Does Trade,Technology, or Education Expel Traditional Sectors? Some Evidence from the Collapse of the Silk Sector in South Korea*

Rapid economic growth and development often drives out traditional activities. We determine how increased trade, technology, and access to education in South Korea led to the collapse of its silk sector. Results show that although the imports of silk yarn and fabric reduced domestic silk output and prices, trade liberalization was not the sole contributor to the collapse. Inelastic labor demand for unskilled workers, skill‐biased technology, and especially increased access to education all led to a sharp rise in the relative wage of unskilled workers, and the ensuing rise in production costs contributed to the silk sector's collapse.     

Are analysts' cash flow forecasts useful?

This study provides evidence that the cost of equity capital decreases with the number of analysts who issue both cash flow and earnings forecasts (cash analysts). The evidence also shows that cash analysts reduce information asymmetry and predict long‐term earnings more accurately than analysts who issue only earnings forecasts. Taken together, these findings suggest that cash analysts provide market participants with high‐quality information and, as a result, firms benefit from cash analyst coverage in the form of a reduced cost of equity capital.     

On the Exportability of Korean Movies

The authors investigate factors that may affect the exportability of Korean films released from 1996 to 2002. They employ a binary probit model to test the exportability. The findings indicate that the number of screens, action genre, and year dummies of 2000 and 2001 are important determinants of exportability in the overall model. The authors tried to capture the dynamic aspect of exportability by holding outside factors constant. Over the previous years (1996–99), they found that factors that reduce the asymmetric information problem are important predictors of exportability. On the other hand, the star power and number of screens exhibited in the domestic market are strong predictors of exportability during the recent period. This result confirms that the recent expansion and success of the Korean movie industry (such as the effect of Hallyu ) serves as an effective signal to the international film market. Their analysis of cultural discount is inconclusive.     

Comment on “A new simple square root option pricing model”

Câmara A. and Wang Y.‐H. ( 2010 ) introduce a simple square root option pricing model where the square root of the stock price is governed by a normal distribution. They show that their three‐parameter option pricing model can outperform the Black–Scholes option pricing model. We demonstrate that their assumption possesses an internal inconsistency in that the square root of the stock price can take on negative values. We generalize and revise their assumption so that the internal inconsistency can be avoided, and introduce a new square root option pricing model. The difference in option prices calculated from the two models may not be trivial. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

Maximum Eigenvalue Test for Seasonal Cointegrating Ranks*

The maximum eigenvalue (ME) test for seasonal cointegrating ranks is presented using the approach of Cubadda [Oxford Bulletin of Economics and Statistics (2001), Vol. 63, pp. 497–511], which is computationally more efficient than that of Johansen and Schaumburg [Journal of Econometrics (1999), Vol. 88, pp. 301–339]. The asymptotic distributions of the ME test statistics are obtained for several cases that depend on the nature of deterministic terms. Monte Carlo experiments are conducted to evaluate the relative performances of the proposed ME test and the trace test, and we illustrate these tests using a monthly time series.     

Hedonic analysis of a housing market in disequilibrium

This paper tests the hypothesis that information about housing market activity and about specific dwellings becomes capitalized into single family dwelling prices through a disequilibrium adjustment process. A dynamic price adjustment model, which is an extension of the standard hedonic model widely used in the literature, is derived, specified, and tested with both micro and aggregated data from the city of Chicago and for the period 1972–1976. The results show that from 32 to 75% of the variance in dwelling prices, unexplained by the standard hedonic attributes under assumptions of equilibrium, is explained by market activity signals such as mortgage interest rates and neighborhood transaction rates of the preceding period. Dwellings about which there is less information, making comparison pricing difficult, are shown to command a price premium. The standard equilibrium hypothesis appears readily rejectable and better predictions are obtained from the disequilibrium specifications. Several directions for extending this line of research are discussed.     

The Valuation of Stock Purchase Rights as Call Options

The predictability of rights valuation models is tested, viewing the rights as call options. The results show that rights valuation models, on average, overprice the rights. The bias in the model prices of rights found in this paper is opposite to that predicted by Merton. Among several factors considered, possible volatility changes associated with raising capital through a rights offering account for some of the observed pricing deviation. A further regression analysis shows that while the pricing deviation is positively related to both the degree that the rights are in the money and the allocation ratio, it is negatively related to the time to expiration and the daily trading volume of the rights.     

Returns to women’s education using optimal IV selection

This paper investigates returns to women’s education by applying an optimal IV selection approach, post-Lasso IV estimation, which improves the first-stage predictive relationship between an endogenous regressor and instruments. Using the 2010 American Community Survey, we find that an extra year of education increases married women’s own income by $4,480 and spouse income by $8,822. Our findings indicate that 53% of the increase in women’s consumption by education is attributed to the marriage market, and thus, we conclude that the marriage market is the primary channel through which education improves women’s well-being. The results demonstrate the advantages of the post-Lasso approach: The resulting two-stage least squares estimator maintains efficiency without increasing finite sample bias and is less subject to the inconsistency problem when some instruments are invalid; This differs from the results using the instrument of birth quarters only, which is mostly applied in studies on returns to education.     

Weak identification robust tests in an instrumental quantile model

We develop a testing procedure that is robust to identification quality in an instrumental quantile model. In order to reduce the computational burden, a multi-step approach is taken, and a two-step Anderson–Rubin (AR) statistic is considered. We then propose an orthogonal decomposition of the AR statistic, where the null distribution of each component does not depend on the assumption of a full rank of the Jacobian. Power experiments are conducted, and inferences on returns to schooling using the Angrist and Krueger data are considered as an empirical example.