Time-varying beta: a boundedly rational equilibrium approach

The conditional CAPM with time-varying betas has been widely used to explain the cross-section of asset returns. However, most of the literature on time-varying beta is motivated by econometric estimation using various latent risk factors rather than explicit modelling of the stochastic behaviour of betas through agents’ behaviour, such as momentum trading. Misspecification of beta risk and the lack of any theoretical guidance on how to specify risk factors based on the representative agent economy appear empirically challenging. In this paper, we set up a dynamic equilibrium model of a financial market with boundedly rational and heterogeneous agents within the mean-variance framework of repeated one-period optimisation and develop an explicit dynamic behaviour CAPM relation between the expected equilibrium returns and time-varying betas. By incorporating the two most commonly used types of investors, fundamentalists and chartists, into the model, we show that there is a systematic change in the market portfolio, risk-return relationships, and time varying betas when investors change their behaviour, such as the chartists acting as momentum traders. In particular, we demonstrate the stochastic nature of time-varying betas. We also show that the commonly used rolling window estimates of time-varying betas may not be consistent with the ex-ante betas implied by the equilibrium model. The results provide a number of insights into an understanding of time-varying beta.     

Problems and Opportunities of an International Financial Reporting Standard for Small and Medium-sized Entities. The EAA FRSC's Comment on the IASB's Discussion Paper

In June 2004 the IASB issued the Discussion Paper ‘Preliminary Views on Accounting Standards for Small and Medium-Sized Entities’. This invited comments on the central question of whether the IASB should develop separate standards for small and medium-sized enterprises (SMEs), and on further issues and questions arising from this. This paper briefly introduces the background to the publication of the Discussion Paper. This is followed by a review of prior literature on SME financial reporting implications, prepared by the European Accounting Association's Financial Reporting Standards Committee as the basis of its response to the Discussion Paper. The paper concludes with a brief summary of events and issues arising since the end of the consultation period.     

Strategic Alignment,Performance, and Value

ABSTRACT

The paper discusses the reaching of superior value based on strategic alignment and the adoption of performance measurement systematics, which are based on multiple and integrated perspectives, using primary data obtained through the survey of companies of high complexity and impact in the Brazilian economy. The operationalization was developed from the adoption of multivariate analysis, which revealed the existence of correlations between the variables studied, reinforcing assumptions about reaching superior value based on the improvement of the mechanisms that support the strategic management dimensions with the backdrop of performance management practices based on the principles of Kaplan and Norton (2001 Kaplan , R. S. , and Norton , D. P. (2001). Organização Orientada para a Estratégia . Rio de Janeiro : Campus. [Google Scholar]) for organizations focused on strategy and the Balanced Scorecard approach. The findings confirm the importance of the association among strategic alignment vectors to reach a superior value and the existence of different clusters of organizations dedicated to reach and support value, mainly through combining the organization's relational capabilities (Soft Skills). The study deepens the discussion on strategic alignment of organizations through the introduction and testing of the Institutional Steering, Performance Maturity, and Balanced Performance constructs.     

TASTE FOR VARIETY,TASTE FOR NOVELTY AND PRICE BEHAVIOUR

In this paper we propose a formulation of preferences that exhibit both love for variety and love for novelty. This enables us to investigate the effects of ageing on imperfect substitutes, as they became progressively old‐fashioned, due to the obsolescence of their aesthetic features. First, we assume that the industry is divided into several submarkets, each dominated by a monopolist producing a variety of a given vintage. We show that prices decrease, and the evolution of demand determines the equilibrium number of varieties at the point where the oldest vintage firm earns zero profits. Second, under a free entry condition assumption, the lifetime horizon of each variety will be characterized by decreasing prices accompanied by increasing demand levels.     

The impact of secondary mortgage market guidelines on affordable and fair lending: A reconnaissance from the front lines

Conclusion The U.S. mortageg finance system has made great strides, especially in the 1990s, to increase homeownership opportunities for all Americans. A combination of lower interrest rates and higher incomes have contributed to a record 1999 homeownership rate of 66.8 percent?up from 64.0 percent in 1993. This increase is due, in part, to the large increase in the number of low- and moderate- income families that have become homeowners in the past ten years. And both Fannie Mae and Freddie mac, by changing their guidelines and introducing new technologies, have made it easier for many lower income and minority families to become homeowners. Yet, lower income and minority families still are much less likely to own homes than are higher-income and white families.     

