Correct cointegration tests of the long-run relationship between nominal interest and inflation

The Fisher (1930) hypothesis suggests that a long-run equilibrium relationship exists between the non-stationary series: nominal interest and expected inflation. Testing such a cointegrating relationship is complicated by the presence of the unobserved ex antereal rate of interest in residuals from the cointegrating regression. Assumptions concerning the stochastic properties of the expected real rate of interest are examined, and two proxies for the ex antereal rate are employed in multivariate cointegration tests of the Fisher hypothesis.     

Does mother nature punish rotten kids?

The theory of parent-offspring conflict predicts that mothers and their offspring may not agree about how resources should be allocated among family members. An offspring, for example, may favor a later weaning date than does its mother. Despite a parent's physical superiority, it may be that offspring are able to manipulate their parents' behavior. In this paper, we investigate a two-locus population genetic model of weaning conflict in which offspring can attempt to extort resources from their parents by reducing their own chances of survival if their demands are not met. We find that the frequency of recombination between the genes controlling maternal behavior and those controlling juvenile behavior determines the evolutionary outcome of this genetic conflict. When these genes are tightly linked, the mother will be able to get her way. When they are not, offspring can successfully 'blackmail' their parents into providing additional resources.     

NEWS-GENERATED DEPENDENCE AND OPTIMAL PORTFOLIOS FOR n STOCKS IN A MARKET OF BARNDORFF-NIELSEN AND SHEPHARD TYPE

We consider Merton's portfolio optimization problem in a Black and Scholes market with non-Gaussian stochastic volatility of Ornstein–Uhlenbeck type. The investor can trade in n stocks and a risk-free bond. We assume that the dependence between stocks lies in that they partly share the Ornstein–Uhlenbeck processes of the volatility. We refer to these as news processes, and interpret this as that dependence between stocks lies solely in their reactions to the same news. The model is primarily intended for assets that are dependent, but not too dependent, such as stocks from different branches of industry. We show that this dependence generates covariance, and give statistical methods for both the fitting and verification of the model to data. Using dynamic programming, we derive and verify explicit trading strategies and Feynman–Kac representations of the value function for power utility.     

Who Is Publishing? An Analysis of Finance Research Productivity in the European Region

This study ranks the research productivity in finance across European universities and researchers using a set of 15 finance journals during the decade of the 1990s. A total of 219 universities are ranked. During the sample period from 1990 to 1999, UK universities dominate the top-20 ranking. However, the UK 's dominance is significantly reduced when the Journal of Business Finance & Accounting, a UKbased journal, is excluded from the analysis. Other non-UK European universities gain further ground when only the top-4 journals are used to measure ranking. Our analysis also shows that a majority of the top 20 European universities have made significant progress in research productivity over the period 1990–99. Additionally, we compare the top European universities to those in North America. The top European university, London Business School, compares to the 24th and 25th ranked North American universities for the period from 1990 to 1999; it compares to the 15th and 16th ranked North American universities for the more recent sub-period from 1995 to 1999. The top researcher is Henri Servaes from London Business School.     

Global ranking of accounting programmes and the elite effect in accounting research

We provide a global ranking of accounting research and examine the elite degree and elite affiliation effect. Based on 24 accounting journals during the period 1991–2005, the top 5 most productive countries in accounting research are in the following order: the USA, the UK, Australia, Canada and Hong Kong. We find a significant elite degree effect, indicating that authors who graduated from elite accounting programmes have a disproportionate share of publications in top‐notch journals. The same conclusion is also supported by the elite affiliation effect in which leading accounting journals have higher concentration of authors who are affiliated with elite institutions.     

Detecting and modelling nonlinearity in flexible exchange rate time series

The aim of this paper is to examine the appropriateness of nonlinear time series analysis as a framework in which to model the dynamics of exchange rates. This aim has been motivated by the questioning of the power of classical unit root tests, the accumulating amount of evidence which suggests that exchange rates follow some kind of nonlinear process, and the fact that standard asset pricing theories do not explain well the empirical observations of exchange rate movements. The paper has three major objectives. First, to test for the presence of unit roots in nominal exchange rate time series. Second, for those nominal exchange rate time series found to be stationary, to test for nonlinearity using both tests derived without a specific nonlinear alternative in mind and tests against a specific nonlinear model. Finally, we motivate the types of nonlinearity for which we test by examining a recently proposed nonlinear model of exchange rate dynamics.The authors are from the School of Finance and Economics, University of Technology, Sydney, Australia. We are extremely grateful to Alex Beliak and Alexander Khomin for their research assistance and help in developing our computer programs.