Nonparametric tests for Optimal Predictive Ability

A nonparametric method for comparing multiple forecast models is developed and implemented. The hypothesis of Optimal Predictive Ability generalizes the Superior Predictive Ability hypothesis from a single given loss function to an entire class of loss functions. Distinction is drawn between General Loss functions, Convex Loss functions, and Symmetric Convex Loss functions. The research hypothesis is formulated in terms of moment inequality conditions. The empirical moment conditions are reduced to an exact and finite system of linear inequalities based on piecewise-linear loss functions. The hypothesis can be tested in a statistically consistent way using a blockwise Empirical Likelihood Ratio test statistic. A computationally feasible test procedure computes the test statistic using Convex Optimization methods, and estimates conservative, data-dependent critical values using a majorizing chi-square limit distribution and a moment selection method. An empirical application to inflation forecasting reveals that a very large majority of thousands of forecast models are redundant, leaving predominantly Phillips Curve-type models, when convexity and symmetry are assumed.     

Generating price‐effective intermodal routes

We describe the problem of intermodal international freight transport that is faced by some logistic service providers and the solution that ORTEC's logistic suite offers to these customers. This solution is based on a state of the art k‐shortest path algorithm for directed networks. Our focus is on the modeling aspects of the problem. In particular, we propose an approach in two phases and methods to reduce the size of the network, so as to obtain a solution within an acceptable calculation time.     

Nonparametric efficiency estimation in stochastic environments: Noise-to-signal estimation,finite sample performance and hypothesis testing

This study considers the issues of noise-to-signal estimation, finite sample performance and hypothesis testing for a new nonparametric and stochastic efficiency estimation technique. We apply the technique for analyzing the efficiency of European banks from various regions and with various specializations. The technique seems well suited for this application area because banking inputs and outputs generally are measured with error, the banking production technology is not well-defined and large banking data sets such as BankScope allow for a nonparametric approach.     

Portfolio management and retirement: what is the best arrangement for a family?

In comparing an immediate life annuity with a payout-equivalent investment fund payout plan (self-annuitization), research to date has focused mainly on shortfall probabilities of self-annuitization. As an exception, Schmeiser and Post (2005) propose a family strategy where the chances of self-annuitization (i.e., bequests) are taken into consideration as well. In such a family strategy, potential heirs must bear shortfall risks, but in return have a chance of receiving a bequest. This paper analyzes under which conditions heirs will be willing to agree to a family strategy. The idea of a family strategy is integrated into a realistically calibrated intertemporal expected utility framework, taking into account risks arising from stochastic life span, asset returns, and nontradable labor income. A family strategy is shown to be accepted for many parameter combinations, especially in families with low marginal tax rates, if the heirs are wealthy, or in a case where the retiree has an average population life expectancy. We also work out how family self-annuitization decisions interact with asset allocation, saving decisions, and labor income risk. Under realistic conditions our results support two explanations for the empirically observable low demand for annuities (the so-called annuity puzzle), namely intra-family risk sharing and high cost of market-annuitization.     

9/11 Impact on Teenage Values

Did the September 11, 2001 terrorist attacks on the U.S. cause the values of teenagers in the U.S. to change? Did their previously important self-esteem and self-actualization values become less important and their survival and safety values become more important? Changes in the values of teenagers are important for practitioners, managers, marketers, and researchers to understand because high school students are our current and future employees, managers, and customers, and research has shown that values impact work and consumer-related attitudes and behaviors. Further, studies that compared higher to lower performing for-profit and not-for-profit companies have found that higher performing organizations had strong values that permeated their organizations [Collins J. C., and J. I. Porras: 1994, Built to Last: Successful Habits of Visionary Companies (New York, Harper Business); O’Reilly, C. A. and J. A. Chatman: 1996, in B. M. Staw and L. L. Cummings (eds.), Research in Organizational Behavior, vol. 18 (JAI Press, Greenwhich, CT), pp. 157–200; O’Reilly, C. A.: 1989, California Management Review 31(4), 9–25; Posner, B. Z., and W. H. Schmidt: 1996, Public Personnel Management, 25(3), 277–298; Rousseau, D.: 1990, Group and Organization Studies 15(4), 448–460; Schein, E. H.: 2004, Organizational Culture and Leadership. San Francisco, Jossey Bass)]. While one study of adults found value changes, no known studies have explored if the values of teenagers also changed post-9/11. This study filled that research gap by exploring the values of a random sample of 1000 U.S. teenagers in grades 9 to 12 pre- and post-9/11, using a demographic questionnaire and the Rokeach Value Survey. The research results indicated that teenage survival, safety, and security values (a world at peace, freedom, national security, and salvation) increased in importance while their self-esteem and self-actualization values (a sense of accomplishment, inner harmony, pleasure, self-respect, and wisdom) decreased in importance, mirroring the changes for adults. The meaning of these findings for practitioners, managers, marketers and researchers was discussed.     

Transformative Leadership: Achieving Unparalleled Excellence

The ongoing cynicism about leaders and organizations calls for a new standard of ethical leadership that we have labeled ??transformative leadership.?? This new leadership model integrates ethically-based features of six other well-regarded leadership perspectives and combines key normative and instrumental elements of each of those six perspectives. Transformative leadership honors the governance obligations of leaders by demonstrating a commitment to the welfare of all stakeholders and by seeking to optimize long-term wealth creation. Citing the scholarly literature about leadership theory, we identify key elements of the six leadership perspectives that make up transformative leadership, suggest leaders who exemplify each perspective, describe the ethical foundations and message of each perspective, and offer ten propositions that scholars and practitioners can use to test the dimensions of this new transformative leadership model.     

Downside risk aversion,fixed-income exposure,and the value premium puzzle

The value premium is relatively small for investors with a material fixed-income exposure, such as insurance companies and pension funds, especially when they are downside-risk-averse. Value stocks are less attractive to these investors because they offer a relatively poor hedge against poor bond returns. This result arises for plausible, medium-term evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for these investors and reiterate the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market portfolio efficiency.     

To Hedge or Not to Hedge: Managing Demographic Risk in Life Insurance Companies

Demographic risk, i.e., the risk that life tables change in a nondeterministic way, is a serious threat to the financial stability of an insurance company having underwritten life insurance and annuity business. The inverse influence of changes in mortality laws on the market value of life insurance and annuity liabilities creates natural hedging opportunities. Within a realistically calibrated shareholder value (SHV) maximization framework, we analyze the implications of demographic risk on the optimal risk management mix (equity capital, asset allocation, and product policy) for a limited liability insurance company operating in a market with insolvency‐averse insurance buyers. Our results show that the utilization of natural hedging is optimal only if equity is scarce. Otherwise, hedging can even destroy SHV. A sensitivity analysis shows that a misspecification of demographic risk has severe consequences for both the insurer and the insured. This result highlights the importance of further research in the field of demographic risk.