ROUNDING,FOCAL POINT ANSWERS AND NONRESPONSE TO SUBJECTIVE PROBABILITY QUESTIONS

We develop a panel data model explaining answers to subjective probabilities about binary events and estimate it using data from the Health and Retirement Study on six such probabilities. The model explicitly accounts for several forms of ‘reporting behavior’: rounding, focal point ‘50%’ answers and item nonresponse. We find observed and unobserved heterogeneity in the tendencies to report rounded values or a focal answer, explaining persistency in 50% answers over time. Focal 50% answers matter for some of the probabilities. Incorporating reporting behavior does not have a large effect on the estimated distribution of the genuine subjective probabilities. Copyright © 2013 John Wiley & Sons, Ltd.     

Measuring performance, development and growth when restricting flexibility

In industries with heterogeneous firms and fast-changing productivity, it is necessary to consider both firm and time effects if one is interested in technology adoption and efficiency. Since it is not possible to estimate individual firm effects for each time period due to degree-of-freedom problems, a trade-off is necessary with respect to where one is employing a flexible specification and where one is more restrictive. While most studies choose to account for variation, either in cross-sectional or temporal dimensions, we are in this paper, by clustering firms together in groups, allowing for variation in both cross-sectional and temporal dimensions. By modifying a shadow cost system, we are able to measure group-specific temporal patterns of technical and allocative efficiency and technological change without restricting the patterns to any parametric form.     

Skill classification does matter: estimating the relationship between trade flows and wage inequality

Empirical work must pay careful attention to how it measures the relative skill abundance of countries and the relative skill intensity embodied in trade flows. This paper compiles a new data set, using income levels, average education, manufacturing wages, and an index of these three variables, to classify countries and trade flows as relatively high skill or low skill. Then, in order to show the importance of skill classification, it uses a reduced-form fixed-effects model to estimate the relationship between trade flows and wage inequality. This specification not only controls for any time-invariant omitted variables, but also permits the inclusion of a large number of diverse countries. When more accurate skill rankings are utilized, results suggest that, in high-skill abundant countries, increased trade with lower-skill countries is correlated with an increase in wage inequality. This relationship is significant and highly robust and is driven by the negative relationship between trade and low-skill wages (instead of a positive relationship between trade and high-skill wages.) Results, however, are highly dependent on the skill classification utilized.     

Trade Linkages and Output‐Multiplier Effects: a Structural VAR Approach with a Focus on Asia*

This paper develops a structural VAR model to measure how a shock to one country affects other countries’ GDP. It uses trade linkages to estimate the multiplier effects as a shock is transmitted through output fluctuations and introduces a new specification strategy that reduces the number of unknowns and allows cross‐country relationships to vary over time. This model is used to examine the impact of shocks to 11 Asian countries, the US, and the rest of the OECD. Impulse‐response matrices suggest that these multiplier effects are large and can transmit shocks in very different patterns than predicted from a bilateral‐trade matrix.     

Influential Leadership and Media: How a Single Statement Can Affect an Industry

Historically, the most powerful political and organizational leaders have been described as being charismatic. With technology's increasing impact on society, these leaders have widespread access to the masses. Utilizing charismatic leadership and media saliency theories, this study aims to analyze the impact that occurred in the Las Vegas convention industry after the President made specific comments concerning Las Vegas. These comments implied that convention spending in Las Vegas was wasteful, and resulted in the cancellation or relocation of over 400 conventions in one week. This research utilizes monthly, aggregate convention data from January 2002 to March 2014 to evaluate the impact of this comment empirically. Time series regression analysis was conducted to estimate the effect of President Obama's comment, controlling for other factors. The results suggest that President Obama's comments had a significant negative effect on both convention attendance and the number of meetings held. The findings provide insight into the effect of singular comments made by influential leaders.     

Merton's portfolio optimization problem in a Black and Scholes market with non-Gaussian stochastic volatility of Ornstein-Uhlenbeck type

We study Merton's classical portfolio optimization problem for an investor who can trade in a risk-free bond and a stock. The goal of the investor is to allocate money so that her expected utility from terminal wealth is maximized. The special feature of the problem studied in this paper is the inclusion of stochastic volatility in the dynamics of the risky asset. The model we use is driven by a superposition of non-Gaussian Ornstein-Uhlenbeck processes and it was recently proposed and intensively investigated for real market data by Barndorff-Nielsen and Shephard (2001) . Using the dynamic programming method, explicit trading strategies and expressions for the value function via Feynman-Kac formulas are derived and verified for power utilities. Some numerical examples are also presented.     

ADAPTIVE MESH MODELING AND BARRIER OPTION PRICING UNDER A JUMP‐DIFFUSION PROCESS

The computational burden of numerical barrier option pricing is significant, even prohibitive, for some parameterizations—especially for more realistic models of underlying asset behavior, such as jump diffusions. We extend a binomial jump diffusion pricing algorithm into a trinomial setting and demonstrate how an adaptive mesh may fit into the model. Our result is a barrier option pricing method that employs fewer computational resources, reducing run times substantially. We demonstrate that this extension allows the pricing of options that were previously computationally infeasible and examine the parameterizations in which use of the adaptive mesh is most beneficial.