Spatial Variation in the Determinants of House Prices and Apartment Rents in China

This paper provides an examination of China??s residential real estate market at the county level using data from that country??s 2000 census. The market is a new one, having only been fully established in 1998. The analysis in the paper is in the form of an aggregate (county-level) hedonic model specified in two versions. Global parameters results are estimated using spatial error model specifications while more local effects are estimated by geographically weighted regression. Global results are typical in that structural characteristics such as floor space and contextual characteristics such as level of in-migration are important in residential prices. Local results, however, indicate significant spatial variation in the effect of both structural amenities and locational context on housing prices. In a simpler specification, rents are shown to respond positively to both median house prices levels and the supply of apartments available at market prices, but also with significant spatial variation across China.     

A Dynamic Analysis of the Demand for Life Insurance

Prior research suggests that neither the choice to own life insurance nor the amount purchased is consistently related to the presence of children in the household. While these perplexing findings are based on a static framework, we alternatively examine life insurance demand in a dynamic framework as a function of changes in household life cycle and financial condition. Our results indicate both a statistically and economically significant relation between life events, such as new parenthood, and the demand for life insurance. We also provide new evidence in support of the emergency fund hypothesis: households in which either spouse has become unemployed are more likely than other households to surrender their whole life insurance.     

Strategic insider trading around earnings announcements in Australia

This paper tests, within the Australian setting, whether directors strategically time trades in their own firms, around earnings announcements, in the context of impediments to trading in the immediately preceding period. I show that both signed and unsigned trade activity are insignificantly different from zero in the preceding period, and significantly negative and positive after the event. Further, directors in Australia significantly sell following positive earnings news, and buy after negative news, providing evidence of ‘indirect’ trading. Directors’ trades in the longer-term pre-announcement period are also negatively related to the news content sentiment, contrary to expectation. Finally, I find evidence of positive autocorrelation between directors’ trades over the longer-term past, and those executed after earnings announcements, which, in the absence of the ‘short-swing’ rule in Australia, casts doubt over short-term strategic insider trading, more generally.     

Politico-economic consequences of rising wage inequality

This paper uses a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain some portion of the relative increase in transfers to low earnings quintiles and relative increase in effective tax rates for high earnings quintiles in the U.S. over the past several decades. Specifically, we assume that households have uninsurable idiosyncratic labor efficiency shocks and consider policy choices by a median voter which are required to be consistent with a sequential equilibrium. We choose the transition matrix to match observed mobility in wages between 1978 and 1979 in the panel study of income dynamics (PSID) data set and then evaluate the response of social insurance policies to a new transition matrix that matches the observed mobility in wages between 1995 and 1996 and is consistent with the rise in wage inequality and the decrease in median to mean wages between 1979 and 1996. We deal with the problem that policy outcomes affect the evolution of the wealth distribution (and hence prices) by approximating the distribution by a small set of moments. We contrast these numbers with those from a sequential utilitarian mechanism, as well as mechanisms with commitment.     

Accounting and networks of corruption

This study examines the nature and role of accounting practices in a network of corruption in an influence-market setting. The study focuses on the Canadian government’s Sponsorship Program (1994–2003), a national unification scheme that saw approximately $50 million diverted into the bank accounts of political parties, program administrators, and their families, friends and business colleagues. Relying on the institutional sociology of Bourdieu, the study demonstrates the precise role of accounting practices in the organization of a corrupt network imbued with a specific telos and certain accounting tasks. The study illustrates how accounting is accomplished and by whom, and it shows how the ‘skillful use’ of accounting practices and social interactions around these practices together enable corruption. In so doing, the study builds on a growing body of work examining criminogenic networks and the contextual, collaborative and systemic uses of accounting in such networks.     

