Fraternal twins—Should investors be careful?*

After analyzing portfolio differences between separate account-mutual fund twins, we find that dissimilar “fraternal twins” show significantly lower joint performance than “identical twins.” This finding is consistent with fraternal twins competing for the limited attention of a manager while identical twins mutually profit. Furthermore, the effect is stronger for separate accounts, which is probably due to investors having the opportunity to influence managers’ investment decisions according to their preferences. These results are independent of differences in known investment constraints. However, the findings may be driven by separate account investors’ preferences for higher liquidity and lower idiosyncratic risk.     

State Dependence Can Explain the Risk Aversion Puzzle

Risk aversion functions extracted from observed stock and optionprices can be negative, as shown by Aït-Sahalia and Lo(2000), Journal of Econometrics 94: 9–51; and Jackwerth(2000), The Review of Financial Studies 13(2), 433–51.We rationalize this puzzle by a lack of conditioning on latentstate variables. Once properly conditioned, risk aversion functionsand pricing kernels are consistent with economic theory. Todifferentiate between the various theoretical explanations interms of heterogeneity of beliefs or preferences, market sentiment,state-dependent utility, or regimes in fundamentals, we calibrateseveral consumption-based asset pricing models to match theempirical pricing kernel and risk aversion functions at differentdates and over several years.     

Climate risks and U.S. stock-market tail risks: A forecasting experiment using over a century of data

We examine the predictive value of the uncertainty associated with growth in temperature for stock-market tail risk in the United States using monthly data that cover the sample period from 1895:02 to 2021:08. To this end, we measure stock-market tail risk by means of the popular Conditional Autoregressive Value at Risk (CAViaR) model. Our results show that accounting for the predictive value of the uncertainty associated with growth in temperature, as measured either by means of standard generalized autoregressive conditional heteroskedasticity (GARCH) models or a stochastic-volatility (SV) model, mainly is beneficial for a forecaster who suffers a sufficiently higher loss from an underestimation of tail risk than from a comparable overestimation.     

Technological Diversification, Coherence, and Performance of Firms

Technological diversification at the firm level (i.e., the expansion of a firm's technology base into a wide range of technology fields) is found to be a prevailing phenomenon in all three major industrialized regions,—the United States, Europe, and Japan—prompting the term multitechnology corporation. Whereas previous studies have provided insights into the composition of technology portfolios of multitechnology firms, little is known about the relationship between technological diversification and firms' technological performance. Against a backdrop of the technology and innovation management literature, the present article investigates the relationship between technological diversification and technological performance, taking into account the moderating role of technological coherence in firms' technology portfolios. Hereby, technological coherence is defined as the degree to which technologies in a technology portfolio are technologically related. To measure the technological coherence of portfolios, a measure of technological relatedness of technology fields is constructed based on patent citation patterns found in 450,000 European Patent Office (EPO) patent grants. Two hypotheses are presented here: (1) Technological diversification has an inverted U‐shaped relationship with technological performance; and (2) technological coherence moderates the relationship between technological diversification and technological performance positively. These hypotheses are tested empirically using a panel data set (1995–2003) on patent portfolios pertaining to 184 U.S., European, and Japanese firms. The firms selected are the largest research and development (R&D) actors in five industries: pharmaceuticals and biotechnology; chemicals; engineering and general machinery; information technology (IT) hardware (i.e., computers and communication equipment); and electronics and electrical machinery. Empirical results, obtained by fixed‐effects negative binomial regressions, support both hypotheses in the present article. Technological diversification has an inverted U‐shaped relationship with technological performance. Technological diversification offers opportunities for cross‐fertilization and technology fusion, but high levels of diversification may yield few marginal benefits as firms risk lacking sufficient levels of scale to benefit from wide‐ranging technological diversification, and firms may encounter high levels of coordination and integration costs. Further, the results show that the net benefits of technological diversification are higher in technologically coherent technology portfolios. If firms build up a technologically coherent diversified portfolio, the presence of sufficient levels of scale is ensured and coordination costs are limited. At the same time, technologically coherent diversification puts firms in a better position to benefit form cross‐fertilization between technologies. The present article clearly identifies the important role of technological coherence in technology diversification strategies of firms.     

From Core to Periphery? Recent Developments in Employment Relations in the Philippines

We seek to describe recent developments in employment relations in the Philippines, placing these developments in the contexts of the distinctive elements of the Philippine social/political/industrial relations systems as well as the ongoing trade-based and functional integration of international markets and the recent regional economic crisis. We find that while some firms are pursuing functional flexibility and more cooperative employment relations, the logic of competition primarily has induced firms to adopt practices that promote numerical flexibility such that a core-periphery workforce is created. We argue that the labor movement in the Philippines has been hampered in its efforts to effectively counter employer strategies by its low density and fragmentation and an unfavorable public-policy environment; Philippine labor unions have, however, made some recent gains in organizing and interunion coordination. We also argue that the government has not done enough to counteract the negative effects of market integration on workers nor to evolve th e Philippines into a higher-value-added exporter.     

Reevaluation of Revaluations: A Cross-Country Examination of the Motives and Effects on Future Performance

Abstract:  This study examines the motives for asset revaluations in a sample drawn from 35 countries that permit asset revaluations. Prior studies that examined this issue concentrated on one or two countries, the UK and Australia, and showed that revaluations are related to financing needs, the capital intensity of the firm as well as issues related to political costs. The previous literature also found that revaluations were indicators of improved future performance and that performance was related to the magnitude of the revaluations. This study shows that although the conclusions drawn from the previous studies are applicable to countries that are similar to the UK and Australia, they do not hold when applied to a much larger set of countries and that the motivations for and effects of revaluation are not uniform across various country classifications.     

Exchange Rates, Pricing- to-Marke t Strategies, and the Marshall-Lerner Condition

This paper reexamines the relationship between the Marshall-Lerner (M-L) condition and the effects of exchange-rate movements on the trade balance, by integrating the role of product-market structure and the related issue of strategic interaction on tradeables prices and international flows.     

TESTING FOR FRACTIONAL INTEGRATION IN SOUTHERN AFRICAN DEVELOPMENT COMMUNITY REAL EXCHANGE RATES

This paper utilises “a class test for fractional integration” associated with the seminal contribution of Hinich and Chong to appraise the possibility that Southern African Development Community (SADC) real exchange rates can be treated as long memory processes. The justification for considering fractional integration is that the general failure to reject the unit‐root hypothesis in real exchange rates is caused by the restrictiveness of standard unit‐root tests regarding admissible low‐frequency dynamic behaviour. The paper presents evidence that, except for South Africa, none of the SADC real exchange rates are fractionally integrated. However, the results are found to be sensitive to the size of the sample.     

Monetary policy and inflation in South Africa: A VECM augmented with foreign variables

We develop a structural cointegrated vector autoregressive (VAR) model with weakly exogenous foreign variables, known as an augmented VECM or VECX*, suitable for a small open economy like South Africa. This model is novel for South Africa in two ways: it is the first VECX* developed to analyse monetary policy and the first model that uses time‐varying trade weights to create the foreign series. We impose three significant long‐run relations (augmented purchasing power parity, uncovered interest parity and Fisher parity) to investigate the effect of a monetary policy shock on inflation. The results suggest the effective transmission of monetary policy.