Least Squares Predictions and Mean-Variance Analysis

We compare the Sharpe ratios of traders who combine one risklessand one risky asset following (i) buy and hold strategies; (ii)timing strategies with forecasts from simple; or (iii) multipleregressions; and (iv) passive allocations of (i) and (ii) withmean-variance optimizers. We show that (iv) implicitly usesthe linear forecasting rule that maximizes the Sharpe ratioof managed portfolios, but the remaining rankings are unclear.We also suggest generalized method of moments (GMM) estimatorsto make (iv) operational and evaluate their significance withspanning tests. Finally, we characterize the equivalence between(iii) and (iv), and propose moment tests to assess it.     

Operational Risk Measurement in Banking Institutions and Investment Firms: New European Evidences

The banking/investment sector must deal with a new variable, Operational Risk, for explaining various recent crises and bankruptcies. Operational Risk, which can be defined briefly as the risk generated by possible failures of a entity's Information Systems (IS), must be measured, covered, mitigated and managed by applying a series of methodologies, each of which assumes that the IS of the bank operates at a certain Stage of Sophistication. The present study proposes a scheme of evolution that details the stages of enhancement in the sophistication of their IS that banking entities may implement, so as to be capable of capturing, mitigating and managing Operational Risk. Using econometric methods, we create a proxy variable to capture the IS Sophistication of each entity. Then, the factor of entity size has been analyzed, and the country effect is explored. Additionally, the importance of intangible assets is weighted, among others entity aspects. The entity size has been revealed as the variable with most influence on the plans formulated in this respect by European entities, against other variables also considered in the present study, such as the country effect or the importance of intangible assets. The work shows how IS decisions referring to Operational Risk management are very influenced by size. It could introduce competition differences in the European banking system.     

On the Similarity of Classical and Bayesian Estimates of Individual Mean Partworths

An exciting development in modeling has been the ability to estimate reliable individual-level parameters for choice models. Individual partworths derived from these parameters have been very useful in segmentation, identifying extreme individuals, and in creating appropriate choice simulators. In marketing, hierarchical Bayes models have taken the lead in combining information about the aggregate distribution of tastes with the individual's choices to arrive at a conditional estimate of the individual's parameters. In economics, the same behavioral model has been derived from a classical rather than a Bayesian perspective. That is, instead of Gibbs sampling, the method of maximum simulated likelihood provides estimates of both the aggregate and the individual parameters. This paper explores the similarities and differences between classical and Bayesian methods and shows that they result in virtually equivalent conditional estimates of partworths for customers. Thus, the choice between Bayesian and classical estimation becomes one of implementation convenience and philosophical orientation, rather than pragmatic usefulness.     

Generous actors,selfish actions: markets with other-regarding preferences

This paper points out that classical competitive outcomes arise in two different market environments even if agents have non-classical preferences. Consumers with separable, other-regarding preferences behave as if they have classical preferences in competitive equilibrium. These outcomes need not be efficient, but under plausible conditions will be efficient following a redistribution of income. In simple double-auction environments competitive outcomes arise under a wide range of assumptions on preferences even without assuming separability. I discuss the importance of the domain of definition of preferences and how the preferences present in the economy influence the performance of the trading institution.

A typology of social entrepreneurs: Motives, search processes and ethical challenges

Social entrepreneurship has been the subject of considerable interest in the literature. This stems from its importance in addressing social problems and enriching communities and societies. In this article, we define social entrepreneurship; discuss its contributions to creating social wealth; offer a typology of entrepreneurs' search processes that lead to the discovery of opportunities for creating social ventures; and articulate the major ethical concerns social entrepreneurs might encounter. We conclude by outlining implications for entrepreneurs and advancing an agenda for future research, especially the ethics of social entrepreneurship.     

What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement

We study the stock price reaction to news about corporate tax aggressiveness. We find that, on average, a company's stock price declines when there is news about its involvement in tax shelters. We find some limited evidence for cross-sectional variation in the reaction. For example, the reaction is more negative for firms in the retail sector, suggesting that part of the reaction may be a consumer/taxpayer backlash. In addition, the reaction is less negative for firms that are viewed to be generally less tax aggressive, as proxied by the firm's cash effective tax rate. We interpret this as being consistent with the market reacting positively to evidence that a firm is trying to reduce taxes when their financial reports would lead one to believe the firm is not tax aggressive.     

Pro-competitive Price Beating Guarantees: Experimental Evidence

We report experimental results on duopoly pricing with and without price beating guarantees (PBG). In two control treatments, price beating is either imposed as an industry-wide rule or offered as a business strategy. Our major finding is that when price beating guarantees are imposed as a rule or offered as an option, effective prices are equal to or lower than those in a baseline treatment in which price beating is forbidden. Also, when price beating is treated as a business strategy, less than 50% of subjects adopted the guarantee, suggesting that, subjects realize the pro-competitive effects of the guarantee. JEL Classifications: C91, L11.This revised version was published online in April 2005 with corrections to one of the authors name and to the page numbering.