Causal effects of the United States and Japan on Pacific-Rim stock markets: nonparametric quantile causality approach

This article adopts a nonparametric quantile causality approach to examine the causal effects of the U.S. and Japan stock markets on the stock markets of the Pacific-Rim region. This approach allows us to detect not only nonlinear causalities in conditional return (mean) and conditional volatility (variance) but also the asymmetries of causalities under extreme market conditions (bullish vs. bearish states). Our results provide significant evidence of causality in return and volatility at different points of the conditional distributions of returns, with the greater effects from the U.S. than from Japan. Asymmetric quantile causality patterns are particularly pronounced in the case of Japan.     

On the natural selection rule in general linear models

We consider a problem of selecting the best treatment in a general linear model. We look at the properties of the natural selection rule. It is shown that the natural selection rule is minimax under to “0–1” loss function and it is a Bayes rule under a monotone permutation invariant loss function with respect to a permutation invariant prior for every variance balanced design. Some other condition on the design matrix is given so that a Bayes rule with respect to a normal prior will be of simple structure.     

On a Morgenstern-type bivariate gamma distribution

Summary In this paper a Morgenstern-type bivariate gamma distribution has been studied. Its moment generating function has been derived. The distribution of the product and quotient are derived in terms of the modified Bessel function. The results for the independent case follow as special cases. Further the regression function has been analysed, in terms of its deviation from linear regression function.This research was initiated while the first author was a U.N. Consultant under the Statistical Training Program for Africa, visiting the University of Ghana.     

Financial crises and labor market turbulence

Financial crises in emerging markets trigger a significant reallocation of labor as exchange rate depreciations and interest rate increases cause relative prices to change drastically. Household survey data for Mexico reveal that individuals who switched industry or occupation during the 1994–1995 crisis lost about 10% of their hourly earnings on average compared to similar workers who did not move. This suggests that many workers became less productive in the process of migrating to different economic activities. These productivity losses, in turn, can explain about 40% of the observed fall in TFP in Mexico in 1995.     

Accountability and legitimacy in earth system governance: A research framework

Along with concerns over the effectiveness of earth system governance, ways of enhancing its accountability and legitimacy are increasingly coming to the fore in both scholarly debate and political practice. Concerns over accountability and legitimacy pertain to all levels of governance, from the local to the global, and cover the spectrum of public and private governance arrangements. This conceptual article elaborates on the sources, mechanisms and reform options relating to more accountable, legitimate and democratic earth system governance. We proceed in four steps. First, we conceptualize accountability and legitimacy in earth system governance. Second, we place questions of accountability and legitimacy within the larger context of earth system transformation, which, we argue, poses special challenges to the pursuit of accountability and legitimacy. Third, drawing on the contributions to this special section, we analyze different sources and mechanisms of accountability and legitimacy and their effects on the democratic potential and effectiveness of governance. Fourth, in concluding, we outline reform options that may help alleviate persisting deficits in the democratic potential of earth system governance.     

Linking global economic dynamics to a South African-specific credit risk correlation model

In order to address practical questions in credit portfolio management it is necessary to link the cyclical or systematic components of firm credit risk with the firm's own idiosyncratic credit risk as well as the systematic credit risk component of every other exposure in the portfolio. This paper builds on the methodology proposed by Pesaran, Schuermann, and Weiner [Pesaran, M.H., Schuermann, T., and Weiner, S.M., (2004), Modeling regional interdependencies using a global error correcting macroeconometric model, Journal of Business and Economic Statistics, 22, 2, 129–169.] and supplemented by Pesaran, Schuermann, Treutler and Weiner [Pesaran, M.H., Schuermann, T., Treutler, B., and Weiner, S.M., (2006), Macroeconomic dynamics and credit risk: a global perspective, Journal of Money, Credit, and Banking, Volume 38, Number 5, August 2006, 1211–1261.] which has made a significant advance in credit risk modelling in that it avoids the use of proprietary balance sheet and distance-to-default data, focusing on credit ratings which are more freely available.In this paper a country-specific macroeconometric risk-driver engine which is compatible with and could feed into the GVAR model and framework of PSW (2004) is constructed, using vector error-correcting (VECM) techniques. This allows conditional loss estimation of a South African-specific credit portfolio but also opens the door for credit portfolio modelling on a global scale, as such a model can easily be linked to the GVAR model. The set of domestic factors is extended beyond those used in PSW (2004) in such a way that the risk-driver model is applicable for both retail and corporate credit risk. As such, the model can be applied to a total bank balance sheet, incorporating the correlation and diversification between both retail and corporate credit exposures.Assuming statistical over-identification restrictions, the results indicate that it is possible to construct a South African component for the GVAR model that can easily be integrated into the global component. From a practical application perspective the framework and model is particularly appealing since it can be used as a theoretically consistent correlation model within a South African-specific credit portfolio management tool.     

Sub additive measures of relative information and inaccuracy

Summary In the study of information theoretic measures, additivity has been the basic requirement. However it is quite interesting to investigate the sub-additive measures. Starting from subadditivity for measures associated with a pair of distributions of a discrete random variable, it has been changed into an equality relation using another function of a pair of distributions., Under the sum property of the function and the measures, the relation is expressed in terms of a functional equation of which the most general complex solutions have been obtained. In terms of the real continuous solutions of the functional equation, the sub-additive measures of Relative information and Inaccuracy have been defined and characterized. Particular cases and simple properties particularly the convexities of some of these new measures have also been studied.