SKEWNESS‐AWARE ASSET ALLOCATION: A NEW THEORETICAL FRAMEWORK AND EMPIRICAL EVIDENCE

This paper presents a new measure of skewness, skewness‐aware deviation, that can be linked to prospective satisficing risk measures and tail risk measures such as Value‐at‐Risk. We show that this measure of skewness arises naturally also when one thinks of maximizing the certainty equivalent for an investor with a negative exponential utility function, thus bringing together the mean‐risk, expected utility, and prospective satisficing measures frameworks for an important class of investor preferences. We generalize the idea of variance and covariance in the new skewness‐aware asset pricing and allocation framework. We show via computational experiments that the proposed approach results in improved and intuitively appealing asset allocation when returns follow real‐world or simulated skewed distributions. We also suggest a skewness‐aware equivalent of the classical Capital Asset Pricing Model beta, and study its consistency with the observed behavior of the stocks traded at the NYSE between 1963 and 2006.     

Demographic Change and Pension Reform in Spain: An Assessment in a Two‐Earner,OLG Model*

Recent pension reforms in Spain have been guided by two opposite goals: achieving financial stability and improving redistributive aspirations. In particular, reforms implemented in 1997/2001 entailed a mixture of both through: (i) changes in the pension formula; (ii) the extension of entitlement to early retirement to all cohorts; and (iii) increases in survival pensions. This paper builds an applied general equilibrium OLG model that captures the fundamental non‐stationarity of the Spanish reality (ageing population, education transition and increasing female attachment to the labour market) to assess the impact of those reforms. As a novel feature with respect to the literature, households in our model economy are made up of two potential earners who make saving and labour supply decisions. Our main conclusions from the analysis are at three different levels. First, the Spanish pension system is clearly unsustainable, with pension expenditure reaching a figure of about 18 per cent of GDP in 2050, and the reforms have clearly been     

La formación en el trabajo en Europa. Determinantes y rendimiento salarial

Los autores analizan los determinantes de la participación de los trabajadores en actividades formativas y los efectos de éstas sobre los salarios. A partir de datos de seis países del Panel de Hogares de la Unión Europea del período 19952001, construyen cuatro tipos de indicadores de formación. Sus estimaciones con mínimos cuadrados ordinarios indican que las actividades formativas generan unos rendimientos salariales notables en casi todos los países analizados. Sin embargo, los rendimientos no son estadísticamente distintos de cero cuando repiten las estimaciones con modelos de efectos fijos. Por tanto, las ganancias salariales debidas a la formación podrían estar siendo sobrestimadas al no tenerse en cuenta adecuadamente otros factores.     

Implicit deposit insurance and deposit guarantees: Characteristics of Australian bank risk premia

This paper examines the hypothesis that CD issue yields of Australian banks incorporate a premium that reflects bank risk. Our empirical analysis of Australian banks' CD premiums suggests the data is consistent with this hypothesis and hence supports the view that CD holders do not perceive their deposits as being risk-free. Nor do we find any statistically significant difference between the premiums paid by private banks with implicit deposit insurance vis-a-vis those paid by government-owned banks with explicit government guarantees.     

Road traffic injuries in Mozambique

Road traffic injuries affect the economy, health and quality of life of the people of Mozambique. Current road safety programmes are inadequate and inefficient given the magnitude of the problem. Data reported on road traffic crashes in the period 1990 to 2000 from the National Institute for Road Safety, the traffic police and the Central Hospital of Maputo were reviewed. The burden of road traffic injuries in Mozambique is rising, with at least three people killed daily. The age group most affected is 25-38 (39.35%), followed by 16-24 (20.79%). The main causes of crashes include reckless driving, drunken driving, roads with potholes, inadequate signs, lack of protection for pedestrians, and inadequate traffic law enforcement. However, the data are not adequate to reveal the true magnitude of the problem. Data collected by different sources are incomplete and not coordinated with other sources and databases. In urban areas, however, better response to crashes, treatment of the injured, reporting and data collection is attributable to a greater concentration of police and medical facilities. Road traffic safety programmes in Mozambique are inadequate and inefficient, starting with the data collection system. Improvement of injury surveillance systems is needed to help make road traffic safety a national development agenda priority and for developing and implementing road safety policies. For road safety programmes to be effective, government must facilitate stakeholders’ involvement, and the clear definition of government activities, civil society activities and public-private partnerships need to be established.     

