Deterministic criteria for the absence of arbitrage in?one-dimensional diffusion models

We obtain a deterministic characterisation of the no free lunch with vanishing risk, the no generalised arbitrage and the no relative arbitrage conditions in the one-dimensional diffusion setting and examine how these notions of no-arbitrage relate to each other.     

Timing under individual evolutionary learning in a continuous double auction

The moment of order submission plays an important role for the trading outcome in a Continuous Double Auction; submitting an offer at the beginning of the trading period may yield a lower profit, as the trade is likely to be settled at the own offered price, whereas late offers result in a lower probability of trading. This timing problem makes the order submission strategy more difficult. We extend the behavioral model of Individual Evolutionary Learning to incorporate the timing problem and study the limiting distribution of submission moments and the resulting offer function that maps submission moments to offers. We find that traders submit different offers at different submission moments the distribution of which uni-modal with a peak moving from late to early as the market size increases. This behavior exacerbates efficiency loss from learning. If traders evaluate profitability of their strategies over longer history, orders are submitted later with the same effect of market size.     

New development: State-owned enterprises as powerhouses for innovation—the Russian case

There have been many analyses of innovation in Russia’s state-owned enterprises (SOEs) and most conclude that the way forward requires the SOEs to transform into innovation powerhouses. Hence, in 2011, the Russian government set up an ambitious initiative to push innovation in the largest SOEs, which will run until 2020. This initiative has now begun its second phase. Using major case studies, for example Aeroflot and Russian Railways, this article examines the impact of the initiative. Understanding the Russian experience of transforming SOEs provides important lessons for many other emerging economies.     

New development: Reinventing industrial policy—a Russian study in engineering and design

Engineering and industrial design services are closely connected to both an economy’s value and level of employment. While the global market for engineering services is growing steadily, the Russian engineering and industrial design market is very fragmented. Russia began a targeted policy for engineering and industrial design in 2013 to support service providers who were struggling with high interest rates on loans and insufficiently qualified staff. This article reports on this initiative and reflects on its impact.     

12. Transculture: A Broad Way Between Globalism and Multiculturalism

This paper develops a concept of transculture as a model of cultural development that differs from both leveling globalism and isolating pluralism. While culture frees humans from the material dependencies of nature, it also creates new, symbolic dependencies—on customs, traditions, conventions, which a person receives as a member of a certain group and ethnos. Among the many freedoms proclaimed as rights of the individual, there emerges yet another freedom—from one's own culture, in which one was born and educated. Transculture is viewed as the next level of liberation, this time from the "prison house of language," from unconscious predispositions and prejudices of the "native," naturalized cultures. The case of the Japanese poet Araki Yasusada (1903–1972), a survivor of Hiroshima, demonstrates how transcultural creativity, though cast in the form of a literary hoax, can produce an internationally recognized achievement. Transculturalism is especially needed in world politics, where the factor of fixed cultural identity based on race, ethnos, religion, or ideological commitments turned out to be a source of conflict and violence. This paper argues that the categories of opposition and identity do not preclude the significance of the third category, which is difference. The differences complement each other and create a new interpersonal transcultural community to which we belong, not because we are similar but because we are different. The transcultural perspective opens a possibility for globalization not as homogenization but, rather, as further differentiation of cultures and their "dissemination" into transcultural individuals, liberating themselves from their dependence from their native cultures. The global society can be viewed as the space of diversity of free individuals rather than that of fixed groups and cultures. It is an alternative to the clash of civilizations and a hope for lasting peace.     

Learning cycles in Bertrand competition with differentiated commodities and competing learning rules

This paper stresses the importance of heterogeneity in learning. We consider a Bertrand oligopoly with firms using either least squares learning or gradient learning for determining the price. We demonstrate that convergence properties of the rules are strongly affected by heterogeneity. In particular, gradient learning may become unstable as the number of gradient learners increases. Endogenous choice between the learning rules may induce cyclical switching. Stable gradient learning gives higher average profit than least squares learning, making firms switch to gradient learning. This can destabilize gradient learning which, because of decreasing profits, makes firms switch back to least squares learning.     

Excess Cash and Stock Returns

I document a positive relationship between corporate excess cash holdings and future stock returns. The difference in returns of portfolios of high and low excess cash firms amounts to 5% annually or 6% after standard three-factor risk adjustment. Firms with more excess cash have higher market betas and earn lower returns during market downturns. High excess cash companies invest considerably more in the future than do their low cash peers, but do not experience stronger future profitability. On the whole, this evidence is consistent with the notion that excess cash holdings proxy for risky growth options.     

On scale-invariant parametric families of functions

In this paper, we attempt to characterize parametric families of functions such that the statement “a function is an element of the parametric family” is meaningful with respect to a given scale of measurement (a statement is said to be meaningful if its truth or falsity is unchanged when admissible transformations are applied to all of the scales in the statement). A few special cases of the problem are solved for nominal, ordinal, and some quantitative scales. As economic applications, axiomatizations of homothetic production functions and the Cobb–Douglas production function are given.     

SAFE: An early warning system for systemic banking risk

This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk that incorporates the structural characteristics of the financial system and a feedback amplification mechanism. The models explain financial stress using both public and proprietary supervisory data from systemically important institutions, regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of macroeconomic stresses in the financial markets. To mitigate inherent uncertainty, SAFE develops a set of medium-term forecasting specifications that gives policymakers enough time to take ex-ante policy action and a set of short-term forecasting specifications for verification and adjustment of supervisory actions. This paper highlights the application of these models to stress testing and policy.