Asymmetric trading by insiders – comparing abnormal returns and earnings prediction in Spain and Australia

This paper examines whether the ‘external governance’ imposed by comparative financial accounting standards reduces the trading advantage of insiders. We do this by directly comparing insider trading returns and insider’s ability to predict future earnings from accruals in Spain and Australia. Results show higher excess returns and greater prediction of future earnings from conditioned insider trading in Australia that is then utilized by financial analysts to lower forecast errors – particularly in contrarian‐based accruals trading. Possible explanations include: (i) a high asymmetric quality for market‐based accruals, (ii) information transfer from informed insiders to uninformed insiders and financial analysts and (iii) a more timely dissemination of financial information in Spain through different ownership and governance structures.     

HOW DID PAUL KRUGMAN GET IT SO WRONG?1

This article is a response to Paul Krugman's New York Times Magazine article, ‘How Did Economists Get It So Wrong?’ Krugman's attack on modern economics – and many adhominem attacks on modern economists – display a deep and highly politicised ignorance of what economics and finance is really all about, and a striking emptiness of useful ideas.     

Do return prediction models add economic value?

We compare statistical and economic measures of forecasting performance across a large set of stock return prediction models with time-varying mean and volatility. We find that it is very common for models to produce higher out-of-sample mean squared forecast errors than a model assuming a constant equity premium, yet simultaneously add economic value when their forecasts are used to guide portfolio decisions. While there is generally a positive correlation between a return prediction model’s out-of-sample statistical performance and its ability to add economic value, the relation tends to be weak and only explains a small part of the cross-sectional variation in different models’ economic value.     

Employment,ownership, and Survival in microbusiness: A study of New retail and service establishments

This investigation provides new data and commentary on several neglected topics: employment contributions of microbusinesses, characteristics of the selfemployed, business survival rates, and psychological and social aspects of new business ownership. A survey and archival analysis of 413 retail and service establisments that began operation in 1985 is reported. The modal staff size of these establishments was three persons; 28% had no employees. Women, young people, and Latinos were among the larger groups of employees, although employment patterns varied according to size and type of business. The typical owner was male, white, in his 30s or 40s, and relatively inexperienced in business. Fifty-nine percent of the establishments survived two years; survival was associated with corporate ownership, with the owners' reliance on the business for a livelihood, and with their prior employment experience.