SUBORDINATED BINOMIAL OPTION PRICING

We extend the binomial option pricing model to allow for more accurate price dynamics while retaining computational simplicity. The asset price in each binomial period evolves according to two independent and successive Bernoulli trials on trade occurrence/nonoccurrence and up/down price movement. Subordination leads to a trinomial tree with stochastic volatility in calendar time. We derive utility‐dependent valuation results incorporating the leverage effect and test the model empirically.     

Introductory Essay for a Symposium on “Urban Interventionism”

The Review of Austrian Economics -     

CEO's Operating Ability and the Association between Accruals and Future Cash Flows

This study investigates whether an individual CEO's operating ability, operationalized as the extent to which an individual CEO utilizes the company's assets efficiently to generate profits, explains the association between accruals and future cash flows. While this mapping can be driven by both the quality of accounting measurement and CEO operating ability, there is little empirical evidence on the latter link. After controlling for the CEO's accounting estimation ability, we find that the association between current period accruals and future cash flows is stronger when the CEO demonstrates superior operating ability. This suggests that a CEO's operating ability is an important determinant of the informativeness of current accruals for future cash flows.     

Forecasting U.S. Recessions with Probit Stepwise Regression Models

Yield spreads have been repeatedly used in the literature as the top candidates in predicting future recessions. In this paper, we show that existing model specifications are good but fall short of the performance of more complete models. Applying a probit stepwise regression procedure to a large number of economic indicators, we find models that dramatically outperform those used in the literature. Due to a time series that only began in 1964Q1 and very few historical recessions, any model specification may capture only a few of the economy’s many aspects and thus can potentially be biased. Nevertheless, models with better statistical properties should have a better chance to capture the occurrence of recession. Our chosen models are not immune to statistical limitations but should forecast better than the existing models in the literature.     

Hungary's export prospects in the EC market

Political changes in Eastern Europe will help to cement improving economic relations between those countries and the EC, accelerating a trend that flows in part from the continuing economic difficulties in Eastern Europe. Hungary has little alternative but to seek to continue strengthening these ties. Membership in the EC could lead to an expansion of Hungarian exports to the Communities of some 48 percent, with the main gains occurring for meats, iron and steel, fruit and vegetables, textiles, and clothing. Even if membership is unattainable, Hungary stands to gain considerably from an improvement in its standing in the EC pyramid of privileges, and must seek some closer relationship with the EC, encompassing agriculture as well as manufactures, and tariffs and non-tariff barriers.     

The Role of Teaching and Teacher Training in the Hiring and Promotion of Ph.D. Economists

Surveys suggest that a majority of graduate students seek academic positions after completing their degree. We survey groups involved in the job market to determine the roles of teaching and research in hiring and the subsequent success of new faculty. We find that while characteristics that signal research potential are highly valued by both graduate directors and department chairs, there are significant discrepancies in the extent that teaching is valued in the hiring process across institution types. Furthermore, although new faculty devote half of their time to teaching, only half of them agree that graduate school prepared them to teach.     

Imputing rent in consumption measures,with an application to consumption poverty in Canada, 1997–2009

We consider two econometric problems in the measurement of poverty, both relating to rent imputation. First, we account for quality differences correlated with selection into owner‐occupied versus rental tenure. This correction increases estimated household consumption by 5% over uncorrected estimates and decreases estimated poverty rates quite dramatically. Second, we propose that measurement error induced by the imputation be corrected by imputing a consumption distribution, rather than a consumption level, for each household. This correction increases estimated poverty rates slightly. We use our methods to measure consumption poverty in Canada, and find that the imputation strategy used influences the patterns observed. For example, measured poverty among the elderly barely declines when one uses our methods, in contrast to the almost 6 percentage point reduction we find using traditional methods. In our assessment of the over‐time evolution of consumption poverty, we find that substantial progress has been made on overall poverty and on child poverty, but that poverty among the elderly hardly changed.     

The asian financial crisis and the natural rate of unemployment: Estimates from a structural var for the newly industrializing economies of asia

Abstract. We use a structural vector autoregressive model to estimate the natural rate of unemployment for Hong Kong, Korea, Singapore and Taiwan for the period 1982–2000. Our results show that the dramatic rise in the unemployment rate observed in Hong Kong and Korea was mainly the result of demand shocks rather than structural changes, while in Singapore the unemployment rate rise reflected almost entirely a rise in the natural rate. Taiwan's natural rate has been relatively stable. We offer explanations for these different results in terms of the different economic characteristics (particularly labor market features) of the four countries.     

Key Features of Australian Business Cycles

This paper identifies and describes the key features of Australian business cycles during the period 1959–2002. In particular, we identify the chronologies in Australia's classical cycle (expansions and contractions in the level of output) and growth cycle (periods of above-trend and below-trend rates of economic growth). We find that while there are large asymmetries in the duration and amplitude of phases in Australia's classical cycle, on both measures the Australian growth cycle is much more symmetric. Further, our results indicate that over the sample period Australian (filtered) output and prices have moved in a counter-cyclical fashion, suggesting a dominance of shocks to aggregate supply affecting the Australian economy.