The Relative Valuation of Caps and Swaptions: Theory and Empirical Evidence

Although traded as distinct products, caps and swaptions are linked by no-arbitrage relations through the correlation structure of interest rates. Using a string market model, we solve for the correlation matrix implied by swaptions and examine the relative valuation of caps and swaptions. We find that swaption prices are generated by four factors and that implied correlations are lower than historical correlations. Long-dated swaptions appear mispriced and there were major pricing distortions during the 1998 hedge-fund crisis. Cap prices periodically deviate significantly from the no-arbitrage values implied by the swaptions market.     

Happiness perception in Spain,a SEM approach to evidence from the sociological research center

Quality & Quantity - In the current study, we examined the relationship between perceived person happiness and factors that influence this perception, also, is inferred that life satisfaction...     

Impact of funding sources on innovation: evidence from Brazilian software companies

This paper aims to investigate the impacts of different sources of innovation funding on company performances in the context of an emerging economy. Brazilian software companies are selected as a case for this investigation. Data – related to the types of funding support received and eight types of company performances measured in binary scales – was collected through an online survey from 188 companies located across Brazil. A multivariate probit model was estimated to assess the impacts of different funding schemes on company performances – controlling for other confounding effects. The findings confirmed the critical importance of public innovation funding, and revealed that companies that: (1) Used public funds were more likely to become nationally competitive; (2) Used loans from commercial banks were less likely to become nationally and internationally competitive; (3) Reinvested revenues were more likely to gain market share, and help in increasing the number of employees; (4) Not aware of public funding schemes were less likely to invest on research, development, and innovation. The overall findings suggest the positive impacts of innovation funds on company performance. They can serve as a policy guide to develop targeted performance strategy to determine which funding scheme would be effective to foster what outcomes.     

The effect of oil prices on stock prices: fresh evidence from asymmetric causality tests

This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test developed by Hatemi-J is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the U.S. and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, the U.S. and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.     

Wage discrimination in the NBA: Evidence using free agent signings

This article takes a step toward understanding potential causes of wage discrimination in an economy highly dependent on the service industry. Traditionally categorized within the service industry, professional sport leagues such as the National Basketball Association (NBA) provides a unique setting to examine the potential impact of race on salary. We analyze free agency contract signings, which allow us to better capture the determinants of players' wages, from 2011 to 2017 to investigate the prominence of wage discrimination in the NBA. Using weighted linear regression models and the Oaxaca–Blinder decomposition, we find that Black athletes are paid significantly less than their counterparts. In addition, we also identify the presence of consumer discrimination after controlling the exposure of a player to the audience, which is observed through the interaction term between the share of MSA population which is White and an identifier for whether a player is Black.     

Endogenous technology and sectoral productivity: Chile 1962–1982

The choice of sectoral productivity in Chile is studied within the choice of technique approach. The choice of production techniques is an economic problem in that the techniques implemented at any time reflect the prevailing economic environment, as well as its history. Incorporating this choice in the analysis adds another channel through which market conditions can influence productivity while neglecting this simple fact leads to a distorted view of the production process. This view of production is applied here to present an econometric framework for estimating sectoral production functions. The derived function has the form of a Cobb-Douglas function, but its coefficients are allowed to vary in response to the economic environment and to factor utilization. The results show the important effect that macro, external, and institutional shocks have on the level and cyclical behavior of productivity.The editor of this paper was Jaime de Melo.     

Minimum variance hedging when spot price changes are partially predictable

In many markets, changes in the spot price are partially predictable. We show that when this is the case: (1) although unbiased, traditional regression estimates of the minimum variance hedge ratio are inefficient, (2) estimates of the riskiness of both hedged and unhedged positions are biased upward, and (3) estimates of the percentage risk reduction achievable through hedging are biased downward. For natural gas cross hedges, we find that both the inefficiency and bias are substantial. We further find that incorporating the expected change in the spot price, as measured by the futures-spot price spread at the beginning of the hedge, into the regression results in a substantial increase in efficiency and reduction in the bias.     

Short-cuts in issuance decisions and subsequent small firm performance

This paper examines the subsequent change in performance characteristics of companies that make security issuance choices consistent with “following the herd.” It extends the literature on decision heuristics (i.e., decision short-cuts) by exploring the outcome of mimicking behavior. Results suggest that firms that issue equity in an environment consistent with mimicking are associated with subsequent increased risk of bankruptcy relative to their non-mimicking counterparts. Moreover, the results also suggest that these mimicking actions are not associated with subsequent changes in profitability. This gives support to the argument that decision short-cuts produce suboptimal results. Moreover, the effect is concentrated in very small (i.e., micro-cap) companies, but not present for companies in larger size categories. Similar patterns for debt issuers who mimic competitors are not observed, which may reflect the greater scrutiny imposed by lenders and debt under-writers with regard to debt issuances.