The firm's insurance decision. Some questions raised by the capital asset pricing model

Using the capital asset pricing model it is shown that the firm will be indifferent towards insurance against specific risks. Insurance against systematic risks involves a transfer of these non-diversifiable risks from the firm to the insurance company, and will thus only be available at a price which reflects the ‘market price of risk’. Again the firm will be indifferent towards insurance. This then leads to the investigation of alternative motivations for a firm purchasing insurance — the costs of financial distress, human capital considerations, asymmetry of information and tax laws.     

The reporting of gross and net earnings in a postal survey

In a controlled experiment involving a sample comprising 8300 school leavers who entered the labour market in 1983/84, half of the sample were asked to report on gross weekly earnings (if employed) or expected gross earnings (if not employed). The other half were asked equivalent questions in terms of net earnings. Comparisons between the responses indicate that those in employment were able to provide consistent responses concerning gross and net earnings. Among the non-employed, however, there is reason to believe that those reporting expected net earnings may have underestimated the impact of the deductions due to tax and National Insurance contributions. The size of this understatement is such as to create a discrepancy of some 9 per cent (in terms of gross earnings) between the two sources of expected earnings.     

Australia: The Conning of Age

Australia faces a relatively favourable demographic future: ageing is proceeding at a slower pace here, the pattern of the labour force ageing is conducive to restructuring in the intermediate future, and a well-established immigration policy can be used to accommodate demographics with social and economic goals. The financing of social services for the aged will produce fewer concerns here partly because of less immediate demographic pressures and partly because of the orientation of the age-pension system. Provided there are increasing investments in today's youth, then chances of longer term productivity retardation from ageing will be lessened and the necessary funding base for aged welfare secured.     

Nonparametric methods with applications to hedonic models

Current real estate statistical valuation involves the estimation of parameters within a posited specification. Suchparametric estimation requires judgment concerning model (1) variables; and (2) functional form. In contrast,nonparametric regression estimation requires attention to (1) but permits greatly reduced attention to (2). Parametric estimators functionally model the parameters and variables affectingE(y¦x) while nonparametric estimators directly modelpdf(y, x) and henceE(y¦x).This article applies the kernel nonparametric regression estimator to two different data sets and specifications. The article shows the nonparametric estimator outperforms the standard parametric estimator (OLS) across variable transformations and across data subsets differing in quality. In addition, the article reviews properties of nonparametric estimators, presents the history of nonparametric estimators in real estate, and discusses a representation of the kernel estimator as a nonparametric grid method.     

How Bell Labs creates star performers

How can managers increase the productivity of professionals when most of their work goes on inside their heads? Robert Kelley and Janet Caplan believe that defining the difference between star performers and average workers is the answer. Many managers assume that top performers are just smarter. But the authors' research at the Bell Laboratories Switching Systems Business Unit (SSBU) has revealed that the real difference between stars and average workers is not IQ but the ways top performers do their jobs. Their study has led to a training program based on the strategies of star performers. The SSBU training program, known as the Productivity Enhancement Group (PEG), uses an expert model to demystify productivity. The star engineers selected to develop the expert model identified and ranked nine work strategies, such as taking initiative, networking, and self-management. Middle performers were also asked what makes for top-quality work, but their definitions and ranking of the strategies differed significantly from those of the top performers. Taking initiative, for example, meant something very different to an average worker than it did to a star. And for the middle performers, the ability to give good presentations was a core strategy, while it was peripheral for the top engineers. Once PEG got underway, respected engineers ran the training sessions, which included case studies, work-related exercises, and frank discussion. The benefits of the program were striking: participants and managers reported substantial productivity increases in both star and average performers. The PEG program may not be a blueprint for other companies, but its message is clear: managers must focus on people, not on technology, to increase productivity in the knowledge economy.     

Short Interest and Lottery Stocks

We find short interest‐related mispricing is strongest in lottery stocks. As stocks become more lottery‐like, arbitrage risk increases, resulting in higher overpricing (underpricing) in high (low) relative short interest (RSI) stocks. Monthly portfolio alphas are –1.61% for high RSI lottery stocks, whereas high RSI stocks with the least lottery‐like attributes show statistically insignificant alphas. Among lightly shorted stocks, lottery securities exhibit monthly alphas of 1.80%. Thus, although lottery stocks as a group typically underperform, investors can earn positive abnormal returns in lightly shorted lottery stocks. Our results suggest that lottery stocks’ greater noise trader risk and higher transactions costs impedes arbitrage in short interest‐related mispricing.