Risk-Sensitive Asset Management with Lognormal Interest Rates

Asia-Pacific Financial Markets - Risk-sensitive asset management on both finite and infinite time horizons are treated on a market with a bank account and a risky stock. The risk-free interest rate...     

TRADE,NON‐SCALE GROWTH AND UNEVEN DEVELOPMENT

This paper investigates the relationship between trade and economic development using a two‐country, non‐scale growth model. Depending on the share of the expenditure for manufactured goods, we obtain two different results with regard to long‐run production patterns. Whether or not the follower country can catch up with the leader country in the long run depends on two factors: (1) the patterns of production in both countries and (2) the measure of economic welfare that is used, i.e. per capita income or per capita consumption.     

The fundamentals of Intertemporal Optimization in the Continuous Time Modelling of Consumer Behaviour

This note explains the fundamentals of intertemporal optimization for consumer behaviour modelled in continuous time when preferences are recursive as in Uzawa and Epstein. After the differential in utility and the differential in the value of assets have been defined and computed, the optimization principle is summarized and fully set out in one equation equating the former with the utility value of the latter. This equation is then shown to be equivalent to Pontryagin's maximum principle, and a close analogy is drawn between static and dynamic consumer theory.     

Primacy in stock market participation: the effect of initial returns on market re-entry decisions

We examine whether initial returns influence investors’ decisions to return to the stock market following withdrawal. Using a survival analysis technique to estimate Finnish retail investors’ likelihood of stock market re-entry reveals that investors who experience lower initial returns are less likely to return, even after controlling for returns in the last month and average monthly returns for the duration of investing. This primacy effect is robust to accounting for endogeneity in investors’ exit decisions, and other behavioural biases such as recency and saliency of investment experience. Individual investors appear to be subject to primacy bias and tend to put a significant weight on initial experiences in re-entry decisions.     

Turning the other cheek: Facial orientation influences both model attractiveness and product evaluation

The layout of visual elements in advertising influences consumers' perception and judgments. The research reported here investigates the influence of the face orientation of a human model on the perception of their attractiveness and its downstream consequences on product evaluation. Across five experiments, we first demonstrate that consumers tend to perceive a model's face showing his or her left cheek as more attractive than when showing the right cheek, even when the images are otherwise identical. More importantly, we demonstrate the downstream influence of face orientation on the evaluation of advertised products whereby the leftward (vs. rightward) model's face increases the evaluation of the advertised product through perceived model attractiveness. We identify the underlying mechanism of the face orientation effect, namely, that consumers perceive those faces showing their left (vs. right) cheek as more prototypical, and that this perception of prototypicality elicits an aesthetic preference for the model's leftward face which in turn carries over to influence product evaluation. The theoretical and practical implications of this research are also discussed.     

Do economic,institutional or political variables explain regulated wholesale unbundled local loop rate setting?

This study examines OECD fully unbundled and line-sharing monthly wholesale prices for 2002–2008. Although both series are well explained by the models, the principal contribution of the research is that economic, institutional and political factors explain mandated wholesale rate settings. The study finds evidence of both regulatory capture (to benefit incumbents) and retail margin setting to encourage entry (to benefit entrants).     

Rationality of liquidity preferences and the neoclassical monetary growth model

In the neoclassical monetary growth literature, the rationality condition in the sense of freedom from money illusion is imposed on the demand for nominal balances by assuming that this demand is homogenous of degree one in nominal income and nominal wealth. We argue that the price level should enter into this demand as a separate argument, and that the rationality condition should require that the demand be homogenous of degree one in nominal income, nominal wealth, and the price level. Then, the symmetry issue of the real purchasing power is consequential to the structure of the neoclassical monetary growth model.     

The curse of low-valued recycling

Journal of Regulatory Economics - This paper discusses how to deal with low-valued recyclable wastes whose reprocessing itself does not pay financially. While such a recycling activity can...