CASH SUBADDITIVE RISK MEASURES AND INTEREST RATE AMBIGUITY

A new class of risk measures called cash subadditive risk measures is introduced to assess the risk of future financial, nonfinancial, and insurance positions. The debated cash additive axiom is relaxed into the cash subadditive axiom to preserve the original difference between the numéraire of the current reserve amounts and future positions. Consequently, cash subadditive risk measures can model stochastic and/or ambiguous interest rates or defaultable contingent claims. Practical examples are presented, and in such contexts cash additive risk measures cannot be used. Several representations of the cash subadditive risk measures are provided. The new risk measures are characterized by penalty functions defined on a set of sublinear probability measures and can be represented using penalty functions associated with cash additive risk measures defined on some extended spaces. The issue of the optimal risk transfer is studied in the new framework using inf-convolution techniques. Examples of dynamic cash subadditive risk measures are provided via BSDEs where the generator can locally depend on the level of the cash subadditive risk measure.     

Explaining the democracy deficit in the Arab world

This paper strongly corroborates the widely held claim about the democracy and freedom “deficit” in the Arab world and asks the natural question as to why has the Arab world experienced such a deficit. The estimation results of an extended “modernity” model of democracy (measured by the Polity IV global index) suggest that after controlling for a host of economic, social and historical variables a negative and highly significant Arab dummy effect remains. This suggests, therefore, that the modernization theory does not fully account for the democracy deficit of the Arab world. Controlling for the modernity and other determinants, oil is negatively associated with democracy while the net effect of regional conflicts in the Arab world was negative, suggesting that conflicts in the Arab world promote authoritarianism in contrast with other regions where regional wars have been associated with democratic transitions. Moreover, and very significantly the Arab dummy was no longer significant as a stand alone effect though it remains significant when interacted with regional wars.     

Do Mexican Companies Culturally Adapt Their Websites?

Although some articles have tried to address the standardization/adaptation strategies of companies on the internet, there is still a lack of guidance on the issue, especially for companies outside of the United States. To help alleviate this shortage of guidance and provide Mexican web designers, web marketers, and IT managers with some insights into web cultural adaptation, this article conducted a comparative analysis of Mexican based companies’ domestic websites and their U.S. international websites, replicating a cultural adaptation framework from prior literature. Thirteen Mexican based Bolsa Mexicana de Valores (2005) companies were evaluated to test for the cultural adaptation of their Mexican and international websites. A content analysis of 26 Mexican domestic and U.S. international websites reveals non-significant cultural adaptation on the web; however, the results of the web content analysis are similar to those of previous research, which consider Mexican culture to score high in power distance, uncertainty avoidance, masculinity, and high-context cultural dimensions. However, for the collectivistic dimension, the results were opposite to those of previous research, which may suggest a need to develop and test other cultural adaptation frameworks for future research.     

Parametric estimation of hidden stochastic model by contrast minimization and deconvolution

We study a new parametric approach for particular hidden stochastic models. This method is based on contrast minimization and deconvolution and can be applied, for example, for ecological and financial state space models. After proving consistency and asymptotic normality of the estimation leading to asymptotic confidence intervals, we provide a thorough numerical study, which compares most of the classical methods that are used in practice (Quasi-Maximum Likelihood estimator, Simulated Expectation Maximization Likelihood estimator and Bayesian estimators) to estimate the Stochastic Volatility model. We prove that our estimator clearly outperforms the Maximum Likelihood Estimator in term of computing time, but also most of the other methods. We also show that this contrast method is the most robust with respect to non Gaussianity of the error and also does not need any tuning parameter.     

