The Impact of Children on Australian Couples’ Wealth Accumulation

Existing estimates of the cost of children focus on what parents spend on their children, which has limited relevance to parents’ financial capacity to meet those costs. An alternative indicator of the affordability of children, their impact upon couples’ wealth accumulation, is estimated using the lifecycle model and Australian household panel data. The results suggest children have a very small impact upon wealth accumulation, seemingly at odds with the large ‘costs’ implied from expenditure‐based estimates. In reconciling these highly divergent estimates we argue that the net‐wealth approach is an intuitively more appealing indicator of the financial impost of children.     

Identifying periods of market inefficiency for return predictability

The article examines the efficiency of 31 stock index series spanning 26 countries across the world, using generalized spectral test (GST) and detects departure from the martingale difference hypothesis (MDH). A moving window of 24 months was used and p-values of GST were estimated. In order to explore whether the departure from market efficiency can be used for generating profitable trades, an exponentially weighted-moving-average-based trading rule was applied and was found that average profits per trade were significantly higher when p-value of the GST was less than 0.1. These observations are in consistent with the adapted market hypothesis.     

Stochastic dominance, efficiency and separation in financial markets

A portfolio problem exhibits separation when all of its solutions can be expressed as affine combinations of a small number of mutual funds. The concept of separation is one of the cornerstones of modern portfolio theory, underlying everything from the mean-variance portfolio selection rule of [7. and 8.] and [11.] to the equilibrium pricing model of [10.], [6.] and [2.]. A great deal of effort has been put into investigating conditions which validate separation assumptions: [3.] as well as [4.] study this problem in terms of utility functions while [9.] takes a distributional approach. The purpose of this note is to show that for the distributional approach, the so-called weak and strong forms of separation are actually equivalent.     

Capital market equilibrium in a mean-lower partial moment framework

In this paper, we develop a Capital Asset Pricing Model (CAPM) using a mean-lower partial moment framework. We explicitly derive formulae for the equilibrium values of risky assets that hold for arbitrary probability distributions. We show that when the probability distributions and portfolio returns are either normal, stable (with the same characteristic exponent between 1 and 2 and the same skewness parameter, not necessarily zero), or Student-t distributions, our CAPM reduces to the traditional mean-scale CAPM's. Consequently, since the traditional equilibrium models are special cases of our model, the mean-lower partial moment framework is guaranteed to do at least as well in explaining market data. As an application of our theory, we derive an acceptance criterion for capital investment projects and note that corporate finance theory results developed, for example, in the well-known mean- variance framework carry over to the mean-lower partial moment framework.     

Category-specific coupon proneness: The impact of individual characteristics and category-specific variables

In seeking to enhance the effectiveness of coupon promotions, researchers have long sought to identify “coupon prone” consumers. Previous measures of coupon proneness have not examined differences in coupon usage across product categories and have ignored the confounding effect of coupon attractiveness. An Item Response Theory (IRT)-based framework overcomes these limitations and yields category-specific estimates of propensity to redeem coupons that are independent of coupon attractiveness. The authors utilize an IRT-based model to estimate consumers’ category-specific propensities to redeem coupons for two product and two service categories, and investigate how coupon proneness varies across consumers and across categories as a function of individual characteristics and category-specific variables.The authors find that category-specific measures of propensity to redeem coupons achieve an average accuracy of 89 percent in predicting redemption intentions. Propensity to redeem coupons is also found to be related to category-specific brand loyalty and perceived coupon availability, as well as to individual characteristics such as general coupon proneness, value consciousness and price consciousness. These findings highlight the importance of studying coupon proneness at the category level and suggest that the IRT-based approach has considerable promise as a methodology for studying coupon usage. Using the approach proposed in this study, marketers can forecast the impact coupons are likely to have in their particular category, rather than relying on general coupon proneness measures to predict coupon redemption rates at the category level. The study's findings can also be used to identify categories and consumer segments where coupon promotions are likely to have a larger impact, and have important implications for managers planning joint couponing strategies.