The determinants of recovery from the Black Saturday bushfire: demographic factors,behavioural characteristics and financial literacy

We investigate the contribution of demographic factors, behavioural characteristics and financial literacy to recovery from the financial losses inflicted by the Black Saturday bushfire. Behavioural characteristics (such as overconfidence, self-serving and loss aversion biases) in conjunction with bushfire survivors’ knowledge of financial indicators are used to determine recovery time. Data are collected through in-depth interviews with bushfire survivors, academics and experts in natural disasters. The results show that demographic, behavioural and financial literacy factors have the potential to enhance the recovery process.     

STRATEGIC ENTRY DETERRENCE: RECENT DEVELOPMENTS IN THE ECONOMICS OF INDUSTRY

Abstract. This paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence. Starting from Bain's (1956) classical analysis, a simple two-stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem. Commitments, credible threat and sub-game perfection are illustrated in this context. The various strategic variables that an incumbent firm can use to bar entry are discussed. The issue of whether a group of incumbents can non-cooperatively deter entry is taken up and some empirical evidence is reviewed.     

Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors

The average portfolio structure of institutional investors is shown to reproduce the structure which optimally accounts for transaction costs when investment constraints are weak. Strikingly, this result emerges even though these investors are not aware of the existence of such law and despite the fact that their aims and tools are very heterogeneous. This extends the so-called wisdom of the crowd to much more complex situations in two important ways. First, wisdom of the crowd also holds for whole functions instead of a point-wise estimates. Second, this shows that in socio-economic systems, the optimal individual choice may only be found when the diversity of individual decisions is averaged out. Thus, rationality at a collective level does not need nearly rational individuals with well-aligned incentives. Finally we discuss the importance of accounting for constraints when assessing the presence of wisdom of the crowd.

     

Analyst versus model-based earnings forecasts: implied cost of capital applications

We find that a composite implied cost of capital (ICC) estimate – based on the earnings forecasts generated by cross-sectional models – is highly correlated with future realised returns in both portfolio- and regression-based tests. By contrast, we find very little evidence for an association with future realised returns for an ICC estimate based on analyst earnings forecasts. We also document the time-varying nature of expected returns and risk premia, and provide up-to-date estimates of an implied Australian market risk premium.     

Exercise boundary of the American put near maturity in an exponential Lévy model

We study the behavior of the critical price of an American put option near maturity in an exponential Lévy model. In particular, we prove that in situations where the limit of the critical price is equal to the strike price, the rate of convergence to the limit is linear if and only if the underlying Lévy process has finite variation. In the case of infinite variation, a variety of rates of convergence can be observed: we prove that when the negative part of the Lévy measure exhibits an α-stable density near the origin, with 1<α<2, the convergence rate is ruled by $\theta^{1/\alpha}|\ln \theta|^{1-\frac{1}{\alpha}}$ , where θ is the time until maturity.     

Economic conditions and the motives for multiple open-market share buybacks

We examine the impact of business conditions on the frequency of share repurchases. The results generally indicate that share repurchase programs are positive and statistically significant in HIGH economic states relative to the other economic states. Segmenting the data into frequency of repurchases, we find evidence suggesting different economic states exert influence on frequent and infrequent but not occasional repurchase programs. Further, we show that firms that institute frequent share repurchasing programs experience stronger returns across different business cycles compared to infrequent and occasional share repurchasers.     

The Emerging New Concept of Services in the System of National Accounts and the Balance of Payments

The new manuals of the National Accounts and of the Balance of Payments are implementing new features regarding services. The paper points out the emergence of an innovative concept of services which is highly relevant but whose consequences may not be fully understood. This new perspective helps to focus on the true nature of services, but it also redefines the borders between services and goods. The paper addresses the problems left unresolved, or brought in, by the revisions. Furthermore, it studies the treatment of non‐financial services in the BOP as compared to the SNA. Although the two approaches have been rendered more compatible, the BOP still incorporates several inconsistencies. The hesitancy to completely implement the new services definition tends to somewhat blur the measurement of trade in services.     

COOPERATION INTER-REGIONALE: VERS UN ECHANGE D'EXPERIENCE

RESUME ** :  Ce papier examine les conditions d'une coopération particulière entre collectivités locales : une coopération nouée autour d'une relation d'apprentissage. Le point de départ de l'analyse tient en effet en l'expérience d'une région ayant développé un mode spécifique de coordination publique sur son territoire pour répondre à un événement particulier. Nous nous interrogeons ici sur les conditions dans lesquelles cette expérience peut être transmise à une autre région confrontée à une situation similaire. Cette possibilité d'échange peut en effet représenter un formidable outil décisionnel pour une collectivité. Des exemples de « coopérations décentralisées >> viennent illustrer notre propos.     

Credibility costs in the monetary integration game*

Euro candidates are expected to maintain the value of their currency within the fluctuation band of the new exchange rate mechanism for at least two years. This paper highlights some unpleasant macroeconomic effects that could occur during this interval. The problem is cast as a two‐stage sequential game between private agents and the government of the applicant country. The policy‐maker decides whether to devaluate the domestic currency or not at two distinct dates; it makes a last choice just before accession to the monetary union. Under an assumption of incomplete information of private agents about the government's priorities on inflation and economic activity, the game presents a hybrid perfect Bayesian equilibrium. In the pooling configuration, an initial policy of zero devaluation does not signal the final devaluation decision. As private agents cannot completely rule out the risk of a ‘last devaluation’, a premium adds to interest rates and entails a systematic output loss.