Simultaneous selection and weighting of moments in GMM using a trapezoidal kernel

This paper proposes a novel procedure to estimate linear models when the number of instruments is large. At the heart of such models is the need to balance the trade off between attaining asymptotic efficiency, which requires more instruments, and minimizing bias, which is adversely affected by the addition of instruments. Two questions are of central concern: (1) What is the optimal number of instruments to use? (2) Should the instruments receive different weights? This paper contains the following contributions toward resolving these issues. First, I propose a kernel weighted generalized method of moments (GMM) estimator that uses a trapezoidal kernel. This kernel turns out to be attractive to select and weight the number of moments. Second, I derive the higher order mean squared error of the kernel weighted GMM estimator and show that the trapezoidal kernel generates a lower asymptotic variance than regular kernels. Finally, Monte Carlo simulations show that in finite samples the kernel weighted GMM estimator performs on par with other estimators that choose optimal instruments and improves upon a GMM estimator that uses all instruments.     

Systematic sampling of nonlinear models: Evidence on speed of adjustment in index futures markets

Based on the cost‐of‐carry model of future prices, a number of studies have estimated nonlinear autoregressive models for the basis at different frequencies (see, e.g., Dwyer GP, Locke, P, & Yu, W, 1996 ; Monoyios M and Sarno L, 2002 ; Taylor N, van Dijk D, Franses PH, & Lucas A, 2000 ). The structure of the models and the speed of adjustment to shocks reported are radically different. In this paper we examine the implications of systematic sampling. The results obtained show that regular sampling of the process seems important in attempting to explain the apparently contradictory results reported on the speed of adjustment to shocks in the cost‐of‐carry model. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:192–203, 2011     

The impact of exchange rate volatility on plant-level investment: Evidence from Colombia

We estimate the impact of exchange rate volatility on firms' investment decisions in a developing country setting. Employing plant-level panel data from the Colombian Manufacturing Census, we estimate a dynamic investment equation using the system-GMM estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998). We find a robust negative impact of exchange rate volatility, constructed either using a GARCH model or a simple standard deviation measure, on plant investment. Consistent with theory, we also document that the negative effect is mitigated for establishments with higher mark-up or exports, and exacerbated for lower mark-up plants with larger volume of imported intermediates.     

Alignment and Misalignment in Business Relationships

‘Alignment’ and ‘misalignment’ are terms commonly used both in strategy and in marketing. In B-to-B marketing, in particular, researchers investigated alignment/misalignment between customers and suppliers and recently discussed the effects of misalignment. Research in this field remains however fragmented. There is ambiguity about the objects to be aligned, the processes that characterize their change, the effects on the relationship development and the methods used to assess them. In general, the empirical research that has examined the two concepts in business relationships is limited.In this study we will develop a theoretical framework to assess alignments/misalignments in parties' interpretations of a problem and its solution for the customer, in order to address the following questions: How and why do alignment and misalignment change over time? When can misalignment be positive for the relationship development?We use data from a longitudinal study involving 84 customers and suppliers in the ICT Security Industry. The first finding is that there are no patterns in how alignment changes, but there is a slight tendency toward misalignment over time. Second, change in the alignment is mostly linked to parties' perceptions of the available resources and how these resources are combined, along with parties' interpretations of critical events. Finally, the research suggests that when parties are aware of misalignment, when misalignment is perceptual and when there are no external constraints to action, the effort to align practices produces positive effects, even when misalignment persists.     

Patricia Werhane and Alan Singer,Business Ethics in Theory and Practice

Teaching Business Ethics -     

Interest Rates Fluctuations and the Advantage of Long-Term Debt Financing: A Note on the Effect of the Tax-Timing Option

When interest rates fluctuate, issuing long-term debt may implicitly generate a valuable tax-timing option. The holder of long-term debt has an optimal-trading taxtiming option to immediately realize capital losses if an increase in interest rates lowers the price of the bond below the original issue price. In contrast, if interest rates decrease and the bond price is greater than the original issue price, the holder would prefer to defer the realization of capital gains. This tax-timing option confers an advantage for issuing long-term debt. Our formal presentation also highlights how the tax-timing options of long-term debt may increase the debt capacity of the firm.     

Reviews

Concepts and measurement of social exclusion. Room, G. (ed) 1995: BEYOND THE THRESHOLD: THE MEASUREMENT AND ANALYSIS OF SOCIAL EXCLUSION. Bristol, the Policy Press, £13.95.

Local job creation. European Commission 1995: LOCAL DEVELOPMENT AND EMPLOYMENT INITIATIVES: AN INVESTIGATION IN THE EUROPEAN UNION. Luxembourg: Office for Official Publications of the European Communities, Ecu 11.00, paper.

Local economic development. Blair, J. P. 1995: LOCAL ECONOMIC DEVELOPMENT: ANALYSIS AND PRACTICE. California: Sage, £44.95 cased.

The British economy in transition. Turner, R. (ed) 1995: THE BRITISH ECONOMY IN TRANSITION: FROM THE OLD TO THE NEW? London: Routledge, £14.95, paper.

Defence R and D. Hartley, K. and Newman, I. (eds) 1996: DEFENCE, RESEARCH & DEVELOPMENT AND DIVERSIFICATION. Harlow, Essex: South East Economic Development Strategy, £20.00 + £3.50 pp, paper.     

A consideration of normality in importance–performance analysis

It is widely believed that results of research are only valid when the distribution of data is relatively normal. However, most previous importance–performance analysis (IPA) studies have not considered the assessment of data normality. The aim of this study is to evaluate the importance of the normality assumption in IPA studies. Four data sets obtained from four experimental questionnaire surveys were used to demonstrate the changes in outcomes from non-normally distributed data sets to relatively normally distributed data sets by removing abnormal data. The results indicate that the distributions of attributes in four quadrants in importance–performance mapping for non-normally distributed data sets and relatively normally distributed data sets are similar when using direct IPA measurement method; however, they show differences when performing indirect IPA measurement methods. It is concluded that in order to ensure high-quality research outcomes, researchers should justify data normality in their IPA studies.