Rational functions: an alternative approach to asset pricing

This paper shows that asset prices are linear polynomials of various underlying explanatory factors and asset returns being ratios of these polynomials, are rational functions that do not add linearly when averaging. Hence, average returns should be modeled based on stock prices. However, continuous returns may be treated as approximately linear across time and modeled directly. Our new Rational Function (RF) models, empirically outperform the traditional asset pricing models like the Capital Asset Pricing Model (CAPM) and the Fama–French three and five-factor models for both average and continuous returns. Moreover, the RF theory also provides a model to estimate the asset volumes. The average change in asset volumes together with average returns provide the estimates for average change in market values of assets. Thus, the RF model approach can be used to select assets that provide either highest returns for profit maximization or highest change in market values for wealth maximization for given levels of risk.     

On the real effects of inflation in open economies: theory and empirics

Based on the quarterly data from four open economies (the US, the UK, Canada, and Italy) and estimated correlations and impulse responses within the traditional vector autoregressive (VAR) analysis, we find that inflation, both in the short and long term, negatively affects consumption and investment, and has a positive influence on the current account. We propose an infinite-horizon optimizing model of an open economy with a fixed rate of time preference that explains these empirics. In this type of economy, households consume both durable and non-durable goods, firms operate under costly investment, and all the transactions involving consumption and investment are subject to cash-in-advance (CIA) constraints. Employing the new ‘sign restriction’ identification procedure due to Uhlig (J Mone’t Econ 52(2)381–419, 2005), we corroborate the empirical validity of the proposed model. In order to verify the robustness of our results, we consider another shock, namely, productivity shock in our empirical analysis and find that while productivity shock dominates in the case of the US, inflationary shock has a dominating effect in the case of the UK, Canada, and Italy.     

Foreign direct investment in R&D and domestic entrepreneurship in China’s manufacturing industries

This paper argues that internationalization of innovation and the related spillovers can also affect the likelihood of firm entry and exit into an industry. By making use of firm-level panel data from China over the period 2005 to 2007, this paper examines the impact of foreign direct investment (FDI) in research and development (R&D) and the related linkages on entry and exit likelihoods of domestic firms in (i) transport equipment and (ii) electrical machinery and equipment manufacturing industries. In order to evaluate the region-of-origin effect, this paper also separately examines the impact of FDI in R&D originating from (i) all countries except Hong Kong, Macau and Taiwan and (ii) Hong Kong, Macau and Taiwan. Furthermore, the impact of FDI in R&D on entry and exit of Chinese firms in the two industries is examined by splitting the data into large and small firms within the two industries. The results of the pooled probit regression reveal that FDI in R&D and the related spillovers can have a significant impact on the likelihood of entry and exit of domestic firms in transport equipment and electric machinery and equipment industries. The empirical analysis also suggests that the impact of changes in FDI in R&D and the related spillovers varies across firm size.     

Income Distribution,Econophysics and Piketty

Piketty, Atkinson and Saez have put the analysis of income distribution back on center stage. The distinction between property income and labor income plays a central role in this framework. Property income derives from the rate of return on stocks of income-earning wealth and is more unequally distributed than labor income. Piketty argues that, because the rate of return (r) is generally greater than the rate of growth of the economy (g), property income tends to grow more rapidly than labor income, so that rising income inequality is an intrinsic tendency of capitalism despite interruptions due to world wars and great depressions. This article argues the exact opposite. The rise of unions and the welfare state were the fruits of long-term historical gains made by labor, and the postwar constraints on real and financial capital arose in sensible reaction to the Great Depression. The ‘neoliberal’ era beginning in the 1980s significantly rolled back all of these. The article uses the econophysics two-class argument of Yakovenko to show that we can explain the empirical degree of inequality using two factors alone: the profit share and the degree of financialization of income. The rise of inequality in the neoliberal era then derives from a reduction in the wage share (rise in the profit share) in the face of assaults on labor and the welfare state, and a sharp increase in the financialization of incomes as financial controls are weakened. These are inherently socio-political outcomes, and what was lost can be regained. Hence, there is no inevitable return to Piketty’s ‘patrimonial capitalism’.     

