On the power of bootstrap tests for stationarity: a Monte Carlo comparison

This paper studies the behavior of recently proposed bootstrap tests for the null hypothesis of stationarity when the data are generated under the alternative hypothesis of a unit root. Using Monte Carlo experiments and empirical examples, it is shown that the power of these tests critically depends on the type of bootstrap employed. Specifically, while tests based on the stationary bootstrap have power functions that are increasing with respect to sample size, those based on the sieve bootstrap have non-monotonic power functions. We argue that this difference arises from the fact that the latter procedure does not impose the null hypothesis when generating the bootstrap samples while the former ensures that the bootstrap samples are stationary, conditional on the original data. Our results therefore suggest that while both forms of bootstrap are effective at providing improved distributional approximations under the null hypothesis, it is important to pay careful attention to the particular type of bootstrap being employed when attempting to distinguish between the unit root and stationarity hypotheses as the choice of bootstrap can have crucial implications for the power of the resulting tests.     

Exchange rates dynamics revisited: a panel data test of the fractional integration order

We test the possibility that exchange rates from nine developed countries have a unit root against the alternate possibility that they are fractionally integrated. Theoretically, exchange rates are only expected to follow a random walk under restrictive assumptions. However, most traditional unit root tests cannot reject a unit root in exchange rates, and time series tests that allow for fractional integration have given inconclusive results. To increase the power of the test of the integration order we develop two panel data tests of the fractional integration order. Monte Carlo simulations show that these tests are correctly sized and have relatively high power compared to other similar tests. Moreover, our empirical results show that we can reject a unit root in exchange rates with a high probability, but the integration order is close to one. This indicates that exchange rates are mean-reverting, although the reversion is slow, resulting in long swings.     

Applying complexity theory to deepen service dominant logic: Configural analysis of customer experience-and-outcome assessments of professional services for personal transformations

Recognizing Gigerenzer's (1991) dictum that scientists' tools are not neutral (tools-in-use influence theory formulation as well as data interpretation), this article reports theory and examines data in ways that transcend the dominant logics for variable-based and case-based analyses. The theory and data analysis tests key propositions in complexity theory: (1) no single antecedent condition is a sufficient or necessary indicator of a high score in an outcome condition; (2) a few of many available complex configurations of antecedent conditions are sufficient indicators of high scores in an outcome condition; (3) contrarian cases occur, that is, low scores in a single antecedent condition associates with both high and low scores for an outcome condition for different cases; (4) causal asymmetry occurs, that is, accurate causal models for high scores for an outcome condition are not the mirror opposites of causal models for low scores for the same outcome condition. The study tests and supports these propositions in the context of customer assessments (n = 436) of service facets and service outcome evaluations for assisted temporary-transformations of self via beauty salon and spa treatments. The findings contribute to advancing a nuanced theory of how customers' service evaluations relate to their assessments of overall service quality and intentions to use the service. The findings support the need for service managers to be vigilant in fine-tuning service facets and service enactment to achieve the objective of high customer retention.     

Embrace•perform•model: Complexity theory,contrarian case analysis,and multiple realities

This essay describes tenets of complexity theory including the precept that within the same set of data X relates to Y positively, negatively, and not at all. A consequence to this first precept is that reporting how X relates positively to Y with and without additional terms in multiple regression models ignores important information available in a data set. Performing contrarian case analysis indicates that cases having low X with high Y and high X with low Y occur even when the relationship between X and Y is positive and the effect size of the relationship is large. Findings from contrarian case analysis support the necessity of modeling multiple realities using complex antecedent configurations. Complex antecedent configurations (i.e., 2 to 7 features per recipe) can show that high X is an indicator of high Y when high X combines with certain additional antecedent conditions (e.g., high A, high B, and low C)—and low X is an indicator of high Y as well when low X combines in other recipes (e.g., high A, low R, and high S), where A, B, C, R, and S are additional antecedent conditions. Thus, modeling multiple realities—configural analysis—is necessary, to learn the configurations of multiple indicators for high Y outcomes and the negation of high Y. For a number of X antecedent conditions, a high X may be necessary for high Y to occur but high X alone is almost never sufficient for a high Y outcome.     

International trade,risk taking and welfare

This paper shows that the gains from opening up to international trade are smaller when firms do not fully internalize downward risk. I develop a general equilibrium model with two key assumptions. First, when faced with adverse productivity shocks, employers can lay off workers without fully paying the social costs of their layoff decisions, a common feature of many institutions. Second, when opening to international trade, the elasticity of demand perceived by an industry increases. In this setup, I show that international trade induces firms to take more risk and (i) raises the equilibrium unemployment rate, (ii) increases the volatility of sectoral sales and (iii) increases welfare proportionately less than in the absence of the externality. Inducing firms to internalize the costs of layoff (Blanchard and Tirole, 2003) therefore appears even more important in a globalized world.     

Billboard and cinema advertising: Missed opportunity or spoiled arms?

Advertising remains one of the most popular marketing instruments, and many studies have studied its sales effectiveness. However, prior research has either looked at the total spending of a brand/firm, or has focused on the most popular media, especially TV advertising. Even though huge amounts are also spent on “smaller” media such as billboards and cinema, little is known on their effectiveness.     

Team Climate,Team Cognition,Team Intuition,and Software Quality: The Moderating Role of Project Complexity

Teams represent a prevailing approach to getting work done in today’s hypercompetitive business environment. Although there is a widely held assumption that team-related capabilities determine the success of new product development projects, empirical research on team capabilities is scant. Based on the resource-based view of the firm, organizational learning theory, and situated learning theory, this study investigates the interrelationships among team climate, two information-processing capabilities (i.e., team cognition and team intuition), and software quality. As well, this study explores the moderating effect of project complexity between the information-processing capabilities and the quality of the software. In studying the data from 139 software development projects using the partial least squares structural equation modeling methods, we found that team climate has a direct influence on team cognition. Moreover, the findings showed that team cognition was positively related to the quality of the software product in general; in particular, this relationship was found to be far more significant when project complexity was used as a moderator. This finding indicates that the software development team’s ability to process information logically in order to interpret situations effectively allows the team to launch superior software products when unexpected and undesirable events make a project complicated and challenging to perform. In particular, managers should encourage teams to benefit from new ideas and make collective efforts for reaching goals. Managers should also enable teams to specialize in their tasks and improve their collective information-processing capabilities.     

Evolving regulations and emerging market challenges – the Indian context

The global financial crisis of 2007–2008 has led to important regulatory changes being initiated by a number of countries to segregate commercial banking from investment banking activities. The changes also encompass reforms in the OTC derivatives market segment, which is considered to be one of the root causes of the crisis. This article highlights the important regulatory change initiatives that are being undertaken to enhance the safety of the financial markets, their likely impact on the market participants and challenges to be faced in their implementation, especially in the Indian context. The article also analyses the changes taking place in the Indian forex derivatives market and touches upon the prospects of greater internationalization of the rupee against the backdrop of proactive steps taken by the Chinese authorities to internationalize renminbi in the post-crisis period.     

The Joint Cross Section of Stocks and Options

Stocks with large increases in call (put) implied volatilities over the previous month tend to have high (low) future returns. Sorting stocks ranked into decile portfolios by past call implied volatilities produces spreads in average returns of approximately 1% per month, and the return differences persist up to six months. The cross section of stock returns also predicts option implied volatilities, with stocks with high past returns tending to have call and put option contracts that exhibit increases in implied volatility over the next month, but with decreasing realized volatility. These predictability patterns are consistent with rational models of informed trading.