Symposium on Harrison's “Lean and Mean”: A policy perspective

Conclusion It is unfortunate that Bennett Harrison has been trapped into a Manichean view of the world and that, in his attack on small business, he has found no lever other than a reliance on big business. The world is not as simple as he would appear to suggest. It is neither black nor white, but grey; coordination is neither vertical nor horizontal, but transversal.Yet one must welcome Harrison's polemical attack. It may yet serve as a catalyst that will enable the debate to go well beyond the large-firm/small-firms fixation (a somewhat sterile debate) into an exploration of the various forms of transversal coordination and of their relative merits in a rich variety of contexts. If this were to be the case, one might, in the future, see the present controversies surrounding Harrison's book as being something of a landmark, for while the book itself may have somewhat faded away into oblivion, the stimulating discussions generated by the book will have left behind what Gaston Bachelard would have called a surobject — a solid residue, a positive contribution to knowledge that would never have materialized without such a book (Bachelard, 1949).     

Endogenous overconfidence in managerial forecasts

We examine whether attribution bias leads managers who have experienced short-term forecasting success to become overconfident in their ability to forecast future earnings. Importantly, this form of overconfidence is endogenous and dynamic. We also examine the effect of this cognitive bias on the managerial credibility. Consistent with the existence of dynamic overconfidence, managers who have predicted earnings accurately in the previous four quarters are less accurate in their subsequent earnings predictions. These managers also display greater divergence from the analyst consensus and are more precise. Lastly, investors and analysts react less strongly to forecasts issued by overconfident managers.     

A report of TRUSTNET on risk governance--lessons learned

During the 1990s, the current regulatory frameworks and decision making processes in the European Union for hazardous activities such as nuclear and chemical waste management, hazardous industrial facilities, food production, and genetically modified organisms (GMOs) in agriculture and health care, were confronted at both national and local levels with significant difficulties in trying to meet the different concerns of the various categories of stakeholders involved. The TRUSTNET concerted action was established to assess these difficulties and their consequences and to propose more coherent, comprehensive and equitable approaches for evaluating, comparing and managing health and environmental risks. This paper presents the outcomes of this programme. A European network of some 80 participants was established comprising an interdisciplinary team of regulators, experts and stakeholders with experience of industrial, natural and medical risks. The participants identified the main challenges to the governance of hazardous activities on the basis of a detailed analysis of some 11 case studies, and determined criteria for assessing what can be considered as 'good' governance of hazardous activities. As a result of these investigations, an interdisciplinary model describing the available approaches to governance of hazardous activities is proposed in the form of two main paradigms: Top-Down Governance and Mutual Trust Governance. Using this model the difficulties encountered by current approaches to risk regulation are interpreted. The new perspective describes how the two paradigms can interact in the continuous social dynamic to allow the maintenance of social cohesion.     

Fast and realistic European ARCH option pricing and hedging

The behavior of the implied volatility surface for European options was analysed in detail by Zumbach and Fernandez for prices computed with a new option pricing scheme based on the construction of the risk-neutral measure for realistic processes with a finite time increment. The resulting dynamics of the surface is static in the moneyness direction, and given by a volatility forecast in the time-to-maturity direction. This difference is the basis of a cross-product approximation of the surface. The subsequent speed-up for option pricing is large, allowing the computation of Greeks and the delta replication strategy in simulations with the cost of replication and the replication risk. The corresponding premia are added to the option arbitrage price in order to compute realistic implied volatility surfaces. Finally, the cross-product approximation for realistic prices can be used to analyse European options on the SP500 in depth. The cross-product approximation is used to compute a mean quotient implied volatility, which can be compared with the full theoretical computation. The comparison shows that the cost of hedging and the replication risk premium have contributions to the implied volatility smile that are of similar magnitude to the contribution from the process for the underlying asset.     

