DURATION,IMMUNIZATION, AND HEDGING WITH INTEREST RATE FUTURES

The recent advent of the interest rate futures markets has greatly enriched the hedging opportunities of market participants faced with undesired interest rate risk. The variety of futures contracts presently spans a number of instruments with different risk, maturity, and coupon characteristics. This paper modifies the concept of duration and extends the duration hedging approach to cases where futures contracts are used as the hedging instrument. The derived hedge ratios take into account differences in coupon, maturity, and risk for three different regimes. Usage of these hedge ratios should lead to more efficient hedging of interest rate risk.     

Expected earnings growth and the cost of capital: an analysis of accounting regime change in the European financial market

This study focuses on the relation between the cost of equity capital and earnings expectations when the properties of accounting that determine earnings vary across different regulatory regimes. More particularly, it addresses the European setting where different types of GAAP regime have continued to function in the presence of the gradual harmonization of the underlying legal framework, and where the adoption of internationally recognized accounting standards by certain firms has anticipated the requirement for International Financial Reporting Standards. On the basis of estimates of the cost of equity that are implied by analysts' earnings forecasts, the article provides evidence that financial market integration may have already contributed to mitigating the economic consequences of accounting diversity, and that switching to IFRS could have a short lived impact on capital markets. Moreover, based on firm level transparency and disclosure rankings provided by Standard and Poor's, it is shown how the quality of financial reporting conditions the implied cost of equity under different GAAP.     

EMPIRICAL ANALYSIS ON THE PREDICTORS OF FUTURE SPOT RATES

This paper examines the issue of the prediction of future spot rates by applying the seemingly unrelated regression technique to four major currencies using data from January 1974 to September 1982. The empirical evidence indicates that current spot rates provide a better prediction of future spot rates than do current forward rates. In further rolling subsample studies, the estimated coefficients for current forward rates (or spot rates) are found to be sensitive to the new information. An important implication of this paper is that since the estimated coefficients vary over time, the underlying pattern of the generated coefficients should be extrapolated and incorporated into the exchange rate predictions.     

Evidence on the internal labor market during a process of rapid economic growth

We examine the nature and extent of labor market segmentation in Brazil through a survey of 82 modern sector firms in São Paulo. Hiring, training and promotion patterns are found to differ significantly between occupations and a key to understanding these patterns is the nature of skill acquisition, particularly ‘learning on the job’. Furthermore the presence of skill- specificity and internal labor markets for supervisory personnel provide a possible explanation for why relative wages have widened during Brazil's period of rapid economic growth.     

Formal and Informal Labour Markets: Challenges and Policy in the Central and Eastern European New EU Members and Candidate Countries

The paper aims at comparing the formal and informal labour marketsin the Central and Eastern European new EU Member States andcandidate countries of the European Union. First, the currentsituation of the labour market is described, focusing on therecent developments since the breaking up of the East. Thenthe policy design of these labour markets is depicted and itseffects on formal and informal labour markets. The most importantchallenges for employment policy as well as the effects of enlargementon the labour markets are analysed. The paper ends with a shortsummary. (JEL J21, J23, H26, H11, O17, O57)     

Child Health and Economic Crisis in Peru

The effect of macroeconomic crises on child health is a topicof great policy importance. This article analyzes the impactof a profound crisis in Peru on infant mortality. It finds anincrease of about 2.5 percentage points in the infant mortalityrate for children born during the crisis of the late 1980s,which implies that about 17,000 more children died than wouldhave in the absence of the crisis. Accounting for the precisesource of the increase in infant mortality is difficult, butit appears that the collapse in public and private expenditureson health played an important role.     

INTEREST RATE RISK HEDGING FOR DUE-ON-SALE MORTGAGES WITH EARLY TERMINATION

The impact of random early termination on the interest rate elasticity and the related implications of hedging a mortgage security are examined. The common approach to computing duration using average mortgage life is shown to be biased and insufficient. Because the prepayment distributions of mortgages tend to have wide dispersions, substantial errors result from using average mortgage life. These results are also applicable to other financial obligations subject to prepayment.     

The trading behavior of foreign,domestic institutional,and domestic individual investors: Evidence from the Taiwan stock market

In this paper, we apply the threshold cointegration model of Hansen and Seo (2002), incorporating differences in the nonlinear behavior of investors across regimes. An examination of the trading behavior of foreign, domestic institutional, and domestic individual investors in Taiwan revealed no predominance among the three types of investors. When the market was near equilibrium, the purchases of domestic individual investors positively impacted stock prices. This finding, which is consistent with Choe et al. (2005), suggests that domestic individual investors have an edge in investment performance over other types of investors. However, when the market departed substantially from equilibrium, the purchases of foreign and domestic institutional investors predicted a rise in stock prices. On the other hand, domestic individuals traded at worse stock prices; these prices tended to fall (rise) after the purchase (sale).     

Coordinated capacity migration and expansion planning for semiconductor manufacturing under demand uncertainties

Semiconductor industry is very capital intensive in which capacity utilization significantly affect the capital effectiveness and profitability of semiconductor manufacturing companies. Due to constant technology advance driven by Moore's Law in semiconductor industry, multiple production technologies generally co-exist in a wafer fabrication facility with utilization of a pool of common tools for multiple technologies and critical tools dedicated for a specific technology. Because part of the equipment is common for products of different technologies, production managers have limited flexibility to dynamically allocate the capacity among the technologies via capacity migration. The possibility of capacity migration and interrelationship among different technologies make capacity planning difficult under demand and product-mix uncertainties.This paper aims to develop a dynamic optimization method that captures the unique characteristics of rolling demand forecast mechanism to solve capacity expansion and migration planning problems in semiconductor industry. In semiconductor industry, demand forecasts are rolling and updated when the latest market and demand information is available. This demand forecast mechanism makes forecast errors in different time periods correlated. We estimate the validity and robustness of the proposed dynamic optimization method in an empirical study in a semiconductor manufacturing company in Taiwan. The results showed practical viability of this approach and the findings can provide useful guidelines for capacity planning process under rolling forecast mechanism.