A New Approach to the Study of Jobless Recoveries

This article is concerned with the measurement of jobless recoveries and the elements that may explain their emergence. We first introduce a measure that maps the various elements that define a jobless recovery into a single number that we label the jobless recovery depth. We then construct a database of 389 state‐level observations and study the cross‐sectional variations that emerge. We find that jobless recoveries in the United States are not a nation‐wide phenomena, but a local event confined within a cluster of states that expands slowly between 1975 and 2015. We find the state‐level evidence to be consistent with theories that link jobless recoveries to unusually long expansionary periods, less dynamic labor markets, and the advent of the great moderation. The evidence is not consistent with theories that link them to decreases in union power, increases in income inequality, or increases in health care costs.     

What Do Central Banks Know about Inflation Factors?

We offer a novel methodology for assessing the quality of central bank monetary policy reports. We evaluate their economic content by comparing verbally reported inflation factors with factors identified from a simple new Keynesian model. Positive correlations indicate that the reported inflation factors were similar to the model-identified ones, marking high-quality inflation reports. Although sample bank reports on average identified inflation factors correctly, the degree of forward-looking reporting varied.     

Flexible distribution functions,higher-order preferences and optimal portfolio allocation

In this paper we show that flexible probability distribution functions, in addition to being able to capture stylized facts of financial returns, can be used to identify pure higher-order effects of investors' optimizing behavior. We employ the five-parameter weighted generalized beta of the second kind distribution—and other density functions nested within it—to determine the conditions under which risk averse, prudent and temperate agents are diversifiers in the standard portfolio choice theory. Within this framework, we illustrate through comparative statics the economic significance of higher-order moments in return distributions.     

Estimation of zero-intelligence models by L1 data

A unit volume zero-intelligence (ZI) model is defined and the distribution of its L1 process is recursively described. Further, a generalized ZI model allowing non-unit market orders, shifts of quotes and general in-spread events is proposed and a formula for the conditional distribution of its quotes is given, together with a formula for price impact. For both the models, MLE estimators are formulated and shown to be consistent and asymptotically normal. Consequently, the estimators are applied to data of six US stocks from nine electronic markets. It is found that more complex variants of the models, despite being significant, do not give considerably better predictions than their simple versions with constant intensities.     

American-style options in jump-diffusion models: estimation and evaluation

We propose dynamic programming coupled with finite elements for valuing American-style options under Gaussian and double exponential jumps à la Merton [J. Financ. Econ., 1976, 3, 125–144] and Kou [Manage. Sci., 2002, 48, 1086–1101], and we provide a proof of uniform convergence. Our numerical experiments confirm this convergence result and show the efficiency of the proposed methodology. We also address the estimation problem and report an empirical investigation based on Home Depot. Jump-diffusion models outperform their pure-diffusion counterparts.     

Persistent Doubt: An Examination of Hedge Fund Performance

We examine whether performance persistence is suspicious. Top quintile portfolios formed on the Sharpe ratio, alpha, and information ratio persistently outperform similarly constructed mediocre third quintile portfolios throughout our sample period, but performance is more modest and less persistent when portfolios are formed on the excess manipulation‐proof performance measure (EMPPM). By selecting funds formed on ranking by Sharpe and information ratios, investors also select funds that have persistently doubtful performance according to the doubt ratio. In contrast, portfolios formed on alphas and especially the EMPPM have much less excess and persistent doubt.     

Antecedent factors of the need for information regarding petrochemical complex hazards

Information transparency is a relevant factor nowadays. The current legislation has forced hazardous companies to improve their communication policy with the local community, but this entails the difficulty that each individual has a different need for information. This study considers the main antecedents of need for information to explain these differences. The paper analyses, to our knowledge for the first time, the direct influence of personal beliefs about environmental issues on the individual’s need for information. The research focused on the residents (992) of an area near to a petrochemical complex. The results, derived from the structural equation modelling analysis, confirmed the influence of environmental beliefs, trust in companies and negative affective response on the need for information. In the light of these results, we recommend that the companies of the complex develop a risk communication policy based on personal environmental beliefs, in order to understand the public’s concerns and their needs for risk information. Finally, the analysed companies need to see risk communication as a long-term and ongoing process that involves active dialogue and enables stakeholders’ participation, with the aim of establishing a communication network.     

How Do Investment,Fundamentals, and Stock Prices Relate Around the World?

We assemble a novel data set of industry panel data for the corporate sector and the entire economy across a number of countries to explore the connection between investment and stock prices. The link is present in all samples, in both the aggregate and industry dimensions, and increases with stock market development. Fundamentals are less related to prices in underdeveloped markets but are similarly related to investment everywhere. Thus, the active informant interpretation does not seem to be the main force behind the stock market–investment relationship. In addition, industries that are more dependent on equity finance, and where investors are strongest, exhibit higher sensitivity to prices, especially in developed markets.     

Short-term asymptotics for the implied volatility skew under a stochastic volatility model with Lévy jumps

The implied volatility skew has received relatively little attention in the literature on short-term asymptotics for financial models with jumps, despite its importance in model selection and calibration. We rectify this by providing high order asymptotic expansions for the at-the-money implied volatility skew, under a rich class of stochastic volatility models with independent stable-like jumps of infinite variation. The case of a pure-jump stable-like Lévy model is also considered under the minimal possible conditions for the resulting expansion to be well defined. Unlike recent results for “near-the-money” option prices and implied volatility, the results herein aid in understanding how the implied volatility smile near expiry is affected by important features of the continuous component, such as the leverage and vol-of-vol parameters. As intermediary results, we obtain high order expansions for at-the-money digital call option prices, which furthermore allow us to infer analogous results for the delta of at-the-money options. Simulation results indicate that our asymptotic expansions give good fits for options with maturities up to one month, underpinning their relevance in practical applications, and an analysis of the implied volatility skew in recent S&P 500 options data shows it to be consistent with the infinite variation jump component of our models.