Handling Weather Related Risks Through the Financial Markets: Considerations of Credit Risk, Basis Risk, and Hedging

The profits of many businesses are strongly affected by weather related events, and insurance against weather related risks (acts of God) has been a traditional domain for transfer of (certain) of these risks. Recent innovations in the capital market have now provided financial instruments to transfer and hedge some of these risks. Unlike insurance solutions, however, using these financial derivative instruments creates a situation in which the return to the purchaser of the instrument is no longer perfectly correlated with the loss experienced. Such a mismatch creates new risks which must be examined and evaluated as part of ascertaining cost effective risk management plans. Two newly engendered risks, basis risk (the risk created by the fact that the return from the financial derivative is a function of weather at a prespecified geographical location which may not be identical to the location of the firm) and credit risk (the risk that the counterparty to the derivative contract may not perform), are analyzed in this article. Using custom tailored derivatives from the over the counter market can decrease basis risk, but increases credit risk. Using standardized exchange traded derivatives decreases credit risk but increases basis risk. Here also the effectiveness of using hedging methods involving forwards and futures having linear payoffs (linear hedging) and methods using derivatives having nonlinear payoffs such as those involving options (nonlinear hedging) for the purpose of hedging basis risk are examined jointly with credit risk.     

FROM COMPETITION TO REGULATION: THE SIX-YEAR BATTLE TO REGULATE CALIFORNIA'S INSURANCE MARKETS

Abstract: The passage of California's Proposition 103 in November 1988 changed the State's regulatory structure for insurers from a competitive to a heavily regulated system. The six-year legal battle that followed resulted in several California Supreme Court and United States Supreme Court rulings and an ultimate implementation of rate roll backs on property-liability insurers on November 22, 1994. The study examines both property-liability and life insurers' returns. While only property-liability insurers are affected by the rale rollback and prior approval rate regulation, both life and property-liability insurers are affected by the proposition's other provisions. This paper examines the effect of successive changes on both types of insurance companies and analyzes the differential impact of the changes in regulatory structure.     

Terrorism and tourism as logical companions

The symbiotic relationship between terrorism and tourism needs to be understood and acted on, not just in terms of security and marketing, but in terms of such factors as planning, site development, employment policies, political risk analysis and emergency management. This article looks at the relationship between tourism and terrorism from several perspectives. The political and economic impact of terrorism on tourism is assessed, including the sensitivity of the tourism industry to general political strife and the vulnerability of travellers and tourist facilities to terroristic activity. The nature of terroristic violence and the objectives of terrorist groups are evaluated to determine why and how attacks on tourists and facilities may fit the organizational and political objectives of terrorist groups. Finally, the article suggests how the industry and policy makers must proceed to reduce the vulnerability for tourists and the travel sector.     

U.S. Equity Investment in Emerging Stock Markets

This article examines U.S. equity flows to emerging stock marketsfrom 1978 to 1991 and draws three main conclusions. First, despitethe recent increase in U.S. equity investment in emerging stockmarkets, the U.S. portfolio remains strongly biased toward domesticequities. Second, of the fraction of the U.S. portfolio thatis allocated to foreign equity investment, the share investedin emerging stock markets is roughly proportional to the shareof the emerging stock markets in the global market capitalizationvalue. Third, the volatility of U.S. transactions in emerging-marketequities is higher than in other foreign equities. The normalizedvolatility of U.S. transactions appears to be falling over time,however, and we find no relation between the volume of U.S.transactions in foreign equity and local turnover rates or volatilityof stock returns.     

Nothing Tastes as Local: Jordanians’ Perceptions of Buying Domestic Olive Oil

To date, little is known about how consumers perceive local and foreign olive oil. This study was conducted with the intention of exploring key trends in Jordanian consumers’ perceptions toward local olive oil and to examine whether they are ethnocentric toward purchasing their local olive oil in the era of the Arab Spring. The research design is a combination of quantitative with a qualitative technique to support and expand on the research findings. Data were collected from a total number of 196 Jordanians who live in Amman city. The results revealed that Jordanians are loyal to their country’s olive oil; they expressed strong ethnocentric tendencies toward purchasing it, and their purchasing tendencies are influenced by nationalism. Jordanians ranked their local olive oil as the best worldwide. This article provides original insights into the development and marketing strategies for local and global olive oil producers in the Jordan market and other Arab country markets.     

Neither an Authentic Product nor a Counterfeit: The Growing Popularity of Shanzhai Products in Global Markets

Counterfeits have been a longstanding concern to global brand manufactures. However, recently, a new product category that partly imitates and partly innovates under the term shanzhai has entered into market. Shanzhai products mimic original leading brands through visual or functional similarities and may also provide additional features. Given this new copycat phenomenon, our study for the first time conceptually distinguishes shanzhai products from counterfeits, theoretically compares the values of consumers choosing shanzhai products versus counterfeits, and empirically tests such differences in one integrative model. Specifically, shanzhai buyers value product functional benefits more than counterfeit buyers, while counterfeit buyers value status consumption, yet experience less self‐clarity than shanzhai buyers. Our findings offer important implications for imitative innovation literature as well as for practitioners.     

Seatbelt use among drivers in an urban city in Nigeria: an observational study

Studies from parts of Nigeria reported low compliance with seatbelt. This study sought to establish driver seatbelt use in Enugu, Nigeria by gender, vehicle type/use and time of day. Observations were done day and night at randomly selected locations. Data were analysed with SPSS version 15. Differences in response were checked with chi-square for trend. Confidence interval was 95% and P value < 0.05 was regarded as significant. Average compliance was 37.6% for the 510 males (85%) and 90 females (15%) observed. It was 74.8% in the day and 0.3% at night. Among males, 218 (42.7%) wore seatbelt while 9 (10%) females did. For commercial drivers 159 (65.2%) complied while 68 (19.1%) private drivers did. Truck drivers had 100% compliance while sports utility vehicle drivers had the lowest (18.8%). There is poor seatbelt compliance in Enugu, Nigeria and need for educational campaigns and stricter enforcement.     

Tunneling and propping: A justification for pyramidal ownership

This paper links existence of the pyramidal ownership structure to tunneling and propping. Tunneling refers to a transfer of resources from a lower-level firm to a higher-level firm in the pyramidal chain, whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy. We show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic, since rational outside investors anticipate tunneling and adjust their willingness-to-pay for the firm’s shares accordingly. With propping, however, they may be willing to be expropriated in exchange for implicit insurance against bankruptcy.