Potential performance and tests of portfolio efficiency

The potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the Sharpe (1966) performance measure. If a portfolio has a Sharpe measure equivalent to the potential performance of the underlying set of assets, then it is efficient. Multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations. Two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios. The procedures are also compared to the Gibbons (1982) methodology for testing financial models.     

Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around

In this study, we analyze why commercial banks failed during the recent financial crisis. We find that traditional proxies for the CAMELS components, as well as measures of commercial real estate investments, do an excellent job in explaining the failures of banks that were closed during 2009, just as they did in the previous banking crisis of 1985–1992. Surprisingly, we do not find that residential mortgage-backed securities played a significant role in determining which banks failed and which banks survived. Our results offer support for the CAMELS approach to judging the safety and soundness of commercial banks, but call, into serious question the current system of regulatory risk weights and concentration limits on commercial real estate loans.     

Does Cultural Distance Hinder Trade in Goods? A Comparative Study of Nine OECD Member Nations

We examine the effect of cultural distance, a proxy for the lack of a minimum reservoir of trust necessary to initiate and complete trade deals, on bilateral trade flows. Employing data for 67 countries that span the years 1996–2001, we estimate a series of modified gravity specifications and find that cultural dissimilarity between nations has an economically significant and consistently negative effect on aggregate and disaggregated trade flows; however, estimated effects vary in magnitude and economic significance across measures of trade and our cohort of OECD reference countries. The consistently negative influence of cultural distance indicates that policymakers may wish to consider mechanisms that enhance the build-up of trust and commitment when seeking to facilitate the initiation and completion of international trade deals. Our findings also imply that coefficient estimates from related studies that do not account for the trade-inhibiting effect of cultural distance may be biased.     

Unions and the economic basis of attitudes

Unions make differences to employee satisfaction that correspond to their effects on individual economic advantage. Panel data reveal how changes in economic circumstance and changes in job satisfaction are linked to changes in union coverage. When individuals move into a union covered job they receive a wage mark‐up and express enhanced pay satisfaction. Conversely, those moving from a union covered job on average lose any mark‐up and have significantly reduced satisfaction. Similar findings emerge for working hours. On average individuals prefer shorter hours, something they tend (not) to achieve on moving (out of) into a unionised job, resulting in higher (lower) satisfaction. Switching into union coverage lowers satisfaction with job security, even though coverage has no effect on the risk of unemployment. This is because covered employees suffer greater costs of re‐employment for a given level of unemployment risk, partly because of loss of the union mark‐up.     

In-transit perishable product inspection

We determine the value of monitoring perishable freight in-transit for a single vehicle traveling from an origin to a destination. We develop a computationally practical approach for determining the optimal expected cost function and an optimal policy, based on an infinite horizon partially observed Markov decision process model. Structural properties of the optimal expected cost function and optimal policy are determined. These results can lend insight when deciding whether to acquire the capacity to monitor freight status in transit and what actions to take, based on the data from the in-transit monitoring, that optimally increase expected supply chain productivity.     

Business Rescue in Insolvency Law in Europe: Introducing the ELI Business Rescue Report

In a European study, written under the auspices of the European Law Institute, the authors have designed elements of a legal framework that will enable the further development of coherent and functional rules for business rescue in Europe. Based on the recommendations of international organisations, such as UNCITRAL and the World Bank, as well as the insolvency laws of EU Member States, comparative research has led to a lengthy report of 10 chapters and more than 100 recommendations which are described in this article. They range from the need for professional and honest parties involved in the process (insolvency practitioners, turnaround managers, courts and company directors) to the evaluation of specific tools (such as a stay on enforcement actions of creditors and forms of available finance) and procedural safeguards to enable serious rescue efforts of viable businesses, while protecting justified interests. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.