Mean-variance analysis of Quick Response Program

Quick Response Program (QRP) has been well established in fashion supply chains. It is known that QRP may not be equally good to all channel members and some measures have to be taken in order to achieve a win–win situation. However, little is known about the corresponding level of risk associated with QRP and some proposed measures. In light of this, we study QRP via a mean-variance (MV) approach. We illustrate how the measures such as price commitment policy, service-level commitment policy, and buy-back policy can be adjusted to achieve the MV win–win situation in which the channel members can be better off with considerations of both expected profit and risk. Numerical analyses are included and the analytical conditions for achieving both the supply chain channel coordination and the MV win–win situation are derived. Managerial insights are generated.     

Endogenous Sequencing in Strategic Trade Policy Games Under Uncertainty

This paper examines a strategic trade policy game with endogenous timing. A trade-off between commitment and flexibility is identified. The equilibrium timing of trade policy decisions is shown to highly depend on the degree of demand uncertainty. When demand uncertainty is low, countervailing duties will never be used because the home government always sets its import tariff before the foreign government sets its export subsidy. When demand uncertainty reaches a threshold level, the home government starts to find it optimal to move second with positive probability. As a result, we provide an economic rationale for the prevailing use of countervailing duties in practice.     

Pricing of Forward and Futures Contracts

There has long been substantial interest in understanding the relative pricing of forward and futures contracts. This has led to the development of two standard theories of forward and futures pricing, namely, the Cost-of-Carry and the Risk Premium (or Unbiased Expectations) hypotheses. These studies have modelled the relationship between spot and forward/futures prices either through a no-arbitrage condition or a general equilibrium setting. Relatively few studies in this area have considered the impact of stochastic trends in the data. With the emergence of non-stationarity and cointegration in recent years, more sophisticated models of futures/forward prices have been specified. This paper surveys the significant contributions made to the literature on the pricing of forward/futures contracts, and examines recent empirical studies pertaining to the estimation and testing of univariate and systems models of futures pricing.     

Hedging and nonlinear risk exposure

This paper documents some empirical evidence of nonlinear spot-futuresexchange rates relationships and develops an expected utilitymodel of an exporting firm to examine the associated economicimplications. The model shows that the firm should export more(less) and adopt an over (under) hedge in an unbiased currencyfutures market if the spot-futures exchange rates relationshipsis convex (concave) rather than linear. When fairly priced currencyoptions on futures are available, the firm should use them inconjunction with the currency futures so as to achieve betterhedging against its nonlinear exchange rate risk exposure. Thisprovides a rationale for the hedging role of options when theunderlying uncertainty is nonlinear in nature.     

Convergence and spillover of house prices in Chinese cities

The issue of house price convergence in 34 Chinese cities is investigated. We augmented the convergence model with contemporaneous spatial dependence in house prices and found that price convergence and positive spatial spillover are both present. We explicitly addressed the endogeneity problem by introducing a Bayesian instrumental variable setup, which was estimated with particle filtering techniques. From a growth poles perspective, the empirical evidence indicates that the spread effect in regional house prices outweighs the backwash effect. The identified positive spatial spillover has two effects on the growth of house prices in Chinese cities. First, the spillover elevates the trajectories of the steady-state growth paths of house prices. Second, the spillover narrows the gaps between the growth paths of house prices in neighbouring cities. Shocks to the socio-economic variables of a city generate their own effects on domestic house prices that dominate the effects arising from cross-city price feedbacks, thus mitigating the prospect of level convergence. Our findings also suggest a collaborating role between time and spatial dependence parameters. The identification of inter-city spillover, which is a conditioning factor for regional house price convergence, offers implications to policies that are most likely to be effective in reducing regional disparity.     

Do changes in credit ratings of REITs affect their capital structure decisions?

Existing research has highlighted the high leverage ratio of Real Estate Investment Trusts (REITs). To the extent that credit rating is important to REITs when sourcing for capital from the public debt markets, our paper investigates the effect of changes in REIT credit ratings on capital structure decisions while controlling for endogeneity effects. Our results indicate that REITs that face the prospect of an imminent credit rating downgrade issue approximately 11% less debt net of equity as a percentage of total assets than other REITs. This effect is asymmetric in that positive rating outlooks do not have a significant impact on REIT capital structure activities.     

Co-movements of Shanghai and New York stock prices by time-varying regressions

We use time-varying regression to model the relationship between returns in the Shanghai and New York stock markets, with possible inclusion of lagged returns. The parameters of the regressions reveal that the effect of current stock return of New York on Shanghai steadily increases after the 1997 Asian financial crisis and turns significantly and persistently positive after 2002 when China entered WTO. The effect of current return of Shanghai on New York also becomes significantly positive and increasing after 2002. The upward trend has been interrupted during the recent global financial crisis, but reaches the level of about 0.4–0.5 in 2010 for both markets. Our results show that China’s stock market has become more and more integrated to the world market in the past twenty years with interruptions occurring during the recent global economic downturn.     

Has China Crowded out Foreign Direct Investment from Its Developing East Asian Neighbors？

This paper applies a gravity model to investigate the determinants of foreign direct investment (FDI) in East Asia. Economic fundamentals, such as market size, per capita income and country risk indicators, economic and cultural ties, exchange rate volatilities and information asymmetry are found to be important determinants for FDI. Globally, the inward FDI among high-income OECD economies declined significantly on average over the period of 1990-2003, whereas the inward FDI of the high-income OECD economies in emerging market economies gained substantially. In the East Asian region, the ASEAN-4 (Indonesia, Malaysia, the Philippines and Thailand) received above-average inward FDI from the high-income OECD economies after controlling for their economic fundamentals. By contrast, China's FDI from the high-income OECD economies is below average relative to its economic fundamentals. Therefore, it is difficult to establish that China has crowded out FDI from its developing ASEAN neighbors.