How the Removal of a Market Barrier Enhanced Market Efficiency: The Case of WTI and Brent Crude Oil Prices

Atlantic Economic Journal - If the world oil market is efficient, arbitrage should lead the West Texas Intermediate and Brent crude oil price indexes to converge whenever they stray apart. From the...     

Revising Audit Plans to Address Fraud Risk: A Case of “Do as I Advise,Not as I Do”?*

Prior research documents that auditors fail to revise audit plans to effectively address identified fraud cues. While auditors may understand what evidence would address such cues, we propose that auditors fail to apply this understanding because they use implemental mindsets when making decisions for themselves (i.e., deciding). However, we also propose that auditors use deliberative mindsets when advising. To test our predictions, we assign auditors to a decider or an advisor role in a realistic case that contains seeded fraud cues and asks them to consider revising last year's plan. We also manipulate whether the case prompts auditors to revise the plan unconventionally. Results indicate decider-condition auditors use implemental mindsets: Prompted deciders follow the unconventional plan without regard to underlying fraud risk and unprompted deciders stick with the same-as-last-year plan. Advisor-condition auditors use more deliberative mindsets: In the prompt and no prompt conditions, they identify plans that are strongly linked to their own fraud risk assessments and that better align with experts' recommended plan for effectively addressing the seeded fraud cues. Supplemental analyses suggest deciding and advising auditors both follow the experts' plan when they believe in its potential effectiveness but, after controlling for the influence of perceived effectiveness, deciding auditors follow it to a greater extent simply because they believe the PCAOB wants it. By contrast, advising auditors do not exhibit signs of excessive PCAOB influence. Our findings provide evidence that seeking informal advice (or thinking like an advisor) helps auditors to effectively revise audit plans in response to identified fraud risk—it helps when a prompt is present or not, suggesting it complements rather than merely substitutes for interventions meant to improve auditors' judgment and decision making.     

Effects of economic conditions and policy interventions on OECD broadband adoption

The positive effects of broadband networks and services on productivity and economic growth are well established. Looking at broadband as an engine of economic prosperity, the OECD and its member states are seeking to foster its widespread adoption. However, which public policies best promote the adoption of broadband remains controversial. This article contributes in two ways to this discussion. It offers a comprehensive discussion of the factors that influence broadband adoption and uses an econometric approach that is well-suited to overcome the challenges of modelling broadband adoption. This framework allows drawing more robust and nuanced policy recommendations.     

A Cautionary Note on Natural Hedging of Longevity Risk

In this article, we examine the so-called natural hedging approach for life insurers to internally manage their longevity risk exposure by adjusting their insurance portfolio. In particular, unlike the existing literature, we also consider a nonparametric mortality forecasting model that avoids the assumption that all mortality rates are driven by the same factor(s).

Our primary finding is that higher order variations in mortality rates may considerably affect the performance of natural hedging. More precisely, although results based on a parametric single factor model—in line with the existing literature—imply that almost all longevity risk can be hedged, results are far less encouraging for the nonparametric mortality model. Our finding is supported by robustness tests based on alternative mortality models.     

Rural Amenity Values and Length of Residency

New residents of rural communities are often assumed to have preferences for development and conservation that differ from those of longer-term residents. However, the literature offers little to quantify presumed preference heterogeneity. This article assesses whether stated preferences differ according to length of residency. Results are based on a conjoint (choice experiment) survey of Rhode Island rural residents. Heterogeneity—according to length of town residency—is modeled using dummy variables, multiplicative interactions, and Lagrangian interpolation polynomials. Results are compared across the three models, and identify a range of attributes for which willingness to pay depends on length of residency.     

New Zealand mutual funds: measuring performance and persistence in performance

The present study investigates the performance of New Zealand mutual funds using a survivorship‐bias controlled sample of 143 funds for the period of 1990–2003. Our overall results suggest that New Zealand mutual funds have not been able to provide out‐performance. Alphas for equity funds, both domestic and international, are insignificantly different from zero, whereas balanced funds underperform significantly. There is no evidence of timing abilities by the fund managers. In the short term, significant evidence of return persistence for all funds is observed. This persistence, however, is driven by ‘icy hands’ rather than ‘hot hands’. Finally, we find the risk‐adjusted performance for equity funds to be positively related to fund size and expense ratio and negatively related to load charges.     

Mindestlöhne und das Entsendegesetz

In der Regierungskoalition streitet man sich derzeit darüber, ob gesetzliche Mindestl?hne eingeführt und das Entsendegesetz auf weitere Branchen ausgeweitet werden sollten. Welchen Einfluss hat die intensivere internationale Arbeitsteilung auf den Arbeitsmarkt? Welche Wirkungen haben Mindestl?hne und das Entsendegesetz in der Theorie und Empirie? Brauchen wir einen Mindestlohn? Prof. Dr. Thomas Bauer, 38, ist Vorstandsmitglied des Rheinisch-Westf?lischen Instituts für Wirtschaftsforschung RWI in Essen und Inhaber des Lehrstuhls für Empirische Wirtschaftsforschung an der Ruhr-Universit?t Bochum (RUB); Prof. Dr. Christoph M. Schmidt, 44, ist Pr?sident des RWI und Inhaber des Lehrstuhls für Wirtschaftspolitik und angewandte ?konometrie an der RUB. * Wir bedanken uns bei Bernhard Lageman und Joachim Schmidt für ihre Kommentare und bei Claudia Lohkamp für ihre Unterstützung bei der Erstellung des Manuskripts.