Value investing anomalies in the European stock market: Multiple Value, Consistent Earner, and Recognized Value

Empirical academic studies have consistently found that value stocks outperform glamour stocks and the market as a whole. This article extends prevailing research on existing value anomalies. It evaluates simple value strategies for the European stock market (compared to many other studies that test market data on a country-by-country basis) as well as sophisticated multi-dimensional value strategies that also include capital return variables (Consistent Earner Strategy) and momentum factors (Recognized Value Strategy), the latter reconciling intermediate horizon momentum and long-term reversals of behavioral finance theories. It can be shown that these “enhanced” value strategies can produce superior returns compared to returns of the whole market or “simple” value strategies without capturing higher risks applying traditional risk measures.     

Economic research in Canada: Evolution and convergence

We describe the history and current state of economic research in Canada, including the role of the Canadian Economics Association (CEA) and other institutions. Our paper is organized around two central questions. Is Canadian economic research distinctive? And should it be more distinctive? We argue that a distinct Canadian “school” of economics existed in the past, but that economic research in Canada has converged on an evolving global standard in both method and topics. We ask whether this convergence serves the Canadian public interest and we raise some questions about the future of the CEA and its flagship journal, the CJE.     

The Role of Ethnic Nepotism vs. Economic Pragmatism in Inter-group Conflict: Data on the Yugoslavian Civil War*

Neo-Darwinian concepts such as van den Berghe's ethnic nepotism infer that the origin of inter-group conflict resides primarily in ethnocentrism, defined as the extension of inclusive fitness to extra-familial interactions. Silverman, however, has proposed an alternative view, based on the presumption that natural selection favors pragmatism and plasticity in the formation of group alliances. Silverman's theory holds that the motives for inter-group oppression and warfare, including so-called ethnic cleansing movements, are economic, whereby out-group prejudices represent rationalizations rather than root causes. The present paper reviews Silverman's and Silverman and Case's evidence for this theory and provides further supporting data in terms of relationships between changes in economic conditions and ethnocentric attitudes during the years immediately preceding the recent Yugoslavian hostilities. This revised version was published online in August 2006 with corrections to the Cover Date.     

TAXATION OF ECONOMIC RENTS

Economic rents have long been identified as an efficient tax base. In addition, the recent literature documents that rent income is highly concentrated and that rents are quickly increasing. Rent taxation thus seems attractive for reasons of both efficiency and equity. Nevertheless, rent taxation remains a marginal topic in research and policy making. In a systematic review of the neoclassical literature on different rent types, we find that some types of rents reflect inefficiencies and should thus be minimized, while others reward investments and should be supported in line with social welfare. What remains for taxation are land rents, one of the few true scarcity rents. Land rents have significant potential to improve the efficiency of the tax system. We then begin to develop a comprehensive theory of land rent taxation by identifying relevant efficiency and equity effects. The interaction of many of these effects remains unexplored, which might explain policymakers' hesitation in using land taxes to date.     

Using the endowment effect to explain managerial resistance towards codetermination: Implications for employment relations from the German case

This article provides an innovative defence of codetermination by way of exploring two of the most significant theorised objections to it from neo‐liberal and libertarian perspectives, namely the defence of the right to manage as freely chosen by employees and employers alike, and the right to manage being the most efficient, lowest transaction cost mode of employee governance. Instead, we focus upon management preference emanating from the endowment effect, and manifested in management style and ideology, as a more credible explanation for management's support for its prerogative to manage. The endowment effect prompts both strong employer and manager objections to codetermination and weak employee willingness to seek it because humans place more value upon items currently in their possession than upon those they do not possess. We explore this argument by examining the experience of codetermination in Germany. The significance of our argument lies in identifying managerial preference as the key variable to be challenged and changed in order to pacify management opposition to codetermination through political, ideological, and institutional means.     

The impact of the National Minimum Wage in low‐wage sectors: does the Earnings Top‐up Evaluation study add to our understanding?

Recent work investigating the possible impact of the introduction of the UK National Minimum Wage (NMW) in April 1999 has focused on the analysis of care homes, a sector particularly associated with low‐wage employment. In this article we attempt to add to these findings by utilising the Earnings Top‐up Evaluation (ETUE) survey which was carried out in 1996, 1997 and 1999, and aimed to over‐sample establishments operating in low‐wage sectors. Initially, we utilise the panel element of the ETUE to carry out a similar analysis to that adopted for the care homes data. However, in addition to this ‘establishment‐level’ analysis, we also utilise information on wages and employment in three non‐managerial skill groups, within this panel of establishments, to carry out an analysis at the level of the skill group. In this second set of analyses we are able to reject the null hypotheses of parameter insignificance, identifying a negative employment effect of the 1999 NMW, although this is only true of one of our indicators of NMW impact and its magnitude is small. In the conclusion to the article, we discuss our results in light of the findings from other similar studies.     

When do the USDA forecasters make mistakes?

This study analysed forecasts for all US corn, soya bean and wheat categories published within the World Agricultural Supply and Demand Estimates (WASDE ) reports over the 1987/88 through 2009/10 marketing years in an attempt to identify patterns and better understand when the USDA forecasters make mistakes. Two general sources of errors were investigated: behavioural and macroeconomic factors. The first objective was to examine how these factors affect the size of the forecast error and the second concentrated on the direction of the error due to these effects. Our findings suggest that the largest increase in the size of USDA forecast errors was associated with structural changes in commodity markets that took place in the mid-2000s. Corn, soya bean and wheat forecast errors also grew during the periods of economic growth and with changes in exchange rates, while inflation and changes in oil price had a much smaller impact. With respect to behavioural sources, we identified patterns consistent with leniency and pessimism across different categories. Predictability of forecast errors based on the information available at the time the forecasts are made provides evidence of inefficiency and suggests that these forecasts may be improved using the findings of this study.     

Optimal capital and risk allocations for law- and cash-invariant convex functions

In this paper we provide a complete solution to the existence and characterization problem of optimal capital and risk allocations for not necessarily monotone, law-invariant convex risk measures on the model space L ^p for any p∈[1,∞]. Our main result says that the capital and risk allocation problem always admits a solution via contracts whose payoffs are defined as increasing Lipschitz-continuous functions of the aggregate risk. Filipović is supported by WWTF (Vienna Science and Technology Fund). Svindland gratefully acknowledges financial support from Munich Re Grant for doctoral students and hospitality of the Research Unit of Financial and Actuarial Mathematics, Vienna University of Technology. We thank Beatrice Acciaio and Walter Schachermayer for fruitful discussions and an anonymous referee for helpful remarks.     

Cross-ownership,returns, and voting in mergers

We show that institutional shareholders of acquiring companies on average do not lose money around public merger announcements, because they hold substantial stakes in the targets and make up for the losses from the acquirers with the gains from the targets. Depending on their holdings in the target, acquirer shareholders generally realize different returns from the same merger, some losing money and others gaining. This conflict of interest is reflected in the mutual fund voting behavior: In mergers with negative acquirer announcement returns, cross-owners are significantly more likely to vote for the merger.