Empirical properties of large covariance matrices

The salient properties of large empirical covariance and correlation matrices are studied for three datasets of size 54, 55 and 330. The covariance is defined as a simple cross product of the returns, with weights that decay logarithmically slowly. The key general properties of the covariance matrices are the following. The spectrum of the covariance is very static, except for the top three to 10 eigenvalues, and decay exponentially fast toward zero. The mean spectrum and spectral density show no particular feature that would separate ‘meaningful’ from ‘noisy’ eigenvalues. The spectrum of the correlation is more static, with three to five eigenvalues that have distinct dynamics. The mean projector of rank k on the leading subspace shows that a large part of the dynamics occurs in the eigenvectors. Together, this implies that the reduction of the covariance to a few leading static eigenmodes misses most of the dynamics. Finally, all the analysed properties of the dynamics of the covariance and correlation are similar. This indicates that a covariance estimator correctly evaluates both volatilities and correlations, and separate estimators are not required.     

Conglomerate Structure and Capital Market Timing

We examine the effects of keiretsu structure on capital market-timing. Keiretsu groups offer a hybrid structure between fully integrated conglomerates and stand-alone firms. We find that past market conditions affect the capital structure of keiretsu firms more than they affect the capital structure of unaffiliated firms. The decision to issue equity is more correlated with market conditions for keiretsu members than it is for unaffiliated firms. The stock returns of keiretsu firms following the issuance of equity decrease with the size of the issuance. These results suggest that keiretsu members time the issuance of equity more so than stand-alone firms.     

The development of a work-value model assessing the cumulative impact of individual and cultural differences on managers' work-value systems: empirical evidence from French and British managers

This study is the first attempt in Europe to develop an analytical model, based on multidimensional scaling and regression analysis, which enables the operationalization of cultural concepts related to the work context at both the individual and cultural levels of analysis. The development of the model consists of adapting Schwartz's motivational theory of human values (1992, 1994, 1999) to the work context by testing his theory on the domain of work-values and social behaviour in the workplace. For this purpose, two new questionnaires were developed: 1) a new work-value questionnaire based on both Schwartz's and Hofstede's conceptual frameworks – the purpose of this questionnaire was to enable the assessment of the cumulative impact of both cultural and individual differences, and 2) a new Communication Style Questionnaire which enabled us to establish the cross-cultural validity at the behavioural level of the newly developed workvalue dimensions. The model was empirically tested with a population of French and British managers from two different sectors, bank/insurance and pharmaceutical/healthcare organizations. This was done so that the impact of organizational culture differences could be controlled. In total more than 2,500 questionnaires were collected for statistical analysis. The final four work-value scales (Self-enhancement; Individual dynamics; Consideration for others; Group dynamics) elicited through rigorous five-step analysis successfully achieved the purpose of the model's development.     

Consistent High-precision Volatility from High-frequency Data

Estimates of daily volatility are investigated. Realized volatility can be computed from returns observed over time intervals of different sizes. For simple statistical reasons, volatility estimators based on high-frequency returns have been proposed, but such estimators are found to be strongly biased as compared to volatilities of daily returns. This bias originates from microstructure effects in the price formation. For foreign exchange, the relevant microstructure effect is the incoherent price formation, which leads to a strong negative first-order autocorrelation ρ(1)≃40 per cent for tick-by-tick returns and to the volatility bias. On the basis of a simple theoretical model for foreign exchange data, the incoherent term can be filtered away from the tick-by-tick price series. With filtered prices, the daily volatility can be estimated using the information contained in high-frequency data, providing a high-precision measure of volatility at any time interval.
(J.E.L.: C13, C22, C81).     

Using group ratings to assess household food security: Empirical evidence from southern Africa

This article addresses the reliability and validity of household welfare rankings using the Group Ratings (GR) method. The GR aimed to measure the food security status of 142 households in seven villages in Malawi. Sets of informant groups rated households from their own community. Results show that the reliability of the method was no more than fair to moderate, and was particularly low for households falling in the middle category of 'intermittently food insecure'. Consensus ratings from the GR sessions were then compared with a number of alternative indicators of food security from a quantitative household survey. GR were associated with the more visible aspects of food security, such as household asset and livestock holdings, but associations with less visible aspects of food security were weaker. The strength of these associations varied from village to village.