Market timing under multiple economic regimes

This article models the US equity premium as a regime‐switching process where the regimes are dependent on economic variables. To characterise the economic regimes, we employ the dimension reduction technique of a principal components analysis to extract business cycle signals from a set of observed macroeconomic variables. We use these conditioning agents to infer the ex ante economic regime. We then test a dynamic asset allocation strategy, which invests in equity and cash on the basis of the predicted regimes. This timing strategy is shown to outperform a simple buy and hold strategy on a risk‐adjusted basis.     

Financial Repression — Ein neues Umfeld für die Finanzm?rkte?

High levels of debt caused by the financial crisis are forcing countries to take measures to reduce debt. Financial repression is a debt reduction opportunity based on measures imposed on the financial markets by governments which manifests itself primarily in lower real interest rates. Financial repression is regarded as another characteristic of a “new normality” in the global economy with low potential growth rates and low interest rates, high levels of public debt as a result of the financial crisis. The article describes this phenomenon and attempts to evaluate its empirical relevance.     

Ethical Blindness

Many models of (un)ethical decision making assume that people decide rationally and are in principle able to evaluate their decisions from a moral point of view. However, people might behave unethically without being aware of it. They are ethically blind. Adopting a sensemaking approach, we argue that ethical blindness results from a complex interplay between individual sensemaking activities and context factors.     

Choosing instrumental variables in conditional moment restriction models

Properties of GMM estimators are sensitive to the choice of instrument. Using many instruments leads to high asymptotic asymptotic efficiency but can cause high bias and/or variance in small samples. In this paper we develop and implement asymptotic mean square error (MSE) based criteria for instrument selection in estimation of conditional moment restriction models. The models we consider include various nonlinear simultaneous equations models with unknown heteroskedasticity. We develop moment selection criteria for the familiar two-step optimal GMM estimator (GMM), a bias corrected version, and generalized empirical likelihood estimators (GEL), that include the continuous updating estimator (CUE) as a special case. We also find that the CUE has lower higher-order variance than the bias-corrected GMM estimator, and that the higher-order efficiency of other GEL estimators depends on conditional kurtosis of the moments.     

Not invented here: technology licensing, knowledge transfer and innovation based on public research

Using a new dataset encompassing more than 2,200 inventions made by Max Planck Society researchers from 1980 to 2004, we explore the way in which inventor, technology, and licensee characteristics affect the commercialization of academic inventions. We find limited evidence suggesting that domestic and external licensees outperform foreign licensees and inventor spin-offs in the commercialization of academic inventions. Controlling for selection, spin-offs are indistinguishable from external licensees. Patented technologies and inventions by senior scientists are more likely to be licensed, but patent protection is related to lower commercialization odds and royalty payments.     

Downside risk aversion,fixed-income exposure,and the value premium puzzle

The value premium is relatively small for investors with a material fixed-income exposure, such as insurance companies and pension funds, especially when they are downside-risk-averse. Value stocks are less attractive to these investors because they offer a relatively poor hedge against poor bond returns. This result arises for plausible, medium-term evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for these investors and reiterate the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market portfolio efficiency.     

Lettere al Direttore

Torino, 27 giugno 1984     

The impact of interest subsidies on the inter- regional allocation of capital: An econometric analysis for Belgium

Regionally differentiated interest rate subsidies are assumed to have on theoretical grounds both a generative and a redistributive impact on investment. In the conventional econometric approach, these effects are captured by the interest rate parameters that appear in regional investment functions which are usually estimated by single equation methods. This paper focusses on the redistributive impact of regional interest subsidies. The theoretical framework choosen for the analysis is that of a multiregional firm that maximizes overall profits subject to a capital cost constraint. The resulting allocation model for capital stock is similar to a system of consumer demand equations. It is estimated by a maximum likelihood method. The empirical results indicate that the redistributive effects of interest rate subsidies are significant.