On Timing and Selectivity

The dichotomy between timing ability and the ability to select individual assets has been widely used in discussing investment performance measurement. This paper discusses the conceptual and econometric problems associated with defining and measuring timing and selectivity. In defining these notions we attempt to capture their intuitive interpretation. We offer two basic modeling approaches, which we term the portfolio approach and the factor approach. We show how the quality of timing and selectivity information can be identified statistically in a number of simple models, and discuss some of the econometric issues associated with these models. In particular, a simple quadratic regression is shown to be valid in measuring timing information.     

The supply of services: an analysis of the British Gas Servicing Contract

This paper is based on a research project carried out for the National Gas Consumer Council, and is an independent assessment of the standard terms contained in the British Gas Servicing Contract — in particular the comprehensive parts and labour contract offered for a complete central heating system. The paper analyses certain clauses that have given rise to particular comment, for example, Clause 1 Period of Agreement, Clause 3 Annual Service, Clause 4 Breakdown in Service (spare parts). The conclusion drawn is that these clauses are notable for their one-sidedness, and that legislation giving rights to the consumer to challenge ‘unfair terms’ is insufficient to protect the consumer against large corporations. Additional safeguards suggested include a set of guidelines, an arbitration provision and better publicity.     

The Analytics of Performance Measurement Using a Security Market Line

Security market line (SML) analysis, while an important tool, has never been fully justified from a theoretical standpoint. Assuming symmetric information and an inefficient index, we show that SML analysis can be grossly misleading, since, in general, efficient and inefficient portfolios can plot above and below the SML. On a more positive note, if SML analysis uses the return on a marketed riskless asset for the zero-beta rate, efficient portfolios must plot above the SML. Nonetheless, arbitrarily inefficient portfolios also plot above the SML.     

International Accounting Standards: An Alternative Rationale

International aspects of financial reporting have begun to receive an increasing amount of attention by a range of organizations. There is a need then, to appraise critically the performance and the underlying rationale of those agencies responsible for influencing international practices. Identification and appraisal of the rationale underlying the existence of those agencies is a necessary step in determining their potential for achieving the objectives which they have been set. This paper examines the rationale behind one of these agencies, the International Accounting Standards Committee (IASC, 1977). Unlike many others, the paper does not attempt to explain why we should have an organization such as the IASC and the standards it produces. Rather, it represents an attempt to explain why we do have an organization such as the IASC. To that end, an alternative rationale is suggested for the output of the IASC, based on theories of professional selfinterest, agency, and property rights. It is argued that that rationale is likely to have significantly greater explanatory power in respect of the present output produced by the IASC than those traditionally presented.     

Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy

The no-arbitrage martingale analysis is used to study the effect on asset prices of changes in the rate of information flow. The analysis is first used to develop some simple tools for asset pricing in a continuous-time setting. These tools are then applied to determine the effect of information on prices and price volatility, to extend Samuelson's theorem on prices fluctuating randomly, and to study the impact on prices of the resolution of uncertainty. The conditions under which uncertainty resolution is irrelevant for asset pricing are shown to be similar to those which support the MM irrelevance theorems.     

Robust Implementation in Direct Mechanisms

A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages lead to outcomes that agree with the social choice function for all beliefs at every type profile. In an interdependent-value environment with single-crossing preferences, we identify a contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism. Strict ex post incentive compatibility and the contraction property are also necessary for robust implementation in any mechanism, including indirect ones. The contraction property requires that the interdependence is not too high. In a linear signal model, the contraction property is equivalent to an interdependence matrix having all eigenvalues smaller than one.