Volatility spill-overs in commodity spot prices: New empirical results

The classical rational expectations model of commodity markets implies that expected spot price risk is an explanatory variable in spot price regressions; and also that inventory carryover, which is reduced by a larger price variance, creates autoregressive conditional heteroscedastic processes in spot prices. In order to falsify/verify this theory, it has typically been assumed that the square root of the conditional variance of spot prices, a proxy for spot price risk, enters the conditional mean function of spot prices. Based on this simple representation, a typical but counter intuitive outcome has been that spot price risk has an insignificant impact on spot prices, see, e.g., Beck (Beck, S., 1993. A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence. International Economic Review 34, 149–168, Beck, S., 2001. Autoregressive Conditional Heteroskedasticity in Commodity Spot Prices. Journal of Applied Econometrics 16, 115–132). In this paper, we propose an alternative functional relationship (from GARCH(1,1) to GARCH(1,1)-AR(m)) between spot price risk and spot prices that is fully supported by the classical rational expectations model, and based on this new representation we are able to provide stronger empirical support for Muth's rational expectation theory.     

If Advertising Won't Die,What Will It Be? Toward a Working Definition of Advertising

Answering recent calls for a new definition of advertising, we identify three dynamics—(new) media and formats, (new) “consumer” behaviors, and extended effects of advertising—that drive the evolution of advertising. Based on these, and a survey of advertising academics and professionals, we formulate an updated working definition of advertising as “brand-initiated communication intent on impacting people.” We also test and validate this definition and the three dynamics in a content analysis of recently published advertising research (2010 to 2015). In doing so, we hope to contribute to a more diverse and contemporary development of advertising research.     

Thinking and feeling on the World Wide Web: the impact of product type and time on World Wide Web advertising effectiveness

This article focuses on the effectiveness of banner advertisements.Drawing from theory on functional versus expressive products and wear in versus wear out it argues that product type and time are important factors in World Wide Web (WWW) advertising. The results from a large empirical study are reported and show that responses to banner advertisements differ between functional and expressive products and over time. Functional product banner advertisements have higher initial click-throughs that quickly deteriorate and they have no effect through advertisement impressions. Expressive products need time to wear in as both click-through rates and positive brand attitudes from advertisement impressions increase with repeated exposures. These differences in consumer response are conceptualized as thinking and feeling on the WWW,thereby providing important implications for advertisers.     

The Effect of New Product Preannouncements on the Evaluation of Other Brand Products

Some firms preannounce new products long before they are actually available on the market. Previous research has investigated the effects of such new product preannouncements (NPPs) on consumer and competitor responses. This paper examines how NPPs affect consumers' construal of and preferences for the new product and, in turn, how these evaluations influence their preferences for the brands' other products. Specifically, the paper demonstrates that consumers' construal level of NPPs spills over to their construal of other products in the brand family, causing a positive, biased evaluation of these products. Three experimental studies reveal that the mere information about an NPP can shift evaluation of currently available brand products in a positive direction through construal‐level spillover and increased perceptions of similarity. The studies contrast NPPs to new product announcements (NPAs) and consistently find more positive results for the former. Moreover, the studies find that product newness has a moderating effect on the results, such that the positive spillover effects are more pronounced for really new products than for incrementally new products. The results also show that the effects are contingent on the credibility of the NPP: If consumers do not consider the NPPs credible, no positive spillover effects will materialize. Finally, the studies demonstrate that the positive evaluative spillover is specific to the products in the brand family and does not affect consumers' perceptions or choice of competitor products. Consumers actually rate the competing brand's remaining products lower when the focal brand engages in NPPs. The study has important implications for managers regarding how to use NPPs to influence consumers' construal and evaluations of brand products.     

