An Analysis of Differences in Earnings Between Small and Large Commercial Banks

This paper introduces a simple, yet rich, measure of efficiency changes based on the revenue-generating-ability (RGA) principle. Using this principle, we explain the connections between efficiency changes and the variables, such as pretax profits, interest expense, non-interest expense, profit margins, loan loss provision, and asset quality. These connections are used to explain earnings differences between small and large commercial banks.     

Noise Trading and the Management of Operational Risk; Firms,Traders and Irrationality in Financial Markets*

abstract Efficient market models cannot explain the high level of trading in financial markets in terms of asset portfolio adjustment. It is presumed that much of this excessive trading is irrational ‘noise’ trading. A corollary is that there must either be irrational traders in the market or rational traders with irrational aberrations. The paper reviews the various attempts to explain noise trading in the finance literature, concluding that the persistence of irrationality is not well explained. Data from a study of 118 traders in four large investment banks are presented to advance reasons why traders might seek to trade more frequently than financial models predict. The argument is advanced that trades do not simply occur in order to generate profit, but it does not follow that such trading is irrational. Trading may generate information, accelerate learning, create commitments and enhance social capital, all of which sustain traders' long term survival in the market. The paper treats noise trading as a form of operational risk facing firms operating in financial markets and discusses approaches to the management of such risk.     

The dynamics of moonlighting in Russia1

This paper uses the Russian Longitudinal Monitoring Survey (RLMS) to analyse the dynamics of moonlighting by the working‐age population. We find that moonlighting is transitory and that a desire to switch jobs expressed in the past is positively related to moonlighting in the present and to actual job changes in the future. We also find that workers who moonlighted as self‐employed in the past represent 26.5 percent of the new self‐employed. These results suggest that moonlighting in Russia can be seen as an effective incubator for setting up new self‐employed businesses, thereby providing long‐term benefits for the economy.     

Improved estimation of portfolio value‐at‐risk under copula models with mixed marginals

Portfolio value‐at‐risk (PVAR) is widely used in practice, but recent criticisms have focused on risks arising from biased PVAR estimates due to model specification errors and other problems. The PVAR estimation method proposed in this article combines generalized Pareto distribution tails with the empirical density function to model the marginal distributions for each asset in the portfolio, and a copula model is used to form a joint distribution from the fitted marginals. The copula–mixed distribution (CMX) approach converges in probability to the true marginal return distribution but is based on weaker assumptions that may be appropriate for the returns data found in practice. CMX is used to estimate the joint distribution of log returns for the Taiwan Stock Exchange (TSE) index and the associated futures contracts on SGX and TAIFEX. The PVAR estimates for various hedge portfolios are computed from the fitted CMX model, and backtesting diagnostics indicate that CMX outperforms the alternative PVAR estimators. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:997–1018, 2006     

Equilibria in large economies with a separable Banach commodity space and non-ordered preferences

The purpose of this paper is to provide an existence result of equilibria for economies with a measure space of agents, a non-trivial production sector and an infinite dimensional commodity space. The commodity space is modeled by an ordered separable Banach space whose positive cone has a non-empty interior. The discretization approach proposed in this paper, allows us to extend the existence results in Khan and Yannelis [Equilibrium in markets with a continuum of agents and commodities. In: Khan, M.A., Yannelis, N.C. (Eds.), Equilibrium Theory in Infinite Dimensional Spaces. Springer, Berlin, 1991] and Podczeck [Economic Theory 9 (1997) 585] to economies with a non-trivial production sector and with possibly non-ordered but convex preferences as well as partially ordered (possibly incomplete) but non-convex preferences.     

Innovation-oriented transformation of industry in Ukraine and Russia

This paper presents an expert assessment of the present state of cooperation of Ukraine and Russia in the innovation sphere, outlines its main stages and analyzes the quality of the process of formation of legislative framework in state regulation of innovation-oriented transformations in the economy of the two countries. A comparative study is made and a quantitative estimate of the level of innovation activities in industrial production and the degree of innovation shifts in the technological structure of manufacturing in Russia and Ukraine is given.     

Forecasting category sales and market share for wireless telephone subscribers: a combined approach

The ability to forecast market share remains a challenge for many managers especially in dynamic markets, such as the telecommunications sector. In order to accommodate the unique dynamic characteristics of the telecommunications market, we use a multi-component model, called MSHARE. Our method involves a two-phase process. The first phase consists of three components: a projection method, a ring down survey methodology and a purchase intentions survey. The predictions from these components are combined to forecast category sales for the wireless subscribers market. In the second phase, market shares for the various brands are generated using the forecast of the number of subscribers that are obtained in Phase 1 and the share predictions from the ring down methodology. The proposed methodology produces the minimum Relative Absolute Error for each market as compared to the forecasts from each individual component in the first phase. The value of the proposed model is illustrated by its application to a real world scenario. The managerial implications of the proposed model are also discussed.     

Capital structure and the control of managerial incentives

We present a theory of capital structure based on the power of shareholders, bondholders and managers to control the incentive conflicts in large corporations. The manager–owner conflict produces a trade-off between inefficiency in the low state and rents in the high state, and the shareholder–bondholder conflict produces under-investment as in Myers [Journal of Financial Economics 19 (1997) 147]. Since managers and bondholders both prefer more efficient actions in the low state, the two conflicts are interdependent. With risk-less levels of debt, there are no shareholder–bondholder agency costs, but managerial control over the incentive-setting process produces excessive rents. With risky debt, shareholders focus more on returns in the high state so that shareholder–bondholder agency costs increase but managerial rents decrease. Efficient levels of debt holder protection facilitate a reduction in manager–owner agency costs that outweighs shareholder–bondholder agency costs, and are decreasing in firm performance. The results are consistent with the separate empirical results relating control to both compensation and leverage, and suggest how future studies can be integrated.