Convenience yield and the theory of storage: applying an option‐based approach

We propose that an options‐based approach is a superior alternative to the traditional cost‐of‐carry method to model both the behaviour of convenience yields and the commodity price responses to changes in inventory levels. This approach is shown to be more robust and avoids the simplifying assumptions embedded in cost‐of‐carry valuation which fully accounts for the non‐negativity constraint on inventory. Unlike the cost‐of‐carry approach, the options‐based approach does not treat the convenience yield as an exogenous factor. This offers a more natural measure of implied convenience yields in commodity trading strategies. We test the relationship between convenience yields and inventory levels for a number of liquidly traded base metals using both methods. Our results show that the relationship between convenience yields and inventory levels is strongly defined under the options‐based approach in line with market beliefs. This result is consistent with other studies that have used the options‐based approach in other nonmetals commodity markets.     

The Evolution of Fuzzy Rules as Strategies in Two-Player Games

This paper describes simulations using fuzzy rules that show how Nash equilibrium behavior can be achieved by boundedly rational agents in two-player games with infinite strategy spaces. That is, we show how agents using simple “rules of thumb” can achieve near-equilibrium outcomes without any overt computation of the equilibrium. This is accomplished by using a genetic algorithm to approximate repeated play. Two games of differing complexities, both with analytic solutions, are examined: a repeated linear-demand Cournot game and a contestable rent game. When fuzzy rules used only the most recent information, the games we examined converged to outcomes similar to their respective Coumot-Nash equilibrium outcomes. When fuzzy rules “remembered” play from the more distant past, we found that the games converged more slowly, if at all.     

Permissive Marketing The Effect of The AIDS Crisis on Marketing Practices and Messages

In 1981, in a Harvard Business Review feature, we described a marketing condition which we called "unmentionability" and, through a series of case studies, showed how it could frustrate the marketing of a wide range of products and services, despite the fact that many of them need to be actively marketed. AIDS and the massive anti-AIDS promotional campaigns that it spawned have dramaticaly accelerated the pace of change and created a new environment in which products, services, concepts and ideas that were previously regarded as unmentionable can now be marketed openly and explicitly. The marketing climate has changed profoundly and, although not always for the better, the added freedom and punch that the AIDS campaigns have engendered in the marketing world, have been eagerly accepted by those who feel it can enhance their marketing programmes.     

Improving retirement adequacy through asset class prioritization

Highly risk-averse retirees are generally advised to adopt a fixed spending strategy such as the 4% withdrawal rule. To prevent the premature depletion of a retirement portfolio, the rule attempts to proxy as the ‘safe withdrawal rate’. But a constant withdrawal rate means that retirees accumulate unspent surpluses when markets outperform and face spending shortfalls when markets underperform. While a safe withdrawal rate can prevent spending shortfalls, the opportunity cost of unspent surpluses associated with this strategy can be extreme. We apply a range of basic investment decision rules to a retirement portfolio applying various withdrawal rates and examine the probability of shortfalls over a retirement horizon. Using a block bootstrap simulation technique, we examine decision rules relating to stock and bond investments. Our results show that retirement portfolios with a bias towards stocks coupled with a decision rule that sources withdrawals from bonds and cash before stocks significantly outperforms alternative withdrawal strategies, despite the inherent increase in volatility. This finding is in direct contrast to the safe withdrawal rate conventions used in contemporary financial advice models.     

Airline flight networks, cycle times, and profitability: 2004–2006

This research investigates the relationships between airline flight networks, aircraft cycle times, and carrier profitability for ten large US domestic airlines. We find that direct point-to-point flight networks and short cycle times are operational factors that airlines should exploit to improve profitability. These findings are based on the analysis of 11.9 million flight records from 2004 through 2006. The results contradict earlier research validating performance advantages of hub-and-spoke flight networks. Today, the advantages of passenger consolidation at hub airports are lost to lower aircraft utilization and productivity problems created by the extended cycle times at hubs. We also find that airline operating profit can be increased by improving the efficiency of the aircraft turnaround process and decreasing aircraft fleet complexity. This research also provides an estimate of the marginal opportunity cost of ground time. A 1-min reduction in aircraft fleet ground time increases the average sized carriers’ operating income by $12 to $18 million.     

中国经济学的创建及其话语体系——本刊主编专访孟捷、周文、任保平教授

编者按：2016年3月25日,本刊主编黄志亮教授在重庆工商大学南山书院就中国经济学的创建及其话语体系构建问题,对中国政治经济学年会总干事、《政治经济学报》主编、人大《复印报刊资料》原总编、清华大学经济研究所孟捷教授,复旦大学中国研究院副院长周文教授和西北大学经济管理学院院长、教育部长江学者任保平教授进行了专访。现将此次专访中各位专家的主要观点整理如下 ,以飨读者。     

The lead–lag relationship between equities and stock index futures markets around information releases

This paper documents a strengthening in the lead of stock index futures returns over stock index returns around macroeconomic information releases. Some evidence of a strengthening in feedback from the equities market to the futures market and weakening in the lead of the futures market around major stock‐specific information releases is also provided. This is consistent with the hypothesis that investors with better marketwide information prefer to trade in stock index futures while investors with stock‐specific information prefer to trade in underlying stocks. A small weakening in the contemporaneous relationship between stock index futures returns and stock index returns around both types of releases is also documented. This is consistent with disintegration in the relationship between the two markets associated with noise induced volatility. One by‐product of this study is new comparative evidence on the performance of adjustments for infrequent trading of index stocks based on a commonly used ARMA technique versus recalculation of the stock index using quote midpoints. The results suggest that the quote midpoint index performs at least as well as the ARMA adjusted index across the entire sample period, as well as around the different types of information releases. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:467–487, 2000