Analysis of Systemic Risk in the Insurance Industry

In this paper, we discuss the systemic relevance of the insurance sector. Systemic risk is defined as the propensity of a financial institution to be undercapitalised when the financial system as a whole is undercapitalised. By the law of large numbers, traditional lines of insurance with idiosyncratic non-catastrophic risks cannot be systemic. On the contrary, undiversified insurers specialised in activities whose insured risks are highly correlated with GDP are systemic. In the life insurance sector, some contractual clauses such as unhedged minimum guarantees and free options to surrender raise the chance of systemic relevance. On the contrary, life insurers satisfying the classic solvency capital requirements contribute to the liquidity of financial markets thanks to the long-termist approach of their portfolio management. Finally, using historical data in the U.S. on the contribution of different sectors to the aggregate volatility of the economy, we show that investment banking is almost twice as volatile as aggregate GDP, while insurance is one fifth as volatile as aggregate GDP. The insurance sector thus appears to be a stabilising force of the economy.     

Are there Language Markers of Hubris in CEO Letters to Shareholders?

This paper explores whether DICTION text analysis software reveals distinctive language markers of a verbal tone of hubris in annual letters to shareholders signed by CEOs of major companies. We analyze 193 letters to shareholders, comprising about 368,000 words, focusing initially on 23 letters signed by CEOs who are alleged to be hubristic: Browne (BP), Goodwin (Royal Bank of Scotland), and Murdoch (News). Their language use is statistically significantly high in terms of the DICTION master variable, REALISM. Based on further analysis, we contend that language high in REALISM is not a distinctive marker of hubris but is likely to be a genre effect that is common in CEO letters to shareholders. We draw attention to the restricted capacity of DICTION to capture subtlety of language in CEO letters to shareholders.     

The law and economics of sycophancy

Tullock (in: Rowley (ed) The selected works of Gordon Tullock, Liberty Fund, Indianapolis, pp 399–455, 2005) was skeptical of the presumed economic efficiency of the common law, as adversarialism, apparently inherent to common law procedures, allowed for and was prone to litigiousness. Common law litigations accord to patterns of rent-seeking, as litigants invest ever more resources to assure victory. This paper asks if viable institutional solutions can emerge to resolve the problem Tullock identified. I survey the historical development of the term sycophancy within ancient Greek law as a revealing case study. Though a relatively innocuous pejorative in contemporary parlance, the term’s etymological roots stem from a formative process of ancient legal and institutional change within Athenian Greece. In the wake of specific legal reforms that expanded the scope of governmental authority under Solon (born 638–558 BCE), citizens were given explicit financial incentive to report violators of newly implemented public laws. Thereafter, social stigma surrounding third party legal representation leveraged the term sycophancy in reference to prosecutors motivated by private interests over the public welfare. Forgone social status and eventually formal criminal sanction emerged as offsetting differentials against the incentives of sycophancy.     

A cross-cultural examination of the aetiology of attitudes towards money

Few cross-cultural studies have been conducted on the aetiology of attitudes toward money. Such research becomes more important with increased international economic exchange. This study compares attitudes towards money in Great Britain and the U.S.A. The purpose was to replicate Furnham's British study made in 1984 using the Money in the Past and Future Scale (MPFS) with an American sample to provide a cross-cultural comparison. Analysis of Variance (ANOVA) was used to determine which of the sociodemographic variables were related to respondent attitudes toward money in the past and future. Differences in the MPFS were found between the two countries. The origin or aetiology of these differences in attitudes towards money can be, in part, attributed to cultural differences that begin in the context of the family and are reinforced by society.     

Business Cycle Synchronization in the EMU: Core vs. Periphery

This paper examines business cycle synchronization in the European Monetary Union with a special focus on the core-periphery pattern in the aftermath of the crisis. Using a quarterly index for business cycle synchronization by Cerqueira (Int Econ Econ Policy 10(3):349–363, 2013), our panel data estimates suggest that it is countries belonging to the core that are faced with increased synchronization among themselves after 2007Q4, whereas peripheral countries decreased synchronization with regards to the core, non-EMU countries and among themselves. Correlation coefficients and nonparametric local polynomial regressions corroborate these findings. The usual focus on co-movements and correlations might be misleading, however, since we also find large differences in the amplitude of national cycles. A strong common cycle can thus lead to large differences in cyclical positions even if national cycles are strongly correlated.     

Monetary Policy in Austria–Hungary, 1876–1913: An Econometric Analysis of the Determinants of the Central Bank’s Discount Rate and the Liquidity Ratio

This paper presents a model to explain the official discount rate of the Central Bank of Austria–Hungary from 1876 to 1913. The discount rate is assumed to depend on the liquidity ratio of the Bank, defined as the ratio of its stock of metals to banknotes issued, and on changes in foreign discount rates. The paper also presents an equation explaining the liquidity ratio. We use “not equally spaced chronologically ordered data” referring to the 50 discount rate changes enacted. The regressions confirm that the liquidity ratio was the main determinant of the discount rate and that Germany (and not Great Britain) played a significant role in determining the Austro–Hungarian discount rate and the liquidity ratios, supporting the view that the classical gold standard was a decentralized multipolar system rather than a system fully dominated by London as suggested by Keynes. The regressions also suggest that, although Austria–Hungary had an inconvertible paper currency (1879–1892) and fluctuating exchange rates (1876–1895) and formally joined the gold standard only in 1902, it “shadowed” the behaviour of gold standard Central Banks with such consistency that the stability of the estimated regressions was relatively unaffected by the frequent institutional changes.