Spurious regressions in technical trading

This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has no predictive power, buy or sell signals based on the difference between the short-period and long-period moving averages of past asset prices can be statistically significant when the forecast horizon is relatively long. The theoretical analysis reveals that both ‘momentum’ and ‘contrarian’ strategies can be falsely supported, while the probability of obtaining each result depends on the type of the test statistics employed.     

Post-restructuring performance in Japan

Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in “evergreening”. Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.     

Herd behavior in the Japanese loan market: Evidence from bank panel data

This paper investigates whether Japanese banks had been following herd behavior in the domestic loan market from 1975 through 2000. Applying the technique developed by Lakonishok, Shleifer, and Vishny [Lakonishok, J., Shleifer, A., Vishny, R.V., 1992. The impact of institutional trading on stock prices, J. Finan. Econ. 32, 23–43] to the data from loans outstanding to different types of borrowers, we obtain evidence indicative of the existence of herding. City banks in Japan had been following a cyclical pattern of herding with one of the peaks around the bubble period in the late 1980s. Adjusting further for herding resulting from rational behavior, evidence indicative of the existence of irrational herding was observed only in the bubble period. Our estimate indicates that a total of some 5 trillion yen of loan increase by city banks during the period of 1987–1989 can be attributed to irrational herd behavior. The results imply that irrational bank behavior in the late 1980s might have contributed to the problems Japanese banks had with non-performing loans. We also obtained evidence for herding among regional banks and among geographically proximate banks.     

Spatial Cournot competition and economic welfare: a note

We investigated welfare implications in location-quantity models in a symmetric linear city. We found that when firms are not agglomerated in equilibrium, increasing the distance between firms raises (reduces) producer surplus and social welfare (consumer surplus). Moreover, central agglomeration is always optimal for consumers among symmetric locations, but not necessarily for producers. Central agglomeration can be inefficient even if it is the unique equilibrium outcome. In short, the firms are more likely to agglomerate or locate closer than what welfare maximizers would dictate, whereas they locate farther apart than what consumer surplus maximizers would recommend.     

Nonlinear behavior of the socio-economic dynamics for lake eutrophication control

To succeed in combating lake eutrophication, cooperation of local inhabitants, small factories, and farmers in reducing phosphorus discharge is very important. But the willingness of each player to cooperate would depend on the cooperation of other players and on the level of environmental concern of the society in general. Here we study the integrated dynamics of people's choice of behavior and the magnitude of eutrophication. Assumptions are: there are a number of players who choose between alternative options: a cooperative and environment-oriented option is more costly than the other. The decision of each player is affected by “social pressure” as well as by economical cost of the options. The lake pollution increases with the total phosphorus released, and a high pollution level in the lake would enhance the social pressure. The model includes a positive and a negative feedback loops which create diverse dynamical behavior. The model often shows bistability — having an equilibrium with a high level of cooperation among people and clean water, and the other equilibrium with low cooperation and polluted water, which are simultaneously stable. The model also shows fluctuation between a high and a low levels of cooperation in alternating years, cycle with a longer periodicity, or chaotic fluctuation. Conservatism of people stabilizes the system and sometimes helps maintaining cooperation. The system may show unexpected parameter dependence — the improved phosphorus removing efficiency might make water more polluted if it causes the decline in the environmental concern and cooperation among people.     

A quantitative appraisal of national economic policy

Zusammenfassung Eine quantitative Bewertung der Volkswirtschaftspolitik. Der Fall Japan. — Der Zweck des vorliegenden Aufsatzes besteht darin, die vorl?ufigen Ergebnisse einer quantitativen Analyse der Wirtschaftspolitik für Japan vorzulegen, die aus einem Modell für eine kurzfristige ?konomische Vorausschau entwickelt wurden. Zun?chst wurde ein Lohn-Preis-Spirale-Mechanismus in die Gleichungen eingeführt. Zweitens wurden Identit?tsgleichungen sowohl in laufenden Preisen als auch in realen Werten aufgestellt, um wirtschaftspolitisch orientierte Experimente zu erleichtern, da die meisten Variablen der Wirtschaftspolitik in laufenden Preisen ausgedrückt sind. Drittens wurden die durchschnittlichen Zinss?tze für Kredite aller Handelsbanken, die durch den Diskontsatz der Bank von Japan reguliert werden, ebenso wie das j?hrliche Verh?ltnis zwischen den laufenden Posten der Zahlungsbilanz zum Bruttosozialprodukt als Schlüsselvariable für wirtschaftspolitische Experimente berücksichtigt und als erkl?rende Variable in die Gleichungen sowohl für die Bildung von privatem Anlagekapital als auch für die Schwankungen bei der nichtlandwirtschaftlichen Lagerhaltung eingeführt. Au\erdem wurde die Kapazit?tsausnutzungsindex-Variable eingeführt, die aus den sektoralen Produktionsindizes durch Anwendung der Wharton-School-Methode gebildet wurde. Die systematische Ann?herung an das Problem der quantitativen Bewertung der Wirtschaftspolitik beruht auf einem ?konomischen Modell, das folgende drei Methoden verwendet: 1. Die Multiplikatoranalyse, 2. Simulationsexperimente und 3. einen Durchführbarkeitstest (feasibility test). Die Ergebnisse dieser Methoden werden dargestellt, und zum Schlu\- werden die Resultate des ?feasibility tests? diskutiert.

