An application of a new seasonal unit root test to inflation

In this paper, we apply the modified seasonal unit root test with seasonal level shifts at unknown time proposed by Popp (2007) to the G7 inflation rate. We also study the power properties of this test and generate critical values for a range of different break points and sample sizes. We find that there is a non-seasonal unit root in Canada's inflation rate, a semi-annual unit root in Germany's inflation rate, and no seasonal unit root at the annual frequency for any of the G7 countries.     

The Race that Stops a Nation: The Demand for the Melbourne Cup

This article uses the bounds testing procedure to cointegration, within an autoregressive distributed lag framework to estimate the determinants of attendance at the Melbourne Cup from its inception from 1861 to 2002. Following the literature on the demand for professional team sports, attendance is specified as a function of economic, demographic and race-specific factors. The main findings are that real income and population size are the major determinants of attendance in the long run, while in the short run the weather is the most important factor explaining attendance.     

Correction to: The impact of a U.S.–U.K. free trade agreement on workers: a CGE model with worker displacement

Business Economics -     

The Determinants of Stock Prices: New Evidence from the Indian Banking Sector

We examine the determinants of stock prices for major Indian banks using panel data modeling techniques. Our work is novel because, for the first time in the literature on Indian banking, we use a panel Granger causality test that reveals the direction and sign of causality. We find evidence of panel cointegration among stock prices, economic activity, interest rates, and exchange rates for thirteen banks. Our results suggest that while economic activity and currency depreciation contribute to a rise in share prices, an increase in the interest rate reduces bank share prices. Moreover, only economic activity Granger-causes stock prices in the long run.     

Reflexivity,stress, and unlearning in the new product development team: the moderating effect of procedural justice

The success of new product development (NPD) depends on a team's abilities to integrate, build, and reconfigure internal and external competences and the flexibility to address rapidly changing environments. To develop innovative products it is desirable that these processes should not be constrained by current beliefs and routines. NPD teams therefore need to engage in an unlearning process to overcome any resistance to new ideas and to facilitate a fresh approach. The paper recognizes that the controlled experience of stress plays a part in unlearning (e.g., confusion about technology or market change can encourage changes) and argues that teams should systematically reflect on the progress they are making in projects and in unlearning. The fairness of procedures used by the management moderates the proposed relationships. Two hundred and ninety eight team members and 77 NPD team leaders participated in the study. The results indicate that team reflexivity positively influences unlearning and product innovation, while team stress has a negative effect. The perceived fairness of management procedures strengthens the positive effects of team reflexivity on unlearning and product innovation, and reduces negative effect of team stress.     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

Bid–ask bias in cumulated returns: an analytical approach

Several studies in finance and accounting literature have measured security returns subsequent to some economic events over long horizons by cumulating the returns over time. It is well known that when single period returns are cumulated over long horizons, the bid–ask error in the measured returns could be very high. One way of estimating the bid–ask error is by simulation. This paper offers an alternative to the simulation approach and provides a closed form expression for the bid–ask error in cumulated returns. Our analytical approach has two main advantages over the traditional simulation method; first it quantifies the bias precisely and second, it is computationally simpler by several orders of magnitude.     

Common Trends and Common Cycles in Per Capita GDP: The Case of the G7 Countries, 1870–2001

In this paper we analyze per capita incomes of the G7 countries using the common cycles test developed by Vahid and Engle (Journal of Applied Econometrics, 8:341–360, 1993) and extended by Hecq et al. (Oxford Bulletin of Economics and Statistics, 62:511–532, 2000; Econometric Reviews, 21:273–307, 2002) and the common trend test developed by Johansen (Journal of Economic Dynamics and Control, 12:231–254, 1988). Our main contribution is that we impose the common cycle and common trend restrictions in decomposing the innovations into permanent and transitory components. Our main finding is permanent shocks explain the bulk of the variations in incomes for the G7 countries over short time horizons, and is in sharp contrast to the bulk of the recent literature. We attribute this to the greater forecasting accuracy achieved, which we later confirm through performing a post sample forecasting exercise, from the variance decomposition analysis.

The structure of tourist expenditure in Fiji: evidence from unit root structural break tests

The central aim of this paper is to investigate whether shocks to Fiji's tourism industry have a permanent effect or a transitory effect on tourist expenditure in Fiji. To accomplish this aim the Zivot and Andrews (1992 Zivot, E and Andrews, D. 1992. Further evidence of the great crash, the oil-price shock and the unit-root hypothesis. Journal of Business and Economic Statistics, 10: 251–70.  ) one break test and the Lumsdaine and Papell (1997 Lumsdaine, R and Papell, D. 1997. Multiple trend breaks and the unit root hypothesis. Review of Economics and Statistics, 79: 212–18.  ) two break tests are used. The one break and two break tests reveal 1987 – the year of the military coups in Fiji – as the year of the break. Moreover, it is possible to reject the unit root null leading to the conclusion that shocks to Fiji's tourism industry have a transitory effect on tourist expenditure in Fiji.     

Spending as protection: the need for safety increases preference for luxury products

Marketing Letters - We live in a world where physical threats, to ourselves and to our loved ones, are made salient every single day in the news and in the entertainment that we consume. Our...