Do Industries Explain Momentum?

This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book-to-market equity, individual stock momentum, the cross-sectional dispersion in mean returns, and potential microstructure influences.     

Estimating demand systems when outcomes are correlated counts

We describe and employ a Bayesian posterior simulator for fitting a high-dimensional system of ordinal or count outcome equations. The model is then applied to describe the multiple site recreation demands of individual agents, and we argue that our approach provides advantages relative to existing methods commonly applied in this area. In particular, our model flexibly adjusts to match observed frequencies in trip outcomes, permits a flexible correlation pattern among the sites visited by individuals, and the posterior simulator for fitting this model is relatively easy to implement in practice. We also describe how the posterior simulations produced from the model can be used to conduct a variety of counterfactual experiments, including predicting behavioral changes and describing welfare implications resulting from shifts in exogenous demographic and site characteristics. We illustrate our method using data from the Iowa Lakes Project by modeling the visitation patterns of individuals to a set of twenty-nine large Iowa lakes. Consistent with previous findings in the literature, we see strong evidence that own and cross-price effects on trip demand are negative and positive, respectively, that higher income increases the likelihood of visiting most sites, and that a commonly used indicator of water quality, Secchi transparency, is positively correlated with the number of trips taken. In addition, the correlation structure among the errors reveals a complex pattern in which unobserved factors affecting trip demand are generally (though not strictly) positively correlated across sites. The flexibility and richness with which we are able to characterize the demand system provides a solid platform for counterfactual analysis, where we find significant behavioral and welfare effects from changes in site availability, water quality, and travel costs.     

SHOULD WE WORRY ABOUT THE FAILURE OF THE HOTELLING RULE?

Abstract The continuing dependence of the global economy on fossil fuels is worrying because it imposes limits on growth due to the non‐renewable nature of these resources and also contributes to global climate change. Resource optimists believe that this is no reason to worry, because the economy will always find a way to overcome these constraints. Their arguments, however, require that resource prices reflect the scarcity of non‐renewable resources, which implies that they must obey the Hotelling rule. Empirical analyses, however, show that the Hotelling rule does not hold in reality, which raises the question: does the failure of the Hotelling rule imply that social optimality is not achieved? This paper argues that the answer depends on the reason for the failure. If extraction and exploration costs, or technological progress in these activities, are the reasons for the failure, a market failure is not implied, and optimality may still be achieved. But if the Hotelling rule fails due to uncertain property rights or strategic interaction, the market will surely fail to provide an optimal solution. A market failure is likely to speed up resource consumption compared to the social optimum.     

Fixed-term contracts as sorting mechanisms: Evidence from job durations in West Germany

We estimate the effect of initial episodes under fixed-term contracts (FTCs) on job duration in the further course of the employment spell, using data from the German Socio-Economic Panel (SOEP) from 1985 to 2002 and a statistical matching approach. Our results show that job exit rates are initially much higher if the employment spell began with an FTC. However, exit rates fall below those of comparable spells spent entirely in permanent employment after a few years time. This suggests that FTCs accelerate a sorting process and that they may at least to some part be understood as prolonged probationary periods. Strikingly, the probability of long-term employment of more than five years duration is not lower in spells that are initially concluded as FTCs. Hence, the sorting processes taking place in both forms of contracts lead to similar results.     

A finite‐sample hierarchical analysis of wage variation across public high schools: evidence from the NLSY and high school and beyond

Using data from both the National Longitudinal Survey of Youth (NLSY) and High School and Beyond (HSB), we investigate if public high schools differ in the “production” of earnings and if rates of return to future education vary with public high school attended. Given evidence of such variation, we seek to explain why schools differ by proposing that standard measures of school “quality” as well as proxies for community characteristics can explain the observed parameter variation across high schools. Since analysis of widely‐used data sets such as the NLSY and HSB necessarily involves observing only a few students per high school, we employ an exact finite sample estimation approach. We find evidence that schools differ and that most proxies for high school quality play modest roles in explaining the variation in outcomes across public high schools. We do find evidence that the education of the teachers in the high school as well as the average family income associated with students in the school play a small part in explaining variation at the school‐level. Copyright © 2002 John Wiley & Sons, Ltd.     

60 Jahre Einkommensteuertarif in Deutschland — Bestandsaufnahme und Handlungsempfehlungen

The personal income tax rate was modified 25 times in its 60 years of existence. However, policymakers largely missed opportunities to make systematic changes. The progressive function has to be manually adjusted due to its fixed nominal thresholds. As a result of the insufficient reforms of the past, the tax rates for taxable income increase rapidly and earners reach the top income tax rate is reached rather early. Still, both the minimum and the top tax rate are today lower than they were decades ago. Against this background, we recommend implementing a systematic adjustment to the tax thresholds. The current government proposals are not very ambitious in this regard.     

Bidding behavior in the longer term refinancing operations of the European Central Bank: Evidence from a panel sample selection model

This paper analyzes individual bidding data of the longer term refinancing operations (LTROs) of the European Central Bank. We investigate how banks’ bidding behavior is related to a series of exogenous variables including collateral costs, interest rate expectations, market volatility and to individual bank characteristics like country of origin, size, and experience. A specific feature of these auctions is that the number and composition of bidders varies over time. Therefore, we estimate panel sample selection models to control for a bank’s endogenous participation decision. We find that bidding strategies depend on the banks’ attributes. Yet, different bidding behavior generally does not translate into differences concerning bidder success. There is evidence for the winner’s curse effect in LTROs indicating a common value component in banks’ demand for longer term refinancing.