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Résumé Une évaluation quantitative de la politique économique nationale. Le cas du Japon. — Cet article présente les résultats de première tentative d’une analyse économique quantitative de la politique économique du Japon, résultats provenant d’un modèle de prévision économique à court terme. On a d’abord introduit dans les équations un mécanisme de spirale salaires-prix. Puis, on a pris en considération les identités exprimées en valeurs courantes aussi bien qu’en valeurs réelles, afin de faciliter les expériments de politique économique, puisque la plupart des variables de politique économique sont spécifiées par les valeurs courantes. Troisièmement, le taux moyen d’intérêt sur les prêts de toutes les banques commerciales — réglé par le taux d’escompte de la banque centrale — ainsi que la relation annuelle entre le compte courant de la balance des paiements et le produit national brut ont été considérés comme les variables principales dans les expériments de politique économique. Ils ont donc été introduits comme variables explicatives dans les équations relatives aux formations de capital fixe privé aussi bien qu’aux changements dans les inventaires non-agricoles. On a introduit également comme variable l’indice de l’utilisation de la capacité, qui fut calculé d’après les indices des secteurs de production, en utilisant la méthode Wharton School. En abordant systématiquement le problème d’une évaluation quantitative de la politique économique nationale, tout en se basant sur un modèle économétrique, on se sert des trois techniques suivantes: 1. analyse du multiplicateur, 2. expériments simulés, 3. épreuve de praticabilité (feasibility test). Les résultats de l’application de ces techniques sont présentés et, finalement, les résultats de l’épreuve de praticabilité sont discutés.

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Resumen Una evaluaci?n cuantitativa de la política económica. El caso del Japón. — El objetivo del presente ensayo consiste en presentar los resultados provisionales de un anál isis cuantitativo de la política económica del Japón, realizado por medio de un modelo de prognóstico a corto plazo. En primer lugar, se introdujo el mecanismo de la espiral salario-precio en el sistema de ecuaciones. A continuatión, se escribieron ecuaciones de identidad con precios tanto corrientes como constantes, para facilitar, en vista de que la mayória de las variables de la política económica viene expresada en precios corrientes, la realización de experimentos pol’tico-económicos. Luego, se introdujeron como variables clave para experimentos politico-económicos y como variables explicativas de la formatión de capital fijo privado y de las fluctuaciones en los stocks no agrarios, el tipo medio de interés para créditos de la banca comercial, que queda regulado por la tasa de descuento del Banco de Japón, así como la relación anual entre las operaciones corrientes de la balanza de pagos y el producto nacional bruto. Además, se introdujo como variable el indice de utilización de la capacidad productiva, que se calculó por el método de la ?Wharton School?, partiendo de indices de producción sectorales. La aproximacíón sistemática al problema de evaluación cuantitativa de la política económica se efectúa a través de un modelo, en el que se emplean très métodos, a saber: 1. el análisis del multiplicador, 2. experimentos de simulación, y 3. una prueba de viabilidad (feasibility test). Se presentan los resultados de estos métodos y se discuten, finalmente, los resultados del ?feasibility test?.

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Riassunto Una valutazione quantitativa delia politica economica. Il caso Giappone. — Lo scopo del presente saggio consiste nel presentare i risultati provvisori di un’analisi quantitativa della politica economica per il Giappone che furono ricavati da un modello per una previsione economica a breve termine. In un primo momento fu introdotto nelle equazioni un meccanismo spirale salari-prezzi. In secondo luogo furono poste equazioni d’identità tanto nei prezzi correnti che nei valori reali per facilitare esperimenti politici orientati in senso politico-economico; infatti la maggior parte delle variabili della politica econ?mica sono espressi in prezzi correnti. In terzo luogo furono presi in considerazione i tassi medi d’interesse per crediti di tutte le banche commerciali i quali sono regolati mediante il tasso di sconto della Banca del Giappone, altrettanto come la relazione annuale tra le partite correnti della bilancia di pagamento per il reddito nazionale lordo come variabile chiave per esperimenti politico-economici e furono introdotti come variabile esplicativa nelle equazioni tanto per la formazione di capitale d’investimento privato che per le fiuttuàzioni nel magazzinaggio non agricole Inoltre fu introdotta la variabile indice di capacità di utilizzazione che si formò dagli indici settoriali di produzione mediante l’applicazione del metodo Wharton-School. L’avvicinamento sistematico al problema della valutazione quantitativa della politica economica si basa su un modello economico che impiega i tre seguenti metodi: 1) l’analisi moltiplicatrice, 2) esperimenti di simulazione e 3) un test di eseguibilità (feasibility test). I risultati di questi metodi sono descritti ed alla fine sono discussi i risultati del ?feasibility test?.