically related markets, tariffs, and technology adoption

This study considers the effect of trade policy on the time of technology adoption. Home firm is dependent on a foreign vertically integrate firm for supplies of a key input before the technology adoption and can produce the intermediate input after the technology adoption. Both firms compete by Cournot in the home final product market. I show that the decrease in the tariff on final product imports and the increase in the tariff on input imports create incentives for earlier technology adoption by home firm. While maximizing the discounted sum of welfare, the domestic government should protect home firm initially. Further, provided the cost of technology adoption declined sufficiently over time, the domestic government should stimulate the earlier technology adoption by decreasing the tariff on final product imports and increasing the tariff on intermediate product imports.     

Artificial Intelligence and Human Flourishing

The polarization of the debate about artificial intelligence (AI) pulls in two mutually exclusive directions of either complete takeover of future jobs by omnipotent algorithms or an absolute bliss with robots at work while humans reap the benefits of endless vacation. Add this to conflicting views of work as either a disutility to be minimized or as an essential component in human flourishing, and it is no wonder a wide range of views are expressed on AI and human flourishing. The literature, from Smith to Keynes and beyond, offers some initial methodological guidance. Still, the true social and economic implications of an AI-type environment in production and labor markets are yet to be fully understood. This article argues that neither of the predictions are realistic. Instead, the global economy may be passing, albeit at a faster speed, through a phase of technological change, similar to those experienced before. While a nuanced balance is emerging, with an emphasis on human skills in future employment, the benefits may not be equitably distributed, as equality of opportunities for human development may not be reachable, though visible, in the AI-driven society. Hence, as firms seek efficiency gains, much weight is shifted onto governments and quasi-private entities in maintaining decent living standards conducive to human flourishing in unprecedented times of the COVID-19 pandemic. The article reviews various popular concerns and advances new public policy measures aimed at tackling some of the immediate fears of automation.     

Give me a challenge or give me a raise

Experimental Economics - I study the effect of task difficulty on workers’ effort. I find that task difficulty has an inverse-U effect on effort and that this effect is quantitatively large,...