Testing conditional asset pricing models: An emerging market perspective

The CAPM as the benchmark asset pricing model generally performs poorly in both developed and emerging markets. We investigate whether allowing the model parameters to vary improves the performance of the CAPM and the Fama–French model. Conditional asset pricing models scaled by conditioning variables such as Trading Volume and Dividend Yield generally result in small pricing errors. However, a graphical analysis reveals that the predictions of conditional models are generally upward biased. We demonstrate that the bias in prediction may be the consequence of ignoring frequent large variation in asset returns caused by volatile institutional, political and macroeconomic conditions. This is characterised by excess kurtosis. An unconditional Fama–French model augmented with a cubic market factor performs the best among some competing models when local risk factors are employed. Moreover, the conditional models with global risk factors scaled by global conditioning variables perform better than the unconditional models with global risk factors.     

Organizational design: A contingency approach: A model for organic management design

For those firms that operate in a stable environment—an unchanging technology and a certain market—a mechanistic management system is efficient. A great many corporations, however, must have a flexible organizational structure, which can adapt to constant changes in technology and fluctuations in the market. These firms are often characterized by their organic approach to management design. In this article, the authors develop a model for organizational design based on the variables of internal needs and external conditions and illustrate their model with nationally known firms as examples. The model's quadrants are: high uncertainty/low integration; high uncertainty/high integration; high certainty/low integration; and high certainty/high integration.     

WEALTH ACCUMULATION OF CANADIAN AND FOREIGN-BORN HOUSEHOLDS IN CANADA

This study focuses on the role of foreign-born households in Canada's asset market. An empirical analysis of wealth accumulation is conducted for a large sample of Canadian households circa 1977–84. This study period reflects a change in Canada's immigration policy which resulted in immigration Rows switching from Europe to Asia. A life-cycle framework is used to examine wealth accumulation behaviour of the foreign-born vis-à-vis Canadian-born households. The empirical results confirm the existence of an inverted 'U'-shaped wealth-age profile for both Canadian and immigrant households. However, the 1977 results show that the rate of wealth accumulation is higher for the immigrant household than the Canadian-born household in pre-retirement years, while the 1984 results reveal the opposite. After retirement, the rate of wealth dissipation is slower for Canadians than for foreign-born households. Only the 1984 results indicate that public social security wealth displaces household savings for both the Canadian-born and the foreign-born by a small amount. Finally, an immigrant household exhibits a stronger transfer motive within a family than a Canadian-born household regardless of year tested.     

Using Estimates of the Value of a Statistical Life in Evaluating Consumer Policy Regulations

This paper is a critical review of current practice for the economic evaluation of the life-saving benefits of U.S. consumer policy regulations. Selected evaluations conducted by the U.S. Environmental Protection Agency, the Economic Research Service of the U.S. Department of Agriculture, and the U.S. Food and Drug Administration are briefly reviewed. The standard approach to placing a dollar value on the life-saving benefits of regulations is based on societal willingness to pay for mortality risk reductions, conveniently summarized as the value of a statistical life (VSL). The paper proposes a common-sense rule for improving current practice: Different agencies reducing similar health risks for similar populations should use consistent estimates of the VSL, but each agency should use VSL estimates that are specific to the health risk and population affected by its regulations. Developing VSL estimates that vary by cause of death and that reflect differences in willingness to pay due to age, income, and risk preferences poses a challenge for both the research community that generates VSL estimates and policymakers.     

Developing country debt: implications for agricultural trade

There has been a sharp decline in the rate of economic growth in many developing countries in the 1980s compared with the 1970s. Reduced availability of external finance following the international debt crisis has been identified as one of the most important factors responsible for this decline. At the same time there has been a slowdown in the rate of growth of food imports to these countries, particularly to the highly indepted ones. The focus in the paper is on the implications for international agricultural commodity markets of a dept write-off in developing countries. To analyse these implications a world agricultural trade model is used. Specifically, the analysis covers the effect of existing debt on the permanent incomes of developing debtor countries and developed creditor countries, and hence the effect on agricultural commodity markets. The results indicate that, if the debts of the developing countries were written off, prices would improve in consequence of the resulting rise in their permanent incomes. If the debt write-off also led to growth in developing countries returning to the levels prevalent before the debt crisis, the improvements in world prices would be likely to be much larger.     

Tarnished gold: US farm commodity programmes after 50 years

It is fifty years since the introduction of the US farm commodity programmes launched under the New Deal. Based on the concepts of relief, recovery and reform, the New Deal gave new hope to farmers emerging from the Great Depression. But how successful were these programmes? Don Paarlberg believes they were miscarried, becoming preferential, profligate and perennial. With the recent recession and the introduction of new farm legislation, the author speculates as to whether history will repeat itself.