On measuring speculative and hedging activities in futures markets from volume and open interest data

This article provides a critical assessment of the line of research that measures speculative and hedging activities in futures markets from volume and open interest data. It makes several contributions. First, a detailed theoretical analysis of the measures proposed in the previous literature as proxies for speculative activity clarifies the circumstances in which they fail, as well as the assumptions that have to be made, when they are used as intended. Second, we propose a new way of combining the volume and the open interest figures, which provides additional information regarding the type of trading activity that takes place in the market on a given date. Finally, we analyse empirically the basic statistical properties of all the ratios when they are applied to real data for some of the stock index futures contracts most actively traded in the world. This empirical analysis shows the diverse behaviour of the ratios when they are applied to a common sample of real data, which confirms our previous theoretical findings. Our contributions should be taken into account when any of the measures is used as a proxy for the relative importance of speculative demand in empirical analyses.     

Consumption smoothing and vulnerability in Russia

Applying bootstrapped quantile regression to the Russian Longitudinal Monitoring Survey (RLMS) data, we examine the channels through which individuals experience and seek to cope with changes in consumption. We find that married individuals living in small households, with educated heads in urban areas are better equipped to smooth consumption. Investigating the impact of idiosyncratic shocks, we find that the labour market is an important transmission mechanism allowing households to smooth their consumption but also exposing them to risk, mainly through job loss. Outside of pension payments, the formal social safety net does not facilitate consumption smoothing, thus heightening the importance of informal coping institutions. It transpires that both support from relatives/friends and home production act as important insurance mechanisms for the most vulnerable. In contrast with previous findings, it would seem that regardless of its historical, political and social roots, the garden plots and dachas, often romanticized in Russian literature, do provide a means by which ‘urban’ Russians are able to cope with economic fluctuations. We finish by stressing the important policy lessons for Russia's developing market economy.     

What explains long memory in futures price volatility?

Long memory in futures price volatility is a well-documented stylized fact with implications for market efficiency, risk management, forecasting and option pricing bias. The implications of long-memory differ, however, based on whether it is of a ‘fractional’ or of a ‘stochastic’ type. The aims of this article are to determine, in the case of agricultural commodity futures data, which type better describes price volatility and also to evaluate several competing explanations for findings of long memory. The evidence presented here finds little support for three out of four potential explanations, namely, excessive noise in the volatility measure, bias in the long-memory estimator and understated SEs of the long-memory parameter. For the data considered, price volatility appears to be most likely generated by a nonfractional long-memory process such as a stochastic break or stochastic unit root.     

THE DETERMINANTS OF STATE‐LEVEL CAPS ON PUNITIVE DAMAGES: THEORY AND EVIDENCE

Under the standard economic model of torts, punitive damages correct for imperfect detection. Incorporating litigation costs into the model provides a justification for punitive damage caps. At the optimum, caps balance deterrence against the cost of litigation. Empirical testing of the model is performed via Cox proportional and parametric hazard analyses, using a panel dataset from 1981 to 2007. The results reveal a positive relationship between legal services employment (a proxy for legal costs) and cap enactment, and a negative relationship between state gross state product (a proxy for damages) and cap enactment. Cap enactment is also influenced by political ideology. (JEL K13, K41, L51)     

TRIBAL CASINO IMPACTS ON AMERICAN INDIANS WELL‐BEING: EVIDENCE FROM RESERVATION‐LEVEL CENSUS DATA

After the passage of the Indian Gaming Regulatory Act in 1988, tribal gaming revenues increased dramatically. Using a differences‐in‐differences methodology with 1990 and 2000 census data, this study finds that American Indians (AI) on gaming reservations experience a 7.4% increase in per capita income and reductions in both family and child poverty rates relative to AI on non‐gaming reservations. Large and medium casinos are associated with changes in well‐being while smaller casinos are not. These results are sensitive to the inclusion of the Navajo reservation, a large non‐gaming reservation with increased income during the 1990s. (JEL I32, L83)     

The Pro‐Poorness,Growth and Inequality Nexus: Some Findings From a Simulation Study

An income growth pattern is pro‐poor if it reduces a (chosen) measure of poverty by more than if all incomes were growing equiproportionately. Inequality reduction is not sufficient for pro‐poorness. In this paper, we explore the nexus between pro‐poorness, growth, and inequality in some detail using simulations involving the displaced lognormal, Singh–Maddala, and Dagum distributions. For empirically relevant parameter estimates, distributional change preserving the functional form of each of these three‐parameter distributions is often either pro‐poor and inequality reducing, or pro‐rich and inequality exacerbating, but it is also possible for pro‐rich growth to be inequality reducing. There is some capacity for each of these distributions to show trickle effects (weak pro‐richness) along with inequality‐reducing growth, but virtually no possibility of pro‐poorness for growth which increases overall inequality. Implications are considered.     

INFERENCE FOR DOMINANCE RELATIONS

The use of partial orders has been popularized as a way to conduct social evaluations using only minimal normative assumptions. Generically, this process involves comparing continuously indexed curves that are uniquely determined by the cumulative distributions of the individual attributes under study. In the literature on income poverty and inequality, for example, pairwise comparisons of entire income distributions and their respective Lorenz curves are routinely performed in order to characterize rankings of poverty, inequality, and welfare. In this article, we focus on the inferential problem that arises whenever such comparisons are made in the absence of census data. Statistical inference in these situations is particularly complex due to the fact that comparing curves invariably gives rise to four possibilities: the true population curves are equal, the first curve lies below the second, the second lies below the first, or the curves cross. To address this four‐decision problem, we introduce a two‐stage test that has good power and fine control over misclassification error rates.     

Government Partisanship and Property Rights: Cross‐Country Firm‐Level Evidence

Property rights are essential to economic development but vary with the political environment. We develop and test the claim that government partisanship influences the security of business firms' property rights: the perceived security of property rights increases when right‐wing parties take power and declines with the election of left‐leaning parties. Unlike research that uses country‐level aggregates to draw inferences about the determinants of secure property rights, we analyze survey responses of over 7,400 firm owners from 73 countries using a novel difference‐in‐differences approach. We find that the political partisanship of the government in power strongly affects individual perceptions of property rights: firm owners are more likely to perceive that their property rights are secure under right‐leaning governments. Our results are robust to firm‐ and country‐level economic performance as well as controls for political institutions that might induce more stability to property rights, such as the number of checks and balances (veto players) in a system. Overall, our results indicate that business owners' beliefs about the security of property rights are highly responsive to changes in government partisanship.     

Idea Competitions under scrutiny: Acquisition,intelligence or public relations mechanism?

Idea Competitions (ICs) are becoming a popular mechanism chosen by firms to perform Open Innovation. They are a way to engage with external sources of knowledge such as individual entrepreneurs and small firms who are asked to submit ideas and compete for a prize. However, little is known about the success of ICs as acquisition mechanisms. The researchers conducted interviews in five multinational companies to evaluate the effects of using ICs as an acquisition mechanism. Although still preliminary, the results of this study show that the success of ICs as an acquisition mechanism remains uncertain because their output (i.e. the number of ideas acquired) is often low compared to the input (i.e. the number of ideas submitted) and effort required to run them (e.g. to vet ideas). Across the cases observed, ICs appear to be more successful at identifying and acquiring early-stage ideas, particularly those outside the current business focus. The study shows that ICs deliver other functional benefits such as improved intelligence and public relations and that these need to be considered as part of the evaluation of the IC's success. The paper concludes by discussing the conditions in which ICs are implemented and the implications for Open Innovation theory.