Confined exponential approximations for the valuation of American options

We provide an alternative analytic approximation for the value of an American option using a confined exponential distribution with tight upper bounds. This is an extension of the Geske and Johnson compound option approach and the Ho et al. exponential extrapolation method. Use of a perpetual American put value, and then a European put with high input volatility is suggested in order to provide a tighter upper bound for an American put price than simply the exercise price. Numerical results show that the new method not only overcomes the deficiencies in existing two-point extrapolation methods for long-term options but also further improves pricing accuracy for short-term options, which may substitute adequately for numerical solutions. As an extension, an analytic approximation is presented for a two-factor American call option.     

Persistence in Portuguese mutual fund performance

Recent evidence suggests that future performance is predictable from past performance, that is, funds with superior (inferior) performance in the past are likely to remain good (bad) performers in the future. This research addresses the persistence of mutual fund performance in a European regional market (the Portuguese equity fund market). Some of the problems in evaluating fund persistence are identified in the context of limited sample size and using the peer group median as a benchmark for contingency table analysis of performance persistence. The criteria for assessing performance persistence based on the contingency table methodology of repeated winners and losers are presented in terms of significance statistics, adjusted for small sample bias. The adjustments are accomplished through the Yates continuity correction and Fisher's exact p-value. The appropriateness of each criteria under different circumstances is also discussed. The analysis of the returns of all Portuguese domestic equity funds, since a representative number was established, shows some performance persistence (on a quarterly basis). The persistence, however, is reduced when the returns are controlled for the various dimensions of risk. Significant risk persistence has been documented. Furthermore, for more or less frequent intervals of measurement, the industry persistence is rejected, although individual funds exhibit superior/inferior performance.     

Continuous rainbow options on commodity outputs: what is the real value of switching facilities?

We develop real rainbow option models to value an operating asset with the flexibility to choose between two commodity outputs. We provide a quasi-analytical solution and a numerical lattice solution to a model with continuous switching opportunities between two commodity outputs, taking into account operating and switching costs. The models are applied to an illustrative case, demonstrating that the quasi-analytical solution and the lattice approach provide near identical results for the asset valuation and optimal switching boundaries. We find that the switching boundaries generally narrow as prices decline. In the presence of operating costs and temporary suspension, however, the thresholds diverge for low enough prices. A fertilizer plant with flexibility between selling ammonia and urea is valued in an empirical section using our real option models. Despite the high correlation between the two alternative commodities, ammonia and urea, there is significant value in the flexibility to choose between the two. Both strategic and policy implications for stakeholders in flexible assets are discussed, with some generalisations outside the fertilizer industry.     

The Tourinho model: neglected nugget or a receding relic?

This article evaluates Tourinho's (1979b Tourinho, O. A.F. 1979b. “The valuation of reserves of natural resources: an option pricing approach”. Berkeley: University of California. PhD thesis [Google Scholar]) work as one of the earliest contributors to the real options literature. His model pioneered the application of risk neutrality to uncertain investments, but his originality of introducing an option-holding cost albeit to overcome the extraction paradox is rarely imitated. We claim that the combination of a convenience yield and an option-holding cost produces a more satisfying representation. Moreover, variations in the holding cost give rise to a host of investment decisions ranging from the standard real option solution for a zero-holding cost to a net present value solution for an infinite-holding cost. Not only does the holding cost mediate between these two poles, but it provides the option seller (usually a landowner or a government) with a policy instrument for influencing the extraction timing and thus the extraction profit of the option buyer. We derive the holding cost that optimizes the landowner's combined value of the option premium, holding costs and eventual royalties.     

Collectivist values for learning in organizational relationships in China: the role of trust and vertical coordination

Partners must engage in integrative interaction in order to combine diverse expertise and experiences into effective learning. Results from 103 pairs of customer and supplier organizations in China indicate that trust and vertical coordination are useful ways to characterize this integrative interaction and together they promote learning. Structural equation analysis suggests that collectivist but not individualist values are important foundations for integrative interaction between partners that result in learning. These findings were interpreted as reaffirming the value of effective relationships for coordination between partners and suggesting that collectivist values can be a source of effective organizational relationships.