Insurance Rating Games: Strikes,Spares, and Bags

Carefully designed classroom activities and games can be used to increase student engagement, motivation, and learning. This article describes two games that have been used with students of risk management and insurance to help highlight the intricacies of insurance pricing. These two games, bowling insurance and bags insurance, help students experience the challenging nature of premium determination in risk transfer contracts and also connect the various actions taken by insurers during the insurance transaction.     

Investor sentiment in the US-dollar: Longer-term,non-linear orientation on PPP

How is it possible that exchange rates move in the long run towards fundamentals, while professionals form consistently irrational exchange rate expectations? We look at this puzzle from a different perspective by analyzing investor sentiment in the US-dollar market. First, long-horizon regressions show that investor sentiment is connected with exchange rate returns at longer horizons, i.e. more than two years. Second, sentiment is cointegrated with fundamentals, whereas third, this relation becomes stronger, the larger exchange rate's misalignment from long-run PPP. In sum, investor sentiment's behavior in the US-dollar market closely matches with established facts of empirical exchange rate research.     

The External Funding of Academic Finance Research

We analyze the external funding of academic finance research. We show that funding is uncommon, particularly for U.S.‐based faculty, and is related to predictable attributes of an author's reputational capital. Further, when research is funded we find it is associated with better articles, as measured by publication in the most prestigious journals and the receipt of increased citations over time. Our study has relevance for every stakeholder in the university's research mission in finance.     

The seasonal unit root structure in New Zealand Macroeconomic variables

ADF unit root tests are generally applied to macroeconomic data prior to testing theoritical models to ensure that all relevant variables are integrated of the same order. Not only is it important to test that these variables are integrated of the same order but also that a cointegrating relationship exists; failure to do so raise the specture of false inference associated with the spurious regression problem. The seasonal nature of quarterly data adds a further proplem which has generally been overcome by seasonally adjusting the data using procedure such as the census X-11 rather than suppressing it, have attempted to determine whether the seasonal component in each variable exhibits stochastic non-stationary. This paper analysisunit roots in a seasonal setting and compares the recently developed tests for seasonal unit roots as well as the standard augmented Dickey-Fuller zerop frequency unit root tests. Of the variables tested relatively few paper to be integrated at the seasonal frequenciues and, as other studies suggest,determinstic seasonal effects are typically more important than stochastic ones.     

Gender gap in self‐employment: The role of risk attitudes

This paper examines the link between the willingness to take risk and the gender gap in self‐employment in the transition economy, where for decades entrepreneurship was considered a crime. Using rich data on risk preferences and entrepreneurial activities, we show that male–female risk tolerance differential is the main determinant of the gender gap in self‐employment in Ukraine. The decomposition results indicate that up to 38% of the gap can be attributed to this factor. Robustness tests support the validity of the baseline findings by suggesting that the results are not confounded by such factors as being unemployed before starting a current job, having a self‐employed household member, or living in a relatively wealthy household before transitioning to self‐employment.     

