<Emphasis Type="Italic">K</Emphasis>-fold cross validation performance comparisons of six naive portfolio selection rules: how naive can you be and still have successful out-of-sample portfolio performance?

Recent research reports that optimal portfolio selection models often perform worse than equal-weight naive diversification in out-of-sample testing. This paper extends this line of inquiry by comparing the out-of-sample performance of the equal-weight naive strategy to the out-of-sample performance of five alternative naive strategies, each of which derives from a simple heuristic that does not require any optimization. Out-of-sample portfolio performance is assessed by mean, standard deviation, skewness, and Sharpe ratio; k-fold cross validation is used as the out-of-sample testing mechanism. The results indicate that the proposed naive heuristic rules exhibit strong out-of-sample performance, in most cases superior to the equal-weight naive strategy. These findings are consequential for at least two reasons: first, if these simple heuristic-based rules outperform the equal-weight naive strategy, then by transitivity they can outperform the mean–variance- and shortfall-optimal portfolio rules that have been shown in the literature to be inferior to the equal-weight naive rule, which further emphasizes the out-of-sample fragility of “optimal” methods; and second, among naive diversification strategies, some appear more robust in out-of-sample testing than others, hence the proposed methods may be useful when forming mixed portfolio selection models wherein a naive strategy is combined with an optimal strategy to improve performance.     

Auditor conservatism and voluntary disclosure: Evidence from the Year 2000 systems issue

This study further examines the phenomenon of conservative auditor behaviour by considering the level of voluntary disclosure of Year 2000 remediation information in company annual reports. Previous studies have provided evidence of conservative auditor behaviour by examining the link between Big 6 auditor choice and accruals (Francis and Krishnan 1999; Becker et al ., 1998; Defond and Subramanyam 1998). Protecting their reputation capital increases Big 6 auditor incentives to act conservatively to avoid litigation risk. We propose and find that Big 6 auditor clients disclose more Year 2000 remediation information than non–Big 6 auditor clients.     

HIV and AIDS--employers grapple with difficult issues

HIV infection and AIDS pose special challenges to employers. Myriad laws affect how the employer must respond when an applicant or employee is infected with HIV or is ill due to AIDS. An overall compliance strategy should include thorough knowledge of those laws and a policy on HIV and AIDS, put in place before a crisis occurs.     

Corporate foresight in emerging markets: Action research at a multinational company in Turkey

The corporate foresight—future studies in business—is gaining importance globally. However, research to date has largely focused on the multinational companies (MNC) and yet revealed little about the implementation of corporate foresight in the regional subsidiaries of MNCs in emerging markets. An action research in the regional subsidiary of an MNC in Turkey was carried out to address this gap. Seven major findings/challenges were recorded during the action research: (1) changing mental models about the future, (2) controlled two-tier structure, (3) customisation of methodologies, (4) thorough examination of information sources, (5) external participation, (6) changing the primary dimension of the company and (7) sharing with other regional subsidiaries and corporate headquarters. These findings were categorised under a new framework—Knowledge-People-System-Organisation (KPSO) framework for managing the corporate foresight process at MNCs in emerging markets. The balanced distribution of the findings in this new framework shows that it could be used for further theory development in the area of corporate foresight and implemented in further corporate foresight exercises.     

The global LeChatelier Principle and multimarket equilibria

LeChatelier (Comptes Rendus 99:786, 1884) and LeChatelier (Ann Mines 13(2):157, 1888) proposed that the adjustment of a physical system to a disturbance in its equilibrium was smaller as constraints are added to the adjustment process. Samuelson (Econometrica 28:368–379, 1960) showed that this Principle applied to a stable multimarket equilibrium for the case that all commodities are gross substitutes. We note that the Principle also applies to the stable equilibria of markets for which commodities can also be gross complements as formulated by Morishima (Osaka Econ Pap 1:101–113, 1952). Further, the Morishima and gross substitute cases are the only cases to which the Principle can apply, based only upon the stability hypothesis and a specification of the gross substitute/complement relations among commodities. We show that the Milgrom and Shannon (Econometrica 62:157–180, 1994) single crossing conditions specified for monotone comparative statics can be configured appropriate to the Morishima case to give global conditions for the LeChatelier Principle to apply to a multimarket equilibrium.     

A market model of analysts’ opinions to explain changes in the dispersion of opinions

The demand for and supply of analysts’ opinions in this model yield an equilibrium that demonstrates how the information content of the opinions reacts to changes in exogenous parameters. The model also shows how changes in the parameters make analysts’ opinions more or less dispersed; for example, a decline in investor risk aversion, a decrease in market volatility, and an increase in information costs can lead to analysts’ opinions becoming more similar. Recognizing how exogenous factors can affect the supply and demand of analysts’ opinions gives additional insights into questions concerning what may appear to be herd behavior by analysts and also the relationship between forecast dispersion and information content. (JEL: G29, C71)