US stock returns: are there seasons of excesses?

This article explores the existence of seasonality in the tails of stock returns. We use a parametric model to describe the returns, and obtain a proxy of the innovation distribution via a pre-processing model. Then, we develop a change-point algorithm capturing changes in the tails of the innovations. We confirm the good performance of the procedure through extensive Monte Carlo experiments. An empirical investigation using US stocks data shows that while the lower tail of the innovations is approximately constant over the year, the upper tail is larger in Winter than in Summer, in 9 out of 12 industries.     

Evolution and challenges of dairy supply chains: Evidence from supermarkets,industries and consumers in Ethiopia

In developing countries the demand for products of animal origin is expected to grow rapidly in the coming years. Using data collected from 200 urban households this study examines the evolution of the dairy market in Ethiopia. In particular, this study suggests that although the Ethiopian dairy market remains extremely thin and volatile, the commercialization of processed dairy products through supermarkets is expanding and is expected to keep doing so in the foreseeable future. Increasing urbanization and corresponding changes in consumer preferences, behaviour and purchasing power are the identified causes for the rise of supermarket-processor dairy chains. This study shows also that emerging dairy chains provide new market opportunities to Ethiopian farmers, but the existence of retail-industrial monopolies and monopsonies jeopardize farmers’ economic benefits to a great extent. The study concludes with some implications for policy and further research.     

Media effects on sustainable food consumption. How newspaper coverage relates to supermarket expenditures

Information provision is often considered to have an important role to play in changing consumers' choices. However, there is still no consensus on the mechanisms by which information might influence specific consumer expenditures, especially in relation to environmentally friendly food products. This paper explores whether the public debate on sustainable consumption in UK broadsheets and tabloids relates to observed consumers' expenditures. It does so by relating the number of published articles on selected sustainability topics to consumers' food expenditure in a leading UK supermarket from May 2009 to May 2011, using regression analysis. We selected only regular supermarket's shoppers who frequently buy the Sunday editions of the analyzed newspapers. Results indicate very sparse and inconsistent correlations suggesting that the impact of information is only minimally effective. The number of newspaper articles relates mainly to expenditures on organic, wholegrain and low salt products, possibly indicating a preference for healthy food. No consistent effects are observed when media target a change in more general food categories (e.g. a reduction in food of animal origin), although we observed some influence on purchases of fish. Finally, results indicate some correlations with purchases of meat for the readers of the Telegraph. In order to contextualize some of the results, we applied content analysis to a subsample of published articles on organic food. The qualitative approach shows that the framing of the news is important: change is positively related to information proposed uncritically; and negatively to information contextualized as a highly structured debate.     

The pyramid of Okun’s coefficient for Italy

Our aim is to propose a pyramid of Okun’s coefficient by age and gender in the Italian labour force using a varying-coefficient model. The unemployment rate by age and gender—useful information for estimating Okun’s relationship—is not available for Italy from official statistics. Therefore, we provide an estimation of the indicator using microdata for the 2005–2014 period from ISTAT, the Italian labour force survey. Okun’s law is investigated using two measures of the unemployment rate: a traditional measure based on a labour force with and without work experience, and a new measure restricted to the labour force with experience. When Okun’s relationship is estimated using the unemployment rate restricted to the labour force with experience, the young population is less sensitive to business cycles. As the workforce ages, this gap in sensitivity tends to shrink. We also found that there are no significant differences by gender in the magnitude of Okun’s coefficient among the youngest population when considering the unemployment rate restricted to the labour force with experience.     

The effects of foreign shocks when interest rates are at zero

In a two‐country DSGE model, the effects of foreign demand shocks on the home country are greatly amplified if the home economy is constrained by the zero lower bound on policy interest rates. This result applies even to countries that are relatively closed to trade such as the United States. Departing from many of the existing closed‐economy models, the duration of the liquidity trap is determined endogenously. Adverse foreign shocks can extend the duration of the trap, implying more contractionary effects for the home country. The home economy is more vulnerable to adverse foreign shocks if the neutral rate is low—consistent with “secular stagnation”—and trade openness is high.     

The Ramsey model with AK technology and a bounded population growth rate

This paper generalizes the Ramsey AK model by allowing the population growth rate to be variable over time subject only to be between prescribed upper and lower limits. Contrary to the standard AK setting, convergence can occur. Moreover, monotonicity as well as an asymptotic balanced growth path equilibrium may arise in the model.     

Asset pricing in a production economy with Chew–Dekel preferences

In this paper we provide a thorough characterization of the asset returns implied by a simple general equilibrium production economy with Chew–Dekel risk preferences and convex capital adjustment costs. When households display levels of disappointment aversion consistent with the experimental evidence, a version of the model parameterized to match the volatility of output and consumption growth generates unconditional expected asset returns and price of risk in line with the historical data. For the model with Epstein–Zin preferences to generate similar statistics, the relative risk aversion coefficient needs to be about 55, two orders of magnitude higher than the available estimates. We argue that this is not surprising, given the limited risk imposed on agents by a reasonably calibrated stochastic growth model.     

The Effect of EU Antitrust Investigations and Fines on a Firm's Valuation

EU antitrust investigations involve a sequence of events which affect the investigated firm's market value. We model these relationships and estimate their impact on firms' share prices. On average, a surprise inspection reduces a firm's share price by 2.89%, an infringement decision reduces it by 3.57%. The Court judgments do not have a statistically significant effect. Overall, we find that the total effect of the antitrust action ranges from ?3.03% to ?4.55% of a firm's market value. Fines account for no more than 8.9% of this loss, and we conjecture that most of the loss is due to the cessation of illegal activities.     

Least-squares Importance Sampling for Monte Carlo security pricing

We describe a simple Importance Sampling strategy for Monte Carlo simulations based on a least-squares optimization procedure. With several numerical examples, we show that such Least-squares Importance Sampling (LSIS) provides efficiency gains comparable to the state-of-the-art techniques, for problems that can be formulated in terms of the determination of the optimal mean of a multivariate Gaussian distribution. In addition, LSIS can be naturally applied to more general Importance Sampling densities and is particularly effective when the ability to adjust higher moments of the sampling distribution, or to deal with non-Gaussian or multi-modal densities, is critical to achieve variance reductions.     

Dynamic capital structure and the contingent capital option

The financial crisis has emphasized the difficulties for financial companies to raise funds through conventional liabilities. In this environment, hybrid securities are becoming popular. In this paper we study the optimal capital structure of a company issuing a particular type of hybrid security: perpetual contingent capital, i.e., debt that converts into equity under some conditions. A two-period model with endogenous bankruptcy for a company with equity, straight debt and contingent capital is analyzed. We investigate the instrument under different conversion rules: automatic or optimally chosen by equity holders. We show that contingent capital reduces the coupon of straight debt and expected bankruptcy costs but can require a high spread. A trigger imposed by the regulatory authority in terms of par value of debt may induce a little use of contingent capital with an increase of bankruptcy costs.