Wealth data quality in the National Income Dynamics Study Wave 2

This paper examines the quality of data on household assets, liabilities and net worth in the South African National Income Dynamics Study (NIDS) Wave 2. The NIDS is the first nationally representative survey on household wealth in South Africa. The cross-sectionally weighted data are found to be fit for use in terms of the univariate distributions of net worth, assets and liabilities, but population totals are probably underestimated due to the presence of missing wealth data in Phase 2 of Wave 2 that is not taken into account in the weights. When compared with national accounts estimates of household net worth, there is an apparent inversion of the estimated totals of financial assets versus non-financial assets. Further research is required into why this is so. We find that the NIDS wealth module is a suitable instrument for the analysis of household wealth.     

Entrepreneurship: Cause and Consequence of Financial Optimism

Extant evidence that the self‐employed overestimate their returns by a greater margin than employees is consistent with two mutually inclusive possibilities. Self‐employment may foster optimism or intrinsic optimists may be drawn to self‐employment. Previous research is generally unable to disentangle these effects because of reliance on cross‐sectional data. Using longitudinal data, this paper finds that employees who will be self‐employed in the future overestimate their short‐term financial wellbeing by more than those who never become self‐employed. Optimism is higher still when self‐employed. These results suggest that the greater optimism of the self‐employed reflects both psychological disposition and environmental factors. By providing greater scope for optimism, self‐employment entices the intrinsically optimistic.     

FOREIGN DIRECT INVESTMENT,NON‐TRADED GOODS AND REAL WAGES

Using a three‐sector general equilibrium model with non‐traded goods, we investigate the impact of foreign direct investment on the real wages of skilled and unskilled workers. We show that foreign direct investment increases the real wages of skilled and unskilled workers alike, but widens the gap between the two under plausible conditions.     

Returns to schooling in Kazakhstan

This paper examines rates of return to schooling in Kazakhstan using OLS (Ordinary Least Squares) and instrumental variable (IV) methodologies. We use spouse's education and smoking as instruments. We find that spouse's education is a valid instrument and that conventional OLS estimates that assume the exogenous nature of schooling, and hence do not control for endogeneity bias, may underestimate the true rates of return. The results indicate that the returns to schooling in Kazakhstan have increased with transition. This may reflect the relative scarcities of highly educated people in Kazakhstan with human capital that employers require and, following the market reforms, reward accordingly.     

CONDITIONAL HETEROSKEDASTICITY AND THE WEEKEND EFFECT IN S&P 500 INDEX FUTURES

Conflicting results have been reported regarding the existence of a weekend effect in S&P 500 index futures. Given the numerous evidence in recent research that asset returns are affected by conditional heteroskedasticity and have fat-tailed distributions, this paper re-examines the existence of a weekend effect in S&P 500 index futures by using a GARCH model. The results generated by the new methodology support the conclusion of Cornell (1985) that there is no weekend effect in S&P 500 index futures.     

Overreaction to stock market news and misevaluation of stock prices by unsophisticated investors: Evidence from the option market

This paper examines investors' option activity on value and growth stocks before earnings announcements. The main finding is that unsophisticated investors enter option positions that load up on growth stocks relative to value stocks in the days leading up to earnings announcements. This occurs despite the fact that at earnings announcements value stocks outperform growth stocks by a wide margin. The paper's results provide evidence that unsophisticated option market investors (1) overreact to past news on underlying stocks and (2) mistakenly believe that mispriced stocks will move even further away from fundamentals at impending scheduled news releases.     

Book Reviews

Howard Dick, The Indonesian Interisland Shipping Industry: An Analysis of Competition and Regulation, Singapore: Institute of Southeast Asian Studies, 1987, pp. 217. Paper: US$15.00; Cloth: US$23.00.

Anne Booth, Agricultural Development in Indonesia, Sydney, Wellington and London: Allen and Unwin, 1988, pp. 295 + iv.

Arthur van Schaik, Colonial Control and Peasant Resources in Java, Amsterdam; University of Amsterdam, Institute For Social Geography, 1986, pp. 210.

Joan Hardjono, Land, Labour and Livelihood in a West Java Village, Jogyakarta: Gadjah Mada University Press, 1987.

W. Röll and A. Leemann, Agrarprobleme auf Lombok: Untersuchungen zur Wirtschafts- und Sozialstruktur in Nusa Tenggara Barat, Indonesien (Agricultural Problems on Lombok: Studies of Economic and Social Structure in West Nusa Tenggara, Indonesia), Hamburg: Institut Für Asienkunde, 1987, pp. 300.

Hal Hill (ed.), Unity and Diversity: Regional Economic Development in Indonesia Since 1970, Singapore: Oxford University Press, 1989, pp. 610 + xxx. Cloth: A$65.00.

C. P. Timmer (ed.). The Corn Economy of Indonesia, Ithaca: Cornell University Press, 1987, pp. 302. Cloth: US$32.95.

Thee Kian Wie, Industrialisasi Indonesia: Analisa dan Catalan Kritis (Indonesian Industrialisation: Analysis and Critical Notes), Jakarta: Pustaka Sinar Harapan, 1988, pp. 276.

David Joel Steinberg (ed.), In Search of Southeast Asia: A Modern History, Honolulu: University of Hawaii Press, 2nd Ed., 1987, pp. 590 + xi.

Geoffrey B. Hainsworth, Innocents Abroad or Partners in Development? An Evaluation of Canada-Indonesia Aid, Trade and Investment Relations, Singapore: Institute of Southeast Asian Studies, Field Report Series No. 15, 1986, pp. 100

BRIEFLY NOTED: Ronald G. Petocz (Compiler), The Ecology of Irian Jaya: A Preliminary Bibliography, Halifax N.S., Canada: School For Resource and Environmental Studies, Dalhousie University, 1988.     

Empirical Investigation of the Ability of Sensitivity of Stock Prices to Earnings News in Predicting Earnings Management and Management Forecast Errors

This paper presents an evidence that a firm’s Sensitivity of Stock Price to Earnings News (SSPEN), as measured by surplus stock demand over its supply, affects on incentives to manage earnings and, in turn, Management Forecast Errors (MFE). In particular, we find a tendency for firms rated a Sell (Buy) to engage more (less) frequently in extreme, income-decreasing Earnings Management (EM), indicating that they have relatively stronger (weaker) incentives to create accounting reserves especially in the form of earnings baths than other firms. In contrast, firms rated a Buy (Sell) are more (less) likely to engage in earnings management that leaves reported earnings equal to or slightly higher than management forecasts. The result of empirical evidence from Iranian firms in Tehran Stock Exchange (TSE) showing the existence of a meaningful relationship between SSPEN and EM. Generally, SSPEN can be used to predict EM and Forecast Errors (FEs).     

Political institutions and government spending behavior: theory and evidence from Iran

This study examines how the quality of political institutions affects the distribution of the government budget in Iran. We first introduce a mechanism through which democracy can shift government expenditure from national defense (military) to productivity-enhancing public spending (e.g., education). Using impulse response functions and a variance decomposition analysis on the basis of a vector autoregressive (VAR) model, our results imply that the response of military spending to an improvement (a deterioration) of democratic institutions is negative (positive) and statistically significant, whereas that of education spending is positive (negative) and significant. Our results are robust to other indicators of political institutions, different orderings of variables in the VAR, and alternative specifications of government spending categories.