Linking global economic dynamics to a South African-specific credit risk correlation model

In order to address practical questions in credit portfolio management it is necessary to link the cyclical or systematic components of firm credit risk with the firm's own idiosyncratic credit risk as well as the systematic credit risk component of every other exposure in the portfolio. This paper builds on the methodology proposed by Pesaran, Schuermann, and Weiner [Pesaran, M.H., Schuermann, T., and Weiner, S.M., (2004), Modeling regional interdependencies using a global error correcting macroeconometric model, Journal of Business and Economic Statistics, 22, 2, 129–169.] and supplemented by Pesaran, Schuermann, Treutler and Weiner [Pesaran, M.H., Schuermann, T., Treutler, B., and Weiner, S.M., (2006), Macroeconomic dynamics and credit risk: a global perspective, Journal of Money, Credit, and Banking, Volume 38, Number 5, August 2006, 1211–1261.] which has made a significant advance in credit risk modelling in that it avoids the use of proprietary balance sheet and distance-to-default data, focusing on credit ratings which are more freely available.In this paper a country-specific macroeconometric risk-driver engine which is compatible with and could feed into the GVAR model and framework of PSW (2004) is constructed, using vector error-correcting (VECM) techniques. This allows conditional loss estimation of a South African-specific credit portfolio but also opens the door for credit portfolio modelling on a global scale, as such a model can easily be linked to the GVAR model. The set of domestic factors is extended beyond those used in PSW (2004) in such a way that the risk-driver model is applicable for both retail and corporate credit risk. As such, the model can be applied to a total bank balance sheet, incorporating the correlation and diversification between both retail and corporate credit exposures.Assuming statistical over-identification restrictions, the results indicate that it is possible to construct a South African component for the GVAR model that can easily be integrated into the global component. From a practical application perspective the framework and model is particularly appealing since it can be used as a theoretically consistent correlation model within a South African-specific credit portfolio management tool.     

ON THE DISTRIBUTION OF ORDER STATISTICS FOR A RANDOM SAMPLE SIZE

The distributions of the life lengths of a parallel and of a series system with a random number of components have been studied in reliability theory. In this paper we obtain the distributions of the i'th order statistics and the range, assuming the sample size to be random, with a generalized negative binomial, a generalized Poisson and a generalized logarithmic series distribution. The results of Raghunandanan and Patil (1972) follow immediately from our results.     

The R&D-Marketing Interface in High-Technology Firms

It has become part of the traditional wisdom that good relationships between the R&D and marketing departments are essential for effective new product development. But in so many firms it still just doesn't happen. How come? In this article, three pragmatic researchers, Professors Gupta, Raj, and Wilemon, take another look at what causes the significant barriers that exist at the interface of two of the key product innovation functions. What they discover is disagreement between marketing and R&D people about what they should do together. They also find that R&D people are the more reluctant cooperators. They draw some interesting opinions from the parties as to why the barriers exist.     

Congruence between spokesperson and product type: A matchup hypothesis perspective

This study tested the matchup hypothesis regarding choice of celebrity spokesperson by examining the fit or congruence between image type and the product advertised from an Identification and Internalization viewpoint (Kelman, 1961). Spokesperson type (celebrity versus noncelebrity) was varied, aong with congruence between spokesperson image and product (higher versus lower congruence) in a 2x2 factorial design. Results showed that increased congruence for the spokesperson/product combination resulted in the perception of higher believability and attractiveness of the spokesperson and a more favorable product attitude. The implications of these and other findings for advertising and marketing strategy are discussed. © 1994 John Wiley & Sons, Inc.     

Estimation of P[Y < X] for generalized exponential distribution

This paper deals with the estimation of P[Y < X] when X and Y are two independent generalized exponential distributions with different shape parameters but having the same scale parameters. The maximum likelihood estimator and its asymptotic distribution is obtained. The asymptotic distribution is used to construct an asymptotic confidence interval of P[Y < X]. Assuming that the common scale parameter is known, the maximum likelihood estimator, uniformly minimum variance unbiased estimator and Bayes estimator of P[Y < X] are obtained. Different confidence intervals are proposed. Monte Carlo simulations are performed to compare the different proposed methods. Analysis of a simulated data set has also been presented for illustrative purposes.Part of the work was supported by a grant from the Natural Sciences and Engineering Research Council     

Financial development,corporate governance and cost of equity capital

Existing research suggests that external governance is more relevant than internal governance in affecting a firm’s value. We contribute to the literature by explicitly examining the interactive role played by country-level financial development and legal institutions in influencing the impact of firm-level governance on the cost of equity capital. Using a comprehensive sample of 7380 firm years drawn from 22 developed countries, we show that firm-level corporate governance attributes affect the cost of equity capital primarily in the Common Law countries with high levels of financial development. Our study is the first to highlight the complementary effects of legal origin, financial development and firm-level governance attributes in influencing the cost of equity capital.