Combining forecasts: An application to elections

We summarize the literature on the effectiveness of combining forecasts by assessing the conditions under which combining is most valuable. Using data on the six US presidential elections from 1992 to 2012, we report the reductions in error obtained by averaging forecasts within and across four election forecasting methods: poll projections, expert judgment, quantitative models, and the Iowa Electronic Markets. Across the six elections, the resulting combined forecasts were more accurate than any individual component method, on average. The gains in accuracy from combining increased with the numbers of forecasts used, especially when these forecasts were based on different methods and different data, and in situations involving high levels of uncertainty. Such combining yielded error reductions of between 16% and 59%, compared to the average errors of the individual forecasts. This improvement is substantially greater than the 12% reduction in error that had been reported previously for combining forecasts.     

Lessons from Financial Crises: The Role of Clearinghouses

This article investigates the historical development of clearinghouses and their ability to deal with financial crises. The article first reviews the role of bank clearinghouses in the Panic of 1907, the final crisis of the National Banking Era that led to the founding of the Federal Reserve, and examines how the clearinghouses responded by issuing transactions media, despite legal obstacles, and providing coinsurance among the members. The article then traces the late nineteenth and twentieth century evolution of clearinghouses at futures exchanges to understand how they promote stability and withstand crises by mutualizing risks among members. The key feature of both bank and futures clearinghouses is the effective integration of the members during times of distress, illustrating how the private markets develop institutions and contracts to manage risk and respond to financial crises.     

Inflation and Unemployment in General Equilibrium*

When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed, as in Rogerson (1988) . We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets, as in Lagos and Wright (2005) . This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show that the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips curve provides a long‐run, exploitable, trade‐off for monetary policy; it turns out, however, that the optimal policy is the Friedman rule.     

Productivity,scale economies and technical progress in the Canadian life insurance industry

The purpose of this paper is to examine the productivity performance of the Canadian life insurance industry. We construct a measure of total factor productivity for life insurance companies and then attempt to determine the main sources of improved productivity during the period 1961–1977 by pooling time-series and cross-section data from 31 firms. We conclude that for the industry as a whole technical progress was by far the most important source of productivity growth, while scale economies, on balance, had a marginally negative impact.     

AN ANALYSIS OF SHAREHOLDER REACTION TO DIVIDEND CUTS AND OMISSIONS

In this paper the proposition is tested that stock market reaction to a dividend change is a function of its information content. A multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends. Results indicate that, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the firm's stock in the immediately preceding period. The results further reveal that (1) simultaneous announcements of poor earnings cause larger capital losses; (2) prior announcements of loss/lower earnings, strikes, etc. attenuate the negative impact of dividend cuts; (3) managerial reassurances that the dividend reduction is growth-motivated produces a weakly favorable effect, and (4) institution of stock dividends concurrently with the dividend cut significantly reduces the negative valuation effect. It is concluded from the evidence that stock market reaction to managerial signals is a function of the perceived costs associated with these signals.     

THE CHOICE AMONG DEBT,EQUITY, AND CONVERTIBLE BONDS

The hybrid nature of convertible bonds continues to interest corporate financial managers, investors, and economists. While much theoretical and empirical research examines an issuer's choice between using straight debt and equity, little research evaluates how an issuer chooses among debt, equity, and convertible bonds. This study extends Marsh's [ 13 ] research on the differences between debt and equity issuers in the United Kingdom by examining U.S. industrial firms that issue debt, equity, or convertible bonds. It also illustrates how various distinguishing features influence the probability that each security will be issued.     

Economic benefits of public investment in weed management: the case of vulpia in south-eastern Australia's temperate pasture areas

The present paper reports an economic evaluation of the long-term benefits to Australia of research by the Cooperative Research Centre for Weed Management Systems (CRC) into the improved management of vulpia , the major annual grass weed of temperate pastures in New South Wales and Victoria. Vulpia reduces livestock production by competition with more desirable pasture species, by the production of low quality feed at critical times of the grazing cycle, and by injury to animals. A 20-year stochastic benefit-cost analysis indicated that reducing the impacts of vulpia in these pastures produced a mean net present value of $A58.3 million and a mean benefit-cost ratio of 33:1. Temperate pasture zone wool producers would capture the largest shares of these benefits, Australian consumers would gain, but wool producers in the rest of Australia would suffer welfare losses from vulpia reductions in the temperate pasture zones.