Speculative trading,prospect theory and transaction costs

A speculative agent with prospect theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximise the expected utility of the round-trip profit net of transaction costs. The optimisation problem is formulated as a sequential optimal stopping problem, and we provide a complete characterisation of the solution. Depending on the preference and market parameters, the optimal strategy can be “buy and hold”, “buy low, sell high”, “buy high, sell higher” or “no trading”. Behavioural preference and market friction interact in a subtle way which yields surprising implications on the agent’s trading patterns. For example, increasing the market entry fee does not necessarily curb speculative trading, but instead may induce a higher reference point under which the agent becomes more risk-seeking and in turn is more likely to trade.

     

Differences in education and earnings across ethnic groups in Guatemala

Most of the research on ethnicity in Central America looks at two groups: indigenous and nonindigenous populations. While indigenous people are disadvantaged relative to the nonindigenous group, the many groups that make up the indigenous population are often times not very similar in terms of personal and group characteristics. But the differences within these groups are important for public policy. Ethnic groups' experience depends on many factors besides education and skill levels. These additional factors may include what has come to be known as “ethnic capital.” That is, the socioeconomic performance of today's workers depends not only on parental skills, but also on the average skills of the ethnic group in the parent's generation. In the United States, when data on ethnic groups is broken down, the black-white comparison may be too simple a characterization. It is argued here that the indigenous-nonindigenous comparison in Guatemala is too simple. Guatemala's household survey, which utilizes two questions to determine an individual's ethnicity (self-perception and language), is used here to examine the question of ethnicity in terms of schooling attainment, earnings and the returns to schooling. The following hypothesis is tested: do higher levels of schooling correspond to higher returns to schooling? Dividing the indigenous sample into the main ethnic groups produces widely different and dramatic results in terms of schooling, earnings and the returns to schooling. Higher levels of schooling correspond to higher returns to schooling by ethnic group. Thus there may be a need to target interventions appropriately to the specific ethnic group in question.     

Important overlooked IVs in spatial models

Spatial models often contain additional endogenous variables as regressors. The complete system determining these variables is typically not known to the researcher, and so maximum likelihood or Bayesian estimation methods are precluded. This leaves instrumental variable estimation. In all likelihood, the system may contain certain forms of nonlinearities. These nonlinearities might arise because of endogenous weighting matrices, functional form differences in the endogenous variables, etc. The existence of such nonlinearities strongly suggests the use of nonlinear forms of the instruments. Issues of this sort were pointed out in Kelejian and Piras (Spatial econometrics, Elsevier, Amsterdam, 2017) and Kelejian (Lett Spat Resour Sci 9(1):113–136, 2016). However, thus far Monte Carlo results relating to efficiencies gained by the use of nonlinear instrumental variables are not available. This is unfortunate because these efficiencies can be quite extensive. The purpose of this paper is to fill this void.     

On the merits of plant-based proteins for global food security: Marrying macro and micro perspectives

This paper aims to demonstrate the importance of protein production for the global environment and to give insight into the way consumers frame the protein part of their meal. Using a macro perspective, it presents a review of the literature on current and future impacts of the nutritional transition that has made animals the chief source of protein in many countries. Protein-related environmental pressure is put into the perspective of a number of vital Earth-system processes whose boundaries have already been overstepped or are under threat of transgression. To inform policy-makers about these linkages a long-term global food security frame is proposed. Using a micro perspective, survey data on consumers reveal that their frames and habits are strongly adapted to the current meat system. Although this system has induced some pickiness about meat as well as uneasiness about meat's animal origin, there is a large psychological distance between consumers and experts in their view of protein sources. It is suggested that a global food security frame may help to bridge this distance by creating overlapping frames, capturing both altruistic aspects and a reasonable measure of self-interest. This may enable a novel protein transition, featuring a greater share of plant-based protein.