Non-implementability of Arrow–Debreu equilibria by continuous trading under volatility uncertainty

In diffusion models, a few suitably chosen financial securities allow to complete the market. As a consequence, the efficient allocations of static Arrow–Debreu equilibria can be attained in Radner equilibria by dynamic trading. We show that this celebrated result generically fails if there is Knightian uncertainty about volatility. A Radner equilibrium with the same efficient allocation as in an Arrow–Debreu equilibrium exists if and only if the discounted net trades of the equilibrium allocation display no ambiguity in the mean. This property is violated generically in endowments, and thus Arrow–Debreu equilibrium allocations are generically unattainable by dynamically trading a few long-lived assets.     

International asset allocation using the market implied cost of capital

The Black and Litterman (Financ Anal J 48(5):28–43, 1992) (BL) approach to portfolio optimization requires investor views on expected asset returns as an input. I demonstrate that the market implied cost of capital (ICC) is ideal for quantifying those views on a country level. I benchmark this approach against a BL optimization using time-series models as investor views, the equally weighted portfolio, and allocation methods based on stock market capitalization and GDP. I find that the ICC portfolio offers an increase in average return of 2.1 percentage points (yearly) as compared to the value-weighted portfolio, while having a similar standard deviation. The resulting difference in Sharpe ratios is statistically significant and robust to the inclusion of transaction costs, varying BL parameters, and a less strictly defined investment universe.     

Stock market contagion in Central and Eastern Europe: unexpected volatility and extreme co-exceedance

We examine whether there is contagion from the US stock market to six Central and Eastern European stock markets. We use a novel measure of contagion that examines whether volatility shocks in the US stock market coupled with negative returns are followed by higher co-exceedance between US and emerging stock markets. Using our approach and controlling for a set of market-related variables, we show that during the period from 1998 to 2014, financial contagion occurred, that is, unexpected negative events in the US market are followed by higher co-exceedance between US and Central and Eastern European stock markets. Even though contagion is stronger during the financial crisis, it also occurs in tranquil times.     

Country Risk,Regulation, and Liquidity Transformation in Palestine and Neighboring Countries

This study analyzes the impact of economic, financial, and political instability on the liquidity transformation of banks operating in unstable environments. Our main goal is to assess the relationship between overall risk in a country and liquidity transformation. With this goal in mind, we use a sample of five Middle Eastern countries during the period 2005–2010. Our results showed that the high-risk environment has a significant and negative impact on both liquidity transformation and the extension of credit. In addition, we conclude that high capital requirements may reduce further lending, while imposing liquidity requirements seems to be a better strategy for enhancing liquidity transformation.     

The Forward Premium in the Nord Pool Power Market

This article investigates the forward premium of futures contracts in the Nordic power market for the time period from January 2004 to December 2013. We find that futures prices are biased predictors of the subsequent spot prices and that there is a significant forward premium in the Nord Pool market, particularly during the winter and autumn. We analyze the impact from several factors on the forward premium. The spot price, and the deviation of water inflow from its usual level, positively affect the forward premium. The variance of the spot price also has a positive effect on the forward premium, but only for the contract closest to delivery.     

Measuring the Returns to Networking and the Accumulation of Social Capital: Any Evidence of Bonding,Bridging, or Linking?

This article presents analyses of individual investment in social capital using both the British Household Panel Survey (BHPS) and the UK Time Use Survey (2000) (UKTUS). We suggest a general theoretical framework that could possibly explain individual investment in various forms of social networking. Measures of social capital are then constructed in an attempt to capture the extent of individual investment in bonding, bridging, and linking networks. These measures, together with other socioeconomic indicators, are used as explanatory factors in wage equations, estimated using ordered probit, OLS, and instrumental variable approaches. We are unable to identify any consistent returns from investment in bonding and bridging networks. In contrast, the evidence suggests that any returns to investment in the development of linking social capital simply derive from the positive signals that group membership may transmit to potential employers. Our results underline the contrast between studies that consider social capital as an attribute of communities, as opposed to individuals, in that we find a negative return to social activity at the level of the individual.     

Parametric estimation of inefficiency in cargo handling in Spanish ports

Port workers services have been usually heavily regulated and reserved exclusively for a special kind of workers, dockworkers, which seems to have been the cause of serious inefficiencies worldwide. During the eighties, law reforms have been introduced to solve this problem. In this paper we analyze and decompose efficiency in cargo handling operations in 19 Spanish ports from 1990 to 1998. The method chosen is that of the parametric estimation of both allocative and technical inefficiency using panel data and a quadratic cost function. Results show that although inefficiency has decreased overall, there has been over utilization of labor regarding capital, and technical inefficiency. This supports the need of further consideration of other aspects including competition.