Foreign competition and the durability of US firm investments

How does the exposure to product market competition affect the investment horizon of firms? We study if firms have an incentive to shift investments toward more short‐term assets when exposed to tougher competition. Based on a stylized firm investment model, we derive a within‐firm estimator using variation across investments with different durabilities. Exploiting the Chinese World Trade Organization (WTO) accession, we estimate the effects of product market competition on the composition of US firm investments. Firms that experienced tougher competition shifted their expenditures toward investments with a shorter durability. This effect is larger for firms with lower total factor productivity.     

The term structure of inflation expectations

We use information in the term structure of survey-based forecasts of inflation to estimate a factor hidden in the nominal yield curve. We construct a model that accommodates forecasts over multiple horizons from multiple surveys and Treasury real and nominal yields by allowing for differences between risk-neutral, subjective, and objective probability measures. We establish that model-based inflation expectations are driven by inflation, output, and one latent factor. We find that this factor affects inflation expectations at all horizons but has almost no effect on the nominal yields; that is, the latent factor is hidden. We show that this hidden factor is not related to either current and past inflation or the standard set of macro variables studied in the literature. Consistent with the theoretical property of a hidden factor, our model outperforms a standard macro-finance model in its forecasting of inflation and yields.     

Academic freedom,private‐sector focus,and the process of innovation

We develop a model that clarifies the respective advantages and disadvantages of academic and private‐sector research. Rather than relying on lack of appropriability or spillovers to generate a rationale for academic research, we emphasize control‐rights considerations, and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus. By serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early‐stage research. At the same time, the private sector's ability to direct scientists toward higher‐payoff activities makes it more attractive for later‐stage research.     

Exchange rate volatility and productivity growth: The role of financial development

The vast empirical exchange rate literature finds the effect of exchange rate volatility on real activity to be small or insignificant. In contrast, this paper offers empirical evidence that real exchange rate volatility can have a significant impact on productivity growth. However, the effect depends critically on a country's level of financial development. The results appear robust to time window, alternative measures of financial development and exchange rate volatility, and outliers. We also offer a simple monetary growth model in which real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market constraints.     

Do rating agencies’ decisions impact stock risks? Evidence from European markets

This article analyses the effect of rating agencies’ decisions on stock risks for European issuers concerning five kinds of events. Our approach is an extension of dummy variable regression event study methodology, using a GARCH(1,1) estimation to capture simultaneously the impact on both systematic and specific stock risks. This new methodology allows us to obtain both global results by categories of rating decisions and individual results, event by event. We document, globally, a positive impact of upgrading on systematic risk, a negative impact of rating confirmation on specific risk, and no significant impact in all other cases. Regarding event-by-event results, the proportion of rating actions exhibiting a significant effect on risk is almost always observed between 20% and 30%. The weak evidence of a global effect on systematic risk may be due to the lack of informational content of the rating decisions on the stocks’ risk, or the existence of rebalancing effects between systematic and idiosyncratic risks. Furthermore, it should be noticed that the decline in volatility in case of a rating affirmed is an insight of the certification role played by the agencies.     

Application of Coherent Risk Measures to Capital Requirements in Insurance

Risk measurements go hand in hand with setting of capital minima by companies as well as by regulators. We review the properties of coherent risk measures and examine their implications for capital requirement in insurance. We also comment on the specific risk-based capital computations.