Market volatility and the dynamic hedging of multi-commodity price risk

Commodity cash and futures prices experienced a severe boom-and-bust cycle between 2006 and 2009. Increases in commodity price volatility have raised concerns about the usefulness of commodity futures and options as risk management tools. Dynamic hedging strategies have the potential to improve risk management when conditional (co)variances depart significantly from their unconditional, long-run counterparts and may be useful to decision-makers despite their greater complexity and higher transaction costs. We propose a Nonparametric Copula-based Generalized Autoregressive Conditional Heteroscedastic (NPC-GARCH) approach to estimate time-varying hedge ratios, and evaluate the benefits of dynamic hedging during four sub-periods between 2000 and 2011 using a stylized Texas cattle feedlot management problem. The NPC-GARCH approach allows for a flexible, nonlinear and asymmetric dependence structure between cash and futures prices for different commodities. We find that NPC-GARCH dynamic hedging performs better than either static, GARCH-Dynamic Conditional Correlation (DCC) or GARCH-Baba, Engle, Kraft and Kroner (BEKK) hedging in terms of lower tail risk (expected shortfall), but that there is no significant difference between hedging approaches in terms of portfolio variance reduction.     

Province-Level Impacts of Canada’s Trade Agreements

Given Canada’s extended geography and regional economic diversity, individual provinces have differing exposures to particular international trade agreements. We demonstrate this by estimating the impacts of the Canada-Korea free trade agreement on the province of Ontario, using a dynamic general equilibrium model to generate Canada-level impacts, which are then decomposed on the basis of partial equilibrium model simulations on a trade dataset in which Ontario is represented as a separate international trading entity. We show that geography and sectoral specialization matter and that general equilibrium effects must be taken into account in partial equilibrium assessments of sectoral impacts of major trade agreements.     

Contrasting Burns and Bass: Does the transactional‐transformational paradigm live up to Burns' philosophy of transforming leadership?

Both proponents and critics view the transactional‐transformational paradigm (Bass, 1997, 1998) as the brainchild of Burns' (1978) philosophy of transforming leadership. However, Burns (2003) has criticized the paradigm's narrow managerialist orientation and the claim that it is uniformly applicable to any culture and organization. In this article, I first summarize and articulate Burns' (1978, 2003) and Bass' (1985, 1998) approaches toward leadership, then compare them by using a new four‐dimensional framework. Extending previous research (Yukl, 2006), the framework represents a useful tool for detecting the commonalities and differences between leadership theories with respect to the core dimensions, categories, and aspects of leadership. My inspection indicates that Burns' and Bass' conceptions stem from disparate contexts and differ in their applicability. Thus, Burns' (1978) ideas stem from political movements ideally characterized by mutual quest for shared meaning and active collaboration between leaders and followers. Conversely, Bass' (1985) approach springs from military training in which leaders transfer existing knowledge to followers and stimulate their activity by using a variety of tools from inspirational motivation to individualized consideration. This study has important practical implications as it delineates the boundary conditions of the transactional‐transformational paradigm and warns against its uncritical adoption in incongruent leadership contexts.     

An Ongoing race: family CEOs vs. non-family CEOs

International Entrepreneurship and Management Journal - Recent studies have established that non-family CEOs invariably outperform family CEOs. In this paper, we argue that the case against family...     

Correlation of Labor and Civil Contracts Related to the Performance of Work: Preventing the Substitution of Concepts

Employee Responsibilities and Rights Journal - Legal relations arising from a civil law contract for the performance of work or the provision of services are not identical to labor relations, and...     

Debt, bargaining, and credibility in firm–supplier relationships

We examine optimal leverage for a downstream firm relying on implicit (self-enforcing) contracts with a supplier. Performing a leveraged recapitalization prior to bargaining increases the firm's share of total surplus. However, the resulting debt overhang limits the range of credible bonuses, resulting in low input quality. Optimal financial structure trades off bargaining benefits of debt with inefficiency resulting from overhang. Consistent with empirical evidence, the model predicts that leverage increases with supplier bargaining power (e.g., unionization rates) and decreases with utilization of non-verifiable inputs (e.g., human capital).     

Can the U.S. ethanol industry compete in the alternative fuels market?

The U.S. ethanol fuel industry has experienced preferential treatment from federal and state governments ever since the Energy Tax Act of 1978 exempted 10% ethanol/gasoline blend (gasohol) from the federal excise tax. Combined with a 54c/ /gal ethanol import tariff, this exemption was designed to provide incentives for the establishment and development of a U.S. ethanol industry. Despite these tax exemptions, until recently, the U.S. ethanol fuel industry was unable to expand from a limited regional market. Ethanol was dominated in the market by MTBE (methyl‐tertiary‐butyl ether). Only after MTBE was found to contaminate groundwater and consequently banned in many states did the demand for ethanol expand nationally. Limit pricing on the part of MTBE refiners is one hypothesis that may explain this lack of ethanol entry into the fuel‐additives market. As a test of this hypothesis, a structural vector autoregression (SVAR) model of the ethanol fuel market is developed. The results support the hypothesis of limit‐pricing behavior on the part of MTBE refiners, and suggest the U.S. corn‐based ethanol industry is vulnerable to limit‐price competition, which could recur. The dependence of the corn‐based ethanol price on supply determinants limits U.S. ethanol refiners' ability to price compete with sugar‐cane‐based ethanol refiners. Without federal support, U.S. ethanol refiners may find it difficult to compete with cheaper sugar‐cane‐refined ethanol, chiefly from Brazil.     

Evolution of heterogeneous beliefs and asset overvaluation

I analyze a model in which different agents have different non-rational expectations about the future price and cash flows of a risky asset. The beliefs in the society evolve according to a very general class of evolution functions that are monotone; that is if one type has increased its share in the population then all types with higher profit should also have increased their shares. I show that the price of the risky asset converges to the risk-neutral fundamental price even though all agents in the economy are risk-averse. The risky asset thus becomes overvalued as compared to the equilibrium with rational expectations. The overvaluation is a result of the evolution of beliefs and does not rely on such asymmetric assumptions as short-sale constraints or optimistic bias.