Market timing: A global endeavor

This paper employs daily fund and index data, the classical Treynor and Mazuy timing model, and two multi-factor extensions to measure the market timing ability of global asset allocation funds. These funds differ from traditional global or international funds in that they face fewer investment constraints and are known to actively shift funds across a wide variety of asset classes. When using the classical Treynor and Mazuy timing models, I find evidence of poor market timing ability. However, this evidence disappears when timing ability is examined using two multi-factor models. The results from Treynor and Mazuy are spurious since both multi-factor extensions do a much better job in explaining the variation in average fund returns.     

Governance, Democracy and Poverty Reduction: Lessons Drawn from Household Surveys in Sub-Saharan Africa and Latin America

Public statistics face quite a challenge when it comes to measuring new dimensions of development (institutions, governance, and social and political participation). To take up this challenge, modules on Governance, Democracy and Multiple Dimensions of Poverty have been appended to household surveys by National Statistics Institutes in twelve African and Latin American developing countries. This paper presents the issues addressed and the methodological lessons learnt along with a selection of findings to illustrate this innovative approach and demonstrate its analytic potential. We investigate, for instance, the population's support for democratic principles, the respect for civil and political rights and the trust in the political class; the ‘need for the State’, particularly of the poorest; the extent of petty corruption; the reliability of expert surveys on governance; the perception of decentralization policies at local level; the level and vitality of social and political participation, etc. The conclusive appraisal made opens up prospects for the national statistical information systems in the developing countries. The measurement and tracking of this new set of objective and subjective public policy monitoring indicators would benefit from being made systematic.     

THE ECONOMIC IMPACTS OF VOLUNTARY ENVIRONMENTAL PERFORMANCE OF FIRMS: A CRITICAL REVIEW

Abstract.  New trends in studies on the governance of natural assets include substantial consideration of the role of voluntary initiatives. A traditional economic view states that there is a trade-off between being green and being competitive. According to that view, no voluntary environmental action is expected to occur. To undertake an in-depth analysis of the scope for voluntary action, this paper reviews empirical literature that analyzes the relationship between manufacturing firms' environmental initiatives or performance and economic results. This review moves beyond the general test of the 'pay to be green' hypothesis, preferring instead to systematize empirical results in more specific research questions. Empirical findings of the reviewed literature generally support that there is no penalty for being green. In addition, the typology of firms, the methods utilized for implementing environmental initiatives, the intensity of abatement efforts and stockholders' valuation of green firms have all been shown to have a sizeable influence on the actual economic results of environmental action or management. Consequently, the findings of this paper challenge the traditional strategic theory that predicts widespread free-riding; it holds major implications for environmental policy-making and environmental business decisions.     

Community views of ecotourism

Ecotourism can be an incentive for conservation, especially when it triggers positive economic change. Yet it introduces many changes to communities:positive and negative, social and economic. The full range of change is seldom evaluated in direct relation to conservation at the local level. In this study of three Amazon ecotourism projects, local leaders discussed changes from ecotourism in their communities. Economic benefits were mentioned, but so were new restrictions on time, decreased reciprocity, and social conflict. Other changes included heightened self-esteem and greater community organization. Such shifts should be considered in relation to conservation as they affect the stability of local institutions and the prospects for long-term collective action for resource management.     

Measuring the Impact of Corporate Investment Announcements on Share Prices: The Spanish Experience

We bring together three disparate strands of literature to develop a comprehensive empirical framework to examine the efficiency of security analysts' earnings forecasts in Singapore. We focus specifically on how the increased uncertainty and the negative market sentiment during the period of the Asian crisis affected the quality of earnings forecasts. While we find no evidence of inefficiencies in the pre-crisis period, our results suggest that after the onset of the crisis, analysts (1) issued forecasts that were systematically upward biased; (2) did not fully incorporate the (negative) earnings-related news; and (3) predicted earnings changes which proved too extreme.     

Technical change and irreversible investment under risk

A stochastic dynamic model was constructed to analyze investment decisions of an individual farme under risk in the presence of legibilities, embedded technical change and indivisible capital. An analytical solution was obtained and its local behavior studied by numerical methods. Optimal investment is obtained by regulating the difference between the desired and actual capital stocks between two barriers that define an inaction interval. While the desired capital drifts between the barriers, no action is taken. If the desired capital touches the upper barrier, the farmer invests pushing the average efficiency of the actual capital stock up. This in turn raises the desired capital even higher and contracts the inaction interval. If these effects are strong enough, the farmer will invest again until the potential gains of the technological package are exhausted. If the desired capital falls enough, the farmer disinvests, pushing down the average productivity and expanding the inaction interval. Disinvestment continues until it slops either because the inaction interval becomes so wide that it is no longer optimal to disinvest or because the actual capital stock is so small that it is no longer profitable to produce.     

The Gain‐Loss Spread: A New and Intuitive Measure of Risk

The standard deviation, arguably the most widely‐used measure of risk, suffers from at least two limitations. First, the measure has little intuitive appeal (defined as it is by the square root of the average quadratic deviation from the arithmetic mean return). Second, investors tend to associate risk more with bad outcomes than with volatility per se. To overcome these limitations, this article introduces a new measure of risk, the gain‐loss spread (GLS), which takes into account the probability of a loss, the average size of the loss, and the average gain—all variables that investors consider relevant when assessing risk. The author presents evidence that the GLS is both highly correlated with the standard deviation—thus providing basically the same information about risk—and more correlated with mean returns than both the standard deviation and beta, thereby offering a tighter link between risk and return.     

Spot water markets and risk in water supply

Water availability patterns in semiarid regions are typically extremely variable. Even in basins with a highly developed infrastructure, users are subject to unreliable water supplies, incurring substantial economic losses during periods of scarcity. More flexible instruments, such as voluntary exchanges of water among users, can help users to reduce risk exposure. This article looks at the effects of spot water markets on the economic risk caused by water availability variations. Our theoretical and empirical risk analyses are based on the random profits of water users. Profit probability density functions are formally and graphically characterized for both water sellers and buyers under several possible market outcomes. We conclude from this analysis that, where water supply is stochastic, water markets unambiguously reduce both parties' risk exposure. The empirical study is conducted on an irrigation district in the Guadalquivir Valley (Southern Spain), where there is a high probability of periods of extreme water scarcity. Water demand functions for the district representative irrigators and a spatial equilibrium model are used to simulate market exchanges and equilibrium. This programming model is combined with statistical simulation techniques. We show that the profit probability distribution of a representative irrigator is modified if water exchanges are authorized, leading to risk reductions. Results also indicate that if the market were extended to several districts and users that are subject to varying hydrological risk exposure, extremely low‐profit events would be less likely to occur. In sum, we show that exchanging water in annual spot markets can reduce farmers' economic vulnerability caused by water supply variability across irrigation seasons. These results support the water policy reform carried out in Spain in 1999 to allow for voluntary water exchanges among right holders.