Costs and potential funding of expanded public pension coverage in Asia

Public pension burdens in most emerging Asian economies are still relatively small. However, there are a number of reasons to believe that they will increase markedly in the coming years. First, many Asian economies will face rapidly ageing populations, which will raise pension and other old‐age‐related spending dramatically. Second, as economies develop, political pressures to expand the coverage of public pensions and raise pension benefits will likely increase. The first objective of this paper is to identify the potential fiscal burden of public pensions in 23 emerging Asian economies, based on econometric models and forecasts of GDP and demographic trends. Using two different methodologies yields estimated increases in the average share of public pension expenditures in GDP of 1.0 percentage point and 3.6 percentage points by 2030 compared with current levels. We believe the latter estimate is more realistic. The second objective is to recommend policies to provide adequate funding for public pension needs, including enhancing the efficiency of social insurance programs, improving the balance of revenues and expenditures, implementing more explicit fiscal rules and frameworks, and establishing stronger fiscal surveillance at the national and regional levels.     

Prediction based on entrepreneurship-prone personality profiles: sometimes worse than the toss of a coin

Small Business Economics - The human personality predicts a wide range of activities and occupational choices—from musical sophistication to entrepreneurial careers. However, which method...     

Sparse Signals in the Cross‐Section of Returns

This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling one‐minute‐ahead return forecasts using the entire cross‐section of lagged returns as candidate predictors. The LASSO increases both out‐of‐sample fit and forecast‐implied Sharpe ratios. This out‐of‐sample success comes from identifying predictors that are unexpected, short‐lived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.     

Passive Investment Strategies and Efficient Markets

This paper presents the case for and the evidence in favour of passive investment strategies and examines the major criticisms of the technique. I conclude that the evidence strongly supports passive investment management in all markets—small–capitalisation stocks as well as large–capitalisation equities, US markets as well as international markets, and bonds as well as stocks. Recent attacks on the efficient market hypothesis do not weaken the case for indexing.     

Unbiased estimation of expected return using CAPM

Estimation of expected return is required for many financial decisions. For example, an estimate for cost of capital is required for capital budgeting and cost of equity estimates are needed for performance evaluation based on measures such as EVA. Estimates for expected return are often based on the Capital Asset Pricing Model (CAPM), which states that expected excess return (expected return minus the risk-free rate) is equal to the asset's sensitivity to the world market portfolio (β) times the risk premium on the “world market portfolio” (the market risk premium). Since the world market portfolio, by definition, contains all assets in the world, it is not observable. As a result, an estimate for expected return is commonly obtained by taking an estimate for β based on some index (as a proxy for the world market portfolio) and an estimate for the market risk premium based on a potentially different index and multiplying them together. In this paper, it is shown that this results in a biased estimate for expected return. This is undesirable since biased estimates lead to misallocation of funds and biased performance measures. It is also shown in this paper that the straightforward procedure suggested by Fama and MacBeth [J. Financ. Econ. 1 (1974) 43] results in an unbiased estimate for expected return. Further from the analysis done, it follows that, for an unbiased estimate, it does not matter what proxy is used, as long as it is used correctly an unbiased estimate for expected return results.     

Ag econ angst crisis revisited

The present paper was inspired by and is a response to the Rola-Rubzen, Hardaker and Dillon paper 'Agricultural economists and world poverty: progress and prospects' (Rola-Rubzen et al. 2001). It is agreed that the position of agricultural economists in foreign aid and poverty programs has declined over recent decades. Such a feeling of guilt and remorse expressed by the above authors does indeed create considerable 'angst'. A major reason for this state of affairs lies in 'the flavour of the month' approach of the development agencies. These include women in development, gender-based farming systems research, household nutrition and food security, people participation, and targeting the poorest of the poor. These fads have driven disciplinary considerations to the wall and the more widely-defined objectives have reduced the drive for economic efficiency. We argue there is still a place for better designed and delivered assistance programs within the wider framework of assistance that has become fashionable. Greater application of institutional principles in both the political processes associated with assistance and the implementation agencies would improve the outcomes of many projects. Particular attention would need to be given to the interface between the development agencies and recipient governments. The present paper picks up on the market failure aspects of agriculture's rather poor contribution to development, and develops a wider perspective in terms of the new institutional economics and a continuing role for the agricultural economist.