Long-term factorization in Heath–Jarrow–Morton models

The long-term factorization decomposes the stochastic discount factor (SDF) into discounting at the rate of return on the long bond and a martingale that defines a long-term forward measure. We establish sufficient conditions for existence of the long-term factorization in HJM models. A condition on the forward rate volatility ensures existence of the long bond volatility. This yields existence of the long bond and convergence of \(T\)-forward measures to the long forward measure. It contrasts with the familiar risk-neutral factorization that decomposes the SDF into discounting at the short rate and a martingale defining the risk-neutral measure.     

Non-implementability of Arrow–Debreu equilibria by continuous trading under volatility uncertainty

In diffusion models, a few suitably chosen financial securities allow to complete the market. As a consequence, the efficient allocations of static Arrow–Debreu equilibria can be attained in Radner equilibria by dynamic trading. We show that this celebrated result generically fails if there is Knightian uncertainty about volatility. A Radner equilibrium with the same efficient allocation as in an Arrow–Debreu equilibrium exists if and only if the discounted net trades of the equilibrium allocation display no ambiguity in the mean. This property is violated generically in endowments, and thus Arrow–Debreu equilibrium allocations are generically unattainable by dynamically trading a few long-lived assets.     

Industry Concentration,Firm Efficiency and Average Stock Returns: Evidence from Australia

This study examines the relationship between industry concentration and level of firm efficiency and their effect on cross-sectional stock returns in Australian market. Our analysis shows that industry concentration and firm efficiency have independent effects on stock returns. By forming 25 double-sorted portfolios based on industry concentration and firm efficiency, INEFFICIENT firms in concentrated industry earn highest stock returns, while EFFICIENT firms in concentrated industry earn lowest stock returns. Also we find that industry concentration appears to be associated with market share while efficiency has a greater effect on firm earnings. In our cross-sectional regressions, industry concentration shows a positive relationship with average stock returns while firm efficiency shows a negative association with average stock returns. The concentration and efficiency effects are persistent throughout the sample period and is robust after controlling for size and book-to-market.     

Research and Technology Commercialization

This paper introduces the special themed section on organizational interactions involving universities and firms that result in the commercialization of research and technology. Our objective is to shed light on some of the most vexing, yet under‐researched predicaments research institutions encounter, despite their best efforts to advance commercialization. First, we synthesize and extend recent studies, including the papers in the special themed section. Next, we develop a taxonomy of modes of commercialization. Specifically, we consider internal approaches, quasi‐internal approaches (e.g. incubators), university research parks, regional clusters, academic spin‐offs and start‐ups, licensing, contract research and consultancy, corporate venture capital, and open science and innovation. We also identify areas for further research at the individual (e.g. heterogeneity of entrepreneurial teams and experience; incentives), organizational and intra‐university (e.g. corporate governance; nature of growth strategies; relationships with trading partners; boundary spanning activities) and technology levels (e.g. institutional context; reconfiguration of technology; valuation of technology).     

Constraints on Loan Sales and the Price of Liquidity

In the syndicated loan market, borrowers and syndicate arrangers sometimes employ contractual restrictions that influence a loan’s liquidity. We analyze two types of constraints on loan resales: (1) prior consent constraints implemented by the borrower or the syndicate’s lead arranger and (2) a minimum denomination requirement for loan sales. We hypothesize that constraints could be mechanisms for fostering relationships and/or facilitating the resolution of financial distress and find some support for each notion. We find that resale constraints are more likely when borrowers are small and have relatively poor credit ratings. We also find that loans with any type of constraint have higher all-in-spreads and are more likely to be secured than unconstrained loans and that the marginal cost of constraining liquidity is relatively high.

Is the service sector different in size heterogeneity?

We examined whether significant differences in size heterogeneity exist between the service and the manufacturing industries by using PL exponents as the proxy for intra-industry size heterogeneity. For the purpose, we analyzed firm size distribution (FSD) and estimated the PL exponents, on the right tails of FSD, of the service and manufacturing industries in Korea for the period 2008–2012 using the Business Activity Survey dataset created by the Korean National Statistical Office As a result, we observed that the estimates of the PL exponents for the service industry are lower than those for the manufacturing industry (\(\upalpha _\mathrm{Service}<\upalpha _\mathrm{Manufacturing}\)) regardless of size variable, year, and dataset. This relationship may be related to the weaker negative relationship between the size and growth of the service industry, which made the slope of the PL distribution in the right tail of the FSD smoother. This finding implies that size heterogeneity may be more distinctive in the service industry than in the manufacturing industry. In addition, the PL exponents of sales were larger than those of assets and smaller than those of employees (\(\upalpha _\mathrm{Asset}<\upalpha _\mathrm{Sales}<\upalpha _\mathrm{Employee}\)) regardless of industry, year, and dataset. We also observed the PL exponents in the survived-firm dataset to decrease, compared to those in the all-firm dataset.     

Risk Preferences and Asset Ownership: Integrating Prospect Theory and Transaction Cost Economics

We integrate prospect theory into the discussion of Transaction Cost Economics (TCE) to illustrate how risk aversion may affect integration decisions. In particular, we argue that risk aversion creates incentives to acquire assets in situations where neither opportunism nor transaction‐specific investments are present, provided the assets in question can change in value unpredictably during their use. Our theory illustrates that risk aversion could connect opportunism, asset specificity, and uncertainty with integration decisions in the presence of incomplete contracts. Our theory complements and extends TCE by showing the role of risk aversion in integration decisions under bounded rationality and contract incompleteness. Copyright © 2015 John Wiley & Sons, Ltd.     

A data base with income and assets of new retirees by race and hispanic origin

This study of persons who retired in 1980-81 across groups partitioned by marital status, sex, race, and Hispanic origin reveals sub-stantial differences in income and asset holdings. Data from the New Beneficiary Survey show that (1) median income ranged from $ 11,000 for black couples to $18,000 for white couples, (2) social security payments were the major source of income, (3) pension income was more frequently received by white retirees, but when received, was of comparable value to all races, (4) home ownership was high among all retirees, especially couples, and (5) median assets of black retirees were very low—near zero.     

Strong Increases in Downside Risk Aversion

A ranking of risk preferences is of economic interest insofar as it leads to unambiguous comparative statics predictions, and for this to be the case, the ranking must be a strict partial ordering. The ranking by greater risk aversion meets this demand at the second order, and yields a variety of well-known predictions concerning the effect of greater risk aversion on demands for insurance and risky assets, among many other applications. There has been less success at the third order, where ranking preferences by aversion to downside risk has not produced a strict partial ordering. The problem is that account has not been taken of the fact that an increase in downside risk aversion must induce changes in risk aversion as well. We propose a definition of stronger downside risk aversion that does yield a strict partial ordering by requiring a nested increase in both second- and third-order risk aversion, so that v is more strongly downside risk averse than u if v is more risk averse and more downside risk averse than u. We demonstrate that v being more strongly downside risk averse than u is characterized by v never liking any change in the probability distribution for y that induces a third-order stochastic dominance deterioration in the distribution for u(y). We apply the definition to obtain intuitive comparative statics predictions in the precautionary saving problem, and relate the definition to alternatives proposed in the literature.