Cumulant instrument estimators for hedge fund return models with errors in variables

We revisit the factors incorporated in asset pricing models following the recent developments in financial markets – i.e., the rise of shadow banking and the change in the transmission channel of monetary policy. We propose two versions of the Fung and Hsieh (2004) hedge fund return model, especially an augmented market model which accounts for the new dynamics of financial markets and the procyclicality of hedge fund returns. We run these models with an innovative Hausman procedure, tackling the measurement errors embedded in the models factor loadings. Our empirical method also allows for confronting the drawbacks of the instruments used to estimate hedge fund asset pricing models.     

Modelling conditional moments and correlation with the continuous hidden-threshold-skew-normal distribution

A key issue in modelling conditional densities of returns of financial assets is the time-variation of conditional volatility. The classic econometric approach models volatility of returns with the generalized autoregressive conditional heteroscedasticity (GARCH) models where the conditional mean and the conditional volatility depend only on historical prices. We propose a new family of distributions in which the conditional distribution depends on a latent continuous factor with a continuum of states. The distribution has an interpretation in terms of a mixture distribution with time-varying mixing probabilities. The distribution parameters have economic interpretations in terms of conditional volatilities and correlations of the returns with the hidden continuous state. We show empirically that this distribution outperforms its main competitor, the mixed normal conditional distribution, in terms of capturing the stylized facts known for stock returns, namely, volatility clustering, leverage effect, skewness, kurtosis and regime dependence.     

QUADRATIC PEN'S PARADE AND THE COMPUTATION OF THE GINI INDEX

Following Milanovic's (1997) paper, we propose a simple way to compute the Gini index when income y is a quadratic function of its rank among n individuals.     

Assessing the Impact of Fair‐Value Accounting on Financial Statement Analysis: A Data Envelopment Analysis Approach

The historical‐cost and prudence principles have guided accounting for financial investments and tangible fixed assets in many jurisdictions around the globe. This situation might change as a consequence of the increasing number of countries adopting International Financial Reporting Standards (IFRS), which, to some extent, permit accounting on a fair‐value basis. It is unclear how such a change would affect the analysis of financial statements and to what extent it could modify analysts' perceptions of companies' condition and performance. This paper attempts to shed some light on this issue by restating the financial investments and tangible fixed assets of a sample of 85 Spanish insurance companies, applying fair value instead of historical‐cost‐based valuations and by simulating analyst perception of these companies' efficiency and profitability for both sets of data using data envelopment analysis (DEA). We find that the numbers on the face of the financial statements change considerably and observe that the magnitude of these changes varies between companies and classes of assets. However, only in a few cases does a change in the valuation basis lead to a relevant change in DEA scores; within our sample, the overall assessment of companies with regard to efficiency and profitability remains largely the same under both valuation bases. These findings seem to indicate that a change from historical‐cost to fair‐value accounting could alter analyst perceptions of a limited number of companies but likely will not have a major impact on the appraisal of the majority of them.     

From Search to Match: When Loan Contracts Are Too Long

A model of lending is presented where loans are established in matches between banks (lenders) and entrepreneurs (borrowers) who meet in a search process. Projects turn out randomly a quick payoff or a long‐term payoff that requires a rollover of the loan. The model generates, under proper parameter conditions, two steady states without or with rollover, and rollover is socially inefficient. Under imperfect information, the standard debt contract is privately efficient. However, it extends the domains of equilibria with socially inefficient rollover. The global dynamics displays a continuum of equilibrium paths that each exhibits sudden discontinuities—crises—in which the mass of outstanding loans is reduced by a quantum amount of terminations. Crises have a cleansing effect.     

Political Rescaling and Municipal Cultural Public Policies: A Comparison of France and Québec

Do territories change public policies? This would appear to be a rather unusual research orientation. It is even a reversal of the most commonly accepted approaches to the study of territorial public action, which tend to look at this issue from the opposite perspective, that is, in examining how public policies affect territories. The municipal reforms that have simultaneously occurred in Québec and France since the late 1990s afford an excellent opportunity to consider this inversion of the issues. To do so, we take as our theme culture and municipal cultural policies. We try to define and understand to what extent there exist in Québec and France retroactive links between municipal restructuring and municipal decisions about cultural facilities and activities and, more generally, municipal cultural intervention in the urban milieu. This comparative analysis of the cases of France and Québec focuses on discourse as well as achievements. First, we look at the changes arising from institutional reforms in the supply of cultural activities, budgets devoted to culture, and cultural policies. We then consider culture as a vector in the construction of a new municipal institution and a new municipal territory.     

Bemerkungen zur Arbeit von K. Stange über “Die zeichnerische Behandlung von Plänen für messende Prüfung”

Ohne Zusammenfassung     

The Dynamics of Capital Flow Episodes

We first propose a novel methodology for identifying episodes of strong equity and bond flows using estimates from a regime-switching model that keeps context- and sample-specific assumptions to a minimum. We then assess the impacts of U.S. stock market volatility (VIX) and U.S. monetary policy shocks on equity and bond flow episodes. Our results indicate that the impacts of both shocks differ across in- and outflow episodes and, based on an assessment of equity flows, vary considerably over time. While VIX shocks are mostly associated with asymmetric impacts across episodes, U.S. monetary policy shocks generate such asymmetries primarily over time.     

Shorting in Speculative Markets

In models of trading with heterogeneous beliefs following Harrison-Kreps, short selling is prohibited and agents face constant marginal costs-of-carry. The resale option guarantees that prices exceed buy-and-hold prices and the difference is identified as a bubble. We propose a model where risk-neutral agents face asymmetric increasing marginal costs on long and short positions. Here, agents also value an option to delay, and a Hamilton-Jacobi-Bellman equation quantifies the influence of costs on prices. An unexpected decrease in shorting costs may deflate a bubble, linking financial innovations that facilitated shorting of mortgage-backed securities to the collapse of prices.     

Constant supervision of bathing in French public swimming pools: an unrealistic regulatory requirement?

In France, to prevent drowning accidents in public swimming pools (PSPs), bathing must be constantly supervised by qualified staff. However, fatal drowning regularly occurs in supervised aquatic facilities. A review of the literature shows that human supervision is a complex task. The aim of this research is to fully assess the periods during which supervision is not carried out, or carried out in an inadequate manner. The observations made in 108 French PSPs show that supervision is not carried out 18% of the time and that it is carried out inadequately 33% of the time. The medical literature shows that, in order to expect to survive without after-effects, an immersed victim requires intervention within a time limit of not more than three minutes; however, we noted, over a total observation time of 54 hours, 147 periods (29.8%) during which the supervision system was degraded for three minutes or more. This quantification research on the periods of degraded supervision is complemented by an identification of the causes leading to these degradations, from which we can draw interesting areas for improvement, particularly from an organizational point of view, in order to improve safety management in French PSPs.