Borrowing in foreign currency: Austrian households as carry traders

Household borrowing in a foreign currency is a widespread phenomenon in Austria. Thirteen percent of Austrian households report their housing loan to be denominated in foreign currency, mostly Swiss franc. Yet, despite its importance, peculiar character, and acute policy concerns, we know little about the attitudes and characteristics of the households involved in this type of carry trade. We analyze a uniquely detailed financial wealth survey of 2556 Austrian households to sketch a comprehensive profile of the attitudes and characteristics of the households involved. We employ both univariate tests and multivariate multinomial logit models. The survey data suggest that risk seeking, affluent, and married households are more likely to take a housing loan in a foreign currency. Financially literate or high-income households are more likely to take a housing loan in general. These findings partially assuage policy concerns about household default risk on foreign-currency housing loans or household retirement security.     

IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market

Motivated by the debate about globally uniform accounting standards, this study investigates whether firms using U.S. generally accepted accounting principles (GAAP) vis‐à‐vis international accounting standards (IAS) exhibit differences in several proxies for information asymmetry. It exploits a unique setting in which the two sets of standards are put on a level playing field. Firms trading in Germany's New Market must choose between IAS and U.S. GAAP for financial reporting, but face the same regulatory environment otherwise. Thus, institutional factors such as listing requirements, market microstructure, and standards enforcement are held constant. In this setting, differences in the bid‐ask spread and share turnover between IAS and U.S. GAAP firms are statistically insignificant and economically small. Subsequent analyses of analysts' forecast dispersion, initial public offering underpricing, and firms' standard choices corroborate these findings. Thus, at least for New Market firms, the choice between IAS and U.S. GAAP appears to be of little consequence for information asymmetry and market liquidity. These findings do not support widespread claims that U.S. GAAP produce financial statements of higher informational quality than IAS.     

The influence of uncertainty on the standard-setting decision between fair value and historical cost accounting under asymmetric information

Review of Quantitative Finance and Accounting - The design of accounting rules by the international standard-setters takes place by considering a trade-off between relevance and reliability. An...     

The crisis of fair-value accounting: Making sense of the recent debate

The recent financial crisis has led to a vigorous debate about the pros and cons of fair-value accounting (FVA). This debate presents a major challenge for FVA going forward and standard setters’ push to extend FVA into other areas. In this article, we highlight four important issues as an attempt to make sense of the debate. First, much of the controversy results from confusion about what is new and different about FVA. Second, while there are legitimate concerns about marking to market (or pure FVA) in times of financial crisis, it is less clear that these problems apply to FVA as stipulated by the accounting standards, be it IFRS or US GAAP. Third, historical cost accounting (HCA) is unlikely to be the remedy. There are a number of concerns about HCA as well and these problems could be larger than those with FVA. Fourth, although it is difficult to fault the FVA standards per se, implementation issues are a potential concern, especially with respect to litigation. Finally, we identify several avenues for future research.     

Investigating M3 money demand in the euro area

Euro area monetary growth has exceeded its target since 2001. Likewise, recent empirical studies did not find evidence in favour of a stable long-run money demand function. In contrast to the bulk of the literature, we are able to identify a stable long-run money demand relationship. This result is obtained when the analysis is done without the short run homogeneity restriction between money and prices. The basic equation can be improved by allowing for asymmetric adjustment. In a low inflation environment, opportunity costs of holding money have decreased. Thus, the apparent monetary overhang is reconciled within standard models.     

Measuring and modelling risk in a naturalistic setting

Two studies were undertaken to investigate risk perception in a military context. A questionnaire elicited cadets’ (n = 136) ratings of three categories of critical incidents (threats, constraints, and suffering among civilians) on nine qualitative risk dimensions adapted from the ‘Psychometric risk paradigm’ along with perceived personal risk, general risk, security and anticipated anxiousness. Factor analyses of average responses to the nine dimensions revealed two components: dread and new risk, the former strongly correlated with anticipated anxiousness and perceived personal and general risk. In a prospective survey, peacekeepers in Kosovo (n = 766) reported frequencies of exposure to threats, constraints, and suffering among civilians, and rated their personal risk of injury, the general risk and their trust in security relative to the peacekeeping operation. The fitness of a path model relating risk perception to risk exposure was estimated with reference to data collected after two, four and six months of deployment. Results were systematic across measurements and fit-indices in suggesting support for the model. The results confirm and extend findings from previous studies on risk perception by showing the impact of both risk characteristics (qualitative dimensions) and actual risk exposure (frequencies) on subjective risk perceptions.     

Nanotechnologie – Rechtliche Aspekte zur Versicherbarkeit von Produkten am Anfang neuer wissenschaftlicher Erkenntnisse

The article deals with the question which options exist in order to improve insurability of emerging risks, which are difficult to assess. The topic is illustrated by taking the example of nanotechnology. The author demonstrates how mathematical insurability may be increased by using contractual instruments such as the claims made principle, limits with regard to the duration and extent of insurance cover or the insured’s risk-related duties. Furthermore some ways to improve economic insurability are discussed. The analysis of pros and cons shows that the various options vary considerably with regard to their impact on insurability.     

The Spectrum of Random Matrices

The Frobenius eigenvector of a positive square matrix is obtained by iterating the multiplication of an arbitrary positive vector by the matrix. Bródy (1997) noticed that, when the entries of the matrix are independently and identically distributed, the speed of convergence increases statistically with the dimension of the matrix. As the speed depends on the ratio between the subdominant and the dominant eigenvalues, Bródy's conjecture amounts to stating that this ratio tends to zero when the dimension tends to infinity. The paper provides a simple proof of the result. Some mathematical and economic aspects of the problem are discussed.     

A monotonicity law for relative prices

Summary It is shown that relative prices of production, which depend on the rate of profit in a complicated manner, satisfy nevertheless a simple monotonicity law when the Hilbert's projective metric is used as a measure.