The Stochastic Seasonal Behaviour of Natural Gas Prices

Previous studies have explored the seasonal behaviour of commodity prices as a deterministic factor. This paper goes further by proposing a general (n+2m)‐factor model for the stochastic behaviour of commodity prices, which nests the deterministic seasonal model by Sorensen (2002) . We consider seasonality as a stochastic factor, with n non‐seasonal and m seasonal factors. The non‐seasonal factors are as defined in Schwartz (1997) , Schwartz and Smith (2000) and Cortazar and Schwartz (2003) . The seasonal factors are trigonometric components generated by stochastic processes. The model has been applied to the Henry Hub natural gas futures contracts listed by NYMEX. We find that models allowing for stochastic seasonality outperform standard models with deterministic seasonality. We obtain similar results with other energy commodities. Moreover, we find that stochastic seasonality implies that the volatility of futures returns follows a seasonal pattern. This result has important implications in terms of option pricing.     

The cost of equity of internet stocks: a downside risk approach

Beta as a measure of risk has been under fire for many years. Although practitioners still widely use the CAPM to estimate the cost of equity of companies, they are aware of its problems and are looking for alternatives. A possible alternative is to estimate the cost of equity based on the semideviation, a well-known and intuitively plausible measure of downside risk. Complementing evidence reported elsewhere about the ability of the semideviation to explain the cross-section of returns in emerging markets and that of industries in emerging markets, this article reports results showing that the semideviation also explains the cross-section of Internet stock returns.     

Delaying retirement in Spain

We study the reform of the Spanish public pension system in a multiperiod, general equilibrium, overlapping generations model economy populated by heterogeneous households. Our households differ in their place of birth, in their age, in their education and, endogenously, in their employment status, in their wealth, and in their pension entitlements. They receive a stochastic endowment of efficiency labor units each period. And they face a disability risk and a survival risk. They understand the link between the payroll taxes that they pay and the public pensions that they receive. And they decide how much to consume and to work, and when to retire from the labor force. We calibrate this economy to Spanish data, and we use it to study the consequences of delaying three years the statutory retirement ages in 2010. We find this reform is sufficient to solve the sustainability problems that plague the current Spanish public pension system. Our model economy predicts that under the current rules, the pension system fund will run out in 2028 and in the reformed economy it will last until 2050. We also find that it is moderately expansionary, and that it improves social welfare from the year 2015 onwards. We conclude that policymakers should seriously consider delaying the statutory retirement ages in Spain sometime in the near future.     

TASTE FOR VARIETY AND OPTIMUM PRODUCT DIVERSITY IN AN OPEN ECONOMY

We extend the Benassy 'taste for variety' model to an open economy setting. With the Benassy effect, the market equilibrium is inefficient, openness reduces the varieties provided in the unconstrained optimum and there are potential gains from international coordination.     

The fed model: The bad,the worse,and the ugly

The negative relationship between stock market P/E ratios and government bond yields seems to have become conventional wisdom among practitioners. However, limited empirical evidence and a misleading suggestion that the model originated in the Fed are used to support the model's plausibility. This article argues that the Fed model is flawed from a theoretical standpoint and reports evidence from 20 countries that seriously questions its empirical merits. Despite its widespread use and acceptance, the Fed model is found to be a failure both as a normative and as a positive model of equity pricing.     

Measurement Error in Access to Markets*

Microeconometric studies increasingly utilize travel times to markets as a determinant of economic behaviour. These studies typically use self‐reported measures from surveys, often characterized by measurement error. This paper is the first validation study of access to markets data. Unique data from Peru allow comparison of self‐reported variables with scientifically calculated variables. We investigate the determinants of the deviation between imputed and self‐reported data and show that it is non‐classical and dependent on observable socio‐economic variables. Our results suggest that studies using self‐reported measures of access may be estimating biased effects.     

Breaking new ground: base-of-pyramid service research

Two-thirds of the world's population lives in poverty, a global problem that researchers from a wide variety of disciplines study. Yet there is a fundamental lack of service research pertaining to this huge segment of society, commonly known as the base of the pyramid. This segment offers a rich source of information that could help break new ground in service research, by exploring services in contexts in which its current concepts, models, theories, and generalizations might not apply the same way. This article starts by exploring key contributions in base of the pyramid literature and identifying the main perspectives from which extant knowledge has developed. By revising existing service research priorities to identify useful intersections with base of the pyramid perspectives, this study offers new grounds deriving five research streams that reflect the integration of base of the pyramid research perspectives with service research priorities. Finally, this article details the emerging area of base of the pyramid service research using one of those research priorities, namely, transformative service research, in an effort to specify the relevant objectives, scopes, differences, and similarities and thereby identify common grounds for future service research at the base of the pyramid.