Displacement risk and asset returns

We study asset-pricing implications of innovation in a general-equilibrium overlapping-generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement risk.” This risk helps explain several empirical patterns, including the existence of the growth-value factor in returns, the value premium, and the high equity premium. We assess the magnitude of displacement risk using estimates of inter-cohort consumption differences across households and find support for the model.     

Economic announcements and the 10-year U.S. Treasury: Surprising findings without the surprise component

In the current study, we identify the announcements that trigger substantial changes in the behaviour of the 10-year US Treasury market, without using the surprise component and, therefore, expectational data. We use a novel model-free approach based on extreme market movements related to price returns, volatility and traded volumes. Our findings corroborate those of previous studies, which were based on expectational data. More importantly, though, we identify two additional announcements (Oil Inventories and the Mortgage Applications), which have not been previously reported. These findings are primarily important to financial analysts and investors.     

Optimal taxation in the presence of bailouts

The termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs. A government in the tradition of Ramsey (1927) may be inclined to provide transfers to the firm so as to prevent its liquidation and the associated deadweight costs. It is shown that the optimal taxation policy to finance such transfers exhibits procyclicality and history dependence, even in a complete market. These results are in contrast with pre-existing literature on optimal fiscal policy, and are driven by the endogeneity of the transfer payments that are required to salvage the financial firm.     

Bailouts,the incentive to manage risk,and financial crises

A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the implicit protection. However, if they increase volatility too much they may induce the guarantee-extending parties to “walk away.” I derive the optimal risk management rule in such a framework and show that it allows high volatility choices, while net worth is high. However, risk limits tighten abruptly when the firm's net worth declines below an endogenously determined threshold. Hence, the model reproduces the qualitative features of existing risk management rules, and can account for phenomena such as “flight to quality.”     

Justifying health IT investments: A process model of framing practices and reputational value

Despite important research contributions on the financial and operational dimensions of information technology (IT) value, justifying health IT (HIT) investments remains a difficult and enduring issue for IT managers. Recent work has expanded our understanding of HIT value, by focusing on the initial resource allocation stage, and through conceptualizations of value across multiple dimensions. Building on these developments, we adopt a performative perspective to examine the research question of how practitioners justify early stage HIT investments, with a focus on reputational value. We explored this question through a comparative field study of two hospital organizations in the English National Health Service (NHS). We found that practitioners' temporally orientated framing practices matter in justifying HIT investments, enacting different possibilities for reputational value. We develop a process model to explain these dynamics and highlight the mutability of reputational value, which can lead to different possibilities for restoring, enhancing, or maintaining reputation. We conclude by discussing the implications for justifying HIT investments.     

Volatility forecasting: Intra-day versus inter-day models

Volatility prediction is the key variable in forecasting the prices of options, value-at-risk and, in general, the risk that investors face. By estimating not only inter-day volatility models that capture the main characteristics of asset returns, but also intra-day models, we were able to investigate their forecasting performance for three European equity indices. A consistent relation is shown between the examined models and the specific purpose of volatility forecasts. Although researchers cannot apply one model for all forecasting purposes, evidence in favor of models that are based on inter-day datasets when their criteria based on daily frequency, such as value-at-risk and forecasts of option prices, are provided.     

Forecasting European economic policy uncertainty

Forecasting the economic policy uncertainty in Europe is of paramount importance given the ongoing sovereign debt crisis. This paper evaluates monthly economic policy uncertainty index forecasts and examines whether ultra‐high frequency information from asset market volatilities and global economic uncertainty can improve the forecasts relatively to the no‐change forecast. The results show that the global economic policy uncertainty provides the highest predictive gains, followed by the European and US stock market realized volatilities. In addition, the European stock market implied volatility index is shown to be an important predictor of the economic policy uncertainty.     

Multivariate Mixed Models for Open-Ended Contingent Valuation Data: Willingness To Pay For Conservation of Monk Seals

Although dichotomous choice (DC) contingent valuation (CV) has been recommended by the US NOAA 'blue-ribbon' panel for large-scale contingent valuation studies, useful information can still be obtained from smaller, open-ended (OE) studies, often undertaken as a precursor to a DC survey. The CV study considered here was carried out in Greece and looked at willingness-to-pay (WTP) for protecting the Mediterranean monk seal (Monachus-monachus) in the Aegean area. This is the most endangered seal in the world, and the application of the CV methodology was the first such application in Greece. The OE data consist of two responses: first, a binary response detailing whether or not respondents were in principle prepared to pay for the protection of this seal; secondly, those respondents who answered 'yes' to the first question were then asked to state their maximum WTP for such protection. A multivariate binomial – log-normal mixture model is used to develop a bid function including explanatory variables such as income, sex, age and education. Such a modelling approach provides an alternative to more commonplace tobit estimation. However, the model is extended to include further information which was collected on:(a) an increased WTP amount given in response to information that the initial WTP amount may not be enough to prevent the extinction of the seal;(b) respondents were asked to divide their final WTP amount between use, option and existence values, the latter requiring a multivariate model with four binary and four continuous responses per individual in the same model.The discussion focuses on the methodological issues raised with some comment on the substantive interpretation of results.