Portfolio optimization with a defaultable security

In this paper we derive a closed-form solution for a representative investor who optimally allocates her wealth among the following securities: a credit-risky asset, a default-free bank account, and a stock. Although the inclusion of a credit-related financial product in the portfolio selection is more realistic, no closed-form solutions to date are given in the literature when a recovery value is considered in the event of a default. While most authors have assumed some recovery scheme in their initial model set up, they do not address the portfolio problem with a recovery when a default actually occurs. Given the tractability of the recovery of market value, we solved the optimal portfolio problem for the representative investor whose utility function is a Constant Relative Risk Aversion utility function. We find that the investor will allocate larger fraction of wealth to the defaultable security as long as the default-event risk is priced. These results are very intuitive and reasonable since it indicates that if the default risk premium is not priced properly the investor purchases less defaultable securities.     

Scheduling jobs with values dependent on their completion times

The paper concerns two scheduling problems with job values and losses of job values (costs) dependent on job completion times. In the first problem, we consider scheduling jobs with stepwise values in parallel processor environment. In the stepwise value, there is given a number of moments at which the job value decreases and between them the job value is constant (thus, the value deteriorates over time). The maximized criterion is the total job value. We prove strong NP-hardness of a single processor case of the problem and construct a pseudo-polynomial time algorithm for a special case with fixed number of unrelated parallel processors and fixed number of common moments of job value changes. Additionally, for uniform and unrelated parallel processors we construct and experimentally test several heuristic algorithms based on the list strategy. The second problem is a single processor one with piecewise linear losses of job values (the loss increases over time). The minimized criterion is the total loss of job value. We prove strong NP-hardness of the problem and existence of a pseudo-polynomial time exact algorithm for its special case. We also construct some heuristic algorithms for this problem and verify experimentally their efficiency.     

Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bank-held loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.     

The impact of Chinese monetary policy shocks on East and South‐East Asia1

We study the effects of Chinese monetary policy shocks on China's major trading partners in East and South‐East Asia by estimating structural vector autoregressive (SVAR) models for six economies in the region. We find that a monetary expansion in Mainland China leads to an increase in real GDP (temporary) and the price level (permanent) in a number of economies in our sample, most notably in Hong Kong and the Philippines. The impact could result from intertemporal substitution present in a general equilibrium framework, which allows for positive domestic impacts of foreign monetary expansions. Our results emphasize the growing importance of China for its neighbouring economies and the significance of Chinese shocks for the design of monetary policy in Asian economies.     

Wage Bargaining,Privatisation, Ability to Pay and Outside Options: Evidence from Hungary

This article examines the determinants of short-term wage dynamics, using a sample of large Hungarian companies for 1996–99. We test the basic implications of an efficient contract model of bargaining between incumbent employees and managers, which the data do not reject. In particular, there are structural differences between the ownership sectors consistent with our prior knowledge on relative bargaining strength and unionisation measures. Stronger bargaining position of workers leads to higher ability to pay elasticity of wages, and lower outside option elasticity. Our results indicate that while bargaining position of workers in domestic privatised firms may be weaker than in the state sector, the more robust difference relates to state sector workers versus privatised firms with majority foreign ownership.     

The impact of selected factors on new business formation in the private healthcare sector

Numerous factors influence the development of the private healthcare sector. Therefore, the selection of these factors, which represent a potential opportunity for forming new entities, is a crucial from the point of view of entrepreneurship. In our research we selected strategic variables which have got direct influence on entrepreneurship in the private healthcare sector in Poland. Theoretical approach was based on literature review which have revealed the main factors and their relationships with entrepreneurship according to the previous research studies. This research study was conducted for the entire population of municipalities in Poland. Methodology was based on Intelligent Data Analysis (IDA) which can be applied for a large amounts of data in order to extract useful knowledge from it. Moreover, in research study were applied explanation techniques – decision rules –in order to indicate, to what extent the environment have influence on strategic choices conditioning the success of businesses. The results have revealed that it is possible to determine a set of the most important factors influencing entrepreneurship in the private healthcare sector in Poland. On the other hand, were indicated these variables which do not participate in process of influencing on entrepreneurship in private healthcare sector in Poland.

     

DO STOCK MARKET FLUCTUATIONS AFFECT SUICIDE RATES?

In this study, we extend the standard economic model of suicide by considering a new influential factor driving the voluntary death rate. Using an international sample, we estimate the model and document a robust and significant inverse relation between stock market returns and the percentage increase in suicide rates. Trends in male and female suicide are affected by market fluctuations, both contemporaneously and at a lag. This predictive quality of stock returns offers the potential to implement pro-active suicide prevention strategies for those who could be affected by the vagaries of the market and general economic downturns.     

Tests of Normality of Functional Data

The paper is concerned with testing normality in samples of curves and error curves estimated from functional regression models. We propose a general paradigm based on the application of multivariate normality tests to vectors of functional principal components scores. We examine finite sample performance of a number of such tests and select the best performing tests. We apply them to several extensively used functional data sets and determine which can be treated as normal, possibly after a suitable transformation. We also offer practical guidance on software implementations of all tests we study and develop large sample justification for tests based on sample skewness and kurtosis of functional principal component scores.     

When EU Leaders Speak,the Markets Listen

Abstract

We use content analysis software to examine certain characteristics of communications arising from European Council meetings. These characteristics appear to explain a large proportion of variation in stock returns around the meeting dates. More specifically, stock market investors react favourably when the conclusions and declarations issued by heads of states convey a positive sentiment and demonstrate a stance of moral rectitude. On the other hand, the returns tend to be negative when the communications are obfuscated by an excessive use of abstract words and fixated on regional rather than global issues.