Firm Defaults and the Correlation Effect

We examine how the correlations of bank loan defaults depend on the correlations of asset returns and how correlations and diversification are affected by macroeconomic risks. We highlight the main properties of the relationship between asset returns and default correlations, illustrating how adverse macroeconomic shocks raise not only the likelihood of defaults, but also the correlation of defaults. The latter effect, called correlation effect, may account for more than 50% of the increase in the credit risk.     

The Performance of Exchange Rate Forecasts

Since the floating of the Australian dollar the forecasting of exchange rate movements has become more difficult and received much more attention. As a result, some participants in the foreign exchange market have, on a number of occasions, come under criticism for their inability to predict exchange rate movements. This article seeks to evaluate these criticisms through an examination of exchange rate forecasts made by market participants (as published in the Australian Financial Review from March 1985 to December 1985). The accuracy of the $A/US$ forecasts is compared with that of forecasts generated from a number of simple forecasting rules as well as forecasts of the US$/Yen exchange rate. In general, the simple forecasting rules provide superior forecasts to those provided by the individual market participants. However, under some criteria, the mean of the individual participants' forecasts may be preferred to these simple forecasting rules. Further, the comparison of the US$/Yen forecasts with the $A/US$ forecasts shows the former to be generally more accurate.     

Habilitation von Heinz Starkulla Jr.

Ohne Zusammenfassung     

On the sources and macroeconomic implications of nonuniform and uncertain price expectations

Conclusions There is still much work to be done on the issues of nonuniform and uncertain price expectations. In the present paper we have attempted to give an overview of the reasons for, and possible consequences of, the existence of these phenomena. Now there seem to be reasons for deepening particularly the empirical knowledge on the formation of expectations, and for attempts to connect existing theoretical and empirical knowledge more closely with each other.     

Valuing Employee Share Options: Four Australian Case Studies

We take four case studies to illustrate three issues: how ESOs are valued; how the valuation depends on assumptions; and how US proposals to account for ESOs would affect a company's financial profile. We adopt the Black-Scholes options model to value ESOs issued by Brambles Industries, Coles Myer, Tabcorp Holdings and Westpac Banking Corporation. Under the FASB's proposal, after-tax profit is lower and shareholders' funds and assets are higher beginning with the grant date. At the end of the amortisation period, assets and shareholders' funds would be the same as under current practice, but the fair value of the ESOs on their grant date would have been transferred from unappropriated profits to issued capital.     

The exercise of market power: Its treatment under the Australian and New Zealand statutes

The monopolisation sections of Australia's and New Zealand's antitrust statutes are unusual for the test by which they distinguish acceptable from unacceptable conduct: conduct is only proscribed if it is unlikely to be observed in a competitive market. This suggests that only inefficient conduct should be proscribed. However, the courts have flirted with, rather than embraced, this identification of competition with efficiency.     

Evidence on Informal Insurance in Rural Zimabwe

The test for the presence of full insurance employed by Townsend[Econometrica, 63(3), 539–91, 1994] and various othersdoes not take into account that households rely on buffer stocksto shield their consumption from income shocks. In this paperit is shown how, in the presence of partial insurance, not includingbuffer stocks leads to estimates that underreport the degreeof informal insurance. A test to correct for this omission isdeveloped and is applied to panel data from rural Zimbabwe.