Stock returns forecasting with metals: sentiment vs. fundamentals

Using six prominent metal commodities, we provide evidence on the out-of-sample forecasting of stock returns for the market indices of the G7 countries, for which there is little prior evidence in this context. We find precious metals (gold and silver) can improve forecast accuracy relative to the benchmark and performs well compared to forecast combinations. From an economic gains perspective, forecasting returns provides certainty equivalent gains in a market timing strategy for the G7 countries. These certainty equivalent gains are large enough to make active portfolio management attractive, even for individual investors. Gains remain after considering reasonable transaction costs.     

Shareholder activism and voluntary disclosure

We examine the relation between shareholder activism and voluntary disclosure. An important consequence of voluntary disclosure is less adverse selection in the capital markets. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. Consistent with this idea, we find that managers issue earnings and sales forecasts more frequently when their firm is more at risk of attack by activist investors, and that these additional disclosures reduce the likelihood of becoming an activist’s target. These additional disclosures also prompt a positive price reaction, contain more precise guidance, and exceed prevailing market expectations. These findings imply that managers use voluntary disclosure to preempt activism at their firm, and that activists prefer to target relatively opaque firms.     

The Post-Internet Order Broadband Sector: Lessons from the Pre-Open Internet Order Experience

A significant component of the contentious debate over the Federal Communications Commission’s (FCC) 2015 Open Internet Order (OI 2015) has been its effects on future broadband investment and the development of Internet content and other applications. Although such debate can advance understanding of the potential consequences of the OI 2015, much of it, albeit informed by economics, is of necessity speculative. It may be useful to see how experience up to OI 2015 might be informative. That experience is notably thin, with the FCC’s citing two to four instances in ten years that would have violated OI 2015. After explaining why the OI 2015 order and its predecessor may be largely non-binding, we look at the four examples for lessons in what kinds of behavior OI 2015 might prevent. This experience suggests that non-economic concerns should have been more explicit in OI 2015.     

An exploratory analysis of the effect of numbers of choice sets in designed choice experiments: an airline choice application

Stated choice (SC) experiments are increasingly adopted as the empirical source of information on how individuals respond to current and potential travel contexts. The accumulated experience with SC data has been heavily conditioned on analyst prejudices about the acceptable complexity of the data collection instrument, especially the number of profiles (or treatments) given to each sampled individual (and the number of attributes and alternatives to be processed). It is not uncommon for analysts to impose very stringent limitations on the complexity of an SC experiment. A review of the literature suggests that very little is known about the basis for rejecting complex designs or accepting simple designs. In this paper, we develop a complex design as the basis for an SC study, producing a fractional factorial of 32 rows. However, we then truncate the fraction by administering 4, 8, 16, 24 and 32 profiles to a sample of individuals in Australia and New Zealand faced with the decision to fly (or not to fly) between Australia and New Zealand by alternative airlines and fare regimes. Statistical comparisons of elasticities (an appropriate behavioural basis for comparisons) suggest that the empirical gains within the context of a linear specification of the utility expression associated with each alternative in a discrete choice model may be quite marginal.     

Plastic bag politics: modifying consumer behaviour for sustainable development

The adverse environmental impacts of plastic bags, including production energy costs, limited lifespan, increasing landfill content and inability to biodegrade, provide symbolic and practical evidence of a ‘throwaway’ consumer culture which acts as a significant barrier to sustainable consumption in particular and sustainable development in general. Decoupling consumer behaviour from plastic bag use is therefore an important challenge in the pursuit of sustainable consumption as a precursor to achieving sustainable development. This article provides a critical evaluation of that challenge, set within the theoretical framework of sustainable development. It examines the adverse environmental impacts of plastic bag use and evaluates initiatives by governments and businesses internationally to change consumer behaviour regarding the use of plastic bags in line with sustainable development principles. The politics of this agenda are analysed using a combination of consumer policy and public policy perspectives. Finally, the article draws conclusions regarding the earlier analysis.     

The Role of Learning in Dynamic Portfolio Decisions

This paper analyzes the effect of uncertainty about the meanreturn on the risky asset on the portfolio decisions of an investorwho has a long investment horizon. Building on the earlier workof Detemple (1986), Dothan and Feldman (1986), and Gennotte(1986), it is shown that the possibility of future learningabout the mean return on the risky asset induces the investorto take a larger or smaller position in the risky asset thanshe would if there were no learning, the direction of the effectdepending on whether the investor is more or less risk tolerantthan the logarithmic investor whose portfolio decisions areunaffected by the possibility of future learning. Numericalcalculations show that uncertainty about the mean return onthe market portfolio has a significant effect on the portfoliodecision of an investor with a 20 year horizon if her assessmentof the market risk premium is based solely on the Ibbotson andSinquefield (1995) data.     

Power and efficiency in production pillage games

A pillage game is a formal model of Hobbesian anarchy as a coalitional game. The technology of pillage is specified by a power function that determines the power of each coalition as a function of its members and their wealth. A coalition can despoil any other coalition less powerful than itself. The present paper studies the problem of achieving an efficient allocation of resources when the required reallocation changes the distribution of power. For example, land redistribution may increase total production, but may also deprive the original owners of the power they need to compel compensation. In this case the original owners would block the redistribution. Previous work on pillage games has focused on the stable set (von Neumann–Morgenstern solution) as a representation of a stable balance of power. However, the balance of power is typically too delicate to support all efficient allocations. The present paper shows that for a large class of power functions, a recently developed extension of the stable set, called the legitimate set, can be rich enough to support all efficient allocations.      

Queue-rationed equilibria with fixed costs of waiting

The welfare impact of price controls is examined here in an exchange economy where agents may need to queue in order to make a transaction. Time spent in the queue is an endogenously-determined transaction cost, which agents take as given and which adjusts so as to clear markets when prices are prevented from performing this function. When queuing is required, it enters the household’s decision as a fixed cost, rather than increasing in proportion to the amount of good exchanged, as is far more common in the previous literature. Existence of competitive equilibrium is established for this general equilibrium model. Price controls are shown to cause notable inefficiencies, which differ from those of a proportional cost model. Moreover, in certain environments, price controls will unambiguously harm all individuals relative to a Walrasian equilibrium. The author thanks Beth Allen, Chris Phelan, and Jan Werner for their valuable guidance on this work, as well as Michael Magill, Martine Quinzii, Val Lambson, Nuray Akin, participants of the 2005 Midwest Economic Theory Conference, and members of the Mathematical Economics Workshop at the University of Minnesota. This work also benefited from the thoughtful comments of an anonymous referee. Partial funding came from NSF grants DMI-0070257 and DMI-0217974.     

On the export-led growth hypothesis for the little dragons: An empirical reinvestigation

The export-led growth hypothesis is tested using quarterly time series data for Hong Kong, Korea, and Taiwan and by constructing a vector autoregression (VAR) model. The Granger no-causality procedure developed by Toda and Yamamoto [1995] was applied to test the causal link between real export growth and real industrial output growth. Three distinct features in this paper stand out against earlier studies on the Little Dragon countries of Asia. First, going beyond the traditional two-variable relationship, a VAR model is built in the production function context to avoid a possible specification bias. Second, Riezman et al. [1996] are followed to test the export-led growth hypothesis while controlling for the growth of imports to avoid producing a spurious causality result. Third, the sensitivity of causality test results under different lag structures is tested along with the choice of optimal lags. In particular, the methodology developed by Toda and Yamamoto is expected to improve the standard F-statistics in the causality test process. The principal result from this research cannot offer support for the export-led growth hypothesis.