An algebraic theory of portfolio allocation

Summary. Using group and majorization theory, we explore what can be established about allocation of funds among assets when asymmetries in the returns vector are carefully controlled. The key insight is that preferences over allocations can be partially ordered via majorized convex hulls that have been generated by a permutation group. Group transitivity suffices to ensure complete portfolio diversification. Point-wise stabilizer subgroups admit sectoral separability in fund allocations. We also bound the admissible allocation vector by a set of linear constraints the coefficients of which are determined by group operations on location and scale asymmetries in the rate of returns vector. For a distribution that is symmetric under a reflection group, the linear constraints may be further strengthened whenever there exists an hyperplane that separates convex sets. Received: May 15, 2001; revised version: March 20, 2002 RID="*" ID="*" Journal paper No. J-19797 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa. Project No. 3463, and supported by Hatch Act and State of Iowa funds. Correspondence to: D. A. Hennessy     

Earnings management by firms announcing earnings after SEC filing

This study examines motivation and stock market reactions of firms announcing earnings in the Wall Street Journal (WSJ) after filing with the Security Exchange Commission (SEC). Most firms announce earnings in the WSJ before SEC filing. Firms that reverse this sequence are voluntarily delaying public earnings announcements. The authors find that these firms are not only poor financial performers but also engage in earnings managements. They are delaying their WSJ announcements to postpone announcing bad news. The authors find significant stock price reactions to both the SEC filing and the WSJ announcement. The price reaction to earnings is incomplete at the SEC filings. The market continues reacting to firms' subsequent WSJ announcements as if the SEC filing fails to communicate earnings information to some investors.     

The Productivity of US States since 1880

This study uses state-level variation in labor productivity levels at twenty-year intervals between 1880 and 1980 to examine the relative importance of institutional and geographical influences in explaining observed and persistent differences in standards of living over time and across regions. Focusing on fundamental rather than proximate influences, we find that both institutional characteristics and some physical geography characteristics account for a high proportion of the differences in state productivity levels: states with navigable waterways, a large minerals endowment, and no slaves in 1860, on average, had higher labor productivity levels throughout the sample period. However, we find little support for two other influences that have previously received attention—climate and latitude.     

Confronting the science/value split: notes on feminist economics, institutionalism, pragmatism and process thought

What changes must economics undergo, if it is to become a moreadequate discipline, furthering of survival and flourishing?This essay argues that a break must be made from contemporarymainstream economics at the level of ontology (i.e., about thenature of reality). Drawing on neglected traditions of pragmatistphilosophy and process metaphysics, some elements of ‘old’institutionalist economics, and late-twentieth century naturalscience, it demonstrates that ample argument exists for a viewof the world as open, evolving and permeated with value. Furthermore,feminist scholarship offers an explanation for why such a worldviewfaces an uphill battle for acceptance.     

Testing of unit roots and other fractionally integrated hypotheses in the presence of structural breaks

Tests of unit roots and other nonstationary hypotheses that were proposed by Robinson (1994) are applied in this article to the Nelson and Plosser's (1982) series. The tests can be expressed in a way allowing for structural breaks under both the null and the alternative hypotheses. When applying the tests to the same dataset as in Perron (1989), we observe that our results might be consistent with those in Perron (1989) when testing the nulls of trend-stationarity or a unit-root. However, we also observe that fractionally integrated hypotheses may be plausible alternatives in the context of structural breaks at a known period of time. Final version received: August 2000/Final version accepted: August 2001 RID="*" ID="*"  The author gratefully acknowledges the financial support from the European TMR grant No. ERBFMRX-CT-98-0213. Comments of two anonymous referees are also acknowledged.     

Environmental Macroeconomics: Extending the IS–LM Model to Include an 'Environmental Equilibrium' Curve

A decade has now passed since Daly made a plea for an environmental macroeconomics. Despite an expanding literature on "green" national accounting and the efforts of ecological economists to measure the sustainable net benefits of a growing macroeconomy, it is only recently that Daly's plea has been adequately answered. This has been achieved with the incorporation by Heyes of an "environmental equilibrium" or EE curve into the familiar IS–LM model. However, the IS–LM–EE model proposed by Heyes is incomplete. By extending Heyes' model to include the role of technological progress and the need to institute policy instruments to ensure operation on the EE curve, this paper sends out a clear message that environmental concerns should be incorporated into macroeconomic models. They should not be solely confined to microeconomics.     

A First Assessment of Some Measures of Core Inflation for the Euro Area

Abstract. Core inflation plays an important role in the deliberations of monetary policy-makers. In this paper we evaluate a number of measures of core inflation constructed using euro-area data. In addition to the traditional exclusion-type core measures, we examine two newer ones, documenting their properties and evaluating their performance in terms of their ability to track underlying or trend inflation in real time. We focus on core measures derived from the Harmonized Index of Consumer Prices (HICP) as the European Central Bank has chosen to define its mandate for price stability in terms of this index, and because this is the only index of consumer prices that is compiled in a comparable manner across all members of the European Union. We document significant excess kurtosis in the cross-section distribution of price changes in the euro area, and show that several categories of prices are more volatile than those typically excluded from traditional measures of core inflation. Contrary to what one might expect, traditional measures of core inflation are not significantly less volatile than headline measures. We document the superior performance of alternative measures of core inflation in tracking trend inflation on average, but show that none of the various measures of core gave significant advance warning of the pickup in trend inflation at the beginning of 1999.     

The future of hydrogen fueling systems for transportation: An application of perspective-based scenario analysis using the analytic hierarchy process

This paper integrates the analytic hierarchy process (AHP) with scenario analysis techniques to explore the commercialization of future hydrogen fuel processor technologies. AHP is a multi-attribute decision analysis tool useful for evaluating decisions with multiple criteria and alternatives. In this paper, AHP is extended using a technique called perspective-based scenario analysis (PBSA). In PBSA, scenario analysis is conducted based on potential future decision-maker perspectives that are integrated into the AHP framework. This paper discusses this method and applies it to the evaluation of hydrogen fuel processor technologies 15–20 years hence. The results provide an added layer of insight into the opportunities and barriers for the commercialization of these technologies as well as the methodological opportunities for using AHP and PBSA as a futures tool.     

Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play

This paper presents results from a series of experiments designed to test the impact on subject behavior of changes in the risk dominance and payoff dominance characteristics of two player coordination games. The main finding is that changes in risk dominance significantly affect play of the subjects, whereas changes in the level of payoff dominance do not. Observed history of play also has an important influence on subject behavior, both when subjects are randomly rematched after each game and when they remain matched with the same individual for a sequence of games.