Idiosyncratic Risk Matters!

This paper takes a new look at the predictability of stock market returns with risk measures. We find a significant positive relation between average stock variance (largely idiosyncratic) and the return on the market. In contrast, the variance of the market has no forecasting power for the market return. These relations persist after we control for macroeconomic variables known to forecast the stock market. The evidence is consistent with models of time‐varying risk premia based on background risk and investor heterogeneity. Alternatively, our findings can be justified by the option value of equity in the capital structure of the firms.     

R&D and Technological Learning in Indian Industry: Econometric Estimation of the Research Production Function

Estimation of research production functions has produced rich and useful results for developed countries in the past. This paper makes a pioneering attempt to estimate the same in the context of a less-developed country (LDC) (India). The objective is to examine the process of technology generation and learning in Indian industry. The existing literature recognizes two principal characteristics of technological activities in LDCs. First, their R&D effort is geared towards "minor" as opposed to "major" innovations. Second, technological learning constitutes an integral part of their research thrust. This paper attempts to capture these characteristics in a rigorous econometric framework by estimating a comprehensive research production function incorporating the role of learning. We use Indian firm-level in-house R&D data for two sectors: pharmaceuticals and electronics. Our study not only captures the role of learning in determining research effort and research output, but also re-examines some of the existing hypotheses relating to the effects of firm size, technology import and ownership. We find that the two sectors display two distinct learning trajectories, but in both cases learning proves to be crucially important in technology generation.     

Evaluating Retraining Programs in OECD Countries: Lessons Learned

Are retraining programs for the unemployed more effective thanjob search assistance? Governments of the member countries ofthe Organisation for Economic Co-operation and Development haveconsiderable experience with retraining programs in a varietyof industrial settings. Evaluations of these programs show thatthe results are disappointing, however. This article discussesthe factors associated with retraining programs for two typesof workers: those laid off en masse and the long-term unemployed.Evaluations indicate poor results for both groups: retrainingprograms are generally no more effective than job search assistancein increasing either reemployment probabilities or postinterventionearnings, and they are between two and four times more expensivethan job search assistance.      

Diversification strategies,business cycles and economic performance

Two major diversification strategies of firms are examined: diversification into related businesses and diversification into unrelated businesses. The first strategy attempts to exploit operating synergies. In the second, the firm attempts to gain financial benefits from its ability to increase leverage due to a greater stability of cash flows. The study utilizes a large sample affirms to assess empirically the benefits and costs of these two diversification strategies by developing a new measure of diversification across business cycles and economic sectors. This new measure is compared with Berry—Herfindahl type measures of total diversification and recent measures of diversification into related businesses. The results indicate that pure financial diversification is associated with (a) more stable cash flows, i.e. lower operating risk; (b) increased levels of leverage; and (c) lower profitability. These observations are in accord with the theory. We also reaffirm that firms which diversify into related businesses have, on the average, higher profitability than non-diversified firms, although these results are not always statistically significant.     

Indian economy and Indian private equity

India's gross domestic product has been growing at more than 8% in the past few years, making it the fourth‐largest economy in terms of purchasing power parity. According to a Goldman Sachs report, India could become the second‐largest economy in the world by 2050. The key growth drivers are investments in infrastructure, domestic consumption, and a hub for global outsourcing. This is further supported by growth‐oriented policies by the government. The favorable environment has led to the growth of the private equity market. India received approximately U.S. $17.5 billion of investments in private equity in 2007, making it the number‐one destination in Asia. Indian private equity has been mainly focused on providing growth/expansion capital to the company as compared to buyouts in the developed markets. © 2008 ICICI Bank Limited. Printed with permission.     

Healthcare resource utilization and costs by age and joint location among osteoarthritis patients in a privately insured population

Aims: To compare healthcare resource utilization and costs between patients aged 18–64 years with osteoarthritis (OA) and matched controls without OA in a privately insured population.

Methods: Patients with OA were selected from de-identified US-based employer claims (Q1:1999–Q3:2011). The index date was defined as the first OA diagnosis indicated by ICD-9-CM codes. One year before and after the index date were defined as the baseline and study periods, respectively. A second OA diagnosis during the study period was also required. Patients with OA were matched one-to-one on age, gender, index date, and minimum length of follow-up to controls without OA. Baseline characteristics and study period resource utilization and costs (2016 USD) were compared between cohorts.

Results: This study identified 199,539 patients with OA (knee: 87,271, hip: 19,953, hand: 15,670, spine: 12,496). The average age was 54 years, and 58% were female. OA patients had higher healthcare resource utilization than matched controls in inpatient, emergency room, and outpatient settings (p?p?Limitations: This sample, obtained using claims data, only includes patients who were actively seeking care for OA and were likely symptomatic. Asymptomatic patients would likely not be captured in this analysis.

Conclusions: Patients with OA incur greater healthcare resource utilization and costs than patients without OA, with substantial variation by joint location.     

Family Control of Firms and Industries

We test what explains family control of firms and industries and find that the explanation is largely contingent on the identity of families and individual blockholders. Founders and their families are more likely to retain control when doing so gives the firm a competitive advantage, thereby benefiting all shareholders. In contrast, nonfounding families and individual blockholders are more likely to retain control when they can appropriate private benefits of control. Families are more likely to maintain control when the efficient scale is small, the need to monitor employees is high, investment horizons are long, and the firm has dual-class stock.     

Cross-border production sharing and exchange-rate sensitivity of Mexico's trade balance

Increasing patterns of international trade occur in the form of cross-border production sharing – the dispersion of separate blocks of an integrated production process across different nations. In the case of ‘standard’ or ‘ordinary’ trade, imports are destined for use in the importing country, and exports are largely produced within the country. However, with production sharing, imported parts and components are destined for inclusion in the country's exports. A depreciation of a nation's currency raises its exports. At the same time, imported components become more expensive, which partly offsets the expansionary effect of the depreciation on exports. Using a simple theoretical framework, this paper shows that production networks lower the sensitivity of a country's trade balance to changes in exchange rates. The empirical examination finds Mexico's Maquiladora trade balance to be unresponsive to changes in both, its real effective as well as its real peso-dollar rates, while that for non-Maquiladora category is significantly responsive, in confirmation with the theorized hypothesis.