Long memory and structural breaks in modeling the return and volatility dynamics of precious metals

We investigate the potential of structural changes and long memory (LM) properties in returns and volatility of the four major precious metal commodities traded on the COMEX markets (gold, silver, platinum and palladium). Broadly speaking, a random variable is said to exhibit long memory behavior if its autocorrelation function is not integrable, while structural changes can induce sudden and significant shifts in the time-series behavior of that variable. The results from implementing several parametric and semiparametric methods indicate strong evidence of long range dependence in the daily conditional return and volatility processes for the precious metals. Moreover, for most of the precious metals considered, this dual long memory is found to be adequately captured by an ARFIMA–FIGARCH model, which also provides better out-of-sample forecast accuracy than several popular volatility models. Finally, evidence shows that conditional volatility of precious metals is better explained by long memory than by structural breaks.     

Does Religion Matter to Equity Pricing?

For a sample comprising 36,105 U.S. firm-year observations from 1985 to 2008, we find that firms located in more religious counties enjoy cheaper equity financing costs. This result is robust to a battery of sensitivity tests, including alternative assumptions and model specifications, additional controls for noise in analyst forecasts, and various approaches to addressing endogeneity. In another set of tests, we find that the equity pricing role that religion plays comes predominantly from Mainline Protestants. We also document that the effect of religiosity on firms?? cost of equity capital is larger for firms (periods) lacking alternative monitoring (regulation) mechanisms as measured by lower institutional ownership (the pre-SOX era), implying that religion plays a corporate governance role. Finally, we find that the importance of religion to equity pricing is concentrated in firms that suffer lower visibility, which tend to be more sensitive to local social and economic factors. By examining the links between religiosity and valuation at the firm level, we provide strong, robust evidence supporting the perspective that religion facilitates economic development.     

Consumers’ motivations and roles in rooting for or against underdog consumer

When wronged customers feel powerless they could bring publicly their fight against offending firms. Doing so could help to put the perpetrator firms under pressure and urge them to restore fairness. While some consumers could express their commitment to wronged consumers, others may disagree and disapprove their fight. This paper investigates consumers’ motivations and roles in supporting and rooting against powerless customers‐ referred here as underdogs. Using a netnography approach to analyse online participants’ postings, we identified two types of roles: supportive and unsupportive roles. The former consist of five consumers’ roles that are endorsed when rooting for underdogs, namely the Admirer, the Rebel, the Learner, the Opportunist and the Lawyer. The latter consists of four roles adopted by opponent consumers when rooting against underdogs, namely the Sarcastic, the Elitist, the Conformist and the Schadenfreudist. Understanding consumers’ roles and motivations in rooting for the underdogs, is helpful for firms in managing their defensive marketing efforts and reduce the anti‐corporate attitudes. Likewise, knowing what motivates consumers to root against an underdog may help in capitalizing on supportive attitudes and to reinforce the commitment toward the firm.     

ARDL panel estimation of stock market indices and macroeconomic environment of CEE and SEE countries in the last decade of transition

We tested the hypothesis of the procyclicality of stock exchanges regarding the economic activity of CEE and SEE countries, to measure the level of financial integration during the last decade of the transition period, and to compare these two groups of emerging countries. Our ARDL panel estimates support the hypothesis of procyclicality in the transition period in the CEE and SEE regions, and further financial integration, due to the opening up of the market economy and repricing of systematic risk, followed by large capital inflows, trade liberalization and industrial production, along with the implementation of institutional reforms regarding EU integration. In addition, the significant positive coefficient of capital inflows and negative coefficient of unemployment rate in the CEE and SEE panel ARDL results confirm the volatility of the transition process, as is obvious in higher industrial production, followed by the significant impact of import on CEE countries and the much higher significant impact of export on SEE countries.     

Nonlinearities in carbon spot-futures price relationships during Phase II of the EU ETS

This paper uses the Vector Autoregressive (VAR) model and the Switching Transition Regression-Exponential GARCH models (STR-EGARCH) to examine the dynamic relationships between the EU Emission Allowances (EUA) spot and futures prices during Phase II. Compared to the majority of previous studies, our empirical approach allows us to simultaneously capture asymmetry and nonlinearity effects in both return and volatility processes of carbon allowance prices. Our main findings show that carbon spot and futures returns are asymmetrically and nonlinearly linked, suggesting the usefulness of nonlinear models in pricing and forecasting carbon allowances prices.