Disentangling the role of variance and covariance information in portfolio selection problems

The covariation among financial asset returns is often a key ingredient used in the construction of optimal portfolios. Estimating covariances from data, however, is challenging due to the potential influence of estimation error, specially in high-dimensional problems, which can impact negatively the performance of the resulting portfolios. We address this question by putting forward a simple approach to disentangle the role of variance and covariance information in the case of mean-variance efficient portfolios. Specifically, mean-variance portfolios can be represented as a two-fund rule: one fund is a fully invested portfolio that depends on diagonal covariance elements, whereas the other is a long-short, self financed portfolio associated with the presence of non-zero off-diagonal covariance elements. We characterize the contribution of each of these two components to the overall performance in terms of out-of-sample returns, risk, risk-adjusted returns and turnover. Finally, we provide an empirical illustration of the proposed portfolio decomposition using both simulated and real market data.     

The origins of modern accounting in Brazil: Influences leading to the adoption of IFRS

Despite the increasing importance of Brazil, there has been little documentation of how accounting developed and about the significant formative influences involved. This paper explores the significant influences on Brazilian accounting and the path to the adoption of International Financial Reporting Standards (IFRS). Several important influences are emphasized: the equity theory of the Italian school of accounting in the early 20th century; the birth of the Brazilian accounting profession in 1931 and the certified accountants association in 1946; the impact of US trade and American accounting in the 1950s; and the high rates of inflation that occurred from the beginning of the 1960s. Modern Brazilian accounting had its beginning in the 1970s with the development of the stock market, the reforms of the financial system, and the decrease of tax influences on accounting. The globalization process and the need for Brazilian accounting to converge with international accounting led to the decision to adopt IFRS in 2007.     

Online word-of-mouth and market structure

Portuguese Economic Journal - Hotels adjust their product offerings depending on demand and competition faced. In this article I document the increase in average hotel quality as measured by online...     

Family firms’ identity communication and consumers’ product involvement impact on consumer response

The purpose of this study is to determine whether the image transfer theory and the elaboration likelihood model can provide a theoretical framework capable of assessing the influence of consumers’ product involvement and family firms’ identity communication through websites on consumer responses. This research conducted an experiment using an eye‐tracking technique measuring attention to family and nonfamily corporate websites. The procedure involved 120 participants. Consistent with the image transfer theory, family firms’ identity through websites positively impacts attitude toward the website and intention to buy. Additionally, the attitude toward the website affects the relationship between family firms’ identity through websites and the intention to buy. In line with the elaboration likelihood model, consumers’ product involvement negatively impacts the relationship between family firms’ identity through websites and intention to buy.     

Should I Stay or Should I Go? Geographic Entrepreneurial Choices in Brazilian Franchising

In the broad empirical literature on franchising, performance outcomes of location decisions appear to be a largely forgotten issue. Yet franchising represents a rich context to study the impact of geographic entrepreneurial choices. Addressing this “blank spot” in the literature, we deal with the following question: Is it better for a chain to stay in the same geographic area, or to expand via distant franchised units? Our econometric estimations on new and unique Brazilian panel data show that spatial agglomeration of chain outlets leads to higher performance, suggesting that agglomeration gains outweigh cannibalization and spatial monopoly effects.     

POSITIVE SELF‐IMAGE IN TOURNAMENTS*

This article analyzes the implications of worker overestimation of productivity for firms in which incentives take the form of tournaments. Each worker overestimates his productivity but is aware of the bias in his opponent's self‐assessment. The manager of the firm, on the other hand, correctly assesses workers' productivities and self‐beliefs when setting tournament prizes. The article shows that, under a variety of circumstances, firms can benefit from worker positive self‐image. The article also shows that worker positive self‐image can improve welfare in tournaments. In contrast, workers' utility declines due to their own misguided choices.     

The effect of firm size and firm activities on CSR practices of selected Chinese-Filipino-owned MSMEs in Metro Manila

Socially-responsible business and ethical behavior of companies have been of interest to academia and practice for decades, but the focus has almost exclusively been on large corporations, while small and medium-sized enterprises （SMEs） have not received as much attention （Hammann, et al., 2009）. Worthington, et al （2006） recognized the need to encourage socially-responsible business practices among the 90 per cent or more of the world＇s businesses that are classified as SMEs. Perrini, et al （2007） found that size explains the differences in firms＇ willingness to define and implement such specific corporate social responsibility （CSR） strategies, while Murillo and Lozano （2006） concluded that it still remains to be explored whether manufacturing companies tend to apply CSR more extensively, or whether businesses oriented to other business have a tendency to incorporate CSR into their management patterns to a higher degree. Moreover, President Gloria Macapagal-Arroyo, in her 7 June, 2002 speech, recognized the importance of Chinese-Filipinos in helping improve the Philippine economy, and yet, not much research had been done on this sub-sector. Thus, this paper focuses on the effect of finn size and finn activities on the social responsibility practices of selected 30 micro, small and medium-sized enterprises （MSMEs） in Metro Manila which are owned by Chinese-Filipinos. Survey questionnaires and interview were used for gathering data, while a correlations test was used to analyze the data and to conclude whether finn size and finn activities have an effect on the sampled companies＇ CSR practices.     

Commercial Banks in the Securities Business: A Review

This paper analyses the potential effects of commercial banks' expansion into the securities business in the context of the contemporary theory of financial intermediation. The analysis focuses on the gains claimed to emerge with that expansion, particularly the gains due to information advantages and economies of scope, and on the costs also claimed to arise with it; namely, those due to conflicts of interest and safety and soundness considerations. The paper ends with a discussion on how these effects depend on the location of the securities unit within the banking conglomerate.     

New Nonlinear Approaches for the Adjustment and Updating of a SAM

Many structural relationships should be taken into account in any reasonable adjustment and updating process. These structural relationships are mainly represented by ratios of different types, such as technical coefficients or the proportion of the cell value in relation to its row or column total. We believe that in many cases (either because of lack of information or when the time elapsed for the estimation of a social accounting matrix is not long enough to allow for any significant structural change) the updating process should try to minimize the rela- tive deviation of the new coefficients from the initial ones in a homogeneous way. This homogeneity would mean that the magnitude of this relative deviation is similar among the elements of each row or column, therefore avoiding the concentration of the changes in particular cells of the SAM. In this work, we propose some new adjustment criteria in order to obtain a more homogeneous relative adjustment of the structural coefficients. These criteria combine the adjustment method proposed by Matuszewski et al. (1964) with other deviation functions. Each of the adjustment criteria proposed leads to a nonlinear optimization problem which is reformulated as a linear program. We test the usefulness of this proposal by comparing its results with the ones obtained by more standard approaches and we are able to show that these approaches tend to produce a less homogeneous pattern of coefficient adjustment, under certain circumstances, than the ones we put forward.