Cointegrating rank selection in models with time-varying variance

Reduced rank regression (RRR) models with time varying heterogeneity are considered. Standard information criteria for selecting cointegrating rank are shown to be weakly consistent in semiparametric RRR models in which the errors have general nonparametric short memory components and shifting volatility provided the penalty coefficient _Cn→∞$C_n\to \infty$ and _Cn/n→0$C_n/n\to 0$ as n→∞$n\to \infty$. The AIC criterion is inconsistent and its limit distribution is given. The results extend those in Cheng and Phillips (2009a) and are useful in empirical work where structural breaks or time evolution in the error variances is present. An empirical application to exchange rate data is provided.     

Social media influencers: A route to brand engagement for their followers

Social Media Influencers (SMIs) are micro‐celebrities with large followings on social media platforms who engage consumers and hold the potential to promote customer‐brand relationships across different product categories. SMIs have an existing relationship of trust with consumers, and consumers seek out the content created by SMIs for valuable information and advice. This study explores the process of brand engagement between consumers and brands in the digital content marketing environment, specifically examining the research question: Do SMIs act as a route to brand engagement for their followers? The context for this study is the beauty community on YouTube; over 60,000 user comments were analyzed through automated text analysis. This study is among the first to provide empirical evidence that SMIs do act as a route to brand engagement through the three dimensions of cognitive processing, affection and activation.     

The lottery as an alternative source of state revenue

Conclusion In this paper the authors have developed an economic model of state lotteries that determines the probability of whether a given state will adopt a lottery or not, determines the probability of whether a given state is likely to adopt a lottery sooner rather than later, and determines the state's expected net spendable revenues generated by adopting and operating a lottery. The authors found that a given state will tend to adopt a lottery and will tend to adopt the lottery sooner, the higher the relative tax effort of the state, the higher the mean personal income of the state's residents (or the lower the fraction of the state's residents that are in poverty), the greater the restrictions on raising other taxes in the state, the greater the state's spendable revenue generated from parimutuel betting in the state, the larger the fraction of the state's border that is contiguous with other states with lotteries, and since 1980, the greater the annual number of tourists or visitors in the state.A state's expected net spendable revenue from adopting and operating a lottery is greater the higher the mean personal income of residents in the state, the greater the annual number of tourists or visitors in the state, the smaller the fraction of the state's border that is contiguous with other states with lotteries, and the smaller the parimutuel industry in the state. The ability of a given state's residents to cross the border to purchase lottery tickets in contiguous states, and the ability to engage in parimutuel betting in a state are substitutes for the purchase of lottery tickets in the given state and significantly reduce the expected net spendable revenue from adopting and operating a lottery in that state.From a policy making standpoint, legislators often appear to support the adoption of a lottery for their state without fully considering a realistic expected level of net spendable revenue that the proposed lottery is likely to generate for that particular state.⁸ Often these legislators apparently do not consider important determinants of expected lottery profits such as the level of personal income of state residents, the annual number of tourists in the state, and the presence or absence of adjacent states with lotteries. Also, legislators do not consider fully the impact that adopting a lottery will have on existing parimutuel betting industries in the state. Likewise, legislators apparently do not consider the negative impact of parimutuel betting on the expected net spendable revenue generated by the proposed lottery. Legislative decisions made in the absence of full information often tend to be inefficient decisions. The present study may encourage policy makers to become better informed on the issue of lottery adoption for their state.     

The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?

We analyze the market for corporate assets. There is an active market for corporate assets, with close to seven percent of plants changing ownership annually through mergers, acquisitions, and asset sales in peak expansion years. The probability of asset sales and whole-firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. The timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms.     

Due diligence and the demand for electricity: A cautionary tale

In 1983, the Washington Public Power Supply System (WPPSS) defaulted on tax-free revenue bonds issued to construct two of its five nuclear power plants. In subsequent litigation, the plaintiffs alleged that the bonds had been fraudulently issued because WPPSS and the other defendants should reasonably have known and disclosed that there was substantial uncertainty about the ability to meet the financial obligations created by the bonds. A model using plausible values for demand elasticities, recognized probabilities of events that would increase costs and delay construction and data used by WPPSS to construct demand forecasts for prospective bondholders suggests that such uncertainty was present at the time the bonds were issued. The values for demand elasticities and other parameters of the model were selected after a thorough review of the econometric literature on demand for electricity, beginning with the work of Fisher and Kaysen in 1962.     

Bank Structure Conference Impact Study

The first Conference on Bank Structure and Competition was held at the Federal Reserve Bank of Chicago in 1963. Since that time, the Conference has served to stimulate and disseminate policy relevant research on issues affecting the financial services industry and as a forum for debating the relevant policy issues of the day. We evaluate the impact of the Conference on public policy and the banking and finance literature. We provide a qualitative argument that the Conference has helped promote policy change by showing that major financial reforms were typically discussed years earlier at the Conference. We then analyze data from the Social Science Citation Index and find that the Conference has had a strong and systematic impact on the banking and finance literature.