Option-implied preferences adjustments, density forecasts, and the equity risk premium

The main objective of this paper is to analyse the value of information contained in prices of options on the IBEX 35 index at the Spanish Stock Exchange Market. The forward looking information is extracted using implied risk-neutral density functions estimated by a mixture of two-lognormals and several alternative risk adjustments. Our results show that, between October 1996 and March 2000, we can reject the hypothesis that the risk-neutral densities provide accurate predictions of the distributions of future realisations of the IBEX 35 index at 4- and 8-week horizons. When forecasting through risk-adjusted densities the performance of this period is statistically improved and we no longer reject that hypothesis. We show that risk adjustments based on a power specification for the stochastic discount factor—which is the approach used so far in the literature that derives the objective density function from option prices- generates an excessive volatility of risk premia. We use alternative risk adjustments and find that the forecasting performance of the distribution improves slightly in some cases when risk aversion is allowed to be time-varying. Finally, from October 1996 to December 2004, the ex-ante risk premium perceived by investors and that are embedded in option prices is between 12 and 18% higher than the premium required to compensate the same investors for the realised volatility in stock market returns.      

Beyond the Pampas: Global capital and uneven development in Argentine soybean expansion

The article analyses the social processes introduced by globalization into agrarian production systems. In particular, it explores how capital installs a new agriculture that generates an urban fringe in rural localities. We claim that the expansion of agricultural frontiers is also associated with the rise of new actors, residential changes and transformations in labour markets. The objective is to study the transformation that takes place in the agrarian social structure of a marginal agricultural area. It shows how this transformation leads to new residential behaviour that redefines the local relational system and to a transition from a “peasant” way of life to an urban‐type through the logic of the expulsion of the peasant population and the logic of agribusiness.     

Shareholder protection, ownership concentration and FDI

Host country's weaker legal shareholder protection may make it costlier for parent shareholders to monitor the foreign subsidiary and hold managers accountable in case of misconduct. This prospect may motivate the managers to invest in such foreign environments. However, the agency costs associated with such investments can increase as well. The latter would tend to discourage such FDI. We test this ex ante uncertain relationship using a sample of publicly quoted UK parents that established new, majority owned joint venture subsidiaries in Continental Europe. We find that host country's weak legal shareholder protection discourages FDI. This negative relationship, however, is less important for firms with higher ownership concentration, implying that parent's ownership concentration may be a substitute for host country's weak legal shareholder protection.     

Business incubation: innovative services in an entrepreneurship ecosystem

This article studies the process of business services provision by business incubators. It considers this provision as an innovative and dynamic process, carried out in an open innovation context, where many elements from the entrepreneurship ecosystem (EE) interact. Thus, the article creates new knowledge because conceptually, it defines and relates all the key elements that are the source of innovation and value added: business services themselves, the EE, the context of open innovation and the features of that interaction. This conceptualization is tested empirically in two different scopes, a broad one with 255 business incubators around the world, and a Spanish case with two university incubators with some references to a foreign two-country study. Results detect some patterns of service provision according to ownership, size and partnership of the business incubators and show the efficacy of the cooperation of the private and public sectors and the universities.     

Promoting Entrepreneurship at the Base of the Social Pyramid via Pricing Systems: A case Study

Historically, microfinance institutions (MFIs) have played a significant social role by helping people at the base of the socio‐economic pyramid escape from social exclusion through the creation of microenterprises. However, international banks have recently started competing in the microfinance sector. In this adverse environment, MFI management tools should be more innovative and technologically advanced to increase efficiency, solvency and profitability and to compete with commercial banks on equal terms. This study therefore strives to develop a credit‐risk management tool based on a multilayer perceptron (MLP) credit‐scoring model for a Peruvian MFI, and to calculate the capital requirements and microcredit pricing on both internal ratings‐based (IRB) and standardized approaches, analysing the impact of these models on the management of the MFI. Our findings show that the implementation of an IRB approach with default probabilities obtained from an MLP credit‐scoring model produces the best benefit by the MFIs in terms of higher accuracy (reduction of misclassification costs by 13.78%), lower capital requirements (in the range of 8.5–78%) and the best risk‐adjusted interest rates. Furthermore, with the establishment of interest rates adjusted to the real risk of each client, MFIs are fairer and more socially engaged by preventing economically viable low‐risk projects from becoming unviable due to excessive interest rates. This leads to the creation of more small businesses by people from the base of the socio‐economic pyramid and greater economic development and social cohesion. The IRB model should therefore be implemented to improve MFI solvency, profitability, efficiency, survival, management and social performance.     

Annual Reporting and Accountability by Municipalities in Canada: An Empirical Investigation*

Prior research regarding reporting and accountability by local governments in several countries has questioned the value of traditional annual reporting and the level of accountability to the public. This article reports on comparable research for local governments throughout Canada. The disclosure index methodology is used to evaluate the quality and quantity of information published in the annual reports and in the financial statements of Canadian local governments in 2003 with a comparison in 2005. Although all municipalities published audited financial statements, less than one‐third of municipalities published a comprehensive annual report in 2003. The results show an overall low disclosure index with significant improvements in 2005 compared to 2003 and significant differences across the country. The results, largely consistent with previously published international studies, raise questions about local government accountability and about the conceptual framework for local government reporting.     

Liquidity,innovation and growth

Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.     

The cost of capital,finance and high‐tech investment

Investment is the most volatile component of aggregate demand and it is often considered central to business cycles fluctuations. The responsiveness of business investment to changes in its price is thus crucial to our understanding of economic activity. In spite of the key role played by the user cost of capital in economic analysis, there is little empirical support for the existence of substantial user cost elasticity. However, most of the evidence to date is based on aggregate user cost data, which may have introduced downward biases in the estimated user cost. This paper contributes to the literature by constructing a disaggregated, industry‐specific micro user cost variable and focusing on a special class of firms – the high‐tech firms. To provide a benchmark for the results, the user cost estimates for the high‐tech sector are compared with those for the rest of the manufacturing sector. The results suggest that there is little response of investment to variations in its user cost. The findings also suggest that high‐tech firms’ investment behavior is not, after all, that different from the rest of the manufacturing sector.