Public consumer goods, output-generated variable returns, and labor supply

This paper develops a simple general-equilibrium model of a closed economy. The economy under consideration produces two final goods, one private and one public, which are both produced with labor and an intermediate good under constant returns to scale. The intermediate good is produced by labor alone, and its production is subject to output-generated variable returns to scale. The public good can be interpreted as government spending on environmental quality, police protection, cultural activities, and publicly funded health care. The model is used to examine the impact of an exogenous change in labor supply on the size of the government, relative prices, and welfare. Within the context of the present study, an increase in labor supply can be attributed to either exogenous immigration or population growth. The model is also used to examine the relationship between the size of the country and the pattern of trade.     

Pollution,energy use,GDP and trade: estimating the long-run relationship for Vietnam

Since the beginning of economic reform in the 1980s and, in particular, with its openness to international trade accelerating since the 1990s, the Vietnamese economy has registered significant growth. At the same time, energy consumption and the level of pollution in Vietnam has also increased. This article aims to focus on the link between openness to trade and pollution in Vietnam. Due to lack of data, very few existing studies have focused on Vietnam. Using annual data from1980 to 2011 and employing the bounds testing approach to cointegration, based on an autoregressive distributed lagged (ARDL) model, we find that there is a statistically significant long-run relationship amongst pollution, openness to trade, energy consumption and real national income in Vietnam. This conclusion continues to hold when the possibility of a structural break in the relationship is allowed for using the Gregory-Hansen approach to cointegration. Analysis of the cointegration relationship suggests that, in response to any exogenous shock to the system, adjustment back to the long-run equilibrium is very fast.     

Bidding behavior in competing auctions: Evidence from eBay

Much of the existing auction literature treats auctions as running independently of one another, with each bidder choosing to participate in only one auction. However, in many online auctions, a number of substitutable goods are auctioned concurrently and bidders can bid on several auctions at the same time. Recent theoretical research shows how bidders can gain from the existence of competing auctions, the current paper providing the first empirical evidence in support of competing auctions theory using online auctions data from eBay. Our results indicate that a significant proportion of bidders do bid across competing auctions and that bidders tend to submit bids on auctions with the lowest standing bid, as the theory predicts. The paper also shows that winning bidders who cross-bid pay lower prices on average than winning bidders who do not.     

Developing the e-commerce sector for the fishery industry: What business are we really in?

In this study, we use the theory of the marketing firm to explain marketing relationships between consumers and firms selling fish in the context of developing the e-commerce sector for the fishery industry. We use a unique dataset composed of quantitative and qualitative data to provide a behavioral economic analysis and interpretation. The results reveal interdependent managerial and consumer behavioral relationships, indicating the presence of bilateral contingencies. The results also provide some indication of the theory of transaction cost, where cost-intensive activities are likely to be internalized within marketing firms selling fish.     

Values,gender and attitudes towards environmental policy: A study of future managers

This study explores if the value priorities and their impact on future managers' attitudes towards environmental responsibilities vary with gender. While relevant prior studies mostly focus on gender‐based variations of individuals' personal values in developed economies, we concentrate on both personal values and pro‐environmental attitudes in an emerging economy. This study is built on MBA students (a proxy for future managers) in India since India is characterized as a male‐dominated society and a producer of larger number of MBA graduates. Overall, our results show that personal values and attitude towards environmental responsibilities do not vary significantly with gender. Only two values (among the 21 values) and one value type (out of 10 values) get significantly higher ranking from females compared with males. Further, although ‘universalism’ and ‘benevolence’ are found to have a statistically significant impact on respondents' attitude towards environmental responsibility, the latter is invariant to the respondents' gender. Our findings may indicate India's transformation from a male‐dominated society towards a more gender‐balanced society. These findings can be used to operationalize a pro‐environmental recruitment policy and to formulate strategies to improve female participation in MBA cohorts of business schools.