Foreign Exchange Risk,Equity Risk Factors and Economic Growth

This paper examines the information content of the equity risk factors that explain cross variation of stock returns and predicting future macroeconomic growth. For the first time we incorporate a new foreign exchange risk factor, providing important insights into the relationship between risk factors and the business cycle. The methodology involves the performance of a stepwise regression analysis of future macroeconomic growth against the lagged returns of five risk factors (market risk premium, size, value, momentum and foreign exchange risk). The results are validated with Granger causality tests and out-of-sample dynamic forecasting. They show that the foreign exchange risk factor contains strong, stable and statistically significant incremental information concerning future macroeconomic growth. Firms that are sensitive to the foreign exchange risk thrive when an economic upturn is anticipated and firms that are insensitive to the foreign exchange risk will have larger returns when an economic downturn is anticipated.     

SUGAR BEET OR SUGAR CANE

This article attempts to compare the costs of producing sugar from beet and cane and concludes that sugar beet grown in England has probably now become competitive with Jamaican sugar cane.     

Equilibrium theory with unbounded consumption sets and non-ordered preferences : Part I. Non-satiation

A new condition is introduced for the existence of equilibrium for an economy where preferences need not be transitive or complete and the consumption set of each agent need not be bounded from below. The new condition allows us to extend the literature in two ways. First, the result of the paper can cover the case where the utility set for individually rational allocations may not be compact. As illustrated in Page et al. [Page Jr., F.H., Wooders, M.H., Monteiro, P.K., 2000. Inconsequential arbitrage. Journal of Mathematical Economics 34, 439–469], the no arbitrage conditions do not apply to an economy with a non-compact utility set. Second, we generalize the arbitrage-based equilibrium theory to the case of non-transitive preferences.     

有限套利——行为金融学的基石

行为金融学是一种对金融市场的全新的诠释,它的出现至少部分地是对传统范式面临的困境的一种反应。传统的金融学范式利用当事人的“理性(rational)”模型寻求对金融市场的理解。不幸的是,在这一框架中不容易理解关于总体股票市场、部门间的平均收益、以及个人的交易行为的基本事实。     

On the continuity of expected utility

Summary We provide necessary and sufficient conditions for weak (semi)continuity of the expected utility. Such conditions are also given for the weak compactness of the domain of the expected utility. Our results have useful applications in cooperative solution concepts in economies and games with differential information, in noncooperative games with differential information and in principal-agent problems.Work done while visiting the Department of Economics, University of Illinois at Urbana-Champaign.     

Poverty Mapping with Aggregate Census Data: What is the Loss in Precision?

Spatially disaggregated maps of the incidence of poverty can be constructed by combining household survey data and census data. In some countries (notably China and India), national statistics agencies are reluctant, for reasons of confidentiality, to release household‐level census data, but they are generally more willing to release aggregated census data, such as village‐ or district‐level means. This paper examines the loss in precision associated with using aggregated census data instead of household‐level data to generate poverty estimates. The authors show analytically that using aggregated census data will result in poverty rates that are biased downward (upward) if the rate is below (above) 50%, and that the bias approaches zero as the poverty rate approaches zero, 50%, and 100%. Using data from Vietnam, it is found that the mean absolute error in estimating district‐level poverty rates is 2.5 percentage points if the census data are aggregated to the enumeration‐area level means, and 3–4 percentage points if the data are aggregated to commune or district level. Finally, the authors propose a method for reducing the error using variances calculated from the census. When this approach is applied to the Vietnam data, this method can cut the size of the aggregation errors by around 75%.     

Liquidity constraints, precautionary saving and aggregate consumption: an international comparison

This paper has three objectives. First, to expand Hall's [J. Polit. Econ. 86 (1978) 971] rational expectations permanent income/life cycle hypotheses (REPIH/RELCH) representative agent model to allow for current income consumers, the durable component of total consumer expenditures and for intertemporal substitution, which are often cited as the main reasons for the rejection of Hall's model. Second, to apply this modified model to 20 OECD countries over the post-World War II period. The GMM estimation method is employed. Third, to examine the relative influence of liquidity constraints and precautionary saving on the cross-country variation in the proportion of current income consumers, using cross-country regressions and a non-linear model of panel data. The presence of current income consumers, which is primarily due to liquidity constraints and to a lesser extent to precautionary saving, is the major factor for the rejection of the basic REPIH/RELCH model in all OECD countries.     

Value-added tax options for India

The pressures of aggregate revenue, the requirement of a reduced role for customs duties for the liberalization of the economy, and the complexity and strains of the current system together point clearly toward the desirability of tax reform in India. Since domestic indirect taxes provide the major source of revenue, they deserve special attention. This paper argues that India would benefit from moving toward a system of value-added taxation (VAT) and focuses on the way in which a VAT (or VATs) can be best introduced into India given the country's federal structure. Three different options are distinguished: a central VAT, dual VAT, and states' VAT. We argue that the first is politically infeasible, that the second represents the best way forward in the short term, and that the third deserves consideration as a long-run option. Special attention is paid to the problems that would arise under either a states' or a dual VAT with regard to taxing interstate trade.     

Bonus-Malus Systems with Two-Component Mixture Models Arising from Different Parametric Families

Two-component mixture distributions defined so that the component distributions do not necessarily arise from the same parametric family are employed for the construction of Optimal Bonus-Malus Systems (BMSs) with frequency and severity components. The proposed modeling framework is used for the first time in actuarial literature research and includes an abundance of alternative model choices to be considered by insurance companies when deciding on their Bonus-Malus pricing strategies. Furthermore, we advance one step further by assuming that all the parameters and mixing probabilities of the two component mixture distributions are modeled in terms of covariates. Applying Bayes' theorem we derive optimal BMSs either by updating the posterior probability of the policyholders’ classes of risk or by updating the posterior mean and the posterior variance. The resulting tailor-made premiums are calculated via the expected value and variance principles and are compared to those based only on the a posteriori criteria. The use of the variance principle in a Bonus-Malus ratemaking scheme in a way that takes into consideration both the number and the costs of claims based on both the a priori and the a posterior classification criteria has not yet been proposed and can alter the resulting premiums significantly, providing the actuary with useful alternative tariff structures.