ASYMMETRIC INFORMATION AND THE LACK OF PORTFOLIO DIVERSIFICATION*

There is pervasive evidence that individuals invest primarily in local stocks and thus hold poorly diversified portfolios. The present article develops a theoretical model in which the presence of informational asymmetries introduces home equity bias. The main departure from previous theoretical work is the assumption that local investors outperform nonlocal investors in identifying the correct ranking of local investment opportunities, instead of possessing superior information about the aggregate performance of the local stock market. The second key assumption is based on the evidence that short‐selling is a costly activity.     

Earnings and Schooling of Cooperative Managers

Abstract This paper estimates econometrically the economic return on schooling among Portuguese cooperative managers, based on a survey carried out in 1999. The main findings indicate that the rate of return is in line with previous published research. The results also indicate that in this sector, the return on education does not depend on the dimensions of the cooperative in which the individual works.     

Entry and exit as a source of aggregate productivity growth in two alternative technological regimes

This paper proposes a neo-Schumpeterian model in order to discuss how the mechanisms of entry and exit contribute to industry productivity growth in alternative technological regimes. Our central hypothesis is that new firms generate gains in aggregate productivity by increasing both the productivity level and competition intensity. By assuming that firms learn about the relevant technology through a variety of sources, and by allowing a continuous flow of entry and exit into the market, our study shows that firm exit and output contraction take mostly place among less productive firms, while output expansion and entry are concentrated among the more efficient ones. The greater is the competitive pressure generated by new entrants, the higher is the expected productivity level of established firms. Overall, our analysis suggests that micro analysis is the proper complement to aggregate industry studies, as it provides a considerable insight into the causes of productivity growth.     

The Cost-Effective Choice of Policy Instruments to Cap Aggregate Emissions with Costly Enforcement

We study the cost-effectiveness of inducing compliance in a program that caps aggregate emissions of a given pollutant from a set of heterogeneous firms based on emissions standards and the relative cost-effectiveness of such a program with respect to an optimally designed program based on tradable discharge permits. Our analysis considers abatement, monitoring and sanctioning costs, as well as perfect and imperfect information on the part of the regulator with regard to the polluters’ abatement costs. Under perfect information we find that (a) the total-cost-effective design of a program based on standards is one in which the standards are firm specific and perfectly enforced, and (b) the total cost of an optimally designed program based on standards is lower than the total cost of an optimally designed transferable emission permits system, except under special conditions. This is true when it is optimum to induce perfect compliance and when it is not. Under imperfect information, nevertheless, it is only by implementing a system of tradable permits and perfectly enforcing it with a constant marginal penalty tied to the price of the permits, that the regulator can surmount the informational problem and at the same time minimize the total cost of the program with certainty.     

The sustainability of Portuguese fiscal policy from a historical perspective

This paper analyses the sustainability of Portuguese public finances, making use of a long dataset with more than a full century of observations. The use of such a long dataset is appropriate because both the unit root and co-integration tests on which the sustainability testing procedure is based require a long period of data. We find considerable evidence in favor of sustainability for the 1903–2003 period which is not, however, maintained for the more recent 1975–2003 period, as it is characterized by the largest GDP deficit ratios of our sample. This latter period appears to signal a shift to an unsustainable path in Portuguese fiscal policy. Hence, our results suggest that fiscal consolidation efforts must, in fact, be continued in Portugal.Paper presented at the 2004 CESifo-LBI Conference on “Sustainability of Public Debt”, October 22–23 2004, Munich.     

Innovative outcomes from migrant entrepreneurship: a matter of whether you think you can,or think you can’t

The entrepreneurship literature has exposed some of the most influential antecedents of innovative entrepreneurship. Prior research has also identified crucial features of migrant entrepreneurship. This article employs lessons from these two areas and draws on social cognitive theory to explore the main drivers of innovative ventures among migrants. We center the attention on entrepreneurs, differentiating them between two management strategies: imitation or innovation; and we study the role of perceived self-efficacy, prior entrepreneurial experience, and social capital into the likelihood of acting innovative. For our empirical analysis, we primarily use data from the Global Entrepreneurship Monitor for three years covering 2016–2018 and gathering 5713 observations of early-stage entrepreneurs from Chile. Our estimations show that being a migrant is in itself an insufficient condition to influence seeking substantial differentiation from what is traditionally offered in the local market; instead, we confirm that a migrant who feels capable of successfully starting a business will be likely to conduct innovative entrepreneurship. Contributions of these findings for theoretical and practical advances of the field are discussed.

     

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

The aim of this paper is to analyse the role of the survivor dividend in notional defined contribution (NDC) pension schemes. At present, this feature can only be found in the Swedish defined contribution scheme. We develop a model that endorses the idea that the survivor dividend has a strong basis for enabling the NDC scheme to achieve financial equilibrium and that not including the dividend is a non-transparent way of compensating for increases in longevity and/or legacy costs from old pension systems. We also find that the average effect of the dividend remains unchanged for any constant annual rate of population growth, that contributors who reach retirement age always get a higher return than the scheme does, and that population growth enables cohorts with more years of contributions to benefit to a greater extent from the dividend effect.     

Kicking Away the Ladder,Too: Inside Central Banks

Central banks are evolving institutions. In developed countries, particularly in Britain, central banks were used as instruments of the state to finance government and to promote economic development. However, once they went up the economic ladder, advanced economies kicked it to preclude developing countries from climbing it, too. It is in this context that the modern independent central bank, concerned with inflation targeting alone, which harkens back to the Victorian era, should be interpreted. This paper analyzes the recent evolution of the Argentine central bank in this broad historical perspective.     

A pairs trading strategy based on linear state space models and the Kalman filter

Among many strategies for financial trading, pairs trading has played an important role in practical and academic frameworks. Loosely speaking, it involves a statistical arbitrage tool for identifying and exploiting the inefficiencies of two long-term, related financial assets. When a significant deviation from this equilibrium is observed, a profit might result. In this paper, we propose a pairs trading strategy entirely based on linear state space models designed for modelling the spread formed with a pair of assets. Once an adequate state space model for the spread is estimated, we use the Kalman filter to calculate conditional probabilities that the spread will return to its long-term mean. The strategy is activated upon large values of these conditional probabilities: the spread is bought or sold accordingly. Two applications with real data from the US and Brazilian markets are offered, and even though they probably rely on limited evidence, they already indicate that a very basic portfolio consisting of a sole spread outperforms some of the main market benchmarks.