Why Do Absolute Returns Predict Volatility So Well?

Our objective is volatility forecasting, which is core to manyrisk management problems. We provide theoretical explanationsfor (i) the empirical stylized fact recognized at least sinceTaylor (1986) and Ding, Granger, and Engle (1993) that absolutereturns show more persistence than squared returns and (ii)the empirical finding reported in recent work by Ghysels, Santa-Clara,and Valkanov (2006) showing that realized absolute values outperformsquare return-based volatility measures in predicting futureincrements in quadratic variation. We start from a continuoustime stochastic volatility model for asset returns suggestedby Barndorff-Nielsen and Shephard (2001) and study the persistenceand linear regression properties of various volatility-relatedprocesses either observed directly or with sampling error. Wealso allow for jumps in the asset return processes and investigatetheir impact on persistence and linear regression. Extensiveempirical results complement the theoretical analysis.     

The Developmental Impact of the Asian Drivers on Senegal

(1250) Eric Hazard, Lotje De Vries, Mamadou Alimou Barry and Alexis Aka Anouan, with Nicolas Pinaud African countries have deepened their commercial and diplomatic relationships with China and India, and Senegal has been no exception. The historical context of the relationships, however, has differed. While Senegal already enjoyed a long‐lasting and stable relationship with India, relations with China have been more erratic, in particular on account of Dakar’s recognition of the Republic of China. We analyse trade and investment patterns with the Asian Drivers and how Senegal can form a relationship with these two superpowers that can contribute to its national development objectives. Contrary to other countries in Africa, Senegal is not a large producer of natural resources other than phosphates and fisheries and its consumer market is also rather limited. We find scarce evidence of large‐scale FDI flows and the amount of official development assistance is similarly anecdotic. For China and India, Senegal is of some interest as a logistical and commercial centre, rather than a production base for regional or foreign markets. Over the longer run, as these two countries are likely to become more important for Senegal simply on account of their increasing relevance on the world stage, we argue that it is essential that the authorities take these factors into account in developing policies that cater for economic development and social priorities.     

Wendy Gamber. The Boardinghouse in Nineteenth-Century America

In this sharp and revealing book, Wendy Gamber sheds new lighton a fascinating topic that historians generally overlook: thenineteenth-century American boardinghouse. Gamber begins byreminding us that although contemporary commentators celebratedprivately owned homes as domestic oases in the desert of marketcapitalism, boardinghouses remained ubiquitous institutionsthat shaped the experiences of countless city inhabitants before1900. In seven thematic chapters, she weaves a colorful tapestryof boardinghouse life. Early chapters focus on the challengesthat women     

Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis

This article investigates whether the passage and the implementationof the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of thepublic capital market. To control for other factors affectingexit decisions, we examine the post-SOX change in the propensityof American public targets to be bought by private acquirersrather than public ones with the corresponding change for foreignpublic targets, which were outside the purview of SOX. Our findingsare consistent with the hypothesis that SOX induced small firmsto exit the public capital market during the year followingits enactment. In contrast, SOX appears to have had little effecton the going-private propensities of larger firms. (JEL G30,G34, G38, K22)     

Encouragement Designs: An Approach to Self-Selected Samples in an Experimental Design

When subjects choose their own treatment (are self-selected into treatments based on their varying compliance with assignment to treatment states), many of the well-developed techniques of randomization-based experimental design and analysis are no longer applicable. With random assignment to treatment and control conditions, we can reasonable assume that over many replications, the two groups will be similar in all respects (observed and not observed) but that of receiving the treatment. With non-random assignment, it may be true that the groups differ on the variable of interest prior to receiving the treatment, and that a measured post-treatment difference (or lack thereof) will be erroneously attributed to the treatment. Our approach involves making all subjects aware of the availability of the treatment, but then offering extra encouragement (an encouragement design) to participate in the treatment to a randomly selected half of the population. If the encouragement is successful, we show how this leads to an estimable treatment effect (with associated asymptotic standard error).An illustrative example using fictitious data is presented in which we measure the effects of coupon books on store purchase behavior. A randomly selected half of the customers at a given store are assigned to receive coupon books as part of a package of store materials (the treatment condition) whereas the other half are not. We overlay on this initial randomized design an encouragement condition in which a second randomly chosen half of the store's customers receive their materials from an employee (encouraging participation with the treatment), and for the other half the materials were simply placed on a table. The market share of persons who chose to take the coupon book was 44% and 20% from those who did not. A naive estimate of the effect of the treatment is 24%; however this estimate ignores the self-selection bias (those persons assigned to receive the coupon book but refused to take it, and those not assigned who picked one up anyway). Using the encouragement design estimator derived leads to a lower estimated impact of the treatment at 5%. The difference in these results may have significant impact on the choice by store management to utilize employees to hand out promotional materials.Eric T. Bradlow is Assistant Professor of Marketing and Statistics     