Forecasting Social Security Actuarial Assumptions

Abstract

This paper presents a forecasting model of economic assumptions that are inputs to projections of the Social Security system. Social Security projections are made to help policy-makers understand the financial stability of the system. Because system income and expenditures are subject to changes in law, they are controllable and not readily amenable to forecasting techniques. Hence, we focus directly on the four major economic assumptions to the system: inflation rate, investment returns, wage rate, and unemployment rate. Population models, the other major input to Social Security projections, require special demographic techniques and are not addressed here.

Our approach to developing a forecasting model emphasizes exploring characteristics of the data. That is, we use graphical techniques and diagnostic statistics to display patterns that are evident in the data. These patterns include (1) serial correlation, (2) conditional heteroscedasticity, (3) contemporaneous correlations, and (4) cross-correlations among the four economic series. To represent patterns in the four series, we use multivariate autoregressive, moving average (ARMA) models with generalized autoregressive, conditionally heteroscedastic (GARCH) errors.

The outputs of the fitted models are the forecasts. Because the forecasts can be used for nonlinear functions such as discounting present values of future obligations, we present a computer-intensive method for computing forecast distributions. The computer-intensive approach also allows us to compare alternative models via out-of-sample validation and to compute exact multivariate forecast intervals, in lieu of approximate simultaneous univariate forecast intervals. We show how to use the forecasts of economic assumptions to forecast a simplified version of a fund used to protect the Social Security system from adverse deviations. We recommend the use of the multivariate model because it establishes important lead and lag relationships among the series, accounts for information in the contemporaneous correlations, and provides useful forecasts of a fund that is analogous to the one used by the Social Security system.     

Teaching Business Ethics Through Literature

America's economic ideology lacks a vocabulary of ethics. If, as we assume, an economic system requires a moral component for long-term survival, students in business schools must be exposed to a vocabulary of ethics that is consistent with the ideology of capitalism. We present a vocabulary of ethics and describe an approach to teaching business ethics based on business-related classic literature and moral philosophy.     

Policies to enhance social development through the promotion of SME and social entrepreneurship: a study in the Colombian construction industry

Abstract

The intent of this research is to propose and analyse a set of policies in the construction industry to enhance social development. First, the paper shows the connections between the development of small and medium enterprises (SMEs) and social entrepreneurship (SE), the reduction of the leakage, and then the generation of social value (SV) for sustainable regional development. For that, the article analyses briefly the literatures on SE and leakage, and focuses on the relevance of SME and social entrepreneurs as promoters of SV creation and development. Second, the paper proposes a framework and proposes a set of 20 policies aimed to reduce leakage, reinforce SMEs and entrepreneurship and also to promote SE behaviour by the diverse economic agents in the construction industry, in order to increase the generation of SV and sustainable development. Then, the paper analyses the acceptability, feasibility and viability of these proposed polices, which can be useful for academics and practitioners. For that, the study uses the Delphi methodology, applied to an expert-group of 23 professionals (representatives of the private and public sector) belonging to the Colombian construction industry. The results emphasize the relevance of the development of local incumbents and the social focus of firms to increase the generation of SV. Oppositely, policies interfering economic freedom and free trade receive the lowest rates in the three criteria considered.     

Trust,authentic pride,and moral reasoning: a unified framework of relational governance and emotional self‐regulation

This conceptual article introduces behavioral perspectives into the governance arena and undertakes a psychological assessment of managerial decision making in organizations by elaborating on the treatment of trust and (authentic and hubristic) pride in the extant literature. While trust is conceived by governance scholars as a device for monitoring relationships with others, we argue that authentic pride, contrary to hubris, could operate as an attribute of emotional self‐regulation allowing corporate leaders to govern the social behavior of their own self. Contrasting the features of trust and authentic pride, we advance several propositions to capture their relevance and simultaneous importance as viable governance mechanisms in light of a manager's level of cognitive moral reasoning. Our study builds a unified theoretical framework of governance which integrates human agency, psychological states, and moral judgment to foster a deeper understanding of complex self‐regulatory processes that are activated by decision makers in the execution of their roles.