EXPECTATIONS FORMATION AND RISK IN FOUR FOREIGN EXCHANGE MARKETS

[Scientific enquiry] is a matter of comparing the corollariesof a whole group of hypotheses to a whole group of facts. Pierre Duhem, The Aim and Structure of Physical Theory, Paris,1906.     

Hedge Fund Activism, Corporate Governance, and Firm Performance

Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.     

IMPACTS OF PRIVATISATION POLICY IN EUROPE

This paper examines the economic implications of the privatisation that has been occurring in Europe. Different sectors and different countries have developed separately, but policymakers can learn common lessons. Considerable experience of privatisation has produced a mounting body of empirical evidence. Developing more powerful analytical tools also permits greater rigour in studying the behaviour of newly privatised undertakings. This paper examines the nature of privatisation processes and looks at the forms of adjustment to regulatory regimes that have occurred to accommodate the newly privatised undertakings. It draws upon new empirical evidence and previous econometric studies to consider privatisation's efficiency effects, especially regarding technical or X-efficiency.¹     

CAPITAL–LABOUR SUBSTITUTION AND ENDOGENOUS FLUCTUATIONS: A MONOPOLISTIC COMPETITION APPROACH WITH VARIABLE MARKUP*

This paper analyses an overlapping generations model with endogenous product diversity where strategic interactions between producers are introduced; it examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, markup variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labour, is not too weak, but in accordance with empirical estimates.     

MONETARY CREDIBILITY VS. VOTER APPROVAL: POLITICAL INSTITUTIONS AND EXCHANGE‐RATE STABILIZATION DURING CRISES

This paper analyzes how political institutions affect the execution of exchange‐rate policy. By focusing on policy‐makers' responses to the emergence of speculative pressure on their currencies, we argue that the effect of democratic institutions on exchange‐rate stability is likely to be conditioned by the officially announced exchange‐rate regime. Officially fixed exchange rates are the main instrument of autocrats to signal commitment to long‐term stability. Autocratic governments with strictly fixed exchange rates are thus more likely to defend their exchange rates than autocrats with an intermediate regime because the latter implicitly signal that they care less about monetary stability. In contrast, democrats defend more often in intermediately than in fully fixed official regimes by using a combination of external and internal adjustments, which reduce the negative effects of a devaluation on voters. Our analysis of 189 currency crises between 1975 and 1999 supports this conditional effect.     

NEGOTIATING A RESPONSE TO CLIMATE CHANGE: ROLE OF BIOLOGICAL EMISSIONS

Researchers have attributed 15 percent of global methane releases to emissions of methane from enteric fermentation in animals (wild and domestic). Bovines contribute approximately two-thirds of this amount. Since methane is a potent greenhouse gas, this source frequently is a target for emission reductions. However, the existing literature overstates the importance of bovine methane as a greenhouse gas by as much as 800 percent. Estimates to date have focused solely on gas emissions, ignoring the biological and chemical cycling that removes carbon from the atmosphere. The analysis presented here demonstrates the importance of these cycles in assessing the overall greenhouse effect of biological methane sources such as rice production, termites, and bovine animals. Ignoring this cycling results in overemphasizing the role of developing countries' total contributions to climate change. In economic terms, the analysis shows that reducing CO2 emissions from energy use in industrialized countries is more efficient than reducing net greenhouse methane from animal sources.     

Single Beta Models and Currency Futures Prices

The conditional capital asset pricing model is applied to foreign currency futures prices, covariance risk being measured relative to excess returns from a broadly diversified international portfolio of equities. Positive time-varying risk premia are found in all five currencies tested when the difference between the US and the average foreign interest rates is used as an instrumental variable for the expected excess return from the common stock portfolio.