Practical modelling and hypothesis testing in primary design and technology education

This article explores relationships between designing and making in the work of children within the age range 5–11 when engaged in practical modelling tasks. The notion of the model is explored from the perspective of concrete representations. It is suggested that concrete models may be used as hypotheses from which to test ideas about the nature of the world. From this perspective, models may be seen to provide crucial platforms for learning. A wide range of sources has informed the article, and these embrace ideas on Hypothesis Theory drawn from linguistic research, as well as historical sources which trace the evolution and development of stimuli for model-making activity. A creative basis for modelling is explored such that a conclusion is reached in which design is seen as an expression of the modelling of possibilities.     

Nash Equilibrium and Welfare Optimality

If A is a set of social alternatives, a social choice rule (SCR) assigns a subset of A to each potential profile of individuals' preferences over A , where the subset is interpreted as the set of "welfare optima". A game form (or "mechanism") implements the social choice rule if, for any potential profile of preferences, (i) any welfare optimum can arise as a Nash equilibrium of the game form (implying, in particular, that a Nash equilibrium exists) and, (ii) all Nash equilibria are welfare optimal. The main result of this paper establishes that any SCR that satisfies two properties—monotonicity and no veto power—can be implemented by a game form if there are three or more individuals. The proof is constructive.     

Managers' Perceptions of Criteria of Organizational Effectiveness

This research explores managerial perceptions of organizational effectiveness and whether they have similarities with perceptions of academics, and with the competing values model of organizational effectiveness (Quinn and Rohrbaugh, 1983). The results suggest that the same values organize the patterning of effectiveness criteria in a cohesion-based solution for managers and academics. Yet, this cohesion model has inadequate explanatory power for managers' perceptions and shows no relationship with either their experience or organizational preferences. In contrast, a conflict-based solution provides adequate explanatory power for managers and relates to their experience and to organizational preferences. If managers play any part in influencing effectiveness in organizations, then incorporating their views into models of organizational effectiveness is therefore likely to improve our understanding of organizational functioning.     

Determinants of Income Growth in Metropolitan and Nonmetropolitan Labor Markets

This article analyzes determinants of growth across labor markets in the United States, using a production function approach based on four inputs: labor, manufacturing investment, human capital investment, and public capital investment. We find little role for public capital investment in growth, but that manufacturing investment spurred growth in nonmetropolitan areas, in contrast to metropolitan areas. We also find that human capital investment mattered more for metropolitan areas than for nonmetropolitan areas. Further, the presence of more colleges and universities, more household amenities, and lower tax rates are all found to have encouraged human capital accumulation in U.S. labor markets.     

The boundaries of firms as information barriers

When contracts are incomplete, the property‐rights theory of firms suggests that ownership of physical assets provides better outside options, which in turn strengthen the owner's incentives to invest in the enterprise. This approach is less suitable for human capital firms such as management consulting that lack physical assets. This article develops an alternative theory for integration that sheds light on the boundaries of human capital firms. In particular, when a relationship between parties includes large potential externalities, reducing the outside option of each party will be beneficial. Integration provides this reduction by blurring the contribution of individual parties within the firm, and thus lowering their independent market valuation. Unlike some results in the property‐rights literature, the results here are robust to variations in ex post bargaining solution.