Correlation and the pricing of risks

Given a pricing kernel we investigate the class of risks that are not priced by this kernel. Risks are random payoffs written on underlying uncertainties that may themselves either be random variables, processes, events or information filtrations. A risk is said to be not priced by a kernel if all derivatives on this risk always earn a zero excess return, or equivalently the derivatives may be priced without a change of measure. We say that such risks are not kernel priced. It is shown that reliance on direct correlation between the risk and the pricing kernel as an indicator for the kernel pricing of a risk can be misleading. Examples are given of risks that are uncorrelated with the pricing kernel but are kernel priced. These examples lead to new definitions for risks that are not kernel priced in correlation terms. Additionally we show that the pricing kernel itself viewed as a random variable is strongly negatively kernel priced implying in particular that all monotone increasing functions of the kernel receive a negative risk premium. Moreover the equivalence class of the kernel under increasing monotone transformations is unique in possessing this property.      

Feedback in Tournaments under Commitment Problems: Experimental Evidence

We theoretically as well as experimentally analyze tournaments in which one of the agents leads over the other before entering the tournament, that is, in which one of the competitors benefits from a head start. The principal may decide upon informing the agents about the degree of this asymmetry. She cannot commit to giving feedback ex ante or not and, thus, chooses the strategy that is optimal for her ex post. In equilibrium, the principal reveals information if the asymmetry is not too large. Our experimental findings qualitatively confirm our theoretical prediction. Moreover, behavior of the principal and the agents is well aligned to each other.     

The Undisclosed Renminbi Basket: Are the Markets Telling Us Something about Where the Renminbi–US Dollar Exchange Rate is Going?

On 21 July 2005 China adopted an undisclosed basket exchange rate regime. We formally assess and envisage the gradual evolution of the renminbi over time. We utilise nonlinear dependencies in the renminbi exchange rate and describe the smooth transition of the renminbi/US dollar (RMB/USD) exchange rate using the family of time‐varying autoregressive (TV‐AR) models. The results indicate that the forward‐looking nonlinear model adequately depicts the gradual reform process underlying the new RMB exchange rate regime.     

Why Collaborate in a Physical Internet Network?—Motives and Success Factors

The vision of the Physical Internet (PI) involves both sharing logistics resources and information exchange within an open network. The implementation of PI is seen as a promising contribution toward sustainable logistics. This paper investigates motives for and success factors in collaborating in a PI network. We apply an interpretive case‐based research approach involving four shippers and three logistics service providers (LSPs) that operate in a PI network. Motives are defined as the reasons that encourage an organization to enter the PI network. Success factors are conditions required for organizations to continue collaborating in a PI network. This is the first PI study conducted in a multi‐industry context. The findings demonstrate the central and neutral orchestration of resources (i.e., physical, digital/intangible, and relational resources) as a substantial and multi‐faceted issue in PI and continuous PI collaboration. A well‐accepted theory (Resource‐Based View) and its most recent extension (Resource Orchestration Theory—ROT) frame and guide our research. ROT informs the deployment of physical, digital/intangible, and relational resources by a neutral orchestrator in a PI network. The knowledge of motives and success factors allows the development of future user‐oriented PI services that are likely to be accepted by shippers and LSPs.     

Does banner advertising affect browsing for brands? clickstream choice model says yes, for some

This paper investigates how exposure to Internet display advertising affects the subsequent choices users make of brand-specific pages to view within a website. Using individual-level clickstream data from a third-party automotive website, we tracked the web pages selected by users as they browsed the site and their exposures to premium placement display ads for different vehicle makes (e.g., Ford, Toyota). Pages on the site were classified into those that displayed information about a specific vehicle make (a ??make page??) versus those that did not (a ??non-make page??). For each ??make-page?? viewed, the specific automotive make selected (e.g., Ford, Toyota) was also recorded. We use these data to develop a model of users?? make-specific page choices as a function of prior banner ad exposure on the site. Consumer heterogeneity is captured using a Bayesian Mixture approach. We find that banner ads influence subsequent choices of which make-specific pages to view for ads, served during the current browsing session but not for ads served in previous sessions. The effect of banner ads is also segmented: users in one segment (54%) reacted positively, users in a second segment (46%) were not influenced. Using a standard continuous approach to heterogeneity, we would have concluded?Cincorrectly?Cthat banner advertising has no effect on the subsequent selection of make-specific pages. For the positively reacting segment, we estimate that the elasticity of make-page choice with respect to banner ad exposure is just under 0.2. Users in this segment appear less focused in their site browsing behavior and tend to stay longer than users in the non-reacting segment.