Informed momentum trading versus uninformed “naive” investors strategies

We construct a zero net-worth uninformed “naive investor” who uses a random portfolio allocation strategy. We then compare the returns of the momentum strategist to the return distribution of naive investors. For this purpose we reward momentum profits relative to the return percentiles of the naive investors with scores that are symmetric around the median. The score function thus constructed is invariant and robust to risk factor models. We find that the average scores of the momentum strategies are close to zero (the score of the median) and statistically insignificant over the sample period between 1926 and 2005, various sub-sample periods including the periods examined in [Jegadeesh and Titman, 1993] and [Jegadeesh and Titman, 2001]. The findings are robust with respect to sampling or period-specific effects, tightened score intervals, and the imposition of maximum-weight restrictions on the naive strategies to mitigate market friction considerations.     

Financial development and the instability of open economies

This paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies. Our basic model is a dynamic open economy model with a tradeable good produced with capital and a country-specific factor. We also assume that firms face credit constraints, with the constraint being tighter at a lower level of financial development. A basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies. This is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles. Thus, countries that are going through a phase of financial development may become more unstable in the short run. Similarly, full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development: phases of growth with capital inflows are followed by collapse with capital outflows. On the other hand, foreign direct investment does not destabilize.     

Semiparametric binary regression models under shape constraints with an application to Indian schooling data

We consider estimation of the regression function in a semiparametric binary regression model defined through an appropriate link function (with emphasis on the logistic link) using likelihood-ratio based inversion. The dichotomous response variable Δ$\Delta$ is influenced by a set of covariates that can be partitioned as (X,Z)$(X,Z)$ where Z$Z$ (real valued) is the covariate of primary interest and X$X$ (vector valued) denotes a set of control variables. For any fixed X$X$, the conditional probability of the event of interest (Δ=1$\Delta =1$) is assumed to be a non-decreasing function of Z$Z$. The effect of the control variables is captured by a regression parameter β$\beta$. We show that the baseline conditional probability function (corresponding to X=0$X=0$) can be estimated by isotonic regression procedures and develop a likelihood ratio based method for constructing asymptotic confidence intervals for the conditional probability function (the regression function) that avoids the need to estimate nuisance parameters. Interestingly enough, the calibration of the likelihood ratio based confidence sets for the regression function no longer involves the usual χ²${\chi }^2$ quantiles, but those of the distribution of a new random variable that can be characterized as a functional of convex minorants of Brownian motion with quadratic drift. Confidence sets for the regression parameter β$\beta$ can however be constructed using asymptotically χ²${\chi }^2$ likelihood ratio statistics. The finite sample performance of the methods are assessed via a simulation study. The techniques of the paper are applied to data sets on primary school attendance among children belonging to different socio-economic groups in rural India.     

The precautionary principle and EMF: implementation and evaluation

The precautionary principle, a recommendation to consider action to avoid a possible harm even if it is not certain to occur, is variously defined and interpreted. We present a range of definitions with an emphasis on their requirements for strength of evidence of harm and for actions to be taken. We describe the variety of approaches that have been adopted in developing policy to address the issue of possible health effects of electric and magnetic fields (EMF) in the face of scientific uncertainty. Further, we discuss specific aspects of scientific uncertainty regarding EMF health risks particularly relevant to the development of precautionary principle policy. We define and discuss prudent avoidance and other unique features of applications of the precautionary principle to EMF. We conclude with examples from EMF policy decisions of risk tradeoffs that need to be considered in developing any precautionary principle policy, and provide recommendations for better ways to define and implement the precautionary principle.     

WHO WILL RETURN AND WHEN? AN ANALYSIS OF RURAL-TO-URBAN MIGRANTS IN INDIA*

An analysis of temporary migration in India is presented. In particular, the author examines, within a multivariate context, the importance of various socioeconomic factors that influence the future plans of rural-urban migrants and their intended timing of return to the rural area. The data are from a 1975-1976 survey of 1,615 migrant heads of households in Delhi.     

Stakeholder management and sustainability strategies in the French nuclear industry

This paper describes how a nuclear power corporation integrates sustainability into corporate strategies and practices. The case study focuses on one of the world's largest nuclear power generators and describes the corporate capture of sustainable development in its strategic efforts to promote a growth strategy. The paper shows how corporate strategies to address sustainability concerns involve managing different stakeholders, enabling the corporation to sustain its economic growth strategy. Three types of stakeholder management strategy are identified: reinforcement strategies for supportive stakeholders, containment strategies for obstructive stakeholders and stabilization strategies for passive stakeholders. The paper argues that, despite claims of sustainable development in the nuclear industry, there is no significant shift in the ‘business as usual’ approach and that sustainable development is merely reframed as sustainable growth. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.     

Economic liberalization, capital mobility and informal wage in a small open economy: A theoretical analysis

Empirical evidence suggests that the size of the informal sector in the developing countries has increased considerably during the liberalized economic regime. The present paper purports to analyze the consequences of economic reforms on the wellbeing of the informal sector workforce using a three-sector general equilibrium model with two informal sectors. The theoretical analysis finds that different liberalized policies produce diverse effects on the informal wage and that these results are independent of the nature of capital mobility between the informal and the formal sectors. It also shows that labour market reforms, contrary to the common wisdom, are likely to produce favourable effects on the informal wage.     

Do rational demand functions differ from irrational ones? Evidence from an induced budget experiment

Various studies (e.g. Becker, 1962; Ariely et al., 2003) have noted anomalies concerning the relationship between observed demand and the preferences presumed to motivate it. We re-examine these findings using experimental choice data. After separating our subjects’ choices into rational and irrational subsets based on consistency with the axioms of revealed preference, we estimate and compare demand coefficients. Mirroring Ariely et al.'s ‘coherently arbitrary’ choice, both rational and irrational demand estimates exhibit negative price and positive endowment coefficients. However, a comparison of the full set of demand coefficients indicates significant differences between the two, yielding an observable artefact of the preference hypothesis. Relaxing the goodness-of-fit of the revealed preference test (Afriat, 1987; Varian, 1994) does not alter our findings.     

Contribution to a public good under subjective uncertainty

This paper examines how voluntary contributions to a public good are affected by the contributors' heterogeneity in beliefs about the uncertain impact of their contributions. It assumes that contributors have Savagian preferences that are represented by a two‐state‐dependent expected utility function and different beliefs about the benefit that will result from the sum of their contributions. We establish general comparative statics results regarding the effect of specific changes in the distribution of beliefs on the (unique) Nash equilibrium provision of the public good, under certain conditions imposed on the preferences. We specifically show that the equilibrium public good provision is increasing with respect to both first‐ and second‐order stochastic dominance changes in the distribution of beliefs. Hence, increasing the contributors' optimism about the uncertain benefit of their contributions increases aggregate public good provision, as does any homogenization of these beliefs around their mean.