Exploring governance of the new European Banking Authority—A case for harmonization?

In the context of the proposed EU financial supervisory reforms, this paper focuses on the governance of the network of national supervisory banking agencies and the newly established Community supervisor (European Banking Authority, EBA). We assess to what extent lack of governance convergence nationally and with EBA could undermine the incentives for cooperation among supervisors. Convergence should particularly focus on (i) the issue of the presence of politicians on decision-making bodies; (ii) the need for clearly defining dismissal procedures of heads of supervision; (iii) autonomy from government in regulatory matters; (iv) supervisory autonomy in matters of licensing and withdrawing licenses; (iv) mechanisms for judicial accountability; (v) legal protection for supervisors handling in good faith. In the absence of full centralization of prudential supervision, early harmonization of national governance arrangements towards best practice would better align supervisors’ incentive structures and, hence, be beneficial for the effectiveness of European supervision.     

Teaching and learning the nature of technical artifacts

Artifacts are probably our most obvious everyday encounter with technology. Therefore, a good understanding of the nature of technical artifacts is a relevant part of technological literacy. In this article we draw from the philosophy of technology to develop a conceptualization of technical artifacts that can be used for educational purposes. Furthermore we report a small exploratory empirical study to see to what extent teachers’ intuitive ideas about artifacts match with the way philosophers write about the nature of artifacts. Finally, we suggest a teaching and learning strategy for improving (student) teachers’ concepts of technical artifacts through practical activities.     

The effect of stock splits on clientele: Is tick size relevant?

We explore whether the relation between stock splits and clientele is driven by binding tick sizes. We find little evidence that firms adjusted prices to maintain similarly binding tick sizes as the NYSE reduced tick sizes. Furthermore, though splits that increase the extent to which tick sizes are binding are associated with greater increases in spreads, these splits experience similar changes in measures related to clientele, including trade size, breadth of individual and institutional ownership, and analyst following. We find little evidence supporting theories, such as spread-induced sponsorship, that rely on binding tick sizes to link splits and clientele.     

Cumulative prospect theory and the St. Petersburg paradox

Summary. We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. The paradox occurs in particular in the setting and the parameter regime studied by Tversky and Kahneman [15] and in subsequent works. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability distributions and admissible parameter regimes for the weighting- and value functions for which finiteness of the subjective value can be proved. Alternatively, we suggest a new weighting function for CPT which guarantees finite subjective value for all lotteries with finite expected value, independent of the choice of the value function. Some of these results have already been found independently by Blavatskyy [4] in the context of discrete lotteries.Received: 14 October 2004, Revised: 6 May 2005, JEL Classification Numbers: C91, D81.We thank Pavlo Blavatskyy and Thorsten Hens for their helpful remarks regarding our paper. Moreover, we thank the referee for his constructive suggestions. This research was supported by the University Research Priority Program “Finance and Financial Markets” a research instrument of the University of Zürich.     

Value-at-Risk Prediction: A Comparison of Alternative Strategies

Given the growing need for managing financial risk, risk predictionplays an increasing role in banking and finance. In this studywe compare the out-of-sample performance of existing methodsand some new models for predicting value-at-risk (VaR) in aunivariate context. Using more than 30 years of the daily returndata on the NASDAQ Composite Index, we find that most approachesperform inadequately, although several models are acceptableunder current regulatory assessment rules for model adequacy.A hybrid method, combining a heavy-tailed generalized autoregressiveconditionally heteroskedastic (GARCH) filter with an extremevalue theory-based approach, performs best overall, closelyfollowed by a variant on a filtered historical simulation, anda new model based on heteroskedastic mixture distributions.Conditional autoregressive VaR (CAViaR) models perform inadequately,though an extension to a particular CAViaR model is shown tooutperform the others.     

Managing platform architectures and manufacturing processes for nonassembled products

The article presents methods for defining product platforms and measuring business performance in process intensive industries. We first show how process intensive product platforms can be defined using the products and processes of a film manufacturer. We then present an empirical method for understanding the dynamics of process intensive platform innovation, allocating engineering and sales data to specific platform and product development efforts within a product family. We applied this method to a major product line of a materials manufacturer. We gathered ten years of engineering and manufacturing cost data and allocated these to successive platforms and products, and then generated R&D performance measures. These data show the dynamic of heavy capital spending relative to product engineering as one might expect in a process intensive industries. The data also show how derivative products can be leveraged from underlying product platforms and processes for nonassembled products. Embedded within these data are strategies for creating reusable subsystems (comprising components, materials, etc.) and common production processes. Hard data on the degree to which subsystems and processes are shared across different products frequently are typically not maintained by corporations for the duration needed to understand the dynamics of evolving product families. For this reason, we developed and applied a second method to assess the degree of reuse of subsystems and processes. This method asks engineering managers to provide subjective ratings on an ordinal scale regarding the use of technology and processes from one product to the next in a cumulative manner. We find that high levels of reuse generally indicate that a product family was developed with a platform discipline. We applied this measure of platform intensity to two product lines of integrated circuits from another large manufacturer. We used this method to gather approximately ten years of information for each product family. Upon analysis, one product family showed substantial platform discipline, emphasizing a common architecture and processes across specific products within the product line. The other product family was developed with significantly less sharing and reuse of architecture, components, and processes. We then found that the platform centric product family outperformed the latter along a number of performance dimensions over the course of the decade under examination.     

Stochastic Volatility for Lévy Processes

Three processes reflecting persistence of volatility are initially formulated by evaluating three Lévy processes at a time change given by the integral of a mean-reverting square root process. The model for the mean-reverting time change is then generalized to include non-Gaussian models that are solutions to Ornstein-Uhlenbeck equations driven by one-sided discontinuous Lévy processes permitting correlation with the stock. Positive stock price processes are obtained by exponentiating and mean correcting these processes, or alternatively by stochastically exponentiating these processes. The characteristic functions for the log price can be used to yield option prices via the fast Fourier transform. In general mean-corrected exponentiation performs better than employing the stochastic exponential. It is observed that the mean-corrected exponential model is not a martingale in the filtration in which it is originally defined. This leads us to formulate and investigate the important property of martingale marginals where we seek martingales in altered filtrations consistent with the one-dimensional marginal distributions of the level of the process at each future date.     

The relationship between ethics and firm practices in Russia and the United States

One of the fundamental objectives of corporate governance is to promote a climate that fosters ethical decision-making. As transitioning economies move toward more transparent and democratic systems the existence of policies, such as codes of ethics, that attempt to monitor and control moral behavior will become increasingly important. The establishment of ethical standards not only encourages trust with potential trade partners but also is likely to cultivate foreign direct investment. In this study, data collected from 112 U.S. and 74 Russian respondents reveal some intriguing patterns across these two diverse economies. Managerial implications and future research directions are also discussed.     

Confucian ethics and Japanese management practices

This paper proposes that an important method for understanding the ethics of Japanese management is the systematic study of its Confucian traditions and the writings of Confucius. Inconsistencies and dysfunction in Japanese ethical and managerial behavior can be attributed to contradictions in Confucius' writings and inconsistencies between the Confucian code and modern realities. Attention needs to be directed to modern Confucian philosophy since, historically Confucian thought has been an early warning system for impending change.Dr. Marc J. Dollinger is an Assistant Professor of Management at Indiana University. He received his Ph.D. from Lehigh University in 1983. His current research is focused on the strategic management of small firms and entrepreneurship