Commodity betas with mean reverting output prices

This paper provides a theoretical derivation of commodity beta (stock price sensitivity to commodity price) using a contingent-claim model. The model incorporates operating leverage, financial leverage, costly financial distress, and mean reverting commodity prices; and highlights the important role played by the speed of reversion of the commodity price. It is used to identify theoretically the main determinants of commodity beta. Commodity beta is predicted to be an increasing function of the operating and financial leverage of the firm, and a decreasing function of the company’s tax rate and the level, volatility and speed of reversion of the commodity price. Empirical tests with a sample of gold mining firms provide support for these predictions, particularly the new implications of the model (the effect of the commodity price’s speed of reversion and the company’s tax rate).     

Political Party Affiliation of the President,Majority in Congress,and Sin Stock Returns

We find that in contrast to the stock market, which performs better during Democratic presidencies, “sin” stocks—publicly traded producers of tobacco, alcohol, and gaming—perform better during Republican presidencies and even more so when the Republican presidency is accompanied by a Republican majority in at least one chamber of Congress. We examine whether sin firms use contributions to establish connections with politicians and find that sin firms contribute more to Republican candidates and that these contributions are greater when Republicans are in power. We also find a positive relation between political contributions and future returns. The relation is stronger for contributions to Republicans.     

Time variation in the correlation structure of exchange rates: high‐frequency analyses

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the liquidity of the assets. We employed a time‐stamped high‐frequency data set of exchange rates, namely, the US$–deutsche mark and the US$–yen exchange rates, to calibrate the observed time variation in the correlation structure between their returns. We also documented time variation in the liquidity structure of these rates. We then attempted to link the observed correlations with the liquidity via an application of an illiquid trading model first developed by Scholes and Williams (1976). We show that the observed correlation structure is strongly biased by the liquidity and that it is possible to effect at least a partial rectification of the otherwise downward‐biased observed correlation. The rectified sample correlation is, therefore, more appropriate for input into models used for forecasting, option pricing, and other risk management applications. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:127–144, 2001     

Knowledge-Based Simulation for Business Process Redesign

This research focuses on knowledge-based simulation modeling for process redesign. Though the proposed technique can be utilized for ‘starting with a clean slate’, it is particularly well suited for situations where an existing process is already documented, and an attempt is being made to improve or redesign this process. We present a methodology that utilizes the basic process structure (represented in a matrix form), and using a rule-based knowledge acquisition system, interacts with the analyst to construct the process knowledge base. Once all the knowledge has been acquired, the system automatically generates an executable simulation model. Major benefits of this algorithmic approach include (1) reduced model building time, (2) increased analyst productivity, and (3) the assurance that basic process characteristics are not accidentally omitted in the simulation model. To test the validity and applicability of the proposed technique a prototype system has been developed that generates simulation programs in SLAM.© 1997 John Wiley & Sons, Ltd.     

An Internet Access Solution: MANET Routing and a Gateway Selection Approach for Disaster Scenarios

After natural and man-made disasters, the telecommunication infrastructure is usually severely damaged, thus hampering communication and rescue services. It is impossible for disaster victims to make use of communication devices such as cellular phones, iPads, or their laptops to make a connection with the outside world (Internet). With infrastructure less and decentralized features, the mobile ad hoc network (MANET) can play an important role in improving communication in post-disaster affected areas. Therefore, the important functionalities of a MANET that allow users to create dynamically configurable wireless networks without fixed infrastructure using common devices such as mobile phones is necessary. This paper reports on the development of new techniques for routing selection and gateway load balancing in MANETs. Network fairness, throughput, and packet delays are measured empirically. The proposed mechanisms can reduce network congestion and consequently improve communication in affected areas.     

FROM THE CLASSICAL ECONOMISTS TO EMPIRICISTS: A REVIEW OF THE TERMS OF TRADE CONTROVERSY

Contrary to the classical position, the works of Prebisch and Singer in the middle of the last century launched the controversial hypothesis of a long-term decline in the terms of trade of primary products vis-á-vis manufactured goods and a corresponding decline in the terms of trade of developing countries vis-á-vis advanced ones. The present study traces the origin and evolution of the hypothesis and reviews the related statistical debate. It also reviews the theoretical support for the Prebisch–Singer hypothesis. It is an exercise in the history of economic thought to trace how the controversies surrounding the terms of trade have evolved over time, specifically noting that, with the development of the field of econometrics, the central thesis of the argument got lost somewhere in the realm of hi-tech statistical debates.     

The relationship between operating leverage and financial leverage

We model the relationship between operating and financial leverage. When operating leverage is exogenously specified, financial leverage is a monotonically decreasing function of operating leverage. When financial leverage is exogenously specified, operating leverage is initially increasing and subsequently decreasing in financial leverage. Finally, when both operating and financial leverage are chosen by the firm, they can be positively related, negatively related or unrelated, depending on which underlying parameter is driving the changes. Thus, operating leverage and financial leverage do not always behave as substitutes, as argued in the traditional literature. The relationship is complex, possibly non-monotonic and dependent on the circumstances; empirical tests need to take this reality into account.     

Product–market flexibility and capital structure

Many companies have the ability to adjust their product's price and/or quantity in response to changes in the marketplace. We show that this product–market flexibility or market power, hitherto ignored in the contingent-claim modeling literature, can potentially have a significant effect on the corporate capital structure decision. When the firm is operating at full capacity, product–market flexibility is not important, hence market power has a negligible effect on optimal capital structure. However, when operating below capacity, product–market flexibility becomes important and market power has, in general, a positive effect on optimal debt level and optimal leverage ratio. This is consistent with available empirical evidence. Numerical results indicate that the effect of product–market flexibility on optimal debt level and optimal leverage ratio can potentially be large enough to be economically significant, hence it should not be ignored as a determinant of capital structure.     

Modelling safety of gantry crane operations using Petri nets

Being a powerful tool in modelling industrial and service operations, Petri net (PN) has been extremely used in different domains, but its application in safety study is limited. In this study, we model the gantry crane operations used for industrial activities using generalized stochastic PNs. The complete cycle of operations of the gantry crane is split into three parts namely inspection and loading, movement of load, and unloading of load. PN models are developed for all three parts and the whole system as well. The developed PN models have captured the safety issues through reachability tree. The hazardous states are identified and how they ultimately lead to some unwanted accidents is demonstrated. The possibility of falling of load and failure of hook, sling, attachment and hoist rope are identified. Possible suggestions based on the study are presented for redesign of the system. For example, mechanical stoppage of operations in case of loosely connected load, and warning system for use of wrong buttons is tested using modified models.