Design Inertia: Designing for Life‐Cycle Flexibility in Internet‐Based Services*

Managing innovation in rapidly moving environments, such as Internet‐based services, is a major challenge in theory and in practice. Most of the existing literature focuses on the development process as the main area in which innovation takes place. However, in environments where the pace of change of technology and market needs is extremely high, managing service innovations means not only being able to design a good service but also, more importantly, continuously redesigning and adapting the service in order to deal with frequent exogenous changes and opportunities. A high number of innovations therefore must be introduced throughout the entire life cycle of a service. This capability of introducing incremental and radical innovations during the service life cycle (i.e., to adapt a service to contextual changes and opportunities after it has been first released onto the market) at low costs and in the shortest possible time is what is defined here as service life‐cycle flexibility. This process of service adaptation and upgrading implies significant challenges that can be traced back to when a service is first conceived and designed. In fact, many decisions made during the first design process (i.e., the choice of a given database environment) involve a low reversibility rate and may reduce the possibility of taking advantage of future unpredictable opportunities, creating what is called inertia toward innovation. In other words, service life‐cycle flexibility largely depends on how a service has been first designed. This article analyzes two in‐depth case studies of Italian online newspapers and identifies five possible inertia factors that may influence service life‐cycle flexibility, namely (1) technological inertia; (2) internal organizational inertia; (3) external organizational inertia; (4) customer inertia toward changes in the service package; and (5) customer inertia toward changes in the service interaction design. These inertia factors are traced back to the service development process in order to suggest design practices that may increase the service life‐cycle flexibility.     

The Welfare of Investment Deductibility Under a Flat Tax

This paper analyses the welfare effects of investment deductibility in a contest of endogenous growth generated by learning–by–doing and knowledge spillovers. We present a model where a set of revenue neutral fiscal policies, each characterized by different degrees of investment deductibility and different uniform tax rates on income, have been introduced. We show that, given the ratio of public expenditures to national product, partial investment deductibility turns out to be welfare enhancing when the intertemporal elasticity of substitution of consumption is sufficiently small. Our result means that a pure consumption tax—although ensuring more saving and faster growth—is not always preferable to a revenue neutral tax system in which both consumption and investment are taxed.     

Managing the Sources of Uncertainty: Matching Process and Context in Software Development

There is increasing interest in the literature about the notion of a contingent approach to product development process design. This interest stems from the realization that different types of projects carried out in different environments are likely to require quite different development processes if they are to be successful. Stated more formally, a contingent view implies that the performance impact of different development practices is likely to be mediated by the context in which those practices operate. This article provides evidence to support such a view. Our work examines whether projects in which the development process matches the context achieve superior performance. We focus on two sources of uncertainty that generate challenges for project teams: platform uncertainty, reflecting the uncertainty generated by the amount of new design work that must be undertaken in a project; and market uncertainty, reflecting the uncertainty faced in determining customer requirements for the product under development. We develop hypotheses for how these sources of uncertainty are likely to influence the relationships between a number of specific development practices and performance. We then test these hypotheses using data from a sample of 29 Internet software development projects. Our results provide evidence to support a contingent view of development process design. We show that in projects facing greater uncertainty, investments in architectural design, early technical feedback, and early market feedback have a stronger association with performance. The latter relationships are influenced by the specific sources from which this uncertainty stems: platform uncertainty mediating the impact of early technical feedback and market uncertainty mediating the impact of early market feedback. Our results also indicate that while greater uncertainty is associated with making later changes to a product's design, this practice is not associated with performance. Our findings suggest that managers carefully must evaluate both the levels and sources of uncertainty facing a project before designing the most appropriate process for its execution. In particular, they should explore the use of specific development practices based upon their usefulness in resolving the specific types of uncertainty faced. Importantly, these decisions must be made at the start of a project, with purposeful investments to create a process that best matches the context. Reacting to uncertainty ex‐post, without such investments in place, is unlikely to prove a successful strategy.     

A joint model for temperature and natural gas with an application to the US market

Natural gas spot prices and temperatures have been studied in detail in the literature as separate processes. We propose a simple joint model that, in spite of its parsimony, describes accurately many stylized facts of the two time series: in particular we show the role played by a time-delay parameter in order to take into account the impact of temperature forecast in cross-dependency. We discuss in detail a stepwise procedure in order to calibrate model parameters, describing the elementary estimation techniques involved and the statistical accuracy achieved. In the analysis, we focus on the benchmark market in the USA (Henry Hub) and the temperatures in the Northeast and Midwest regions; we observe a negative, statistically significant, gas-temperature correlation in the cold season.     

A DIRECTIONAL DISTANCE APPROACH APPLIED TO HIGHER EDUCATION: AN ANALYSIS OF TEACHING‐RELATED OUTPUT EFFICIENCY

This paper applies a data envelopment analysis (DEA) method to assess technical efficiency of both private and public universities in Italy. A directional distance function approach has been applied in order to handle both desirable (i.e. number of graduates) and undesirable (i.e. number of dropouts) outputs. The findings based on a panel from academic year 2003/2004 to 2007/2008 reveal the presence of interesting geographical (both by macro areas and regions) and ownership (private, public) effects. Several quality and quantity proxies have also been used in order to check whether the estimates depend on the output specification. Finally, the possible evidence of variation in the universities’ performances by subject of study has been taken into account in order to check whether the results are still consistent comparing universities within subject rather than across subjects.