Review of Microstructural Evidence of Magmatic and Solid-State Flow

Evidence of magmatic flow includes: (a) parallel to sub-parallel alignment of elongate euhedral crystals (e.g., of feldspar or hornblende) that are not internally deformed, (b) imbrication (‘tiling’) of elongate euhedral crystals that are not internally deformed, (c) insufficient solid-state strain in regions between aligned or imbricated crystals to accommodate phenocryst rotation, (d) elongation of microgranitoid enclaves without plastic deformation of the minerals, (e) magmatic flow foliations and elongate microgranitoid enclaves deflected around xenoliths, and (f) schlieren layering (if due to flow sorting) in the absence of plastic deformation of the minerals involved. These features are consistent with rotation of crystals in a much weaker medium, namely a melt phase, at a stage when the magma has become viscous enough to preserve the alignment. Evidence of solid-state flow includes: (a) internal deformation and recrystallization of grains, (b) recrystallized “tails,” (c) elongation of recrystallized aggregates (e.g. of quartz and mica), (d) grainsize reduction, (e) fine-grained folia anastomosing around less deformed relics, (f) microcline twinning, (g) myrmekite, (h) flame perthite, (i) boudinage of strong minerals, typically with recrystallized aggregates of weaker minerals (e.g. quartz and mica) between the boudins, (j) foliation passing through, rather than around enclaves, and (k) heterogeneous strain with local mylonitic zones. Several criteria suggest “submagmatic flow,” including recrystallized feldspar, inferred transitions from magmatic imbrication to solid-state S/C arrangements, evidence of c-slip in quartz, and especially evidence of migration of residual melt into lower-pressure sites. Recent experimental studies indicate that a change from grain-supported flow to suspension flow typically occurs in deforming magmas at melt contents of between 20% to 40%, and that large amounts of strain may accumulate in magmas without being recorded by the final fabric. At lower melt percentages, perhaps as low as a few percent, depending on the minerals and their shapes, strain may be accommodated by: (a) melt-assisted grain-boundary sliding, (b) contact-melting assisted grain-boundary migration, (c) strain partitioning into melt-rich zones, (d) intracrystalline plastic deformation (c-slip in quartz indicating plastic deformation at temperatures near the granite solidus), and (f) transfer of melt to sites of low mean stress. The only indication of strain in the absence of crystal plasticity may be an alignment of crystals. Moreover, magmatic flow microstructures may be destroyed by fracturing, crystal plasticity and recrystallization before the magma reaches its solidus. Many rocks show evidence of solid-state flow superimposed on magmatic flow. Evidence of magmatic flow is commonly preserved in deformed felsic metamorphic rocks: for example the alignment of rectangular K-feldspar megacrysts and of microgranitoid enclaves. However, absence of alignment does not preclude a magmatic origin for K-feldspar megacrysts in felsic gneisses, as magmatic flow may cease before the magma becomes viscous enough to preserve an alignment.     

Testing assumptions underlying economic research on transgenic food crops for Third World farmers: Evidence from Cuba, Guatemala and Mexico

Transgenic crop varieties (TGVs) are being promoted as essential for improving small-scale Third World (SSTW) agriculture. Most economic research on this topic makes critical, untested assumptions, including that farmers will choose TGVs over other varieties because TGVs are economically optimal and because farmers are risk neutral profit maximizers. We tested these assumptions using data from a survey of 334 farmers in 6 communities in Cuba, Guatemala and Mexico in which farmers ranked 4 real and hypothetical maize varieties for eating and sowing. Our results did not support these assumptions. Most farmers preferred farmer varieties for sowing and especially for eating, avoiding TGVs, a preference associated with being risk averse and with non-monetary preferences. Farmers more integrated into modern agriculture were more likely to choose TGVs. These results suggest that farmers most in need of support and most important for conserving genetic diversity are least favorable toward TGVs, and that alternative ways of improving SSTW agriculture should receive more attention.     

Evidence on Simulation Inference for Near Unit-Root Processes with Implications for Term Structure Estimation

The high persistence of interest rates has important implicationsfor the preferred method used to estimate term structure models.We study the finite-sample properties of two standard dynamicsimulation methods—efficient method of moments (EMM) andindirect inference—when they are applied to an first orderautoregressive (AR[1]) process with Gaussian innovations. Whensimulated data are as persistent as interest rates, the finite-sampleproperties of EMM differ both from their asymptotic propertiesand from the finite-sample properties of indirect inferenceand maximum likelihood. EMM produces larger confidence boundsthan indirect inference and maximum likelihood, yet is muchless likely to contain the true parameter value. This is primarilybecause the population variance of the data plays a much largerrole in the EMM conditions than in the moment conditions foreither indirect inference or maximum likelihood. These resultssuggest that, under Gaussian assumptions, indirect inference(if practical) is preferable to EMM when working with persistentdata such as interest rates. EMM's emphasis on the populationvariance strongly enforces stationarity on the underlying process,so this same reasoning suggests that EMM may be preferable insettings where stability and stationarity are important anddifficult to impose.