The corporation and its employees: A case story

One of the main objectives in the information society is to improve the quality of life. — Paying attention to the needs of people seems to be a key element in good ethical behaviour, says Tor Dahl, Managing Director of Manpower Scandinavia. In defining these needs, Manpower used Abraham Maslow's famous pyramid, his hierarchy of needs, as a model for trying to satisfy in practise the needs on each level. However, they went a step further, asking; what comes after Maslow? To mean something for others; togetherness and that people can be trusted and that they seek a purpose with their work, came out as answers. In his paper Mr. Dahl tells us how Manpower Scandinavia has developed a written set of values, which function as a basis for action and guidelines for behaviour, and where the key idea behind it all is to let people be self-managed. Furthermore, he shows us how Manpower has organised the company according to this conviction. — If your really have faith in people and show them trust, they will show you trust in return. Then you have a good basis for ethical behaviour, Tor Dahl concludes his paper.     

On systematic mortality risk and risk-minimization with survivor swaps

A new market for so-called mortality derivatives is now appearing with survivor swaps (also called mortality swaps), longevity bonds and other specialized solutions. The development of these new financial instruments is triggered by the increased focus on the systematic mortality risk inherent in life insurance contracts, and their main focus is thus to allow the life insurance companies to hedge their systematic mortality risk. At the same time, this new class of financial contract is interesting from an investor's point of view, since it increases the possibility for an investor to diversify the investment portfolio. The systematic mortality risk stems from the uncertainty related to the future development of the mortality intensities. Mathematically, this uncertainty is described by modeling the underlying mortality intensities via stochastic processes. We consider two different portfolios of insured lives, where the underlying mortality intensities are correlated, and study the combined financial and mortality risk inherent in a portfolio of general life insurance contracts. In order to hedge this risk, we allow for investments in survivor swaps and derive risk-minimizing strategies in markets where such contracts are available. The strategies are evaluated numerically.     

Longer-term forecasting and risks in spatial optimization models: The world grain trade

This study develops a methodology to quantify risks associated with projected commodity flows in a spatial optimization model. In this paper it is applied to the world grain trade which is characteristic of numerous commodities and with complicated and competing logistical channels in world trade. The model provides a longer-run solution by simultaneously allowing for changes in production patterns, trade flows, and intermodal, interport and inter-reach allocation of shipments. Results show that important factors affecting shipments include: changes in demand across countries, delay costs, and the increased domestic use of grains. Findings of interest show delay costs on barges shift movements to rail, other origins and ports. Second, there is much greater uncertainty for projections for more distant periods forward. Finally, the model can be applied similarly to other commodities and/or be used to analyze spatial flows concentrated in other geographic regions.     

The Timing and Persistence of CRA Compliance Ratings

We evaluate supervisory practices in enforcing the Community Reinvestment Act (CRA) by examining whether or not supervisors consider observable, bank-specific characteristics in (1) scheduling CRA compliance examinations and (2) determining whether, and for how long, a given CRA rating persists. Failure to confirm such a relationship would be consistent with criticism that the evaluation criteria are so vague that supervisors can essentially assign any rating they want for compliance purposes. Analysis of a sample of several thousand commercial banks, observed over a relatively stable regulatory regime, indicates that both examination scheduling and the persistence of examination ratings are associated with residential loan levels, a presumed cornerstone of the CRA, as well as other financial, regulatory and market factors. We conclude that CRA enforcement during this period reflected, at least in part, objective evaluation criteria.     

Strategic use of futures and options by commodity processors

The impacts of input–output price relationships on end-users' demands for positions in futures and options are analyzed using a mean-variance portfolio model and applied to price risk management in the bread manufacturing industry. A production relationship was assumed between the input and resultant output, and correlation between the input and output prices were introduced into the portfolio model. The optimal hedge ratio can be either positive or negative depending upon the relationship between the input and output price standard deviation adjusted for production technology and input–output price correlation. Introduction of a call option into the portfolio (in addition to the futures) does not change the hedging demand for futures; however, the speculative component changes. The results show that the addition of input–output linear production and price correlation relationships would not justify a hedging role for options unless there is bias in the futures and/or options markets.