Economies of Scale and Economies of Scope in Multiproduct Financial Institutions: A Study of British Columbia Credit Unions

This paper investigates the production technology facing computerized credit unions in Canada. A full system of translog cost equations is estimated in order to test for economies of scale, economies of scope, and other production characteristics in a multiproduct context. The regression results indicate that most of the credit unions in our sample experience significant increasing returns to scale as they expand their level of output. There is also evidence of cost complementarity or economies of scope in their mortgage and other lending activities. As a result, legislation which limits the ability of credit unions to grow and diversify will likely raise the operating costs of this important group of financial institutions. Additional structural tests of the most general translog specification suggest that none of the restrictive production conditions commonly imposed by other researchers using Cobb-Douglas and CES specifications provide a valid representation of credit union technology. The results of many earlier studies are therefore open to question.     

How Do Experienced Users Evaluate Hybrid Financial Instruments?

Hybrid financial instruments contain features of both liabilities and equity. Standard setters continue to struggle with “getting the classification right” for these complex instruments. In this paper, we experimentally test whether the features of hybrid instruments affect the credit‐related judgments of experienced finance professionals, even when the hybrid instruments are already classified as liabilities or equity. Our results suggest that getting the classification right is not of primary importance for these experienced users, as they largely rely on the underlying features of the instrument to make their judgments. A second experiment shows that experienced users’ reliance on features generalizes to several features that often characterize hybrid instruments. However, we also find that experienced users vary in their beliefs about which individual features are most important in distinguishing between liabilities and equity. Together, our results highlight the importance of effective disclosure of hybrid instruments’ features.     

Can Mutual Fund “Stars” Really Pick Stocks? New Evidence from a Bootstrap Analysis

We apply a new bootstrap statistical technique to examine the performance of the U.S. open‐end, domestic equity mutual fund industry over the 1975 to 2002 period. A bootstrap approach is necessary because the cross section of mutual fund alphas has a complex nonnormal distribution due to heterogeneous risk‐taking by funds as well as nonnormalities in individual fund alpha distributions. Our bootstrap approach uncovers findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs. Moreover, the superior alphas of these managers persist.     

Indian railroading: floating railway companies in the late nineteenth century

This article provides a case study of four late nineteenth-century share flotations of Indian railway companies. It highlights an important gap in the historiography of Indian railway finance, which has focused on the period up to 1875. The role of N. M. Rothschild as lead underwriter and its relationship with the India Office, managing agents, and investors is analysed. This gives an evolving picture of mutual dependence between the City and Whitehall in the financing of the British Empire's largest investment programme. Gentlemanly capitalists are shown to combine the self-reinforcing roles of arranger, investor, and informal government advisor.     

FISCAL SUSTAINABILITY AND THE FISCAL REACTION FUNCTION FOR SOUTH AFRICA: ASSESSMENT OF THE PAST AND FUTURE POLICY APPLICATIONS

How does the South African government react to changes in its debt position? In investigating this question, this paper estimates fiscal reaction functions using various methods (ordinary least squares, threshold autoregressive, state‐space modelling and vector error‐correction model). This paper finds that since 1946, the South African government has run sustainable fiscal policy by reducing the primary deficit or increasing the surplus in response to rising debt. Looking ahead, this paper considers the use of fiscal reaction functions to forecast the debt/gross domestic product (GDP) ratio and gauging the likelihood of achieving policy goals with the aid of probabilistic simulations and fan charts.     

Jevons In Australia: A Reassessment*

Historians of economic thought have generally considered that W. S. Jevons' Australian work on political economy has little significance. This article presents three arguments for reassessing that account. First, while in Australia, Jevons formulated the basic premises of his Theory of Political Economy. Second, the key influence on him during this period was not D. Lardner, as previously thought, but Professor Maurice Pell of Sydney University. Third, in Australia, Jevons formulated the project which culminated in the publication of his Theory—the derivation of ‘laws’ of income distribution, showing economic agents were rewarded according to their contribution to production.